-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qd2+dYmQzJ/wFBmf4ldqZOUJaH7FRJWIe/BMjeUckI2rCfUVpz1KrdLh3/pki183 /4rvvOlTmQUXI3aPepHAOg== 0000002768-09-000004.txt : 20090130 0000002768-09-000004.hdr.sgml : 20090130 20090130075836 ACCESSION NUMBER: 0000002768-09-000004 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20081130 FILED AS OF DATE: 20090130 DATE AS OF CHANGE: 20090130 EFFECTIVENESS DATE: 20090130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN HIGH INCOME TRUST CENTRAL INDEX KEY: 0000002768 IRS NUMBER: 941693697 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-01608 FILM NUMBER: 09556015 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-2000 MAIL ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 FORMER COMPANY: FORMER CONFORMED NAME: AGE HIGH INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AGE FUND INC DATE OF NAME CHANGE: 19810128 0000002768 S000006840 FRANKLIN HIGH INCOME FUND C000018490 CLASS A AGEFX C000018491 CLASS B FHIBX C000018492 CLASS C FRAIX C000018493 ADVISOR CLASS FAHAX C000018494 CLASS R FAHRX N-CSRS 1 ncsrs_fhit.txt FHIT SAR 11/30/08 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-01608 --------- FRANKLIN HIGH INCOME TRUST -------------------------- (Exact name of registrant as specified in charter) ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ---------------------------------------------- (Address of principal executive offices) (Zip code) CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 650 312-2000 ------------ Date of fiscal year end: 5/31 ---- Date of reporting period: 11/30/08 --------- ITEM 1. REPORTS TO STOCKHOLDERS. NOVEMBER 30, 2008 SEMIANNUAL REPORT AND SHAREHOLDER LETTER FIXED INCOME FRANKLIN HIGH INCOME FUND WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. (GRAPHIC) (FRANKLIN TEMPLETON INVESTMENTS LOGO) FRANKLIN - Templeton - Mutual Series Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE(R) Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups-- Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a recognized leader in fixed income investing and also brings expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with offices in over 25 countries, Templeton offers investors a truly global perspective. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among what it believes are undervalued stocks, as well as arbitrage situations and distressed securities. TRUE DIVERSIFICATION Because our management groups work independently and adhere to different investment approaches, Franklin, Templeton and Mutual Series funds typically have distinct portfolios. That's why our funds can be used to build truly diversified allocation plans covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable, accurate and personal service that has helped us become one of the most trusted names in financial services.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS (GRAPHIC) Not part of the semiannual report Contents SHAREHOLDER LETTER .................................. 1 SEMIANNUAL REPORT Franklin High Income Fund ........................... 3 Performance Summary ................................. 9 Your Fund's Expenses ................................ 12 Financial Highlights and Statement of Investments ... 14 Financial Statements ................................ 26 Notes to Financial Statements ....................... 30 Shareholder Information ............................. 40
Shareholder Letter Dear Shareholder: The six-month period ended November 30, 2008, was an extraordinary and stressful time for investors and those of us who have worked in financial markets for many years. Although this environment is bound to provoke great concern, we think it is important to put short-term market developments in perspective. Keep in mind that as daunting as current market conditions may be, we have navigated through other periods of high market volatility, such as the stock market crash of 1987. We remain committed to our long-term perspective and our value investment philosophy. Therefore, we view recent declines as potential opportunities to find bargains that we believe may be well positioned to become eventual winners. Although conditions remain challenging, our experience gives us ample reason to be optimistic about future market stabilization and recovery. In the enclosed semiannual report for Franklin High Income Fund, the portfolio managers discuss market conditions, investment management decisions and Fund performance during the period under review. You will also find performance data and financial information. Please remember that all securities markets fluctuate, as do mutual fund share prices. Our website, franklintempleton.com, offers timely articles, daily prices, monthly performance figures, portfolio holdings and other information. You can also Sign up for EDELIVERY of your Shareholder Report Shareholders who are registered at franklintempleton.com can receive this report via email by selecting eDelivery options under "My Profile." Not all accounts are eligible for eDelivery. NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE Not part of the semiannual report | 1 access your account, buy and sell shares, and find helpful financial planning tools. We hope you will take advantage of these online services. Although market conditions are constantly changing, we remain committed to our disciplined strategy as we manage the Fund, keeping in mind the trust you have placed in us. As always, we recommend investors consult their financial advisors and review their portfolios to design a long-term strategy and portfolio allocation that meet their individual needs, goals and risk tolerance. We firmly believe that most people benefit from professional advice, and that advice is invaluable as investors navigate changing market environments. We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your investment needs in the years ahead. Sincerely, /s/ Rupert H. Johnson, Jr. - ------------------------------------- Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management Franklin High Income Trust THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF NOVEMBER 30, 2008. