FRANKLIN HIGH INCOME TRUST, 485BPOS, 2000-09-29

FRANKLIN HIGH INCOME TRUST
485BPOS, 2000-09-29

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As filed with the Securities and Exchange Commission on September 29, 2000.

File Nos.
2-30203
811-1608

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
-----

Post-Effective Amendment No. 42 (X)
-----

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 27 (X)
-----

FRANKLIN HIGH INCOME TRUST
--------------------------
(Exact Name of Registrant as Specified in Charter)

777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (650) 312-2000
--------------

MURRAY L. SIMPSON, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
-----------------------------------------------------------------
(Name and Address of Agent for Service of Process)

Approximate Date of Proposed Public Offering:

It is proposed that this filing will become effective (check
appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[x] on October 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Prospectus

FRANKLIN'S
AGE HIGH
INCOME FUND

Franklin High Income Trust

CLASS A, B & C

INVESTMENT STRATEGY Income

OCTOBER 1, 2000

[Insert Franklin Templeton Ben Head]

The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

CONTENTS

THE FUND

[Begin callout]
INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

2 Goals and Strategies

4 Main Risks

8 Performance

10 Fees and Expenses

12 Management

13 Distributions and Taxes

14 Financial Highlights

YOUR ACCOUNT

[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

16 Choosing a Share Class

20 Buying Shares

23 Investor Services

26 Selling Shares

28 Account Policies

31 Questions

FOR MORE INFORMATION

[Begin callout]

WHERE TO LEARN MORE ABOUT THE FUND
[End callout]

Back Cover

THE FUND

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
---------------------

GOALS The Fund's principal investment goal is to earn a high level of income.
Its secondary goal is to seek capital appreciation to the extent it is possible
and consistent with the Fund's principal goal.

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund mainly
invests in high yield, lower rated debt securities.

Lower rated securities generally pay higher yields than more highly rated
securities to compensate investors for the higher risk. The Fund seeks to invest
in securities offering the highest yield and expected total return without
taking on an excessive amount of risk.

[Begin callout]
The Fund invests mainly in high yield, lower rated debt securities.
[End callout]

A debt security represents an obligation of an issuer to repay a loan of money
to it and generally provides for the payment of interest. These include bonds,
notes, and debentures. The Fund may invest in senior and subordinated debt
securities. Subordinated debt is more risky because its holder will be paid only
after the holders of senior debt securities are paid. The Fund may invest in
"zero coupon bonds," which are debt securities that typically pay interest only
at maturity rather than periodically during the life of the security and are
issued at a significant discount from their principal amount.

The Fund may invest up to 100% of its total assets in debt securities that are
rated below investment grade. As of May 31, 2000, approximately 91.7% of the
Fund's net assets were invested in lower rated and comparable unrated debt
securities. Investment grade debt securities are rated in the top four ratings
categories by independent rating organizations such as Standard & Poor's
Corporation (S&P(R)) and Moody's Investors Service (Moody's). The Fund may buy
both rated and unrated debt securities including securities rated below B by
Moody's or S&P. The Fund does not intend to buy unrated securities that are
comparable to securities rated below B by Moody's or S&P.

The Fund's manager is a research driven, fundamental investor that relies on a
team of analysts to provide in-depth industry expertise and uses both
qualitative and quantitative analysis to evaluate companies. As a "bottom-up"
investor, the manager focuses primarily on individual securities. The manager
also considers sectors when choosing investments. Because issuers of lower rated
bonds tend to be heavily represented in particular sectors, the Fund, from time
to time, may have significant positions in one or more sectors such as
telecommunications.

In selecting securities for the Fund's investment portfolio, the manager does
not rely principally on the ratings assigned by rating agencies, but performs
its own independent investment analysis to evaluate the creditworthiness of the
issuer. The manager considers a variety of factors, including the issuer's
experience and managerial strength, its sensitivity to economic conditions, and
its current financial condition.

The Fund may invest in securities issued by companies and governments in any
foreign country, developed or developing. Foreign securities held by the Fund
generally will be denominated in U.S. dollars and traded on U.S. markets.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Temporary defensive investments generally may include U.S. government
securities, commercial paper, repurchase agreements and other money market
instruments. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the Fund may be unable to achieve its
investment goal.

[Insert graphic of chart with line going up and down] MAIN RISKS
------------

CREDIT An issuer of a debt security may be unable to make interest payments and
repay principal. Changes in an issuer's financial strength or in a security's
credit rating may affect a security's value and, thus, impact Fund performance.

LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes
called "junk bonds," generally have more credit risk than higher-rated
securities.

Such companies typically do not have the track record needed to receive an
investment grade rating (including companies in relatively new industries such
as the telecommunications sector), have borrowed to finance acquisitions or to
expand their operations, are seeking to refinance their debt at lower rates, or
have been downgraded due to financial difficulties.

Companies issuing high yield, fixed-income securities are not as strong
financially as those issuing securities with higher credit ratings. These
companies are more likely to encounter financial difficulties and are more
vulnerable to changes in the economy, such as a recession or a sustained period
of rising interest rates, that could affect their ability to make interest and
principal payments. In addition, banks may tighten their credit standards, which
may make it difficult for companies with weaker balance sheets to have access to
capital to continue operations or refinance their outstanding debt. If an issuer
defaults because it stops making interest and/or principal payments, payments on
the securities may never resume because such securities are generally unsecured
and are often subordinated to other creditors of the issuer. These securities
may be worthless and the Fund could lose its entire investment.

The prices of high yield, fixed-income securities fluctuate more than
higher-quality debt securities. Prices are especially sensitive to developments
affecting the company's business and to changes in the ratings assigned by
rating agencies. Prices often are closely linked with the company's stock prices
and typically rise and fall in response to factors that affect stock prices. In
addition, the entire high yield securities market can experience sudden and
sharp price swings due to changes in economic conditions, stock market activity,
large sustained sales by major investors, a high-profile default, or other
factors.

High yield securities generally are less liquid than higher-quality securities.
Many of these securities do not trade frequently, and when they do their prices
may be significantly higher or lower than expected. At times, it may be
difficult to sell these securities promptly at an acceptable price, which may
limit the Fund's ability to sell securities in response to specific economic
events or to meet redemption requests.

INTEREST RATE When interest rates rise, debt security prices fall. The opposite
is also true: debt security prices rise when interest rates fall. In general,
securities with longer maturities are more sensitive to these price changes.

INCOME Since the Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.

CALL A debt security may be prepaid (called) before maturity. Debt securities
are more likely to be called when interest rates are falling, because the issuer
can issue new securities with lower interest payments. If a debt security is
called, the Fund may have to replace it with a lower-yielding security. At any
time, the Fund may have a large amount of its assets invested in securities
subject to call risk. A call of some or all of these securities may lower the
Fund's income and yield and its distributions to shareholders.

ZERO COUPON BONDS Zero coupon bonds are especially sensitive to changes in
interest rates, and their prices generally are more volatile than debt
securities that pay interest periodically. Lower quality zero coupon bonds are
generally subject to the same risks as high yield debt securities. The Fund
typically will not receive any interest payments on these securities until
maturity. If the issuer defaults, the Fund may lose its entire investment, which
will affect the Fund's share price.

POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile than
those in the U.S. Investments in these countries may be subject to the risks of
internal and external conflicts, currency devaluations, foreign ownership
limitations and tax increases. It is possible that a government may take over
the assets or operations of a company or impose restrictions on the exchange or
export of currency or other assets. Some countries also may have different legal
systems that may make it difficult for the Fund to pursue legal remedies with
respect to its foreign investments.

AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and practices
as U.S. companies. Thus, there may be less information publicly available about
foreign companies than about most U.S. companies.

EMERGING MARKETS. The risks of foreign investments typically are greater in less
developed countries, sometimes referred to as emerging markets. For example,
political and economic structures in these countries may be less established and
may change rapidly. These countries also are more likely to experience high
levels of inflation, deflation or currency devaluation, which can harm their
economies and increase volatility. In fact, short-term volatility and
significant declines in these markets are not uncommon.

SECTOR FOCUS - TELECOMMUNICATIONS COMPANIES Because the Fund may from time to
time have significant investments in one or a few sectors, it will have more
risk than a fund that always maintains broad sector diversification. The
telecommunications sector has historically been volatile due to the rapid pace
of product change and development. The wireless telecommunications industry is
in its early developmental stages, and is predominantly characterized by
emerging, rapidly growing companies. The securities prices of companies
operating within the telecommunications sector are potentially subject to abrupt
or erratic movements. In addition, the activities of telecommunications
companies fall under international, federal and state regulations. These
companies may be adversely affected by changes in government regulations.
Increasing competition due to past regulatory changes in the telephone
communications industry continues and, whereas certain companies have benefited,
many companies may be adversely affected in the future.

More detailed information about the Fund, its policies and risks can be found in
the Fund's Statement of Additional Information (SAI).

[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency of the U.S. government. Mutual
fund shares involve investment risks, including the possible loss of principal.
[End callout]

[Insert graphic of a bull and a bear] PERFORMANCE
-----------

This bar chart and table show the volatility of the Fund's returns, which is one
indicator of the risks of investing in the Fund. The bar chart shows changes in
the Fund's returns from year to year over the past 10 calendar years. The table
shows how the Fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS/1/

[Insert bar graph]

-14.45% 48.27% 16.64% 17.63% -1.54% 18.67% 14.21% 12.09% 1.52% .048%
90 91 92 93 94 95 96 97 98 99
YEAR

[Begin callout]
BEST QUARTER:
Q1 '91 20.38%

WORST QUARTER:
Q3 '90 -10.68%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999

1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
AGE High Income Fund - Class A/2/ -3.70% 8.17% 9.79%
CS First Boston High Yield Index/3/ 3.28% 9.08% 11.06%

SINCE
INCEPTION
1 YEAR (1/1/99)
-------------------------------------------------------------------------------
AGE High Income Fund - Class B/2/ -3.60% -3.60%
CS First Boston High Yield Index/3/ 3.28% 3.28%

SINCE
INCEPTION
1 YEAR (5/16/95)
-------------------------------------------------------------------------------
AGE High Income Fund - Class C/2/ -2.00% 6.78%
CS First Boston High Yield Index/3/ 3.28% 7.91%

1. Figures do not reflect sales charges. If they did, returns would be lower. As
of June 30, 2000, the Fund's year-to-date return was -1.49% for Class A.

2. Figures reflect sales charges.
All Fund performance assumes reinvestment of dividends and capital gains. May 1,
1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

3. Source: Standard & Poor's Micropal. The Credit Suisse First Boston High Yield
Index is an unmanaged, trader priced portfolio constructed to mirror the high
yield debt market. It includes reinvested interest. One cannot invest directly
in an index, nor is an index representative of the Fund's portfolio.

[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 4.25% 4.00% 1.99%
Load imposed on purchases 4.25% None 1.00%
Maximum deferred sales charge (load) None/1/ 4.00%/2/ 0.99%/3/

Please see "Choosing a Share Class" on page 16 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
Management fees 0.45% 0.45% 0.45%
Distribution and service (12b-1) fees 0.14% 0.65% 0.65%
Other expenses 0.15% 0.15% 0.15%
-------------------------------------
Total annual Fund operating expenses 0.74% 1.25% 1.25%
=====================================

1. Except for investments of $1 million or more (see page 16) and purchases by
certain retirement plans without an initial sales charge.

2. Declines to zero after six years.

3. This is equivalent to a charge of 1% based on net asset value.

EXAMPLE

This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:

- You invest $10,000 for the periods shown;
- Your investment has a 5% return each year; and
- The Fund's operating expenses remain the same.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
If you sell your shares at the
end of the period:

CLASS A $497/1/ $651 $819 $1,304
CLASS B $527 $697 $886 $1,370/2/
CLASS C $325 $493 $779 $1,596
If you do not sell your shares:
CLASS B $127 $397 $686 $1,370/2/
CLASS C $226 $493 $779 $1,596

1. Assumes a contingent deferred sales charge (CDSC) will not apply.
2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.

[Insert graphic of briefcase] MANAGEMENT
----------

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Fund's investment manager. Together, Advisers and its affiliates
manage over $229 billion in assets.

The team responsible for the Fund's management is:

R. MARTIN WISKEMANN, SENIOR VICE PRESIDENT OF ADVISERS

Mr. Wiskemann has been a manager of the Fund since 1972 and has more than 30
years' experience in the securities industry.

CHRISTOPHER MOLUMPHY CFA, SENIOR VICE PRESIDENT OF ADVISERS

Mr. Molumphy has been a manager of the Fund since 1991. He joined Franklin
Templeton Investments in 1988.

The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal year
ended May 31, 2000, the Fund paid 0.45% of its average monthly net assets to the
manager for its services.

[Insert graphic of dollar

signs and stacks of coins] DISTRIBUTIONS AND TAXES
-----------------------

INCOME AND CAPITAL GAIN DISTRIBUTIONS The Fund intends to pay a dividend at
least monthly, on or about the 15th day of the month, representing its net
investment income. Capital gains, if any, may be distributed annually. The
amount of these distributions will vary and there is no guarantee the Fund will
pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record dates for the Fund's distributions will vary. Please keep in mind that if
you invest in the Fund shortly before the record date of a distribution, any
distribution will lower the value of the Fund's shares by the amount of the
distribution, and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the Fund's distributions, please call 1-800/DIAL BEN(R).

TAX CONSIDERATIONS In general, the Fund's distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest your
distributions in additional Fund shares or receive them in cash. Any capital
gains the Fund distributes are taxable to you as long-term capital gains no
matter how long you have owned your shares.

[Begin callout]
BACKUP WITHHOLDING
By law, the Fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, or if the IRS instructs the Fund to do so.
[End callout]

Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.

When you sell your shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your Fund shares for shares of a different Franklin
Templeton fund is the same as a sale.

Fund distributions and gains from the sale or exchange of your shares generally
will be subject to state and local taxes. Non-U.S. investors may be subject to
U.S. withholding and estate tax. You should consult your tax advisor about the
federal, state, local or foreign tax consequences of your investment in the
Fund.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
--------------------

This table presents the Fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED MAY 31,
--------------------------------------------------------------------------------------------------------
2000 1999/3/ 1998 1997 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 2.69 2.98 2.90 2.79 2.77
-------------------------------------------------------------
Net investment income/1/ .26 .26 .26 .26 .25
Net realized and unrealized gains
(losses) (.39) (.29) .08 .11 .03
-------------------------------------------------------------
Total from investment operations (.13) (.03) .34 .37 .28
-------------------------------------------------------------
Less distributions from net investment
income (.26) (.26) (.26) (.26) (.26)
-------------------------------------------------------------
Net asset value, end of year 2.30 2.69 2.98 2.90 2.79
=============================================================
Total return (%)/2/ (5.01) (.74) 12.32 14.09 10.75

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 2,442,432 3,108,209 3,236,134 2,638,914 2,183,738
Ratios to average net assets: (%)
Expenses .74 .72 .70 .71 .70
Net investment income 10.28 9.40 9.04 9.31 9.04
Portfolio turnover rate (%) 18.79 27.55 29.69 20.01 19.87

CLASS B
-------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 2.68 2.76
------------------------------
Net investment income/1/ .24 .11
Net realized and unrealized gains
(losses) (.37) (.08)
------------------------------
Total from investment operations (.13) (.03)
------------------------------
Less distributions from net investment
income (.25) (.11)
------------------------------
Net asset value, end of year 2.30 2.68
==============================
Total return (%)/2/ (5.49) (1.29)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 69,565 26,095
Ratios to average net assets: (%)
Expenses 1.25 1.24/4/
Net investment income 9.85 8.41/4/
Portfolio turnover rate (%) 18.79 27.55

CLASS C YEAR ENDED MAY 31,
------------------------------------------ -------------- ------------- ------------ ---------- --------
2000 1999/3/ 1998 1997 1996
--------------------------------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 2.69 2.98 2.90 2.79 2.77
-------------------------------------------------------------
Net investment income/1/ .25 .25 .25 .25 .25
Net realized and unrealized gains
(losses) (.38) (.29) .08 .11 .02
-------------------------------------------------------------
Total from investment operations (.13) (.04) .33 .36 .27
-------------------------------------------------------------
Less distributions from net investment
income (.25) (.25) (.25) (.25) (.25)
-------------------------------------------------------------
Net asset value, end of year 2.31 2.69 2.98 2.90 2.79
=============================================================
Total return (%)/2/ (5.46) (.93) 11.69 13.41 10.06

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 367,151 487,196 394,612 151,073 46,064

Ratios to average net assets: (%)
Expenses 1.25 1.24 1.23 1.25 1.25
Net investment income 9.76 8.89 8.51 8.75 8.50
Portfolio turnover rate (%) 18.79 27.55 29.69 20.01 19.87
</TABLE>

1. Based on average shares outstanding effective year ended May 31, 2000.
2. Total return does not include sales charges, and is not annualized.
3. For the period January 1, 1999 (effective date) to May 31, 1999 for Class B.
4. Annualized.