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE. 2 | Not part of the semiannual report Semiannual Report Franklin High Income Fund YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin High Income Fund seeks a high level of current income, with a secondary goal of capital appreciation by investing substantially in high yield, lower-rated debt securities and preferred stocks. PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. PLEASE VISIT franklintempleton.com OR CALL (800) 342-5236 FOR MOST RECENT MONTH-END PERFORMANCE. This semiannual report for Franklin High Income Fund covers the period ended November 30, 2008. PERFORMANCE OVERVIEW Franklin High Income Fund - Class A had a -29.47% cumulative total return for the six months under review. The Fund performed better than its benchmark, the Credit Suisse (CS) High Yield Index, which had a -30.99% total return, and performed comparably to its peers as measured by the Lipper High Current Yield Funds Classification Average, which had a -29.65% total return for the same period.(1) You can find the Fund's long-term performance data in the Performance Summary beginning on page 9. ECONOMIC AND MARKET OVERVIEW The events that unfolded during the Fund's six-month reporting period brought extraordinary volatility and uncertainty to financial markets. Credit market turmoil led to significant losses and writedowns by financial institutions, reduced credit availability and a general global repricing of risk. The credit contraction, continued weakness in the housing market, and significant declines in consumer confidence and consumer spending resulted in a weak and deteriorating (1.) Source: (C) 2008 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. The CS High Yield Index is designed to mirror the investible universe of the U.S. dollar denominated high yield debt market. Source: Lipper Inc. The Lipper High Current Yield Funds Classification Average is calculated by averaging the total returns of funds within the Lipper High Current Yield Funds classification in the Lipper Open-End underlying funds universe for the period indicated. Lipper High Current Yield Funds are defined as funds that aim at high (relative) current yield from fixed income securities, have no quality or maturity restrictions, and tend to invest in lower grade debt issues. For the six-month period ended 11/30/08, there were 482 funds in this category. Lipper calculations do not include sales charges or expense subsidization by a fund's manager. Fund performance relative to the average may have differed if these or other factors had been considered. Indexes are unmanaged and include reinvestment of any income or distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 19. Semiannual Report | 3 ASSET ALLOCATION Based on Total Net Assets as of 11/30/08 Corporate Bonds 90.5% Senior Floating Rate Interests 1.2% Convertible Preferred Stocks 1.0% Preferred & Common Stocks 0.0%* Short-Term Investments & Other Net Assets 7.3%
* Rounds to less than 0.1%. economic climate. Job losses mounted and the unemployment rate rose to 6.8% during the reporting period.(2) These factors as well as upward inflationary pressures from a weak U.S. dollar and high food, energy and commodity prices burdened the overall economy for much of the reporting period. The economy grew at a 2.8% annualized rate in the second quarter of 2008 but contracted in the third quarter at an annualized -0.5% rate. Oil prices soared to a record high in July, rising above $145 per barrel, before dramatically retreating to $54 by period-end. Many other commodities such as agricultural products and precious and base metals followed similar trends. November's inflation rate was 1.1% on an annual basis.(2) Core inflation, which excludes food and energy costs, rose at a 2.0% annual rate; this level was within the Federal Reserve Board's (Fed's) informal target range of 1.5%-2.0%.(2) The core personal consumption expenditures price index reported a 12-month increase of 1.9%.