YOUR ACCOUNT

[Insert graphic of pencil marking an "X"] CHOOSING A SHARE CLASS
----------------------

Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment representative
can help you decide.

CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
o Initial sales charge of 4.25% o No initial sales charge o Initial sales charge of 1%
or less

o Deferred sales charge of 1% o Deferred sales charge of 4% o Deferred sales charge of 1%
on purchases of $1 million or on shares you sell within the on shares you sell within 18
more sold within 12 months first year, declining to 1% months
within six years and eliminated
after that

o Lower annual expenses than o Higher annual expenses than o Higher annual expenses than
Class B or C due to lower Class A (same as Class C) due Class A (same as Class B) due
distribution fees to higher distribution fees. to higher distribution fees. No
Automatic conversion to Class A conversion to Class A shares,
shares after eight years, so annual expenses do not
reducing future annual expenses. decrease.

</TABLE>

SALES CHARGES - CLASS A

THE SALES CHARGE
MAKES UP THIS % OF WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE OF YOUR NET INVESTMENT
-------------------------------------------------------------------------------
Under $100,000 4.25 4.44
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04

INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as a
lump sum or through our cumulative quantity discount or letter of intent
programs (see page 19), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC is
the same for each class (please see page 18).

DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the Fund to pay distribution fees of up
to 0.15% per year to those who sell and distribute Class A shares and provide
other services to shareholders. Because these fees are paid out of Class A's
assets on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

SALES CHARGES - CLASS B

IF YOU SELL YOUR SHARES THIS % IS DEDUCTED FROM
WITHIN THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
-----------------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

With Class B shares, there is no initial sales charge. However, there is a CDSC
if you sell your shares within six years, as described in the table above. The
way we calculate the CDSC is the same for each class (please see page 18). After
8 years, your Class B shares automatically convert to Class A shares, lowering
your annual expenses from that time on.

MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares at
one time is $249,999. We place any investment of $250,000 or more in Class A
shares, since a reduced initial sales charge is available and Class A's annual
expenses are lower.

RETIREMENT PLANS Class B shares are available to certain retirement plans,
including IRAs (of any type), Franklin Templeton Bank & Trust 403(b) plans, and
Franklin Templeton Bank & Trust qualified plans with participant or earmarked
accounts.

DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the Fund to pay distribution and other
fees of up to 0.65% per year for the sale of Class B shares and for services
provided to shareholders. Because these fees are paid out of Class B's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

SALES CHARGES - CLASS C

THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING PRICE OF YOUR NET INVESTMENT
-------------------------------------------------------------------------------
Under $1 million 1.00 1.01

WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE IS
NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.

CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C shares
you sell within 18 months of purchase. The way we calculate the CDSC is the same
for each class (please see below).

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows the Fund to pay distribution and other
fees of up to 0.65% per year for the sale of Class C shares and for services
provided to shareholders. Because these fees are paid out of Class C's assets on
an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C
The CDSC for each class is based on the current value of the shares being sold
or their net asset value when purchased, whichever is less. There is no CDSC on
shares you acquire by reinvesting your dividends or capital gains distributions.

[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.

For example, if you buy shares on the 18th of the month, they will age one month
on the 18th day of the next month and each following month.
[End callout]

To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to a
CDSC. If there are not enough of these to meet your request, we will sell the
shares in the order they were purchased. We will use this same method if you
exchange your shares into another Franklin Templeton fund (please see page 24
for exchange information).

SALES CHARGE REDUCTIONS AND WAIVERS
If you qualify for any of the sales charge reductions or waivers below, please
let us know at the time you make your investment to help ensure you receive the
lower sales charge.

QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
Franklin Templeton funds to take advantage of the lower sales charges for large
purchases of Class A shares.

[Begin callout]
FRANKLIN TEMPLETON FUNDS include all of the U.S. registered mutual funds of
Franklin Templeton Investments, except Franklin Templeton Variable Insurance
Products Trust and Templeton Capital Accumulator Fund, Inc.
[End callout]

o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in
Franklin Templeton funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.

o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar amount
of shares over a 13-month period and lets you receive the same sales charge
as if all shares had been purchased at one time. We will reserve a portion
of your shares to cover any additional sales charge that may apply if you
do not buy the amount stated in your LOI.

TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR ACCOUNT
APPLICATION.

REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton fund, you may
reinvest some or all of the proceeds within 365 days without an initial sales
charge. The proceeds must be reinvested within the same share class, except
proceeds from the sale of Class B shares will be reinvested in Class A shares.

If you paid a CDSC when you sold your Class A or C shares, we will credit your
account with the amount of the CDSC paid but a new CDSC will apply. For Class B
shares reinvested in Class A, a new CDSC will not apply, although your account
will not be credited with the amount of any CDSC paid when you sold your Class B
shares.

Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD) also
may be reinvested without an initial sales charge if you reinvest them within
365 days from the date the CD matures, including any rollover.

This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject to
a sales charge.

SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or by
investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales charge.
The CDSC for each class may be waived for certain redemptions and distributions.
If you would like information about available sales charge waivers, call your
investment representative or call Shareholder Services at 1-800/632-2301. For
information about retirement plans, you may call Retirement Services at
1-800/527-2020. A list of available sales charge waivers also may be found in
the Statement of Additional Information (SAI).

GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are added
together. There are certain other requirements and the group must have a purpose
other than buying Fund shares at a discount.

[Insert graphic of a paper with lines and someone writing] BUYING SHARES
-------------
MINIMUM INVESTMENTS
-------------------------------------------------------------------------------
INITIAL ADDITIONAL
-------------------------------------------------------------------------------

Regular accounts $1,000 $50
------------------------------------------------------------------ ------------

Automatic investment plans $50 ($25 for an $50 ($25 for an
Education IRA) Education IRA)

-------------------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
-------------------------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs)
-------------------------------------------------------------------------------
IRAs, IRA rollovers, Education
IRAs or Roth IRAs $250 $50
-------------------------------------------------------------------------------
Broker-dealer sponsored wrap a
ccount programs $250 $50
-------------------------------------------------------------------------------
Full-time employees, officers,
trustees and directors of Franklin
Templeton entities, and their
immediate family members $100 $50
-------------------------------------------------------------------------------

PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE FOR SALE IN YOUR
STATE OR JURISDICTION.

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. Make sure you indicate the share class you
have chosen. If you do not indicate a class, we will place your purchase in
Class A shares. To save time, you can sign up now for services you may want on
your account by completing the appropriate sections of the application (see
"Investor Services" on page 23). For example, if you would like to link one of
your bank accounts to your Fund account so that you may use electronic fund
transfers to and from your bank account to buy and sell shares, please complete
the bank information section of the application. We will keep your bank
information on file for future purchases and redemptions.

BUYING SHARES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-----------------------------------------------------------------------------------
<S> <C> <C>
[Insert graphic of Contact your investment Contact your investment
hands shaking] THROUGH representative representative
YOUR INVESTMENT
REPRESENTATIVE
-----------------------------------------------------------------------------------

[Insert graphic of If you have another Before requesting a
phone] Franklin Templeton telephone purchase,
BY PHONE fund account with please make sure we
(Up to $100,000 your bank account have your bank
per day) information on file, account information
1-800/632-2301 you may open a new on file. If we do not
account by phone. have this information,
you will need to send
To make a same day written instructions with
investment, please your bank's name and
call us by 1:00 p.m. address, a voided
Pacific time or the check or savings
close of the New York account deposit slip,
Stock Exchange, and a signature
whichever is earlier. guarantee if the bank
and Fund accounts do
not have at least one
common owner.

To make a same day
investment, please
call us by 1:00 p.m.
Pacific time or the
close of the New York
Stock Exchange, whichever
is earlier.

------------------------------------------------------------------------------------
Make your check Make your check
[Insert graphic of payable to AGE payable to AGE
envelope] High Income Fund. High Income Fund
BY MAIL Include your account
Mail the check and number on the check.
your signed
application to Fill out the deposit
Investor Services. slip from your
account statement. If
you do not have a
slip, include a note
with your name, the
Fund name, and your
account number.

Mail the check and
deposit slip or note
to Investor Services.
-------------------------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a
three lightning bolts] wire control number wire control number
BY WIRE and wire instructions. and wire instructions.

1-800/632-2301 Wire the funds and To make a same day
(or 1-650/312-2000 mail your signed wire investment,
collect) application to please call us by
Investor Services. 1:00 p.m. Pacific
Please include the time and make sure
wire control number your wire arrives by
or your new account 3:00 p.m.
number on the
application.

To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
----------------------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] number below, or send number below or our
BY EXCHANGE signed written automated TeleFACTS
instructions. The system, or send
TeleFACTS(R) TeleFACTS system signed written
1-800/247-1753 cannot be used to instructions.
(around-the-clock open a new account.
access) (Please see page 24
(Please see page 24 for information on
for information on exchanges.)
exchanges.)
---------------------------------------------------------------------------------
</TABLE>

FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

[Insert graphic of person with a headset] INVESTOR SERVICES
-----------------

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application and mail it to Investor Services. If you are opening
a new account, please include the minimum initial investment of $50 ($25 for an
Education IRA) with your application.

AUTOMATIC PAYROLL DEDUCTION You may invest in the Fund automatically by
transferring money from your paycheck to the Fund by electronic funds transfer.
If you are interested, indicate on your application that you would like to
receive an Automatic Payroll Deduction Program kit.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the Fund in
an existing account in the same share class* of the Fund or another Franklin
Templeton fund. Initial sales charges and CDSCs will not apply if you reinvest
your distributions within 365 days. You can also have your distributions
deposited in a bank account, or mailed by check. Deposits to a bank account may
be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Bank & Trust retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
Fund.

*Class B and C shareholders may reinvest their distributions in Class A shares
of any Franklin Templeton money fund.

RETIREMENT PLANS Franklin Templeton Investments offers a variety of retirement
plans for individuals and businesses. These plans require separate applications
and their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure or
application, please call Retirement Services at 1-800/527-2020.

TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.

TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to buy,
sell or exchange your shares and make certain other changes to your account by
phone.

For accounts with more than one registered owner, telephone privileges also
allow the Fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one signature
for all transactions. This type of telephone exchange is available as long as
you have telephone exchange privileges on your account.

As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone purchase, exchange or redemption privileges on your
account application.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton funds
within the same class*, generally without paying any additional sales charges.
If you exchange shares held for less than six months, however, you may be
charged the difference between the initial sales charge of the two funds if the
difference is more than 0.25%. If you exchange shares from a money fund, a sales
charge may apply no matter how long you have held the shares.

[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequences as ordinary sales and purchases.
[End callout]

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC will
continue to be calculated from the date of your initial investment and will not
be charged at the time of the exchange. The purchase price for determining a
CDSC on exchanged shares will be the price you paid for the original shares. If
you exchange shares subject to a CDSC into a Class A money fund, the time your
shares are held in the money fund will not count towards the CDSC holding
period.

If you exchange your Class B shares for the same class of shares of another
Franklin Templeton fund, the time your shares are held in that fund will count
towards the eight year period for automatic conversion to Class A shares.

Because excessive trading can hurt fund performance, operations and
shareholders, the Fund, effective November 1, reserves the right to revise or
terminate the exchange privilege, limit the amount or number of exchanges,
reject any exchange, or restrict or refuse purchases if (i) the Fund or its
manager believes the Fund would be harmed or unable to invest effectively, or
(ii) the Fund receives or anticipates simultaneous orders that may significantly
affect the Fund (please see "Market Timers" on page 29).

*Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
Class A without any sales charge.

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.

[Insert graphic of a certificate] SELLING SHARES
--------------

You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.

SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the Fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:

o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of record,
or preauthorized bank or brokerage firm account

[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[End callout]

We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the Fund
against potential claims based on the instructions received.

SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.

REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.

RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Bank & Trust retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020 for
details.

SELLING SHARES
------------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
------------------------------------------------------------------------------
[Insert graphic of hands shaking] Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
------------------------------------------------------------------------
[Insert graphic of envelope] Send written instructions and endorsed
BY MAIL share certificates (if you hold share
certificates) to Investor Services.
Corporate, partnership or trust accounts
may need to send additional documents.

Specify the Fund, the account number and
the dollar value or number of shares you
wish to sell. If you own both Class A and
B shares, also specify the class of shares,
otherwise we will sell your Class A shares
first. Be sure to include all necessary
signatures and any additional documents, as
well as signature guarantees if required.

A check will be mailed to the name(s) and
address on the account, or otherwise
according to your written instructions.
-------------------------------------------------------------------------
[Insert graphic of phone] As long as your transaction is for $100,000
BY PHONE or less, you do not hold share certificates
and you have not changed your address by
1-800/632-2301 phone within the last 15 days, you can sell
your shares by phone.

A check will be mailed to the name(s) and
address on the account. Written
instructions, with a signature guarantee,
are required to send the check to another
address or to make it payable to another
person.
-------------------------------------------------------------------------------
[Insert graphic of three You can call or write to have redemption
lightning bolts] proceeds sent to a bank account. See the
BY ELECTRONIC FUNDS TRANSFER policies above for selling shares by mail
(ACH) or phone.

Before requesting to have redemption
proceeds sent to a bank account, please
make sure we have your bank account
information on file. If we do not have this
information, you will need to send written
instructions with your bank's name and
address, a voided check or savings account
deposit slip, and a signature guarantee if
the bank and Fund accounts do not have at
least one common owner.

If we receive your request in proper form
by 1:00 p.m. Pacific time, proceeds sent by
ACH generally will be available withing two
to three business days.
-------------------------------------------------------------------------------
[Insert graphic of two arrows Obtain a current prospectus for the fund
pointing in opposite directions] you are considering.
BY EXCHANGE
Call Shareholder Services at the number
TeleFACTS(R) below or our automated TeleFACTS system, or
1-800/247-1753 send signed written instructions. See the
(around-the-clock access) policies above for selling shares by mail
or phone.

If you hold share certificates, you will
need to return them to the Fund before your
exchange can be processed.
---------------------------------------------------------------------------

[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------

CALCULATING SHARE PRICE The Fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. Pacific time). Each class's NAV is calculated by dividing
its net assets by the number of its shares outstanding.

[Begin callout]
When you buy shares, you pay the offering price. The offering price is the NAV
plus any applicable sales charge.

When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]

The Fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
the Fund holds securities listed primarily on a foreign exchange that trades on
days when the Fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record. You will not
be charged a CDSC if your account is closed for this reason.

STATEMENTS AND REPORTS You will receive quarterly account statements that show
all your account transactions during the quarter. You also will receive written
notification after each transaction affecting your account (except for
distributions and transactions made through automatic investment or withdrawal
programs, which will be reported on your quarterly statement). You also will
receive the Fund's financial reports every six months. To reduce Fund expenses,
we try to identify related shareholders in a household and send only one copy of
the financial reports. If you need additional copies, please call 1-800/DIAL
BEN.

If there is a dealer or other investment representative of record on your
account, he or she also will receive copies of all notifications and statements
and other information about your account directly from the Fund.

STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.

JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.

MARKET TIMERS The Fund may restrict or refuse purchases or exchanges by Market
Timers. You may be considered a Market Timer if you have (i) requested an
exchange out of any of the Franklin Templeton funds within two weeks of an
earlier exchange request out of any fund, or (ii) exchanged shares out of any of
the Franklin Templeton funds more than twice within a rolling 90 day period, or
(iii) otherwise seem to follow a market timing pattern that may adversely affect
the fund. Accounts under common ownership or control with an account that is
covered by (i), (ii), or (iii) are also subject to these limits.

Anyone, including the shareholder or the shareholder's agent, who is considered
to be a Market Timer by the Fund, its manager or shareholder services agent,
will be issued a written notice of their status and the Fund's policies.
Identified Market Timers will be required to register with the market timing
desk of Franklin Templeton Investor Services, Inc., and to place all purchase
and exchange trade requests through the desk. Some funds do not allow
investments by Market Timers.

ADDITIONAL POLICIES Please note that the Fund maintains additional policies and
reserves certain rights, including:

o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.

o At any time, the Fund may change its investment minimums or waive or lower its
minimums for certain purchases.

o The Fund may modify or discontinue the exchange privilege on 60 days' notice.

o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.

o For redemptions over a certain amount, the Fund reserves the right, in the
case of an emergency, to make payments in securities or other assets of the
Fund, if the payment of cash proceeds by check, wire or electronic funds
transfer would be harmful to existing shareholders.

o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the Fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and service
(12b-1) fees and its other resources.

CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------
COMMISSION (%) --- 3.00 2.00
Investment under $100,000 4.00 --- ---
$100,000 but under $250,000 3.25 --- ---
$250,000 but under $500,000 2.25 --- ---
$500,000 but under $1 million 1.85 --- ---
$1 million or more up to 0.75/1/ --- ---
12B-1 FEE TO DEALER 0.15 0.15/2/ 0.65/3/

A dealer commission of up to 1% may be paid on Class A NAV purchases by certain
retirement plans1 and on Class C NAV purchases. A dealer commission of up to
0.25% may be paid on Class A NAV purchases by certain trust companies and bank
trust departments, eligible governmental authorities, and broker-dealers or
others on behalf of clients participating in comprehensive fee programs.

MARKET TIMERS. Please note that for Class A NAV purchases by market timers,
including purchases of $1 million or more, dealers are not eligible to receive
the dealer commission. Dealers, however, may be eligible to receive the 12b-1
fee from the date of purchase.

1. During the first year after purchase, dealers may not be eligible to receive
the 12b-1 fee.

2. Dealers may be eligible to receive up to 0.15% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A. 3. Dealers may be eligible to
receive up to 0.15% during the first year after purchase and may be eligible to
receive the full 12b-1 fee starting in the 13th month.

[Insert graphic of question mark] QUESTIONS
-----------
If you have any questions about the Fund or your account, you can write to us at
P.O. Box 997151, Sacramento, CA 95899-9983. You also can call us at one of the
following numbers. For your protection and to help ensure we provide you with
quality service, all calls may be monitored or recorded.

<TABLE>
<CAPTION>
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
-----------------------------------------------------------------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)

Fund Information 1-800/DIAL BEN 5:30 a.m. to 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)

Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

TeleFACTS(R)(automated) 1-800/247-1753 (around-the-clock access)

</TABLE>

FOR MORE INFORMATION

You can learn more about the Fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and Fund strategies, financial
statements, detailed performance information, portfolio holdings and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the Fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
franklintempleton.com

You also can obtain information about the Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this
information, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request at the
following E-mail address: [email protected].

Investment Company Act file #811-1608 105 P 10/00

Prospectus

FRANKLIN'S
AGE HIGH
INCOME FUND

Franklin High Income Trust

ADVISOR CLASS

INVESTMENT STRATEGY Income

OCTOBER 1, 2000

[Insert Franklin Templeton Ben Head]

The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

CONTENTS

THE FUND

[Begin callout]

INFORMATION ABOUT THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

2 Goals and Strategies

4 Main Risks

8 Performance

9 Fees and Expenses

10 Management

11 Distributions and Taxes

12 Financial Highlights

YOUR ACCOUNT

[Begin callout]
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

13 Qualified Investors

15 Buying Shares

17 Investor Services

20 Selling Shares

22 Account Policies

24 Questions

FOR MORE INFORMATION

[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND

[End callout]

Back Cover

THE FUND

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
--------------------

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund mainly
invests in high yield, lower rated debt securities.

[Begin callout]
The Fund invests mainly in high yield, lower rated debt securities.
[End callout]

[Insert graphic of chart with line going up and down] MAIN RISKS

LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes
called "junk bonds," generally have more credit risk than higher-rated
securities.

INCOME Since the Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.

More detailed information about the Fund, its policies and risks can be found in
the Fund's Statement of Additional Information (SAI).

[Insert graphic of a bull and a bear] PERFORMANCE
--------------

ADVISOR CLASS ANNUAL TOTAL RETURNS/1/,/2/

[Insert bar graph]

-14.45% 48.27% 16.64% 17.63% -1.54% 18.67% 14.21% 12.21% 1.65% 0.61%
-------------------------------------------------------------------------------
90 91 92 93 94 95 96 97 98 99
YEAR

[Begin
callout]
BEST Quarter:
Q1 '91 20.38%

WORST QUARTER:
Q3 '90 -10.68%
[End
callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999

1 YEAR 5 YEARS 10 YEARS
--------- ---------- ----------
AGE High Income Fund - Advisor Class/2/ 0.61% 9.31% 10.34%
CS First Boston Global High Yield Index/3/ 3.28% 9.08% 11.06%

1. As of June 30, 2000, the Fund's year-to-date return was -1.43%.

2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the Fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.

[Insert graphic of percentage sign] FEES AND EXPENSES
-----------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

ADVISOR CLASS
------------------------------------------------ -------------------------
Maximum sales charge (load) imposed on purchases None

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS
-------------------------------------------------------------------------

Management fees 0.45%
Distribution and service (12b-1) fees None
Other expenses 0.15%
------------------
Total annual Fund operating expenses 0.60%
==================

EXAMPLE

This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown;

o Your investment has a 5% return each year;

o The Fund's operating expenses remain the same; and

o You sell your shares at the end of the periods shown.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------- ---------------- --------------- ---------------
$61 $192 $335 $750

[Insert graphic of briefcase] MANAGEMENT
----------

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Fund's investment manager. Together, Advisers and its affiliates
manage over $229 billion in assets.

The team responsible for the Fund's management is:

R. MARTIN WISKEMANN, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Wiskemann has been a manager of the Fund since 1972 and has more than 30
years' experience in the securities industry.

CHRISTOPHER MOLUMPHY CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Molumphy has been a manager of the Fund since 1991. He joined Franklin
Templeton Investments in 1988.

The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal year
ended May 31, 2000, the Fund paid 0.45% of its average monthly net assets to the
manager for its services.

[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
-----------------------

When you sell your shares of the Fund, you may have a capital gain or loss. For
tax purposes, an exchange of your Fund shares for shares of a different Franklin
Templeton fund is the same as a sale.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
--------------------
This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.

ADVISOR CLASS YEAR ENDED MAY 31,
--------------------------------------------------------- --------------- ------------------
2000 1999 1998 1997/1/
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 2.69 2.98 2.90 2.90
-----------------------------------------
Net investment income/2/ .26 .27 .27 .12
Net realized and unrealized gains (losses) (.38) (.29) .08 .01
-----------------------------------------
Total from investment operations (.12) (.02) .35 .11
-----------------------------------------
Less distributions from net investment income (.27) (.27) (.27) (.11)
-----------------------------------------
Net asset value, end of year 2.30 2.69 2.98 2.90
=========================================
Total return (%)/3/ (4.88) (.61) 12.46 3.94

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 17,234 39,354 28,026 6,224
Ratios to average net assets: (%)
Expenses .60 .59 .58 .61/4/
Net investment income 10.29 9.52 9.17 9.25/4/
Portfolio turnover rate (%) 18.79 27.55 29.69 20.01

</TABLE>

1. For the period January 2, 1997 (effective date) to May 31, 1997.

2. Based on average shares outstanding effective year ended May 31, 2000.

3. Total return is not annualized.

4. Annualized.

YOUR ACCOUNT

[Insert graphic of pencil marking an "X"] QUALIFIED INVESTORS
-------------------

The following investors may qualify to buy Advisor Class shares of the Fund.

o Qualified registered investment advisors with clients invested in any series
of Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy through
a broker-dealer or service agent who has an agreement with Franklin
Templeton Distributors, Inc. (Distributors). Minimum investments: $1,000
initial and $50 additional.

o Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients participating
in comprehensive fee programs. Minimum investments: $250,000 initial
($100,000 initial for an individual client) and $50 additional.

o Officers, trustees, directors and full-time employees of Franklin Templeton
Investments and their immediate family members. Minimum investments: $100
initial ($50 for accounts with an automatic investment plan) and $50
additional.

o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.

o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue
Code. Minimum investments: $1 million initial investment in Advisor Class
or Class Z shares of any Franklin Templeton fund and $50 additional.

o Accounts managed by Franklin Templeton Investments. Minimum investments: No
initial minimum and $50 additional.

o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments: No
initial or additional minimums.

o Defined ontribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section
401 of the Internal Revenue Code, including salary reduction plans
qualified under section 401(k) of the Internal Revenue Code, and that are
sponsored by an employer (i) with at least 10,000 employees, or (ii) with
retirement plan assets of $100 million or more. Minimum investments: No
initial or additional minimums.

o Trust companies and bank trust departments initially investing in Franklin
Templeton funds at least $1 million of assets held in a fiduciary, agency,
advisory, custodial or similar capacity and over which the trust companies
and bank trust departments or other plan fiduciaries or participants, in
the case of certain retirement plans, have full or shared investment
discretion. Minimum investments: No initial or additional minimums.

o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in Franklin Templeton funds for
purposes of determining whether you meet the $5 million minimum, as long as $1
million is in Advisor Class or Class Z shares of any Franklin Templeton fund.

o Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of an established group of 11 or more
investors. Minimum investments: $5 million initial and $50 additional. For
minimum investment purposes, the group's investments are added together.
The group may combine all of its shares in Franklin Templeton funds for
purposes of of determining whether it meets the $5 million minimum, as long
as $1 million is an Advisor Class or Class Z shares of any Franklin
Templeton fund. There are certain other requirements and the group must
have a purpose other than buying Fund shares without a sales charge.

Please note that Advisor Class shares of the Fund generally are not available to
retirement plans through Franklin Templeton's ValuSelect(R) program. Retirement
plans in the ValuSelect program before January 1, 1998, however, may invest in
the Fund's Advisor Class shares.

[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
-------------

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. To save time, you can sign up now for services
you may want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 17). For example, if you would like
to link one of your bank accounts to your Fund account so that you may use
electronic fund transfers to and from your bank account to buy and sell shares,
please complete the bank information section of the application. We will keep
your bank information on file for future purchases and redemptions.

To make a same day
investment, please
call us by 1:00 p.m.
Pacific time or the
close of the New York
Stock Exchange, whichever
is earlier.

To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
----------------------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] number below, or send number below or
BY EXCHANGE signed written or send signed
instructions. written instructions.
(Please see page 18 (Please see page 18
for information on for information on
exchanges.) exchanges.)
---------------------------------------------------------------------------------
</TABLE>
FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

[Insert graphic of person with a headset] INVESTOR SERVICES
------------------------

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application and mail it to Investor Services. If you are opening
a new account, please include your minimum initial investment with your
application.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the Fund in
an existing account in the same share class of the Fund or in Advisor Class or
Class A shares of another Franklin Templeton fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton fund, initial sales
charges and contingent deferred sales charges (CDSCs) will not apply if you
reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Bank & Trust retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
Fund.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton funds
within the same class. You also may exchange your Advisor Class shares for Class
A shares of a fund that does not currently offer an Advisor Class (without any
sales charge)* or for Class Z shares of Franklin Mutual Series Fund Inc.

If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust or Templeton Foreign Fund,you also may exchange your shares for
Class A shares of those funds (without any sales charge)* or for shares of
Templeton Institutional Funds, Inc.

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.

*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your Class A
shares for Advisor Class shares if you otherwise qualify to buy the fund's
Advisor Class shares.

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.

[Insert graphic of a certificate] SELLING SHARES
----------------------

You can sell your shares at any time.

[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[End callout]

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of record, or
preauthorized bank or brokerage firm account

RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Bank & Trust retirement plan. For participants under age
59 1/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020 for
details.

If we receive your request in proper form
by 1:00 p.m. Pacific time, proceeds sent by
ACH generally will be available withing two
to three business days.
-------------------------------------------------------------------------------
[Insert graphic of two arrows Obtain a current prospectus for the fund
pointing in opposite directions] you are considering.
BY EXCHANGE
Call Shareholder Services at the number
below or send signed written instructions.
See the policies above for selling shares
by mail or phone.

If you hold share certificates, you will
need to return them to the Fund before your
exchange can be processed.
---------------------------------------------------------------------------

[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------

CALCULATING SHARE PRICE The Fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. Pacific time). The NAV for Advisor Class is calculated by
dividing its net assets by the number of its shares outstanding.

The Fund's assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value.If
the Fund holds securities listed primarily on a foreign exchange that trades on
days when the Fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee accounts) because you sell some of your shares, we may mail you a
notice asking you to bring the account back up to its applicable minimum
investment amount. If you choose not to do so within 30 days, we may close your
account and mail the proceeds to the address of record.

ADDITIONAL POLICIES Please note that the Fund maintains additional policies and
reserves certain rights, including:

o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.

o At any time, the Fund may change its investment minimums or waive or lower its
minimums for certain purchases.

o The Fund may modify or discontinue the exchange privilege on 60 days' notice.

o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.

o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.

o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the Fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may receive
up to 0.25% of the amount invested. This amount is paid by Franklin Templeton
Distributors, Inc. from its own resources.

[Insert graphic of question mark] QUESTIONS
----------

If you have any questions about the Fund or your account, you can write to us at
P.O. Box 997151, Sacramento, CA 95899-9983. You also can call us at one of the
following numbers. For your protection and to help ensure we provide you with
quality service, all calls may be monitored or recorded.

HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
---------------------------------------------------------------- -------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)

Fund Information 1-800/DIAL BEN 5:30 a.m. to 5:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)

Retirement Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.

TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
TeleFACTS(R)(automated) 1-800/247-1753 (around-the-clock access)

</TABLE>

FOR MORE INFORMATION

You can learn more about the Fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and Fund strategies, financial
statements, detailed performance information, portfolio holdings and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about the Fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R)(1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637

franklintempleton.com

Investment Company Act file #811-1608 105 PA 10/00

FRANKLIN'S
AGE HIGH
INCOME FUND

FRANKLIN HIGH INCOME TRUST

CLASS A, B & C

STATEMENT OF ADDITIONAL INFORMATION P.O. BOX 997151, SACRAMENTO, CA 95899-9983

OCTOBER 1, 2000 1-800/DIAL BEN(R)
-------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the Fund's prospectus. The Fund's
prospectus, dated October 1, 2000, which we may amend from time to time,
contains the basic information you should know before investing in the Fund. You
should read this SAI together with the Fund's prospectus.

The audited financial statements and auditor's report in the Fund's Annual
Report to Shareholders, for the fiscal year ended May 31, 2000, are incorporated
by reference (are legally a part of this SAI).