(3) Amid a series of events that included massive government intervention, bank and financial institution failures, and emergency funding, the Fed was focused primarily on restoring liquidity and confidence to unsettled financial markets. The Fed hoped to stimulate the sagging economy by cutting interest rates two times over the six-month period, bringing the federal funds target rate to 1.00%. It also implemented a series of unconventional measures aimed at easing strained credit conditions that included a $700 billion bailout plan that would allow the U.S. Treasury to purchase bad debt from troubled financial institutions. Volatility remained high throughout the reporting period but intensified in September as stocks fluctuated wildly and Treasury prices soared. Panicked investors drove the yield on the three-month Treasury bill to a multi-decade low, and LIBOR (London InterBank Offered Rate) rates, which banks charge one another for loans, jumped to record highs. Fixed income spreads were generally wide relative to Treasury yields over the period due to heightened market turbulence and as investors sought the relative safety of short-term U.S. Treasury securities. The yield curve steepened and the spread between the two-year Treasury yield and the 10-year Treasury yield increased to 193 basis points (100 basis points equal one percentage point) at the end of November from 140 basis points at the beginning of the reporting period. The two-year Treasury bill yield fell to 1.00% at the end of November from 2.66% six months earlier. Over the same period, the 10-year U.S. Treasury note yield fell from 4.06% to 2.93%. (2.) Source: Bureau of Labor Statistics. (3.) Source: Bureau of Economic Analysis. 4 | Semiannual Report In the period's latter half, concerns about financial market health and global economic weakness drove significant market volatility. Although by period-end the U.S. and many foreign governments and central banks had aggressively pumped liquidity, capital and fiscal stimulus into their markets, the credit crunch had already affected the global economy as consumers and businesses significantly reduced spending and investment plans. In this environment, equity markets faced increasing pressure, and the Standard & Poor's 500 Index (S&P 500) fell 35.20% during the period.(4) In addition, as the credit crunch intensified and financial market conditions tightened, non-U.S. Treasury fixed income sectors lagged the strong performance of U.S. Treasuries amid investors' flight to quality. Volatility and uncertainty weighed on the fixed income market, and all major spread sectors underperformed similar maturity U.S. Treasuries. During the reporting period, the high yield corporate bond sector faced increasing pressure given equity market weakness and the seizing up of credit market liquidity. Although new issuance was light in late 2008, certain forced sellers of noninvestment-grade bank loans and high yield bonds put further pressure on prices. Default rates remained below historical averages at period-end, but defaults increased during the period, and the combination of a weaker global economic outlook and credit market tightness led many observers to believe that default rates could increase significantly in 2009. Overall, yield spreads widened from 636 basis points in May 2008 to 1,816 basis points at period-end, considerably more than the historically highest levels experienced in 2002 and 1991.(5) As a result of widening spreads, the high yield bond market, which had a -30.99% total return as measured by the CS High Yield Index during the six months under review, performed better than the broad equity market but underperformed investment grade bonds.(5) INVESTMENT STRATEGY We are disciplined, fundamental investors who mainly rely on our analysts' in-depth industry expertise to evaluate companies. We examine sectors and individual securities in detail. When evaluating an issuer's creditworthiness, we consider the issuer's experience, managerial strength, sensitivity to economic conditions, credit rating, and current and prospective financial condition. (4.) Source: (C) 2008 Morningstar. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. (5.) Source: Credit Suisse. See footnote 1 for a description of the CS High Yield Index. Semiannual Report | 5 DIVIDEND DISTRIBUTIONS* 6/1/08-11/30/08
DIVIDEND PER SHARE ----------------------------------------------------------------- MONTH CLASS A CLASS B CLASS C CLASS R ADVISOR CLASS - --------- ---------- ---------- ---------- ---------- ------------- June 1.25 cents 1.17 cents 1.16 cents 1.18 cents 1.27 cents July 1.25 cents 1.17 cents 1.16 cents 1.18 cents 1.27 cents August 1.25 cents 1.17 cents 1.16 cents 1.18 cents 1.27 cents September 1.25 cents 1.18 cents 1.18 cents 1.19 cents 1.27 cents October 1.25 cents 1.18 cents 1.18 cents 1.19 cents 1.27 cents November 1.25 cents 1.18 cents 1.18 cents 1.19 cents 1.27 cents ---------- ---------- ---------- ---------- ---------- TOTAL 7.50 CENTS 7.05 CENTS 7.02 CENTS 7.11 CENTS 7.62 CENTS
* All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends. MANAGER'S DISCUSSION Although overall returns were negative during the six months under review given the market's decline, certain factors helped the Fund's relative performance. For example, the Fund's somewhat lower exposure to the more distressed and defaulted portions of the high yield market helped performance relative to the Fund's peers given those areas' underperformance relative to the overall high yield market.(6) In addition, certain sector and industry weightings benefited relative performance. For example, the Fund had an overweighted position in the utilities sector, which performed better than the high yield market largely due to the sector's relatively high quality and low cyclicality. The Fund's underweighted exposure to the automotive industry also contributed to relative performance as the industry's struggles weighed heavily on automotive-related issuers.