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goals, Strategies and Risks ..................... 2
Officers and Trustees ........................... 9
Management and Other Services ................... 12
Portfolio Transactions .......................... 13
Distributions and Taxes ......................... 14
Organization, Voting Rights
and Principal Holders .......................... 15
Buying and Selling Shares ....................... 16
Pricing Shares .................................. 22
The Underwriter ................................. 23
Performance ..................................... 24
Miscellaneous Information ....................... 27
Description of Ratings .......................... 27

-------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

O ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;

O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;

O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
-------------------------------------------------------------------------------

105 SAI 10/00

GOALS, STRATEGIES AND RISKS
-------------------------------------------------------------------------------

Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the Fund makes an investment. In most cases, the Fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the Fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.

If a bankruptcy or other extraordinary event occurs concerning a particular
security the Fund owns, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while trying to
maximize the return to shareholders.

The Fund has adopted certain restrictions as fundamental and non-fundamental
policies. A fundamental policy may only be changed if the change is approved by
(i) more than 50% of the Fund's outstanding shares or (ii) 67% or more of the
Fund's shares present at a shareholder meeting if more than 50% of the Fund's
outstanding shares are represented at the meeting in person or by proxy,
whichever is less. A non-fundamental policy may be changed by the Board of
Trustees without the approval of shareholders.

FUNDAMENTAL INVESTMENT POLICIES

The Fund's principal investment goal is to earn a high level of current income.
Its secondary goal is to seek capital appreciation to the extent it is possible
and consistent with the Fund's principal goal.

The Fund may not:

1. Invest more than 25% of the value of the Fund's total assets in one
particular industry.

2. Purchase securities, if the purchase would cause the Fund at that time to
have more than 5% of the value of its total assets invested in the securities of
any one company or to own more than 10% of the voting securities of any one
company (except obligations issued or guaranteed by the U.S. government).

3. Underwrite or engage in the agency distributions of securities of other
issuers, except insofar as the Fund may be technically deemed an underwriter in
connection with the disposition of securities in its portfolio.

4. Make loans to other persons except on a temporary basis in connection with
the delivery or receipt of portfolio securities which have been bought or sold,
or by the purchase of bonds, debentures or similar obligations which have been
publicly distributed or of a character usually acquired by institutional
investors or through loans of the Fund's portfolio securities, or to the extent
the entry into a repurchase agreement may be deemed a loan.

5. Borrow money in excess of 5% of the value of the Fund's total assets, and
then only as a temporary measure for extraordinary or emergency purposes.

6. Sell securities short or buy on margin nor pledge or hypothecate any of the
Fund's assets.

7. Buy or sell real estate (other than interests in real estate investment
trusts), commodities or commodity contracts.

8. Invest in the securities of another investment company, except securities
acquired in connection with a merger, consolidation or reorganization; except to
the extent the Fund invests its uninvested daily cash balances in shares of the
Franklin Money Fund and other money market funds in the Franklin Templeton funds
provided (i) its purchases and redemptions of such money market Fund shares may
not be subject to any purchase or redemption fees, (ii) its investments may not
be subject to duplication of management fees, nor to any charge related to the
expense of distributing the Fund's shares (as determined under Rule 12b-1, as
amended under the federal securities laws), and (iii) aggregate investments by
the Fund in any such money market Fund do not exceed (a) the greater of (i) 5%
of the Fund's total net assets or (ii) $2.5 million, or (b) more than 3% of the
outstanding shares of any such money market fund.

9. Invest in any company for the purpose of exercising control or management.

10. Purchase the securities of any company in which any officer, trustee, or
director of the Fund or its investment manager owns more than 1/2 of 1% of the
outstanding securities and in which all of the officers, trustees, and directors
of the Fund and its investment manager as a group, own more than 5% of such
securities.

NON-FUNDAMENTAL INVESTMENT POLICIES

1. The Fund presently has no intention of investing more than 10% of its net
assets in foreign securities not publicly traded in the U.S.

2. Illiquid securities (including illiquid equity securities, securities with
legal or contractual restrictions on resale, repurchase agreements of more than
seven days duration, and other securities that are not readily marketable) may
not constitute more than 10% of the value of the Fund's net assets.

3. The Fund may not invest more than 5% of its total assets in companies that
have a record of less than three years continuous operation, including
predecessors.

4. The Fund will not invest more than 10% of its total assets, at the time of
purchase, in defaulted debt securities.

5. The Fund may lend certain of its portfolio securities, provided such loans do
not exceed 10% of the value of the Fund's total assets, measure at the time of
the most recent loan.

INVESTMENTS, TECHNIQUES, STRATEGIES AND THEIR RISKS

In trying to achieve its investment goals, the Fund may invest in the following
types of securities or engage in the following types of transactions:

DEBT SECURITIES A debt security typically has a fixed payment schedule that
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes,
debentures and commercial paper differ in the length of the issuer's payment
schedule, with bonds carrying the longest repayment schedule and commercial
paper the shortest.

The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of such
securities generally declines. These changes in market value will be reflected
in the Fund's net asset value per share.

The Fund may invest in debt securities on which the issuer is not currently
making interest payments (defaulted debt securities). The Fund may buy defaulted
debt securities if, in the opinion of the manager, it appears likely that the
issuer may resume interest payments or other advantageous developments appear
likely in the near future. These securities may be illiquid.

CALL There is a risk that a security will be prepaid (called) before its stated
maturity date. An issuer is more likely to call its securities when interest
rates are falling because the issuer can issue new securities with lower
interest payments. Issuers of high yield securities often have the right to call
their securities prior to maturity. If a security is called, the Fund may have
to replace it with a lower yielding security.

HIGH YIELD SECURITIES Because the Fund may invest in securities below investment
grade, an investment in the Fund is subject to a higher degree of risk than an
investment in a Fund that invests primarily in higher-quality securities. You
should consider the increased risk of loss to principal that is present with an
investment in higher risk securities, such as those in which the Fund invests.
Accordingly, an investment in the Fund should not be considered a complete
investment program and should be carefully evaluated for its appropriateness in
light of your overall investment needs and goals.

The market value of high yield, lower-quality fixed-income securities, commonly
known as junk bonds, tends to reflect individual developments affecting the
issuer to a greater degree than the market value of higher-quality securities,
which react primarily to fluctuations in the general level of interest rates.
Lower-quality securities also tend to be more sensitive to economic conditions
than higher-quality securities.

Issuers of high yield, fixed-income securities are often highly leveraged and
may not have more traditional methods of financing available to them. Therefore,
the risk associated with buying the securities of these issuers is generally
greater than the risk associated with higher-quality securities. For example,
during an economic downturn or a sustained period of rising interest rates,
issuers of lower-quality securities may experience financial stress and may not
have sufficient cash flow to make interest payments. The issuer's ability to
make timely interest and principal payments may also be adversely affected by
specific developments affecting the issuer, including the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing.

The risk of loss due to default may also be considerably greater with
lower-quality securities because they are generally unsecured and are often
subordinated to other creditors of the issuer. If the issuer of a security in
the Fund's portfolio defaults, the Fund may have unrealized losses on the
security, which may lower the Fund's net asset value per share. Defaulted
securities tend to lose much of their value before they default. Thus, the
Fund's net asset value per share may be adversely affected before an issuer
defaults. In addition, the Fund may incur additional expenses if it must try to
recover principal or interest payments on a defaulted security.

High yield, fixed-income securities frequently have call or buy-back features
that allow an issuer to redeem the securities from the Fund. Although these
securities are typically not callable for a period of time, usually for three to
five years from the date of issue, if an issuer calls its securities during
periods of declining interest rates, the manager may find it necessary to
replace the securities with lower-yielding securities, which could result in
less net investment income for the Fund. The premature disposition of a high
yield security due to a call or buy-back feature, the deterioration of an
issuer's creditworthiness, or a default by an issuer may make it more difficult
for the Fund to manage the timing of its income.

Lower-quality, fixed-income securities may not be as liquid as higher-quality
securities. Reduced liquidity in the secondary market may have an adverse impact
on market price of a security and on the Fund's ability to sell a security in
response to a specific economic event, such as a deterioration in the
creditworthiness of the issuer, or if necessary to meet the Fund's liquidity
needs. Reduced liquidity may also make it more difficult to obtain market
quotations based on actual trades for purposes of valuing the Fund's portfolio.

The Fund may buy high yield, fixed-income securities that are sold without
registration under the federal securities laws and therefore carry restrictions
on resale. While many high yielding securities have been sold with registration
rights, covenants and penalty provisions for delayed registration, if the Fund
is required to sell restricted securities before the securities have been
registered, it may be deemed an underwriter of the securities under the
Securities Act of 1933, as amended (1933 Act), which entails special
responsibilities and liabilities. The Fund may also incur special costs in
disposing of restricted securities, although the Fund will generally not incur
any costs when the issuer is responsible for registering the securities.

The Fund may buy high yield, fixed-income securities during an initial
underwriting. These securities involve special risks because they are new
issues. The manager will carefully review their credit and other
characteristics. The Fund has no arrangement with its underwriter or any other
person concerning the acquisition of these securities.

The high yield securities market is relatively new and much of its growth before
1990 paralleled a long economic expansion. The recession that began in 1990
disrupted the market for high yield securities and adversely affected the value
of outstanding securities, as well as the ability of issuers of high yield
securities to make timely principal and interest payments. Although the economy
has improved and high yield securities have performed more consistently since
that time, the adverse effects previously experienced may reoccur. For example,
the highly publicized defaults on some high yield securities during 1989 and
1990 and concerns about a sluggish economy that continued into 1993, depressed
the prices of many of these securities. Factors adversely impacting the market
value of high yield securities may lower the Fund's net asset value per share.

The Fund relies on the manager's judgment, analysis and experience in evaluating
the creditworthiness of an issuer. In this evaluation, the manager takes into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters.

The credit risk factors above also apply to lower-quality zero-coupon, deferred
interest and pay-in-kind securities. These securities have an additional risk,
however, because unlike securities that pay interest throughout the time until
maturity, the Fund will not receive any cash until the cash payment date. If the
issuer defaults, the Fund may not obtain any return on its investment. The Fund
may purchase certain high yield, fixed-income securities at a discount to par
value. These securities, when held to maturity or retired, may include an
element of capital gain. The Fund does not generally intend to hold securities
solely for the purpose of achieving capital gain, but will generally hold them
as long as expected returns on the securities remain attractive. The Fund may
realize a capital loss when a security is purchased at a premium (that is, in
excess of its stated or par value) and is held to maturity, or is called or
redeemed at a price lower than its purchase price. The Fund may also realize a
capital gain or loss upon the sale of securities, whether purchased at par, a
discount, or a premium.

PAY-IN-KIND SECURITIES Pay-in-kind securities pay interest by issuing more
bonds. The Fund is deemed to receive interest over the life of these bonds and
is treated as if the interest were paid on a current basis for federal income
tax purposes, although the Fund does not receive any cash interest payments
until maturity or the cash payment date. Accordingly, during times when the Fund
does not receive any cash interest payments on its zero-coupon, deferred
interest or pay-in-kind securities, it may have to sell portfolio securities to
meet distribution requirements and these sales may be subject to the risk
factors discussed above. The Fund is not limited in the amount of its assets
that may be invested in these types of securities.

RATINGS. The Fund may buy both rated and unrated debt securities. Independent
rating organizations rate debt securities based upon their assessment of the
financial soundness of the issuer. Generally, a lower rating indicates higher
risk. The Fund may buy debt securities regardless of their rating and up to 100%
of the portfolio may be invested in non-investment grade securities (rated lower
than BBB by S&P or Baa by Moody's). Please see "Description of Ratings" for
details.

Ratings assigned by the rating agencies are based largely on the issuer's
historical financial condition and the rating agencies' investment analysis at
the time of the rating. Credit quality in the high yield debt market, however,
can change suddenly and unexpectedly, and credit ratings may not reflect the
issuer's current financial condition. For these reasons, the manager does not
rely principally on the ratings assigned by rating agencies, but performs its
own independent investment analysis of securities being considered for the
Fund's portfolio. In its analysis, the manager considers a variety of factors,
including:

o the experience and managerial strength of the issuer;

o responsiveness to changes in interest rates and business conditions;

o debt maturity schedules and borrowing requirements;

o the issuer's changing financial condition and market recognition of the
change; and

o relative values based on such factors as anticipated cash flow, interest or
dividend coverage, asset coverage, and earnings prospects.

ZERO-COUPON SECURITIES Zero-coupon or deferred interest securities are debt
obligations that make no periodic interest payments before maturity or a
specified date when the securities begin paying current interest (the cash
payment date), and therefore are generally issued and traded at a discount from
their face amount or par value. The discount varies depending on the time
remaining until maturity or the cash payment date, as well as prevailing
interest rates, liquidity of the security, and the perceived credit quality of
the issuer. The discount, in the absence of financial difficulties of the
issuer, typically decreases as the final maturity or cash payment date
approaches.

The value of zero-coupon securities is generally more volatile than the value of
other fixed-income securities that pay interest periodically. Zero-coupon
securities are also likely to respond to changes in interest rates to a greater
degree than other fixed-income securities having similar maturities and credit
quality. For federal tax purposes, holders of these bonds, such as the Fund, are
deemed to receive interest over the life of the bonds and are taxed as if
interest were paid on a current basis although the holder does not receive cash
interest payments until the bonds mature.

EQUITY SECURITIES The Fund may invest in dividend-paying equity securities.
Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stock, preferred stock, warrants
and rights. The Fund's equity investments generally will be limited to
dividend-paying common or preferred stocks.

The purchaser of an equity security typically receives an ownership interest in
the company as well as certain voting rights. The owner of an equity security
may participate in a company's success through the receipt of dividends which
are distributions of earnings by the company to its owners. Equity security
owners may also participate in a company's success or lack of success through
increases or decreases in the value of the company's shares as traded in the
public trading market for such shares. Equity securities generally take the form
of common stock or preferred stock. Preferred stockholders typically receive
greater dividends but may receive less appreciation than common stockholders and
may have greater voting rights as well. Equity securities may also include
warrants or rights. Warrants or rights give the holder the right to purchase a
common stock at a given time for a specified price.

FOREIGN SECURITIES Investing in foreign securities typically involves more risks
than investing in U.S. securities. Certain of these risks also may apply to
securities of U.S. companies with significant foreign operations. These risks
can increase the potential for losses in the Fund and affect its share price.
The political, economic and social structures of some foreign countries may be
less stable and more volatile than those in the U.S. It is possible that a
government may take over the assets or operations of a company or impose
restrictions on the exchange or export of currency or other assets. Some
countries also may have different legal systems that may make it difficult for
the Fund to pursue legal remedies with respect to its foreign investments.

You should consider carefully the substantial risks involved in securities of
companies of foreign nations, which are in addition to the usual risks inherent
in domestic investments. The Fund may invest in securities of issuers in any
foreign country, developed or developing, and may buy foreign securities that
are traded in the U.S. or securities of U.S. issuers that are denominated in a
foreign currency.

There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Fund, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing its
portfolio and calculating its net asset value. Foreign markets have
substantially less volume than the New York Stock Exchange, and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Commission rates in foreign countries, which are
generally fixed rather than subject to negotiation as in the U.S., are likely to
be higher. In many foreign countries there is less government supervision and
regulation of stock exchanges, brokers, and listed companies than in the U.S.

DEVELOPING COUNTRIES Investments in companies domiciled in developing countries
may be subject to potentially higher risks than investments in developed
countries. These risks include (i) less social, political, and economic
stability; (ii) the small current size of the markets for such securities and
the currently low or nonexistent volume of trading, which result in a lack of
liquidity and in greater price volatility; (iii) certain national policies which
may restrict the Fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests; (iv)
foreign taxation; (v) the absence of developed legal structures governing
private or foreign investment or allowing for judicial redress for injury to
private property; (vi) the absence, until recently in certain Eastern European
countries, of a capital market structure or market-oriented economy; and (vii)
the possibility that recent favorable economic developments in Eastern Europe
may be slowed or reversed by unanticipated political or social events in such
countries.

In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency, and balance of payments position.

EURO On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national currencies
of the following member countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the above countries.

The new European Central Bank has control over all member countries' monetary
policies. Therefore, the participating countries no longer control their own
monetary policies by directing independent interest rates for their currencies.
The national governments of the participating countries, however, have retained
the authority to set tax and spending policies and public debt levels.

The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the business
or financial condition of European countries and issuers, and issuers in other
regions, whose securities the Fund may hold, or the impact, if any, on Fund
performance. In the first six months of the euro's existence, the exchange rates
of the euro versus many of the world's major currencies steadily declined. In
this environment, U.S. and other foreign investors experienced erosion of their
investment returns on their euro-denominated securities. The transition and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets, but the
impact of those changes cannot be assessed at this time.

FOREIGN CURRENCY The Fund's management endeavors to buy and sell foreign
currencies on as favorable a basis as practicable. Some price spread on currency
exchange (to cover service charges) may be incurred, particularly when the Fund
changes investments from one country to another or when proceeds of the sale of
shares in U.S. dollars are used for the purchase of securities in foreign
countries. Also, some countries may adopt policies that would prevent the Fund
from transferring cash out of the country or withhold portions of interest and
dividends at the source. There is the possibility of cessation of trading on
national exchanges, expropriation, nationalization, or confiscatory taxation,
withholding, and other foreign taxes on income or other amounts, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), default in foreign government securities,
political or social instability, or diplomatic developments that could affect
investments in securities of issuers in foreign nations.

The Fund may be affected either favorably or unfavorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations, and by indigenous economic and political
developments. Some countries in which the Fund may invest may also have fixed or
managed currencies that are not free-floating against the U.S. dollar. Further,
certain currencies may not be internationally traded.

Certain of these currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which the Fund's
portfolio securities are denominated may have a detrimental impact on the Fund.
Through the Fund's flexible policy, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places the Fund's investments.

The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.

FORWARD CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward currency
exchange contracts (forward contracts) to attempt to minimize the risk to the
Fund from adverse changes in the relationship between currencies or to enhance
income. A forward contract is an obligation to buy or sell a specific currency
for an agreed price at a future date which is individually negotiated and is
privately traded by currency traders and their customers. The Fund will either
cover its position in such a transaction or maintain, in a segregated account
with its custodian bank, cash or high-grade marketable securities having an
aggregate value equal to the amount of any such commitment until payment is
made.

ILLIQUID SECURITIES Generally, an illiquid security is any security that cannot
be sold within seven days in the ordinary course of business at approximately
the amount at which the Fund has valued it. The Fund's Board of Trustees has
authorized the Fund to invest in legally restricted securities (such as those
issued pursuant to an exemption from the registration requirements of the
federal securities laws). To the extent the manager determines there is a liquid
institutional or other market for these securities, the Fund considers them to
be liquid securities. An example of these securities are restricted securities
that may be freely transferred among qualified institutional buyers under Rule
144A of the 1933 Act, and for which a liquid institutional market has developed.
The Fund's Board of Trustees will review any determination by the manager to
treat a restricted security as a liquid security on an ongoing basis, including
the manager's assessment of current trading activity and the availability of
reliable price information. In determining whether a restricted security is
properly considered a liquid security, the manager and the Fund's Board of
Trustees will take into account the following factors: (i) the frequency of
trades and quotes for the security; (ii) the number of dealers willing to buy or
sell the security and the number of other potential buyers; (iii) dealer
undertakings to make a market in the security; and (iv) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). To the extent the Fund invests in restricted securities that are
deemed liquid, the general level of illiquidity in the Fund may increase if
qualified institutional buyers become uninterested in buying these securities or
the market for these securities contracts.

INTEREST RATE SWAPS The Fund may participate in interest rate swaps. An interest
rate swap is the transfer between two counterparties of interest rate
obligations. One obligation has an interest rate fixed to maturity while the
other has an interest rate that changes with changes in a designated benchmark,
such as the London Interbank Offered Rate (LIBOR), prime, commercial paper, or
other benchmarks. The obligations to make repayment of principal on the
underlying securities are not transferred. These transactions generally require
the participation of an intermediary, frequently a bank. The entity holding the
fixed rate obligation will transfer the obligation to the intermediary, and the
entity will then be obligated to pay to the intermediary a floating rate of
interest, generally including a fractional percentage as a commission for the
intermediary. The intermediary also makes arrangements with a second entity that
has a floating-rate obligation that substantially mirrors the obligation desired
by the first entity. In return for assuming a fixed obligation, the second
entity will pay the intermediary all sums that the intermediary pays on behalf
of the first entity, plus an arrangement fee and other agreed upon fees.

The Fund intends to participate in interest rate swaps with regard to
obligations held in the Fund's portfolio. To the extent, however, the Fund does
not own the underlying obligation, the Fund will maintain, in a segregated
account with its custodian bank, cash or liquid debt securities with an
aggregate value equal to the amount of the Fund's outstanding swap obligation.
Interest rate swaps permit the party seeking a floating rate obligation the
opportunity to acquire the obligation at a lower rate than is directly available
in the credit market, while permitting the party desiring a fixed rate
obligation the opportunity to acquire a fixed rate obligation, also frequently
at a price lower than is available in the capital markets. The success of the
transaction depends in large part on the availability of fixed rate obligations
at a low enough coupon rate to cover the cost involved.

LOAN PARTICIPATIONS The Fund may acquire loan participations and other related
direct or indirect bank debt obligations (Loan Participations), in which the
Fund will buy from a lender a portion of a larger loan that the lender has made
to a borrower. Generally, Loan Participations are sold without guarantee or
recourse to the lending institution and are subject to the credit risks of both
the borrower and the lending institution. Loan Participations, however, may
enable the Fund to acquire an interest in a loan from a financially strong
borrower which it could not do directly. While Loan Participations generally
trade at par value, the Fund will be permitted to buy Loan Participations that
sell at a discount because of the borrower's credit problems. To the extent the
borrower's credit problems are resolved, Loan Participations may appreciate in
value.

LOANS OF PORTFOLIO SECURITIES To generate additional income, the Fund may lend
certain of its portfolio securities to qualified banks and broker-dealers. For
each loan, the borrower must maintain with the Fund's custodian collateral
(consisting of any combination of cash, securities issued by the U.S. government
and its agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to 100% of the current market value of the loaned
securities. The Fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the borrower. The Fund
also continues to receive any distributions paid on the loaned securities. The
Fund may terminate a loan at any time and obtain the return of the securities
loaned within the normal settlement period for the security involved.

Where voting rights with respect to the loaned securities pass with the lending
of the securities, the manager intends to call the loaned securities to vote
proxies, or to use other practicable and legally enforceable means to obtain
voting rights, when the manager has knowledge that, in its opinion, a material
event affecting the loaned securities will occur or the manager otherwise
believes it necessary to vote. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral in the event of
default or insolvency of the borrower. The Fund will loan its securities only to
parties who meet creditworthiness standards approved by the Fund's Board of
Trustees, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the loan.

OPTIONS ON SECURITIES Although it does not currently anticipate that it will do
so, the Fund may write covered call options that are listed for trading on a
national securities exchange. This means that the Fund will only write options
on securities that the Fund actually owns. A call option gives the buyer the
right to buy the security on which the option is written for a specified period
of time at a price agreed to at the time the option is sold, even though that
price may be less than the value of the security at the time the option is
exercised. When the Fund sells covered call options, the Fund receives a cash
premium which can be used in whatever way the Fund deems to be most beneficial.
In writing covered call options, the Fund is subject to the risk that in the
event of a price increase on the underlying security which would likely trigger
the exercise of the call option, the Fund will not participate in the increase
in price beyond the exercise price. If the Fund determines that it does not wish
to deliver the underlying securities from its portfolio, it may have to enter
into a "closing purchase transaction" and pay a premium which may be higher or
lower than the premium it received for writing the option. There is no assurance
that a closing purchase transaction will be available in every instance.

REPURCHASE AGREEMENTS The Fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
suitable investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the Fund may enter into repurchase agreements.
Under a repurchase agreement, the Fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the Fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the Fund in each repurchase agreement. The manager will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price.

Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
Fund's ability to sell the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.

RESTRICTED SECURITIES A restricted security is one that has been purchased
through a private offering and cannot be sold without prior registration under
the 1933 Act, unless the sale is pursuant to an exemption under the 1933 Act. In
recent years, the Fund's portfolio has included several issues of restricted
securities.

Notwithstanding the restriction on the sale of restricted securities, a
secondary market exists for many of these securities. As with other securities
in the Fund's portfolio, if there are readily available market quotations for a
restricted security, it will be valued, for purposes of determining the Fund's
net asset value per share, within the range of the bid and ask prices. If no
quotations are available, the security will be valued at fair value in
accordance with procedures adopted by the Board. The Fund may receive commitment
fees when it buys restricted securities. For example, the transaction may
involve an individually negotiated purchase of short-term increasing rate notes.
Maturities for this type of security typically range from one to five years.
These notes are usually issued as temporary or "bridge" financing to be replaced
ultimately with permanent financing for the project or transaction which the
issuer seeks to finance. Typically, at the time of commitment, the Fund receives
the security and sometimes a cash commitment fee. Because the transaction could
possibly involve a delay between the time the Fund commits to buy the security
and the Fund's payment for and receipt of that security, the Fund will maintain,
in a segregated account with its custodian bank, cash or high-grade marketable
securities with an aggregate value equal to the amount of its commitments until
payment is made. The Fund will not buy restricted securities to generate
commitment fees, although the receipt of fees will help the Fund achieve its
principal objective of earning a high level of current income.

The Fund may receive consent fees in a variety of situations. For example, the
Fund may receive consent fees if an issuer seeks to "call" a bond it has issued
which does not contain a provision permitting the issuer to call the bond, or if
the Fund's consent is required to facilitate a merger or other business
combination transaction. Consent fees are received only occasionally, are
privately negotiated, and may be in any amount. As is the case with commitment
fees, the Fund will not buy securities with a view to generating consent fees,
although the receipt of such fees is consistent with the Fund's principal
investment objective.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Unfavorable market or economic conditions may include excessive volatility or a
prolonged general decline in the securities markets, the securities in which the
Fund normally invests, or the economies of the countries where the Fund invests.

Temporary defensive investments generally may include short-term debt
instruments, including U.S. government securities, high-grade commercial paper,
repurchase agreements and other money market equivalents. To the extent allowed
by exemptions granted under the Investment Company Act of 1940, as amended, and
the Fund's other investment policies and restrictions, the manager also may
invest the Fund's assets in shares of one or more money market funds managed by
the manager or its affiliates. The manager also may invest in these types of
securities or hold cash while looking for suitable investment opportunities or
to maintain liquidity.

TIMING OF THE FUND'S TRANSACTIONS Normally, the Fund will buy securities with
the intention of holding them for the long term. It may on occasion, however,
buy securities with the expectation of selling them within a short period of
time. The Fund may make changes in particular portfolio holdings whenever it
determines that a security is no longer suitable for the Fund's portfolio or
that another security appears to offer a relatively greater opportunity, and
will make such changes without regard to the length of time a security has been
held.

TRADE CLAIMS The Fund may invest a portion of its assets in trade claims
purchased from creditors of companies in financial difficulty. For purchasers
such as the Fund, trade claims offer the potential for profits since they are
often purchased at a significantly discounted value and, consequently, may
generate capital appreciation in the event that the value of the claim increases
as the debtor's financial position improves. If the debtor is able to pay the
full obligation on the face of the claim as a result of a restructuring or an
improvement in the debtor's financial condition, trade claims offer the
potential for higher income due to the difference in the face value of the claim
as compared to the discounted purchase price.

An investment in trade claims is speculative and carries a high degree of risk.
There can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. Trade claims are not regulated by federal
securities laws or the U.S. Securities and Exchange Commission. Currently, trade
claims are regulated primarily by bankruptcy laws. Because trade claims are
unsecured, holders of trade claims may have a lower priority in terms of payment
than most other creditors in a bankruptcy proceeding. Because of the nature and
risk of trade claims, the Fund will limit its investment in these instruments to
5% of its net assets at the time of purchase.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS The Fund may buy debt securities
on a "when-issued" or "delayed delivery" basis. These transactions are
arrangements under which the Fund buys securities with payment and delivery
scheduled for a future time. Purchases of debt securities on a when-issued or
delayed delivery basis are subject to market fluctuation and to the risk that
the value or yields at delivery may be more or less than the purchase price or
the yields available when the transaction was entered into. Although the Fund
will generally buy debt securities on a when-issued basis with the intention of
acquiring such securities, it may sell them before the settlement date if it
deems the sale to be advisable. The Fund will not enter into these transactions
for investment leverage. When the Fund is the buyer in such a transaction, it
will maintain, in a segregated account with its custodian bank, cash or
high-grade marketable securities having an aggregate value equal to the amount
of its purchase commitments until payment is made.

In when-issued and delayed delivery transactions, the Fund relies on the seller
to complete the transaction. The other party's failure may cause the Fund to
miss a price or yield considered advantageous. Securities purchased on a
when-issued or delayed delivery basis do not generally earn interest until their
scheduled delivery date. The Fund is not subject to any percentage limit on the
amount of its assets which may be invested in when-issued debt securities.

OFFICERS AND TRUSTEES
-------------------------------------------------------------------------------
Franklin High Income Trust (Trust) has a board of trustees. The board is
responsible for the overall management of the Trust, including general
supervision and review of the Fund's investment activities. The board, in turn,
elects the officers of the Trust who are responsible for administering the
Trust's day-to-day operations. The board also monitors the Fund to ensure no
material conflicts exist among share classes. While none is expected, the board
will act appropriately to resolve any material conflict that may arise.

The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, and principal occupations during
the past five years are shown below.

Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE

President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 28 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).

*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Executive Vice President and Director, Franklin Templeton Distributors,
Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin
Investment Advisory Services, Inc., Franklin/Templeton Investor Services, Inc.
and Franklin Templeton Services, Inc.; and officer and/or director or trustee,
as the case may be, of most of the other subsidiaries of Franklin Resources,
Inc. and of 51 of the investment companies in Franklin Templeton Investments.

Robert F. Carlson (72)
2120 Lambeth Way, Carmichael, CA 95608
TRUSTEE

Vice President and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS); director or trustee, as the case may be,
of 11 of the investment companies in Franklin Templeton Investments; and
FORMERLY, member and Chairman of the Board, Sutter Community Hospitals, member,
Corporate Board, Blue Shield of California, and Chief Counsel, California
Department of Transportation.

S. Joseph Fortunato (68)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE

Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 49 of the investment companies in Franklin Templeton
Investments.

*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Executive Vice President and Director, Franklin Templeton Distributors,
Inc.; Director, Franklin Advisers, Inc., Franklin Investment Advisory Services,
Inc. and Franklin/Templeton Investor Services, Inc.; Senior Vice President,
Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of most of the other subsidiaries of Franklin Resources, Inc. and
of 51 of the investment companies in Franklin Templeton Investments.

Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014
TRUSTEE

Chairman, Peregrine Venture Management Company (venture capital); Director, The
California Center for Land Recycling (redevelopment); director or trustee, as
the case may be, of 28 of the investment companies in Franklin Templeton
Investments; and FORMERLY, General Partner, Miller & LaHaye and Peregrine
Associates, the general partners of Peregrine Venture funds.

*R. Martin Wiskemann (73)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE

Executive Vice President, and Director, Franklin Advisers, Inc.; Senior Vice
President, Franklin Management, Inc.; and officer and/or director or trustee, as
the case may be, of 15 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Vice President and Director, ILA Financial Services,
Inc. (until 1998).

Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer, Franklin Resources, Inc.; Executive Vice President and
Director, Franklin/Templeton Investor Services, Inc.; President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Executive Vice President, Franklin Advisers, Inc. and Franklin Investment
Advisory Services, Inc.; Chief Financial Officer, Franklin Advisory Services,
LLC; Chairman and Director, Franklin Templeton Services, Inc.; officer and/or
director of some of the other subsidiaries of Franklin Resources, Inc.; and
officer and/or director or trustee, as the case may be, of 51 of the investment
companies in Franklin Templeton Investments.