(7) Heavier exposure to the more defensive food, beverage and tobacco industry aided relative performance, as the generally less cyclical industry performed better than the overall high yield market. (6.) For industry weighting comparisons, the Fund's peer group comprises some of the mutual funds found within the Lipper High Current Yield Funds Classification Average. See footnote 1 for a description of the Lipper Average. (7.) Automotive holdings are in automobiles and components in the SOI. 6 | Semiannual Report Conversely, the Fund's performance relative to its peers was hurt by certain sector and industry positioning. For example, heavier exposure to the financials sector weighed on returns given the sector's underperformance amid asset writedowns and subsequent funding challenges for many financial issuers.(8) Although much of the Fund's sector exposure was in investment-grade-rated issuers, the Fund's holdings in Lehman Brothers senior notes hindered performance due to the company's September bankruptcy filing. Lower weighting in the transportation industry also negatively impacted results given the industry's stronger performance relative to the overall high yield market.(9) In particular, securities from higher-quality aerospace and defense issuers generally experienced less downside price pressure than the overall market. Airline issuers also generally performed better as lower oil prices improved their cost outlooks despite declining air travel. Finally, the media industry was a drag on performance as bond prices fell significantly for certain yellow page directory publishers amid much weaker advertising demand. The severity and duration of current global recessionary economic conditions combined with tight credit availability for noninvestment-grade issuers will influence the magnitude of any rise in the default rate over the coming year. In addition, many analysts expect corporate earnings to remain under pressure, and certain issuers' highly leveraged balance sheets could also contribute to rising default levels. At period-end, despite a challenging near-term fundamental outlook, valuations were significantly below historical lows, and the average yield to maturity offered by high yield bonds, at more than 20%, was higher than it has been in the asset class's more than 22-year history.(10) In this environment, we believe security selection should be a key driver for relative performance, and we will look to our in-house credit analysts for individual credit issuer recommendations. TOP 10 HOLDINGS BY ISSUER* 11/30/08
ISSUER % OF TOTAL SECTOR/INDUSTRY NET ASSETS - --------------- ---------- HCA Inc. 1.9% HEALTH CARE EQUIPMENT & SERVICES Ford Motor Credit Co. LLC 1.9% AUTOMOBILES & COMPONENTS NRG Energy Inc. 1.6% UTILITIES Host Hotels & Resorts LP 1.6% CONSUMER SERVICES Texas Competitive Electric Holdings Co. LLC 1.5% UTILITIES Chesapeake Energy Corp. 1.5% ENERGY DIRECTV Holdings LLC 1.5% MEDIA MGM MIRAGE 1.4% CONSUMER SERVICES Wind Acquisition Finance SA 1.4% TELECOMMUNICATION SERVICES GMAC LLC 1.4% DIVERSIFIED FINANCIALS
* Securities are listed by issuer, which may appear by another name in the SOI. (8.) The financials sector comprises banks and diversified financials in the SOI. (9.) The Fund's transportation holding is in capital goods in the SOI. (10.) Source: Credit Suisse. Semiannual Report | 7 Thank you for your continued participation in Franklin High Income Fund. We look forward to serving your future investment needs. (PHOTO OF CHRISTOPHER J. MOLUMPHY) /s/ Christopher J. Molumphy - ------------------------------------- Christopher J. Molumphy, CFA Senior Portfolio Manager (PHOTO OF ERIC G. TAKAHA) /s/ Eric G. Takaha - ------------------------------------- Eric G. Takaha, CFA Portfolio Manager Franklin High Income Fund THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF NOVEMBER 30, 2008, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 8 | Semiannual Report Performance Summary as of 11/30/08 Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table does not reflect any taxes that a shareholder would pay on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects reinvestment of the Fund's dividends and capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FHAIX) CHANGE 11/30/08 5/31/08 - ----------------------- ------ -------- ------- Net Asset Value (NAV) -$0.65 $1.36 $2.01 DISTRIBUTIONS (6/1/08-11/30/08) Dividend Income $0.0750
CLASS B (SYMBOL: FHIBX) CHANGE 11/30/08 5/31/08 - ----------------------- ------ -------- ------- Net Asset Value (NAV) -$0.64 $1.36 $2.00 DISTRIBUTIONS (6/1/08-11/30/08) Dividend Income $0.0705
CLASS C (SYMBOL: FCHIX) CHANGE 11/30/08 5/31/08 - ----------------------- ------ -------- ------- Net Asset Value (NAV) -$0.65 $1.37 $2.02 DISTRIBUTIONS (6/1/08-11/30/08) Dividend Income $0.0702
CLASS R (SYMBOL: FHIRX) CHANGE 11/30/08 5/31/08 - ----------------------- ------ -------- ------- Net Asset Value (NAV) -$0.65 $1.37 $2.02 DISTRIBUTIONS (6/1/08-11/30/08) Dividend Income $0.0711
ADVISOR CLASS (SYMBOL: FVHIX) CHANGE 11/30/08 5/31/08 - ----------------------------- ------ -------- ------- Net Asset Value (NAV) -$0.65 $1.36 $2.01 DISTRIBUTIONS (6/1/08-11/30/08) Dividend Income $0.0762
PERFORMANCE CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURNS AND VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ------ ------- Cumulative Total Return(1) -29.47% -27.96% -3.39% +16.96% Average Annual Total Return(2) -32.49% -30.99% -1.54% +1.15% Value of $10,000 Investment(3) $ 6,751 $ 6,901 $9,253 $11,213 Avg. Ann. Total Return (12/31/08)(4) -25.81% -0.60% +1.96% Distribution Rate(5) 10.56% 30-Day Standardized Yield(6) 16.43% Total Annual Operating Expenses(7) 0.76%
Semiannual Report | 9 Performance Summary (CONTINUED) PERFORMANCE (CONTINUED)