David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Associate General Counsel, Franklin Resources, Inc.; President, Chief Executive
Officer and Director, Franklin Select Realty Trust, Property Resources, Inc.,
Property Resources Equity Trust, Franklin Real Estate Management, Inc. and
Franklin Properties, Inc.; officer and director of some of the other
subsidiaries of Franklin Resources, Inc.; officer of 52 of the investment
companies in Franklin Templeton Investments; and FORMERLY, President, Chief
Executive Officer and Director, Franklin Real Estate Income Fund and Franklin
Advantage Real Estate Income Fund (until 1996).

Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice
President, Templeton Worldwide, Inc. and Templeton Global Investors, Inc.;
officer of 52 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Deputy Director, Division of Investment Management, Executive
Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special
Counsel and Attorney Fellow, U.S. Securities and Exchange Commission
(1986-1995), Attorney, Rogers & Wells (until 1986), and Judicial Clerk, U.S.
District Court (District of Massachusetts) (until 1979).

Edward V. McVey (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Senior Vice President, Franklin Templeton Distributors, Inc.; officer of one of
the other subsidiaries of Franklin Resources, Inc. and of 29 of the investment
companies in Franklin Templeton Investments.

Kimberley H. Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER

Senior Vice President, Franklin Templeton Services, Inc.; and officer of 33 of
the investment companies in Franklin Templeton Investments.

Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY

Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer
of 52 of the investment companies in Franklin Templeton Investments; and
formerly, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until January 2000) and Director, Templeton
Asset Management Ltd. (until 1999).

*This board member is considered an "interested person" under federal securities
laws.

The Trust pays noninterested board members $850 per month plus $810 per meeting
attended. Board members who serve on the audit committee of the Trust and other
funds in Franklin Templeton Investments receive a flat fee of $2,000 per
committee meeting attended, a portion of which is allocated to the Trust.
Members of a committee are not compensated for any committee meeting held on the
day of a board meeting. Noninterested board members also may serve as directors
or trustees of other funds in Franklin Templeton Investments and may receive
fees from these funds for their services. The fees payable to noninterested
board members by the Trust are subject to reductions resulting from fee caps
limiting the amount of fees payable to board members who serve on other boards
within Franklin Templeton Investments. The following table provides the total
fees paid to noninterested board members by the Trust and by Franklin Templeton
Investments.

NUMBER OF
TOTAL FEES BOARDS IN
TOTAL FEES RECEIVED FROM FRANKLIN
RECEIVED FRANKLIN TEMPLETON
FROM THE TEMPLETON INVESTMENTS
TRUST/1/ INVESTMENTS/2/ ON WHICH
NAME ($) ($) EACH SERVES/3/
------------------------------------------------------------------------------
Frank H. Abbott, III 14,649 156,060 28
Robert F. Carlson 19,110 89,690 11
S. Joseph Fortunato 14,173 363,238 49
Frank W.T. LaHaye 13,839 156,060 28

1. For the fiscal year ended May 31, 2000.

2. For the calendar year ended December 31, 1999.

3. We base the number of boards on the number of registered investment companies
in Franklin Templeton Investments. This number does not include the total number
of series or funds within each investment company for which the board members
are responsible. Franklin Templeton Investments currently includes 52 registered
investment companies, with approximately 157 U.S. based funds or series.

Noninterested board members are reimbursed for expenses incurred in connection
with attending board meetings, paid pro rata by each fund in Franklin Templeton
Investments for which they serve as director or trustee. No officer or board
member received any other compensation, including pension or retirement
benefits, directly or indirectly from the Fund or other funds in Franklin
Templeton Investments. Certain officers or board members who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.

Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments, as is
consistent with their individual financial goals. In February 1998, this policy
was formalized through adoption of a requirement that each board member invest
one-third of fees received for serving as a director or trustee of a Templeton
fund in shares of one or more Templeton funds and one-third of fees received for
serving as a director or trustee of a Franklin fund in shares of one or more
Franklin funds until the value of such investments equals or exceeds five times
the annual fees paid such board member. Investments in the name of family
members or entities controlled by a board member constitute fund holdings of
such board member for purposes of this policy, and a three year phase-in period
applies to such investment requirements for newly elected board members. In
implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.

MANAGEMENT AND OTHER SERVICES
-------------------------------------------------------------------------------

MANAGER AND SERVICES PROVIDED The Fund's manager is Franklin Advisers, Inc. The
manager is a wholly owned subsidiary of Franklin Resources, Inc. (Resources), a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources.

The manager provides investment research and portfolio management services, and
selects the securities for the Fund to buy, hold or sell. The manager also
selects the brokers who execute the Fund's portfolio transactions. The manager
provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the Fund, the manager and its
officers, directors and employees are covered by fidelity insurance.

The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager on behalf of the Fund. Similarly, with respect to the Fund,
the manager is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the Fund or other
funds it manages.

The Fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal securities
transactions, including transactions involving securities that are being
considered for the Fund or that are currently held by the Fund, subject to
certain general restrictions and procedures. The personal securities
transactions of access persons of the Fund, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).

MANAGEMENT FEES The Fund pays the manager a fee equal to a monthly rate of:

o 5/96 of 1% of the value of net assets up to and including $100 million;

o 1/24 of 1% of the value of net assets over $100 million and not over $250
million; and

o 9/240 of 1% of the value of net assets in excess of $250 million.

The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
Fund's shares pays its proportionate share of the fee.

For the last three fiscal years ended May 31, the Fund paid the following
management fees:

MANAGEMENT
FEES PAID ($)
-----------------------------------------------------
2000 15,209,681
1999 16,672,024
1998 15,055,199

ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with the manager to provide certain administrative
services and facilities for the Fund. FT Services is wholly owned by Resources
and is an affiliate of the Fund's manager and principal underwriter.

The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.

ADMINISTRATION FEES The manager pays FT Services a monthly fee equal to an
annual rate of:

o 0.15% of the Fund's average daily net assets up to $200 million;

o 0.135% of average daily net assets over $200 million up to $700 million;

o 0.10% of average daily net assets over $700 million up to $1.2 billion; and

o 0.075% of average daily net assets over $1.2 billion.

During the last three fiscal years ended May 31, the manager paid FT Services
the following administration fees:

ADMINISTRATION
FEES PAID ($)
-------------------------------------------------------
2000 3,090,442
1999 3,304,935
1998 3,236,064

SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the Fund's shareholder servicing agent and acts as
the Fund's transfer agent and dividend-paying agent. Investor Services is
located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please send all
correspondence to Investor Services to P.O. Box 997151, Sacramento, CA
95899-9983.

For its services, Investor Services receives a fixed fee per account. The Fund
also will reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the Fund. The amount of reimbursements
for these services per benefit plan participant Fund account per year will not
exceed the per account fee payable by the Fund to Investor Services in
connection with maintaining shareholder accounts.

CUSTODIAN Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the Fund's securities and other assets.

AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA 94105,
is the Fund's independent auditor. The auditor gives an opinion on the financial
statements included in the Trust's Annual Report to Shareholders and reviews the
Trust's registration statement filed with the SEC.

PORTFOLIO TRANSACTIONS
------------------------------------------------------------------------------

The manager selects brokers and dealers to execute the Fund's portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the board may give.

When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the manager and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The manager will ordinarily place
orders to buy and sell over-the-counter securities on a principal rather than
agency basis with a principal market maker unless, in the opinion of the
manager, a better price and execution can otherwise be obtained. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask price.

The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the manager's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the manager include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the manager in carrying out its investment advisory
responsibilities. These services may not always directly benefit the Fund. They
must, however, be of value to the manager in carrying out its overall
responsibilities to its clients.

It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions to obtain additional
research services allows the manager to supplement its own research and analysis
activities and to receive the views and information of individuals and research
staffs of other securities firms. As long as it is lawful and appropriate to do
so, the manager and its affiliates may use this research and data in their
investment advisory capacities with other clients. If the Fund's officers are
satisfied that the best execution is obtained, the sale of Fund shares, as well
as shares of other funds in Franklin Templeton Investments, also may be
considered a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.

Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the Fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender

If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by the manager are considered at or about the
same time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund is
concerned. In other cases it is possible that the ability to participate in
volume transactions may improve execution and reduce transaction costs to the
Fund.

During the last three fiscal years ended May 31, the Fund paid the following
brokerage commissions:

BROKERAGE
COMMISSIONS ($)
--------------------------------------------------------
2000 95,133
1999 7,524
1998 0

For the fiscal year ended May 31, 2000, the Fund paid brokerage commissions of
$20,146,233 from aggregate portfolio transactions of $10,271,159,904 to brokers
who provided research services.

As of May 31, 2000, the Fund did not own securities of its regular
broker-dealers.

DISTRIBUTIONS AND TAXES
-------------------------------------------------------------------------------

The Fund calculates dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
the difference in the distribution and service (Rule 12b-1) fees of each class.
Distributions are subject to approval by the board. The Fund does not pay
"interest" or guarantee any fixed rate of return on an investment in its shares.

DISTRIBUTIONS OF NET INVESTMENT INCOME The Fund receives income generally in the
form of dividends and interest on its investments. This income, less expenses
incurred in the operation of the Fund, constitutes the Fund's net investment
income from which dividends may be paid to you. Any distributions by the Fund
from such income will be taxable to you as ordinary income, whether you receive
them in cash or in additional shares.

DISTRIBUTIONS OF CAPITAL GAINS The Fund may derive capital gains and losses in
connection with sales or other dispositions of its portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in the Fund. Any net capital gains realized by the Fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, to reduce or eliminate excise or income taxes on the Fund.

Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain distributions from the Fund's sale of securities held for more than
five years may be subject to a reduced tax rate.

EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
fund. Similarly, foreign exchange losses realized on the sale of debt securities
generally are treated as ordinary losses. These gains when distributed will be
taxable to you as ordinary income, and any losses will reduce the Fund's
ordinary income otherwise available for distribution to you. This treatment
could increase or decrease the Fund's ordinary income distributions to you, and
may cause some or all of the Fund's previously distributed income to be
classified as a return of capital.

The Fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce ordinary income distributions to
you.

INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The Fund will inform you of
the amount of your ordinary income dividends and capital gain distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held Fund shares for a full year, the Fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the Fund.

ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The Fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code (Code). The Fund has qualified as a regulated investment company
for its most recent fiscal year, and intends to continue to qualify during the
current fiscal year. As a regulated investment company, the Fund generally pays
no federal income tax on the income and gains it distributes to you. The board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines such course of action to be beneficial to
shareholders. In such case, the Fund will be subject to federal, and possibly
state, corporate taxes on its taxable income and gains, and distributions to you
will be taxed as ordinary dividend income to the extent of the Fund's earnings
and profits.

EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Code
requires the Fund to distribute to you by December 31 of each year, at a
minimum, the following amounts: 98% of its taxable ordinary income earned during
the calendar year; 98% of its capital gain net income earned during the twelve
month period ending October 31; and 100% of any undistributed amounts from the
prior year. The Fund intends to declare and pay these distributions in December
(or to pay them in January, in which case you must treat them as received in
December) but can give no assurances that its distributions will be sufficient
to eliminate all taxes. Redemption of Fund shares Redemptions (including
redemptions in kind) and exchanges of Fund shares are taxable transactions for
federal and state income tax purposes. If you redeem your fund shares, or
exchange your Fund shares for shares of a different Franklin Templeton Fund, the
IRS will require that you report any gain or loss on your redemption or
exchange. If you hold your shares as a capital asset, the gain or loss that you
realize will be capital gain or loss and will be long-term or short-term,
generally depending on how long you hold your shares.

Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gain from the sale of Fund shares held for more than five years may be subject
to a reduced tax rate.

Any loss incurred on the redemption or exchange of shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by the Fund on those shares. All or a portion
of any loss that you realize upon the redemption of your Fund shares will be
disallowed to the extent that you buy other shares in the Fund (through
reinvestment of dividends or otherwise) within 30 days before or after your
share redemption. Any loss disallowed under these rules will be added to your
tax basis in the new shares you buy.

DEFERRAL OF BASIS If you redeem some or all of your shares in the Fund, and then
reinvest the sales proceeds in the Fund or in another Franklin Templeton Fund
within 90 days of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. The IRS will
require you to report any gain or loss on the redemption of your original shares
in the Fund. In doing so, all or a portion of the sales charge that you paid for
your original shares in the Fund will be excluded from your tax basis in the
shares sold (for the purpose of determining gain or loss upon the sale of such
shares). The portion of the sales charge excluded will equal the amount that the
sales charge is reduced on your reinvestment. Any portion of the sales charge
excluded from your tax basis in the shares sold will be added to the tax basis
of the shares you acquire from your reinvestment.

U.S. GOVERNMENT SECURITIES States grant tax-free status to dividends paid to you
from interest earned on certain U.S. government securities, subject in some
states to minimum investment or reporting requirements that must be met by the
Fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities generally
do not qualify for tax-free treatment. The rules on exclusion of this income are
different for corporations.

DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that only a small percentage of the dividends paid
by the Fund for the most recent fiscal year qualified for the dividends-received
deduction. You may be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these dividends.
The dividends-received deduction will be available only with respect to
dividends designated by the Fund as eligible for such treatment. All dividends
(including the deducted portion) must be included in your alternative minimum
taxable income calculation.

INVESTMENT IN COMPLEX SECURITIES The Fund may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the Fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to the Fund (possibly causing the Fund to sell securities to raise the cash for
necessary distributions) and/or defer the Fund's ability to recognize losses,
and, in limited cases, subject the Fund to U.S. federal income tax on income
from certain foreign securities. These rules may affect the amount, timing or
character of the income distributed to you by the Fund.

ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
-------------------------------------------------------------------------------

The Fund is a diversified series of Franklin High Income Trust, an open-end
management investment company, commonly called a mutual fund. It was
incorporated in Colorado in January 1968 under the sponsorship of the Assembly
of Governmental Employees, reorganized as a Delaware business trust in the
present form on October 1, 1996, and is registered with the SEC.

The Fund currently offers four classes of shares, Class A, Class B, Class C and
Advisor Class. The Fund began offering Class B shares on January 1, 1999. The
Fund may offer additional classes of shares in the future. The full title of
each class is:

o AGE High Income Fund - Class A
o AGE High Income Fund - Class B
o AGE High Income Fund - Class C
o AGE High Income Fund - Advisor Class

Shares of each class represent proportionate interests in the Fund's assets. On
matters that affect the Fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only one
class, only shareholders of that class may vote. Each class votes separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law.

The Trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all of
the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.

The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are required
to help you communicate with other shareholders about the removal of a board
member. A special meeting also may be called by the board in its discretion.

As of September 1, 2000, the principal shareholders of the Fund, beneficial or
of record, were:

PERCENTAGE
NAME AND ADDRESS SHARE CLASS (%)
-------------------------------------------------------------------------------
Andrew R. Johnson
PO Box 370100
Las Vegas, NV 89137-0100 Advisor 26.997

Richard C. Stoker
Richard C. Stoker LIV TR
DTD 8/27/90
2930 N Atlantic Blvd.
Fort Lauderdale, FL 33308 Advisor 11.155

FTB&T for ValuSelect
Franklin Resources PSP
Attn: Trading
PO Box 2438
Rancho Cordova, CA 95741-2438 Advisor 11.063

Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and/or
trustees of the Trust, may be considered beneficial holders of the Fund shares
held by Franklin Resources, Inc. (Resources). As principal shareholders of
Resources, they may be able to control the voting of Resources' shares of the
Fund.

From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the outstanding shares of any class.

As of September 1, 2000, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in Franklin Templeton
Investments.

BUYING AND SELLING SHARES
-------------------------------------------------------------------------------

The Fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer orders
and accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity. Banks and financial institutions that
sell shares of the Fund may be required by state law to register as securities
dealers.

For investors outside the U.S., the offering of Fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the Fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.

All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank. We may deduct any applicable banking charges
imposed by the bank from your account.

When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.

If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.

INITIAL SALES CHARGES The maximum initial sales charge is 4.25% for Class A and
1% for Class C. There is no initial sales charge for Class B. The initial sales
charge for Class A shares may be reduced for certain large purchases, as
described in the prospectus. We offer several ways for you to combine your
purchases in Franklin Templeton funds to take advantage of the lower sales
charges for large purchases. Franklin Templeton funds include the U.S.
registered mutual funds in Franklin Templeton Investments except Franklin
Templeton Variable Insurance Products Trust and Templeton Capital Accumulator
Fund, Inc.

CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in Franklin
Templeton funds. You also may combine the shares of your spouse, children under
the age of 21 or grandchildren under the age of 21. If you are the sole owner of
a company, you also may add any company accounts, including retirement plan
accounts. Companies with one or more retirement plans may add together the total
plan assets invested in Franklin Templeton funds to determine the sales charge
that applies.

LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge by
completing the letter of intent section of your account application. A letter of
intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. By completing the letter of intent section of the application, you
acknowledge and agree to the following:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class A shares registered in your name until you fulfill your LOI. Your periodic
statements will include the reserved shares in the total shares you own, and we
will pay or reinvest dividend and capital gain distributions on the reserved
shares according to the distribution option you have chosen.

o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the LOI.

o Although you may exchange your shares, you may not sell reserved shares until
you complete the LOI or pay the higher sales charge.

After you file your LOI with the Fund, you may buy Class A shares at the sales
charge applicable to the amount specified in your LOI. Sales charge reductions
based on purchases in more than one Franklin Templeton fund will be effective
only after notification to Distributors that the investment qualifies for a
discount. Any Class A purchases you made within 90 days before you filed your
LOI also may qualify for a retroactive reduction in the sales charge. If you
file your LOI with the Fund before a change in the Fund's sales charge, you may
complete the LOI at the lower of the new sales charge or the sales charge in
effect when the LOI was filed.

Your holdings in Franklin Templeton funds acquired more than 90 days before you
filed your LOI will be counted towards the completion of the LOI, but they will
not be entitled to a retroactive reduction in the sales charge. Any redemptions
you make during the 13 month period, except in the case of certain retirement
plans, will be subtracted from the amount of the purchases for purposes of
determining whether the terms of the LOI have been completed.

If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of your
total purchases, less redemptions, is more than the amount specified in your LOI
and is an amount that would qualify for a further sales charge reduction, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made. The price adjustment will be made on
purchases made within 90 days before and on those made after you filed your LOI
and will be applied towards the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases.

If the amount of your total purchases, less redemptions, is less than the amount
specified in your LOI, the sales charge will be adjusted upward, depending on
the actual amount purchased (less redemptions) during the period. You will need
to send Distributors an amount equal to the difference in the actual dollar
amount of sales charge paid and the amount of sales charge that would have
applied to the total purchases if the total of the purchases had been made at
one time. Upon payment of this amount, the reserved shares held for your account
will be deposited to an account in your name or delivered to you or as you
direct. If within 20 days after written request the difference in sales charge
is not paid, we will redeem an appropriate number of reserved shares to realize
the difference. If you redeem the total amount in your account before you
fulfill your LOI, we will deduct the additional sales charge due from the sale
proceeds and forward the balance to you.

For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in Franklin Templeton funds under
the LOI. These plans are not subject to the requirement to reserve 5% of the
total intended purchase or to the policy on upward adjustments in sales charges
described above, or to any penalty as a result of the early termination of a
plan, nor are these plans entitled to receive retroactive adjustments in price
for investments made before executing the LOI.

GROUP PURCHASES. If you are a member of a qualified group, you may buy Class A
shares at a reduced sales charge that applies to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying Fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton fund sales and other materials in
publications and mailings to its members at reduced or no cost to Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the Fund, and

o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased the Fund's
Class A shares at a reduced sales charge under the group purchase privilege
before February 1, 1998, may continue to do so.

WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be purchased
without an initial sales charge or contingent deferred sales charge (CDSC) by
investors who reinvest within 365 days:

o Dividend and capital gain distributions from any Franklin Templeton fund. The
distributions generally must be reinvested in the same share class. Certain
exceptions apply, however, to Class C shareholders who chose to reinvest their
distributions in Class A shares of the Fund before November 17, 1997, and to
Advisor Class or Class Z shareholders of a Franklin Templeton fund who may
reinvest their distributions in the Fund's Class A shares. This waiver category
also applies to Class B and C shares.

o Annuity payments received under either an annuity option or from death benefit
proceeds, if the annuity contract offers as an investment option the Franklin
Templeton Variable Insurance Products Trust. You should contact your tax advisor
for information on any tax consequences that may apply.

o Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.

If you immediately placed your redemption proceeds in a Franklin Bank CD or a
Franklin Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date the CD matures,
including any rollover, or the date you redeem your money fund shares.

o Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.

If you paid a CDSC when you redeemed your Class A shares from a Templeton Global
Strategy Fund, a new CDSC will apply to your purchase of Fund shares and the
CDSC holding period will begin again. We will, however, credit your Fund account
with additional shares based on the CDSC you previously paid and the amount of
the redemption proceeds that you reinvest.

If you immediately placed your redemption proceeds in a Franklin Templeton money
fund, you may reinvest them as described above. The proceeds must be reinvested
within 365 days from the date they are redeemed from the money fund.

o Distributions from an existing retirement plan invested in Franklin Templeton
funds

WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased
without an initial sales charge or CDSC by various individuals and institutions
due to anticipated economies in sales efforts and expenses, including:

o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts by telephone or
other means of electronic data transfer directly from the bank or trust company,
with payment by federal funds received by the close of business on the next
business day following the order.

o Any state or local government or any instrumentality, department, authority or
agency thereof that has determined the Fund is a legally permissible investment
and that can only buy Fund shares without paying sales charges. Please consult
your legal and investment advisors to determine if an investment in the Fund is
permissible and suitable for you and the effect, if any, of payments by the Fund
on arbitrage rebate calculations.

o Broker-dealers, registered investment advisors or certified financial planners
who have entered into an agreement with Distributors for clients participating
in comprehensive fee programs

o Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors

o Registered securities dealers and their affiliates, for their investment
accounts only

o Current employees of securities dealers and their affiliates and their family
members, as allowed by the internal policies of their employer

o Officers, trustees, directors and full-time employees of Franklin Templeton
Investments, and their family members, consistent with our then-current policies

o Any investor who is currently a Class Z shareholder of Franklin Mutual Series
Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z shareholder
who had an account in any Mutual Series fund on October 31, 1996, or who sold
his or her shares of Mutual Series Class Z within the past 365 days

o Investment companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer

o Accounts managed by Franklin Templeton Investments

o Certain unit investment trusts and their holders reinvesting distributions
from the trusts

o Group annuity separate accounts offered to retirement plans

o Chilean retirement plans that meet the requirements described under
"Retirement plans" below

o Members of the Assembly of Governmental Employees (AGE)

In addition, Class C shares may be purchased without an initial sales charge by
any investor who buys Class C shares through an omnibus account with Merrill
Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the shares are
sold within 18 months of purchase.

RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in Franklin Templeton funds over a
13 month period may buy Class A shares without an initial sales charge.
Retirement plans that are not qualified retirement plans (employer sponsored
pension or profit-sharing plans that qualify under section 401 of the Internal
Revenue Code, including 401(k), money purchase pension, profit sharing and
defined benefit plans), SIMPLEs (savings incentive match plans for employees) or
SEPs (employer sponsored simplified employee pension plans established under
section 408(k) of the Internal Revenue Code) must also meet the group purchase
requirements described above to be able to buy Class A shares without an initial
sales charge. We may enter into a special arrangement with a securities dealer,
based on criteria established by the Fund, to add together certain small
qualified retirement plan accounts for the purpose of meeting these
requirements.

For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply if
the retirement plan is transferred out of Franklin Templeton funds or terminated
within 365 days of the retirement plan account's initial purchase in Franklin
Templeton funds.

SALES IN TAIWAN. Under agreements with certain banks in Taiwan,
Republic of China, the Fund's shares are available to these banks' trust
accounts without a sales charge. The banks may charge service fees to their
customers who participate in the trusts. A portion of these service fees may be
paid to Distributors or one of its affiliates to help defray expenses of
maintaining a service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.

The Fund's Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:

SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE (%)
---------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $100,000 2.0
$100,000 but less than $400,000 1.0
$400,000 or more 0

DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may be
deemed an underwriter under the Securities Act of 1933, as amended. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the dealer compensation table in the Fund's
prospectus.

Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 0.75% on sales of $1 million to $2 million, plus
0.60% on sales over $2 million to $3 million, plus 0.50% on sales over $3
million to $50 million, plus 0.25% on sales over $50 million to $100 million,
plus 0.15% on sales over $100 million.

These breakpoints are reset every 12 months for purposes of additional
purchases.

Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of Class A shares by certain retirement plans without an initial sales charge.
These payments may be made in the form of contingent advance payments, which may
be recovered from the securities dealer or set off against other payments due to
the dealer if shares are sold within 12 months of the calendar month of
purchase. Other conditions may apply. All terms and conditions may be imposed by
an agreement between Distributors, or one of its affiliates, and the securities
dealer.

In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of Franklin
Templeton Investments. This support is based primarily on the amount of sales of
fund shares and/or total assets with Franklin Templeton Investments. The amount
of support may be affected by: total sales; net sales; levels of redemptions;
the proportion of a securities dealer's sales and marketing efforts in Franklin
Templeton Investments; a securities dealer's support of, and participation in,
Distributors' marketing programs; a securities dealer's compensation programs
for its registered representatives; and the extent of a securities dealer's
marketing programs relating to Franklin Templeton Investments. Financial support
to securities dealers may be made by payments from Distributors' resources, from
Distributors' retention of underwriting concessions and, in the case of funds
that have Rule 12b-1 plans, from payments to Distributors under such plans. In
addition, certain securities dealers may receive brokerage commissions generated
by fund portfolio transactions in accordance with the rules of the National
Association of Securities Dealers, Inc.

Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in Franklin Templeton funds, however,
are more likely to be considered. To the extent permitted by their firm's
policies and procedures, registered representatives' expenses in attending these
meetings may be covered by Distributors.

CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity discount
or letter of intent programs, a CDSC may apply on any shares you sell within 12
months of purchase. For Class C shares, a CDSC may apply if you sell your shares
within 18 months of purchase. The CDSC is 1% of the value of the shares sold or
the net asset value at the time of purchase, whichever is less.

Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of Franklin
Templeton funds or terminated within 365 days of the account's initial purchase
in Franklin Templeton funds.

For Class B shares, there is a CDSC if you sell your shares within six years, as
described in the table below. The charge is based on the value of the shares
sold or the net asset value at the time of purchase, whichever is less.

IF YOU SELL YOUR CLASS B SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
-------------------------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

CDSC waivers. The CDSC for any share class generally will be waived for:

o Account fees

o Sales of Class A shares purchased without an initial sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997, or
(ii) the securities dealer of record received a payment from Distributors of
0.25% or less, or (iii) Distributors did not make any payment in connection with
the purchase, or (iv) the securities dealer of record has entered into a
supplemental agreement with Distributors o Redemptions of Class A shares by
investors who purchased $1 million or more without an initial sales charge if
the securities dealer of record waived its commission in connection with the
purchase

o Redemptions by the Fund when an account falls below the minimum required
account size o Redemptions following the death of the shareholder or beneficial
owner

o Redemptions through a systematic withdrawal plan set up before February 1,
1995

o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12% annually of your
account's net asset value depending on the frequency of your plan

o Redemptions by an employee benefit plan: (i) that is a customer of Franklin
Templeton Defined Contribution Services; and/or (ii) whose assets are held by
Franklin Templeton Bank & Trust as trustee or custodian (not applicable to Class
B)

o Distributions from individual retirement accounts (IRAs) due to
death or disability or upon periodic distributions based on life expectancy (for
Class B, this applies to all retirement plan accounts, not only IRAs)

o Returns of excess contributions (and earnings, if applicable) from retirement
plan accounts

o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee benefit
plans (not applicable to Class B)

EXCHANGE PRIVILEGE If you request the exchange of the total value of your
account, declared but unpaid income dividends and capital gain distributions
will be reinvested in the Fund and exchanged into the new fund at net asset
value when paid. Backup withholding and information reporting may apply.

If a substantial number of shareholders should, within a short period, sell
their Fund shares under the exchange privilege, the Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
the Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment goals exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing money market instruments and invested in portfolio securities
in as orderly a manner as is possible when attractive investment opportunities
arise.

The proceeds from the sale of shares of an investment company generally are not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of Fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.

SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply. There are no service charges for establishing or
maintaining a systematic withdrawal plan.

Each month in which a payment is scheduled, we will redeem an equivalent amount
of shares in your account on the day of the month you have indicated on your
account application or, if no day is indicated, on the 20th day of the month. If
that day falls on a weekend or holiday, we will process the redemption on the
next business day. For plans set up before June 1, 2000, we will continue to
process redemptions on the 25th day of the month (or the next business day)
unless you instruct us to change the processing date. Available processing dates
currently are the 1st, 5th, 10th, 15th, 20th and 25th days of the month. When
you sell your shares under a systematic withdrawal plan, it is a taxable
transaction.

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan also may be
subject to a CDSC. Redeeming shares through a systematic withdrawal plan may
reduce or exhaust the shares in your account if payments exceed distributions
received from the Fund. This is especially likely to occur if there is a market
decline. If a withdrawal amount exceeds the value of your account, your account
will be closed and the remaining balance in your account will be sent to you.
Because the amount withdrawn under the plan may be more than your actual yield
or income, part of the payment may be a return of your investment.

To discontinue a systematic withdrawal plan, change the amount and schedule of
withdrawal payments, or suspend one payment, we must receive instructions from
you at least three business days before a scheduled payment. The Fund may
discontinue a systematic withdrawal plan by notifying you in writing and will
discontinue a systematic withdrawal plan automatically if all shares in your
account are withdrawn or if the Fund receives notification of the shareholder's
death or incapacity.

REDEMPTIONS IN KIND The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the U.S. Securities and Exchange
Commission (SEC). In the case of redemption requests in excess of these amounts,
the board reserves the right to make payments in whole or in part in securities
or other assets of the Fund, in case of an emergency, or if the payment of such
a redemption in cash would be detrimental to the existing shareholders of the
Fund. In these circumstances, the securities distributed would be valued at the
price used to compute the Fund's net assets and you may incur brokerage fees in
converting the securities to cash. The Fund does not intend to redeem illiquid
securities in kind. If this happens, however, you may not be able to recover
your investment in a timely manner.

SHARE CERTIFICATES We will credit your shares to your Fund account. We do not
issue share certificates unless you specifically request them. This eliminates
the costly problem of replacing lost, stolen or destroyed certificates. If a
certificate is lost, stolen or destroyed, you may have to pay an insurance
premium of up to 2% of the value of the certificate to replace it.

Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.

Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The Fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.

In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.

Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.

Franklin Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the Fund on behalf of
numerous beneficial owners for recordkeeping operations performed with respect
to such owners. For each beneficial owner in the omnibus account, the Fund may
reimburse Investor Services an amount not to exceed the per account fee that the
Fund normally pays Investor Services. These financial institutions also may
charge a fee for their services directly to their clients.

There are special procedures for banks and other institutions that wish to open
multiple accounts. An institution may open a single master account by filing one
application form with the Fund, signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened when the master account is
opened by listing them on the application, or by providing instructions to the
Fund at a later date. These sub-accounts may be registered either by name or
number. The Fund's investment minimums apply to each sub-account. The Fund will
send confirmation and account statements for the sub-accounts to the
institution.