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/99) - ------- ------- ------- ------ ------------------ Cumulative Total Return(1) -29.28% -27.97% -5.71% +12.84% Average Annual Total Return(2) -32.00% -30.64% -1.45% +1.23% Value of $10,000 Investment(3) $ 6,800 $ 6,936 $9,295 $11,284 Avg. Ann . Total Return (12/31/08)(4) -25.40% -0.43% +2.00% Distribution Rate(5) 10.41% 30-Day Standardized Yield(6) 16.71% Total Annual Operating Expenses(7) 1.27%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR - ------- ------- ------- ------ ------- Cumulative Total Return(1) -29.50% -28.19% -5.77% +11.16% Average Annual Total Return(2) -30.18% -28.86% -1.18% +1.06% Value of $10,000 Investment(3) $ 6,982 $ 7,114 $9,423 $11,116 Avg. Ann . Total Return (12/31/08)(4) -23.54% -0.17% +1.87% Distribution Rate(5) 10.34% 30-Day Standardized Yield(6) 16.74% Total Annual Operating Expenses(7) 1.27%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02) - ------- ------- ------- ------ ------------------ Cumulative Total Return(1) -29.47% -28.11% -5.59% +19.33% Average Annual Total Return(2) -29.47% -28.11% -1.14% +2.59% Value of $10,000 Investment(3) $ 7,053 $ 7,189 $9,441 $11,933 Avg. Ann . Total Return (12/31/08)(4) -23.11% -0.13% +3.68% Distribution Rate(5) 10.42% 30-Day Standardized Yield(6) 16.96% Total Annual Operating Expenses(7) 1.12%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR - ------------- ------- ------- ------ ------- Cumulative Total Return(1) -29.42% -27.86% -3.18% +18.54% Average Annual Total Return(2) -29.42% -27.86% -0.64% +1.71% Value of $10,000 Investment(3) $ 7,058 $ 7,214 $9,682 $11,854 Avg. Ann . Total Return (12/31/08)(4) -22.43% +0.39% +2.53% Distribution Rate(5) 11.21% 30-Day Standardized Yield(6) 17.50% Total Annual Operating Expenses(7) 0.62%
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT franklintempleton.com OR CALL (800) 342-5236. 10 | Semiannual Report Performance summary (CONTINUED) ENDNOTES THE RISKS ASSOCIATED WITH HIGHER-YIELDING, LOWER-RATED SECURITIES INCLUDE HIGHER RISK OF DEFAULT AND LOSS OF PRINCIPAL. INVESTMENT IN FOREIGN SECURITIES ALSO INVOLVES SPECIAL RISKS, INCLUDING CURRENCY FLUCTUATIONS, AND POLITICAL AND ECONOMIC UNCERTAINTY. IN ADDITION, INTEREST RATE MOVEMENTS WILL AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS. CLASS B: These shares have higher annual fees and expenses than Class A shares. CLASS C: Prior to 1/1/04, these shares were offered with an initial sales charge; thus actual total returns would have differed. These shares have higher annual fees and expenses than Class A shares. CLASS R: Shares are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: Shares are available to certain eligible investors as described in the prospectus. 1. Cumulative total return represents the change in value of an investment over the periods indicated. 2. Average annual total return represents the average annual change in value of an investment over the periods indicated. Six-month return has not been annualized. 3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated. 4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter. 5. Distribution rate is based on an annualization of the respective class's November dividend and the maximum offering price (NAV for Classes B, C, R and Advisor) per share on 11/30/08. 6. Yield, calculated as required by the SEC, is based on the earnings of the Fund's portfolio for the 30 days ended 11/30/08. 7. Figures are as stated in the Fund's prospectus current as of the date of this report. Semiannual Report | 11 Your Fund's Expenses As a Fund shareholder, you can incur two types of costs: - - Transaction costs, including sales charges (loads) on Fund purchases and redemption fees; and - - Ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The following table shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated. ACTUAL FUND EXPENSES The first line (Actual) for each share class listed in the table provides actual account values and expenses. The "Ending Account Value" is derived from the Fund's actual return, which includes the effect of Fund expenses. You can estimate the expenses you paid during the period by following these steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS ILLUSTRATION: 1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6. 2. Multiply the result by the number under the heading "Expenses Paid During Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50. In this illustration, the estimated expenses paid this period are $64.50. HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical "Ending Account Value" is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund's actual return. The figure under the heading "Expenses Paid During Period" shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds. 12 | Semiannual Report Your Fund's Expenses (CONTINUED) PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR REDEMPTION FEES. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING VALUE 6/1/08 VALUE 11/30/08 PERIOD* 6/1/08-11/30/08 ----------------- -------------- ----------------------- CLASS A Actual $1,000 $ 705.30 $3.21 Hypothetical (5% return before expenses) $1,000 $1,021.31 $3.80 CLASS B Actual $1,000 $ 707.20 $5.35 Hypothetical (5% return before expenses) $1,000 $1,018.80 $6.33 CLASS C Actual $1,000 $ 705.00 $5.34 Hypothetical (5% return before expenses) $1,000 $1,018.80 $6.33 CLASS R Actual $1,000 $ 705.30 $4.70 Hypothetical (5% return before expenses) $1,000 $1,019.55 $5.57 ADVISOR CLASS Actual $1,000 $ 705.80 $2.57 Hypothetical (5% return before expenses) $1,000 $1,022.06 $3.04
* Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.75%; B: 1.25%; C: 1.25%; R: 1.10%; and Advisor: 0.60%), multiplied by the average account value over the period, multiplied by 183/365 to reflect the one-half year period. Semiannual Report | 13 Franklin High Income Trust FINANCIAL HIGHLIGHTS FRANKLIN HIGH INCOME FUND
SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 2008 ---------------------------------------------------------- CLASS A (UNAUDITED) 2008 2007 2006 2005 2004 - ------- ----------------- ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .............. $ 2.01 $ 2.17 $ 2.08 $ 2.09 $ 2.02 $ 1.88 ---------- ---------- ---------- ---------- ---------- ---------- Income from investment operations(a): Net investment income(b) ....................... 0.08 0.15 0.15 0.15 0.16 0.16 Net realized and unrealized gains (losses) ..... (0.65) (0.15) 0.10 (0.01) 0.06 0.13 ---------- ---------- ---------- ---------- ---------- ---------- Total from investment operations .................. (0.57) -- 0.25 0.14 0.22 0.29 ---------- ---------- ---------- ---------- ---------- ---------- Less distributions from net investment income ..... (0.08) (0.16) (0.16) (0.15) (0.15) (0.15) ---------- ---------- ---------- ---------- ---------- ---------- Redemption fees(c, d) ............................. -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period .................... $ 1.36 $ 2.01 $ 2.17 $ 2.08 $ 2.09 $ 2.02 ========== ========== ========== ========== ========== ========== Total return(e) ................................... (29.47)% 0.02% 12.29% 6.89% 11.14% 15.67% RATIOS TO AVERAGE NET ASSETS(f) Expenses(g) ....................................... 0.75% 0.74% 0.76% 0.75% 0.74% 0.75% Net investment income ............................. 8.54% 7.62% 7.33% 7.17% 7.40% 7.73% SUPPLEMENTAL DATA Net assets, end of period (000's) ................. $1,324,987 $2,044,744 $2,278,898 $2,165,990 $2,233,772 $2,172,749 Portfolio turnover rate ........................... 6.03% 31.17% 38.27% 29.26% 30.19% 44.07%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Amount rounds to less than $0.01 per share. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (f) Ratios are annualized for periods less than one year. (g) Benefit of expense reduction rounds to less than 0.01%. The accompanying notes are an integral part of these financial statements. 14 | Semiannual Report Franklin High Income Trust FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN HIGH INCOME FUND
SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 2008 ---------------------------------------------------------- CLASS B (UNAUDITED) 2008 2007 2006 2005 2004 - ------- ----------------- ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .............. $ 2.00 $ 2.16 $ 2.07 $ 2.08 $ 2.02 $ 1.88 ------- -------- -------- -------- -------- -------- Income from investment operations(a) Net investment income(b) ....................... 0.07 0.14 0.14 0.14 0.14 0.15 Net realized and unrealized gains (losses) ..... (0.64) (0.15) 0.09 (0.01) 0.06 0.13 ------- -------- -------- -------- -------- -------- Total from investment operations .................. (0.57) (0.01) 0.23 0.13 0.20 0.28 ------- -------- -------- -------- -------- -------- Less distributions from net investment income ..... (0.07) (0.15) (0.14) (0.14) (0.14) (0.14) ------- -------- -------- -------- -------- -------- Redemption fees(c, d) ............................. -- -- -- -- -- -- ------- -------- -------- -------- -------- -------- Net asset value, end of period .................... $ 1.36 $ 2.00 $ 2.16 $ 2.07 $ 2.08 $ 2.02 ======= ======== ======== ======== ======== ======== Total return(e) ................................... (29.28)% (0.51)% 11.78% 6.35% 10.09% 15.12% RATIOS TO AVERAGE NET ASSETS(f) Expenses(g) ....................................... 1.25% 1.25% 1.26% 1.25% 1.24% 1.25% Net investment income ............................. 8.04% 7.11% 6.83% 6.67% 6.90% 7.23% SUPPLEMENTAL DATA Net assets, end of period (000's) ................. $64,482 $114,793 $164,690 $184,076 $207,881 $207,680 Portfolio turnover rate ........................... 6.03% 31.17% 38.27% 29.26% 30.19% 44.07%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Amount rounds to less than $0.01 per share. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (f) Ratios are annualized for periods less than one year. (g) Benefit of expense reduction rounds to less than 0.01%. The accompanying notes are an integral part of these financial statements. Semiannual Report | 15 Franklin High Income Trust FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN HIGH INCOME FUND
SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 2008 ---------------------------------------------------------- CLASS C (UNAUDITED) 2008 2007 2006 2005 2004 - ------- ----------------- ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .............. $ 2.02 $ 2.18 $ 2.09 $ 2.10 $ 2.03 $ 1.89 -------- -------- -------- -------- -------- -------- Income from investment operations(a): Net investment income(b) ....................... 0.07 0.15 0.14 0.14 0.15 0.15 Net realized and unrealized gains (losses) ..... (0.65) (0.16) 0.09 (0.01) 0.06 0.13 -------- -------- -------- -------- -------- -------- Total from investment operations .................. (0.58) (0.01) 0.23 0.13 0.21 0.28 -------- -------- -------- -------- -------- -------- Less distributions from net investment income ..... (0.07) (0.15) (0.14) (0.14) (0.14) (0.14) -------- -------- -------- -------- -------- -------- Redemption fees(c, d) ............................. -- -- -- -- -- -- -------- -------- -------- -------- -------- -------- Net asset value, end of period .................... $ 1.37 $ 2.02 $ 2.18 $ 2.09 $ 2.10 $ 2.03 ======== ======== ======== ======== ======== ======== Total return(e) ................................... (29.50)% (0.50)% 11.67% 6.31% 10.53% 15.01% RATIOS TO AVERAGE NET ASSETS(f) Expenses(g) ....................................... 1.25% 1.25% 1.26% 1.25% 1.24% 1.25% Net investment income ............................. 8.04% 7.11% 6.83% 6.67% 6.90% 7.23% SUPPLEMENTAL DATA Net assets, end of period (000's) ................. $213,399 $332,785 $384,421 $361,701 $388,250 $416,171 Portfolio turnover rate ........................... 6.03% 31.17% 38.27% 29.26% 30.19% 44.07%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Amount rounds to less than $0.01 per share. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (f) Ratios are annualized for periods less than one year. (g) Benefit of expense reduction rounds to less than 0.01%. The accompanying notes are an integral part of these financial statements. 16 | Semiannual Report Franklin High Income Trust FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN HIGH INCOME FUND
SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 2008 ---------------------------------------------------------- CLASS R (UNAUDITED) 2008 2007 2006 2005 2004 - ------- ----------------- ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .............. $ 2.02 $ 2.19 $ 2.09 $ 2.10 $ 2.03 $ 1.89 ------- ------- ------- ------ ------ ------ Income from investment operations(a): Net investment income(b) ....................... 0.07 0.15 0.15 0.14 0.15 0.15 Net realized and unrealized gains (losses) ..... (0.65) (0.17) 0.10 (0.01) 0.06 0.13 ------- ------- ------- ------ ------ ------ Total from investment operations .................. (0.58) (0.02) 0.25 0.13 0.21 0.28 ------- ------- ------- ------ ------ ------ Less distributions from net investment income ..... (0.07) (0.15) (0.15) (0.14) (0.14) (0.14) ------- ------- ------- ------ ------ ------ Redemption fees(c, d) ............................. -- -- -- -- -- -- ------- ------- ------- ------ ------ ------ Net asset value, end of period .................... $ 1.37 $ 2.02 $ 2.19 $ 2.09 $ 2.10 $ 2.03 ======= ======= ======= ====== ====== ====== Total return(e) ................................... (29.47)% (0.79)% 12.33% 6.45% 10.68% 15.17% RATIOS TO AVERAGE NET ASSETS(f) Expenses(g) ....................................... 1.10% 1.10% 1.11% 1.10% 1.09% 1.10% Net investment income ............................. 8.19% 7.26% 6.98% 6.82% 7.05% 7.38% SUPPLEMENTAL DATA Net assets, end of period (000's) ................. $25,508 $35,766 $26,671 $9,972 $5,300 $3,467 Portfolio turnover rate ........................... 6.03% 31.17% 38.27% 29.26% 30.19% 44.07%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Amount rounds to less than $0.01 per share. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Total return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year. (f) Ratios are annualized for periods less than one year. (g) Benefit of expense reduction rounds to less than 0.01%. The accompanying notes are an integral part of these financial statements. Semiannual Report | 17 Franklin High Income Trust FINANCIAL HIGHLIGHTS (CONTINUED) FRANKLIN HIGH INCOME FUND
SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 2008 ---------------------------------------------------------- ADVISOR CLASS (UNAUDITED) 2008 2007 2006 2005 2004 - ------------- ----------------- ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .............. $ 2.01 $ 2.17 $ 2.08 $ 2.09 $ 2.02 $ 1.88 ------- ------- ------- ------- ------- ------- Income from investment operations(a): Net investment income(b) ....................... 0.08 0.16 0.16 0.15 0.16 0.16 Net realized and unrealized gains (losses) ..... (0.65) (0.16) 0.09 (0.01) 0.06 0.13 ------- ------- ------- ------- ------- ------- Total from investment operations .................. (0.57) -- 0.25 0.14 0.22 0.29 ------- ------- ------- ------- ------- ------- Less distributions from net investment income ..... (0.08) (0.16) (0.16) (0.15) (0.15) (0.15) ------- ------- ------- ------- ------- ------- Redemption fees(c, d) ............................. -- -- -- -- -- -- ------- ------- ------- ------- ------- ------- Net asset value, end of period .................... $ 1.36 $ 2.01 $ 2.17 $ 2.08 $ 2.09 $ 2.02 ======= ======= ======= ======= ======= ======= Total return(e) ................................... (29.42)% 0.18% 12.44% 7.06% 11.29% 15.82% RATIOS TO AVERAGE NET ASSETS(f) Expenses(g) ....................................... 0.60% 0.60% 0.61% 0.60% 0.59% 0.60% Net investment income ............................. 8.69% 7.76% 7.48% 7.32% 7.55% 7.88% SUPPLEMENTAL DATA Net assets, end of period (000's) ................. $45,936 $56,656 $56,593 $43,502 $28,231 $37,569 Portfolio turnover rate ........................... 6.03% 31.17% 38.27% 29.26% 30.19% 44.07%