If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the Fund. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Your redemption proceeds will not earn interest between the
time we receive the order from your dealer and the time we receive any required
documents. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the Fund in a timely fashion must be settled between you and
your securities dealer.

Certain shareholder servicing agents may be authorized to accept your
transaction request.

For institutional accounts, there may be additional methods of buying or selling
Fund shares than those described in this SAI or in the prospectus.

In the event of disputes involving multiple claims of ownership or
authority to control your account, the Fund has the right (but has no
obligation) to: (a) freeze the account and require the written agreement of all
persons deemed by the Fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a notice
of levy.

PRICING SHARES
-------------------------------------------------------------------------------
When you buy shares, you pay the offering price. The offering price is the net
asset value (NAV) per share plus any applicable sales charge, calculated to two
decimal places using standard rounding criteria. When you sell shares, you
receive the NAV minus any applicable CDSC.

The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of shares
outstanding.

The Fund calculates the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The Fund does not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.

When determining its NAV, the Fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the Fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. The Fund values over-the-counter portfolio securities within
the range of the most recent quoted bid and ask prices. If portfolio securities
trade both in the over-the-counter market and on a stock exchange, the Fund
values them according to the broadest and most representative market as
determined by the manager.

The Fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the Fund holds is its last sale price on the relevant exchange before the Fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the Fund values options within the range of the
current closing bid and ask prices if the Fund believes the valuation fairly
reflects the contract's market value.

The Fund determines the value of a foreign security as of the close of trading
on the foreign exchange on which the security is traded or as of the close of
trading on the NYSE, if that is earlier. The value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no sale is
reported at that time, the foreign security is valued within the range of the
most recent quoted bid and ask prices. Occasionally events that affect the
values of foreign securities and foreign exchange rates may occur between the
times at which they are determined and the close of the exchange and will,
therefore, not be reflected in the computation of the NAV. If events materially
affecting the values of these foreign securities occur during this period, the
securities will be valued in accordance with procedures established by the
board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the board.

Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the board. With the approval of the board, the
Fund may use a pricing service, bank or securities dealer to perform any of the
above described functions.

THE UNDERWRITER
-------------------------------------------------------------------------------

Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the Fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.

Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.

The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the Fund's shares, the net
underwriting discounts and commissions Distributors retained after allowances to
dealers, and the amounts Distributors received in connection with redemptions or
repurchases of shares for the last three fiscal years ended May 31:

AMOUNT
RECEIVED IN
CONNECTION
WITH
TOTAL AMOUNT REDEMPTIONS
COMMISSIONS RETAINED BY AND
RECEIVED DISTRIBUTORS REPURCHASES
($) ($) ($)
-----------------------------------------------------------------------------
2000 7,391,718 421,646 519,135
1999 14,965,326 918,814 409,040
1998 19,440,869 974,528 62,723

Distributors may be entitled to payments from the Fund under the Rule 12b-1
plans, as discussed below. Except as noted, Distributors received no other
compensation from the Fund for acting as underwriter.

DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the Fund and its shareholders.
The plans are expected to, among other things, increase advertising of the Fund,
encourage sales of the Fund and service to its shareholders, and increase or
maintain assets of the Fund so that certain fixed expenses may be spread over a
broader asset base, resulting in lower per share expense ratios. In addition, a
positive cash flow into the Fund is useful in managing the Fund because the
manager has more flexibility in taking advantage of new investment opportunities
and handling shareholder redemptions.

Under each plan, the Fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others who
have executed a servicing agreement with the Fund, Distributors or its
affiliates and who provide service or account maintenance to shareholders
(service fees); the expenses of printing prospectuses and reports used for sales
purposes, and of preparing and distributing sales literature and advertisements;
and a prorated portion of Distributors' overhead expenses related to these
activities. Together, these expenses, including the service fees, are "eligible
expenses." The 12b-1 fees charged to each class are based only on the fees
attributable to that particular class.

THE CLASS A PLAN. The Fund may pay up to 0.15% per year of Class A's average
daily net assets. The Class A plan is a reimbursement plan. It allows the Fund
to reimburse Distributors for eligible expenses that Distributors has shown it
has incurred. The Fund will not reimburse more than the maximum amount allowed
under the plan. Any unreimbursed expenses from one year may not be carried over
to or reimbursed in later years.

For the fiscal year ended May 31, 2000, the amounts paid by the Fund pursuant to
the plan were:

($)
-------------------------------------------------------------------------------
Advertising 170,375
Printing and mailing prospectuses
other than to current shareholders 74,062
Payments to underwriters 67,721
Payments to broker-dealers 3,338,798
Other 265,214
------------
Total 3,916,170
============

THE CLASS B AND C PLANS. The Fund pays Distributors up to 0.65% per year of the
class's average daily net assets, out of which 0.15% may be paid for services to
the shareholders (service fees). The Class B and C plans also may be used to pay
Distributors for advancing commissions to securities dealers with respect to the
initial sale of Class B and C shares. Class B plan fees payable to Distributors
are used by Distributors to pay third party financing entities that have
provided financing to Distributors in connection with advancing commissions to
securities dealers. Franklin Resources owns a minority interest in one of the
third party financing entities.

The Class B and C plans are compensation plans. They allow the Fund to pay a fee
to Distributors that may be more than the eligible expenses Distributors has
incurred at the time of the payment. Distributors must, however, demonstrate to
the board that it has spent or has near-term plans to spend the amount received
on eligible expenses. The Fund will not pay more than the maximum amount allowed
under the plans.

Under the Class B plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended May 31, 2000, were:

($)
-------------------------------------------------------------------------------
Advertising 4,953
Printing and mailing prospectuses
other than to current shareholders 439
Payments to underwriters 4,543
Payments to broker-dealers 305,671
Other 7,796
----------
Total 323,402
==========

Under the Class C plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended May 31, 2000, were:

($)
-------------------------------------------------------------------------------
Advertising 70,024
Printing and mailing prospectuses
other than to current shareholders 18,796
Payments to underwriters 30,661
Payments to broker-dealers 2,695,922
Other 85,801
------------
Total 2,901,204
============

THE CLASS A, B AND C PLANS. In addition to the payments that Distributors or
others are entitled to under each plan, each plan also provides that to the
extent the Fund, the manager or Distributors or other parties on behalf of the
Fund, the manager or Distributors make payments that are deemed to be for the
financing of any activity primarily intended to result in the sale of Fund
shares within the context of Rule 12b-1 under the Investment Company Act of
1940, as amended, then such payments shall be deemed to have been made pursuant
to the plan.

To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks may not
participate in the plans because of applicable federal law prohibiting certain
banks from engaging in the distribution of mutual fund shares. These banks,
however, are allowed to receive fees under the plans for administrative
servicing or for agency transactions.

Distributors must provide written reports to the board at least quarterly on the
amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board may
reasonably request to enable it to make an informed determination of whether the
plans should be continued.

Each plan has been approved according to the provisions of Rule 12b-1. The terms
and provisions of each plan also are consistent with Rule 12b-1.

PERFORMANCE
-------------------------------------------------------------------------------

Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return and current yield quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
Performance figures reflect Rule 12b-1 fees from the date of the plan's
implementation. An explanation of these and other methods used by the Fund to
compute or express performance follows. Regardless of the method used, past
performance does not guarantee future results, and is an indication of the
return to shareholders only for the limited historical period used.

AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum initial sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum initial sales
charge currently in effect.

When considering the average annual total return quotations for Class A and C
shares, you should keep in mind that the maximum initial sales charge reflected
in each quotation is a one time fee charged on all direct purchases, which will
have its greatest impact during the early stages of your investment. This charge
will affect actual performance less the longer you retain your investment in the
Fund. The average annual total returns for the indicated periods ended May 31,
2000, were:

1 YEAR 5 YEARS 10 YEARS
(%) (%) (%)
------------------------------------------------------------------------------
Class A -9.06 5.10 9.59

SINCE
INCEPTION
1 YEAR (1/1/99)
(%) (%)
------------------------------------------------------------------------------
Class B -8.91 -5.44

SINCE
INCEPTION
1 YEAR 5 YEARS (5/16/95)
(%) (%) (%)
------------------------------------------------------------------------------
Class C -7.35 5.25 5.28

The following SEC formula was used to calculate these figures:

n
P(1+T) = ERV
where:

P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of each period at the end of each period

CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are reinvested
at net asset value, the account was completely redeemed at the end of each
period and the deduction of all applicable charges and fees. Cumulative total
return, however, is based on the actual return for a specified period rather
than on the average return over the periods indicated above. The cumulative
total returns for the indicated periods ended May 31, 2000, were:

1 YEAR 5 YEARS 10 YEARS
(%) (%) (%)
------------------------------------------------------------------------------
Class A -9.06 28.26 149.90

SINCE
INCEPTION
1 YEAR (1/1/99)
(%) (%)
------------------------------------------------------------------------------
Class B -8.91 -7.61

SINCE
INCEPTION
1 YEAR 5 YEARS (5/16/95)
(%) (%) (%)
------------------------------------------------------------------------------
Class C -7.35 29.18 29.64

CURRENT YIELD Current yield shows the income per share earned by the Fund. It is
calculated by dividing the net investment income per share earned during a
30-day base period by the applicable maximum offering price per share on the
last day of the period and annualizing the result. Expenses accrued for the
period include any fees charged to all shareholders of the class during the base
period. The yields for the 30-day period ended May 31, 2000, were:

CLASS A CLASS B CLASS C
(%) (%) (%)
------------------------------------------------------------------------------
11.73 11.69 11.58

The following SEC formula was used to calculate these figures:

6
Yield = 2 [(a-b + 1) - 1]
----
cd

where:

a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period

CURRENT DISTRIBUTION RATE Current yield, which is calculated according to a
formula prescribed by the SEC, is not indicative of the amounts that were or
will be paid to shareholders. Amounts paid to shareholders are reflected in the
quoted current distribution rate. The current distribution rate is usually
computed by annualizing the dividends paid per share by a class during a certain
period and dividing that amount by the current maximum offering price. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gains, and is calculated over a different period of time. The current
distribution rates for the 30-day period ended May 31, 2000, were:

CLASS A CLASS B CLASS C
(%) (%) (%)
------------------------------------------------------------------------------
11.00 10.90 10.76

VOLATILITY Occasionally statistics may be used to show the Fund's volatility or
risk. Measures of volatility or risk are generally used to compare the Fund's
net asset value or performance to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities in
which the fund invests. A beta of more than 1.00 indicates volatility greater
than the market and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset value or total return
around an average over a specified period of time. The idea is that greater
volatility means greater risk undertaken in achieving performance.

OTHER PERFORMANCE QUOTATIONS The Fund also may quote the performance of shares
without a sales charge. Sales literature and advertising may quote a cumulative
total return, average annual total return and other measures of performance with
the substitution of net asset value for the public offering price.

Sales literature referring to the use of the Fund as a potential investment for
IRAs, business retirement plans, and other tax-advantaged retirement plans may
quote a total return based upon compounding of dividends on which it is presumed
no federal income tax applies.

The Fund may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to Franklin
Templeton Investments. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of Franklin Templeton funds.

COMPARISONS To help you better evaluate how an investment in the Fund may
satisfy your investment goal, advertisements and other materials about the Fund
may discuss certain measures of Fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:

o Dow Jones(R) Composite Average and its component averages - a price-weighted
average of 65 stocks that trade on the New York Stock Exchange. The average is a
combination of the Dow Jones Industrial Average (30 blue-chip stocks that are
generally leaders in their industry), the Dow Jones Transportation Average (20
transportation stocks), and the Dow Jones Utilities Average (15 utility stocks
involved in the production of electrical energy).

o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.

o The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed on
the NYSE.

o Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.

o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund Performance
Analysis - measure total return and average current yield for the mutual fund
industry and rank individual mutual fund performance over specified time
periods, assuming reinvestment of all distributions, exclusive of any applicable
sales charges.

o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.

o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds

o Financial publications: The Wall Street Journal, and Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.

o Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.

o Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.

o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan(R) companies, Salomon Smith Barney Inc., Merrill
Lynch, Lehman Brothers(R) and Bloomberg(R) L.P.

o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk-adjusted performance of a fund over specified
time periods relative to other funds within its category.

From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.

Advertisements or information also may compare the Fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the Fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a CD issued
by a bank. CDs are frequently insured by an agency of the U.S. government. An
investment in the Fund is not insured by any federal, state or private entity.

In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.

MISCELLANEOUS INFORMATION
-------------------------------------------------------------------------------

The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.

The Fund is a member of Franklin Templeton Investments, one of the largest
mutual fund organizations in the U.S., and may be considered in a program for
diversification of assets. Founded in 1947, Franklin is one of the oldest mutual
fund organizations and now services approximately 3 million shareholder
accounts. In 1992, Franklin, a leader in managing fixed-income mutual funds and
an innovator in creating domestic equity funds, joined forces with Templeton, a
pioneer in international investing. The Mutual Series team, known for its
value-driven approach to domestic equity investing, became part of the
organization four years later. Together, Franklin Templeton Investments has over
$229 billion in assets under management for more than 5 million U.S. based
mutual fund shareholder and other accounts. Franklin Templeton Investments
offers 108 U.S. based open-end investment companies to the public. The Fund may
identify itself by its Nasdaq symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the Fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.

DESCRIPTION OF RATINGS
-------------------------------------------------------------------------------

CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. (MOODY'S)

INVESTMENT GRADE

Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds rated Aa are judged to be high quality by all standards. Together with
the Aaa group, they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large, fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risks appear somewhat
larger.

A: Bonds rated A possess many favorable investment attributes and are considered
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.

Baa: Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.

BELOW INVESTMENT GRADE

Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Caa: Bonds rated Caa are
of poor standing. These issues may be in default or there may be present
elements of danger with respect to principal or interest.

Ca: Bonds rated Ca represent obligations that are speculative to a high degree.
These issues are often in default or have other marked shortcomings. C: Bonds
rated C are the lowest rated class of bonds and can be regarded as having
extremely poor prospects of ever attaining any real investment standing.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

STANDARD & POOR'S RATINGS GROUP (S&P(R))

INVESTMENT GRADE

AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest. AA: Bonds
rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong and, in the majority of instances, differ
from AAA issues only in a small degree.

A: Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BELOW INVESTMENT GRADE

BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C: Bonds rated C are typically subordinated debt to senior debt that is assigned
an actual or implied CCC- rating. The C rating also may reflect the filing of a
bankruptcy petition under circumstances where debt service payments are
continuing. The C1 rating is reserved for income bonds on which no interest is
being paid.

D: Debt rated D is in default and payment of interest and/ or repayment of
principal is in arrears.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

short-term debt & commercial paper ratings

moody's

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's commercial paper
ratings are opinions of the ability of issuers to repay punctually their
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designations for both short-term debt and
commercial paper, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.

A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations.

FRANKLIN'S
AGE HIGH
INCOME FUND

FRANKLIN HIGH INCOME TRUST

ADVISOR CLASS

STATEMENT OF ADDITIONAL INFORMATION P.O. BOX 997151, SACRAMENTO, CA95899-9983

OCTOBER 1, 2000 1-800/DIAL BEN(R)
-------------------------------------------------------------------------------
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the Fund's prospectus.
The Fund's prospectus, dated October 1, 2000, which we may amend from time to
time, contains the basic information you should know before investing in the
Fund. You should read this SAI together with the Fund's prospectus.

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goals, Strategies and Risks...................... 2
Officers and Trustees............................ 9
Management and Other Services.................... 12
Portfolio Transactions........................... 13
Distributions and Taxes.......................... 14
Organization, Voting Rights
and Principal Holders........................... 15
Buying and Selling Shares........................ 16
Pricing Shares................................... 18
The Underwriter.................................. 19
Performance...................................... 19
Miscellaneous Information........................ 21
Description of Ratings........................... 22

-------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

O ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;

O ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;

O ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
-------------------------------------------------------------------------------

105 SAIA 10/00