(a) The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to the timing of sales and repurchases of the Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund. (b) Based on average daily shares outstanding. (c) Amount rounds to less than $0.01 per share. (d) Effective September 1, 2008, the redemption fee was eliminated. (e) Total return is not annualized for periods less than one year. (f) Ratios are annualized for periods less than one year. (g) Benefit of expense reduction rounds to less than 0.01%. The accompanying notes are an integral part of these financial statements. 18 | Semiannual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, NOVEMBER 30, 2008 (UNAUDITED)
PRINCIPAL FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT(a) VALUE ------------------------- -------------- ----------- -------------- (b) SENIOR FLOATING RATE INTERESTS 1.2% CONSUMER SERVICES 0.2% OSI Restaurant Partners LLC (Outback), Pre-Funded Revolving Credit, 2.639%, 6/14/13 ...................... United States $ 600,957 $ 272,234 Term Loan B, 3.75%, 6/14/14 ....................................... United States 7,513,018 3,403,397 -------------- 3,675,631 -------------- MEDIA 0.3% Univision Communications Inc., Initial Term Loan, 3.686%, 9/29/14 .... United States 10,000,000 4,545,000 -------------- UTILITIES 0.7% Dynegy Holdings Inc., Term L/C Facility, 2.94%, 4/02/13 ................................. United States 13,861,332 10,367,126 Term Loan B, 2.94%, 4/02/13 ....................................... United States 1,130,106 845,226 -------------- 11,212,352 -------------- TOTAL SENIOR FLOATING RATE INTERESTS (COST $28,035,909) .............. 19,432,983 -------------- CORPORATE BONDS 90.5% AUTOMOBILES & COMPONENTS 2.7% Ford Motor Credit Co. LLC, senior note, 5.80%, 1/12/09 .................................................... United States 20,000,000 17,823,080 9.875%, 8/10/11 ................................................... United States 30,000,000 14,106,990 (c) TRW Automotive Inc., senior note, 144A, 7.00%, 3/15/14 .................................................... United States 8,800,000 4,312,000 7.25%, 3/15/17 .................................................... United States 20,000,000 9,300,000 -------------- 45,542,070 -------------- BANKS 1.3% Citigroup Capital XXI, pfd., junior sub. bond, 8.30%, 12/21/77 ....... United States 15,000,000 9,163,350 (d) Wells Fargo Capital XIII, pfd., 7.70%, Perpetual ..................... United States 10,000,000 8,119,290 (d) Wells Fargo Capital XV, pfd., 9.75%, Perpetual ....................... United States 5,000,000 4,729,400 -------------- 22,012,040 -------------- CAPITAL GOODS 3.8% (c) Allison Transmission Inc., senior note, 144A, 11.00%, 11/01/15 ....... United States 20,000,000 9,900,000 L-3 Communications Corp., senior sub. note, 6.125%, 1/15/14 .......... United States 15,000,000 12,675,000 Nortek Inc., senior note, 10.00%, 12/01/13 ........................... United States 3,300,000 2,326,500 RBS Global & Rexnord Corp., senior note, 9.50%, 8/01/14 ....................................... United States 18,000,000 12,690,000 senior sub. note, 11.75%, 8/01/16 ................................. United States 9,100,000 5,323,500 RSC Equipment Rental Inc., senior note, 9.50%, 12/01/14 .............. United States 26,000,000 12,870,000 Terex Corp., senior sub. note, 8.00%, 11/15/17 ....................... United States 10,000,000 7,200,000 -------------- 62,985,000 -------------- COMMERCIAL & PROFESSIONAL SERVICES 3.8% Allied Waste North America Inc., senior note, 7.875%, 4/15/13 ...................................... United States 15,000,000 14,100,000 senior secured note, 6.875%, 6/01/17 .............................. United States 4,000,000 3,500,000 ARAMARK Corp., senior note, 8.50%, 2/01/15 ........................... United States 25,000,000 20,875,000 (e, f) Goss Graphic Systems Inc., senior sub. note, 12.25%, 11/19/05 ........ United States 9,053,899 905
Semiannual Report | 19 Franklin High Income Trust STATEMENT OF INVESTMENTS, NOVEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT(a) VALUE ------------------------- -------------- ----------- -------------- CORPORATE BONDS (CONTINUED) COMMERCIAL & PROFESSIONAL SERVICES (CONTINUED) Iron Mountain Inc., senior sub. note, 8.75%, 7/15/18 ................. United States $12,950,000 $ 11,072,250 JohnsonDiversey Holdings Inc., senior disc. note, 10.67%, 5/15/13 .... United States 20,000,000 14,300,000 (e, f) Safety Kleen Services, senior sub. note, 9.25%, 6/01/08 .............. United States 10,000,000 50,000 -------------- 63,898,155 -------------- CONSUMER DURABLES & APPAREL 3.0% Jarden Corp., senior sub. note, 7.50%, 5/01/17 ....................... United States 26,000,000 17,030,000 Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ................. United States 20,000,000 16,100,000 KB Home, senior note, 6.25%, 6/15/15 .................................................... United States 20,000,000 11,700,000 7.25%, 6/15/18 .................................................... United States 10,000,000 5,850,000 -------------- 50,680,000 -------------- CONSUMER SERVICES 6.5% Boyd Gaming Corp., senior sub. note, 6.75%, 4/15/14 .................. United States 10,000,000 6,050,000 (c) Fontainebleau Las Vegas, 144A, 10.25%, 6/15/15 ....................... United States 18,000,000 2,430,000 Host Hotels & Resorts LP, senior note, K, 7.125%, 11/01/13 ............................................... United States 20,000,000 14,650,000 M, 7.00%, 8/15/12 ................................................. United States 7,100,000 5,360,500 Q, 6.75%, 6/01/16 ................................................. United States 9,500,000 6,365,000 MGM MIRAGE, senior note, 6.625%, 7/15/15 ................................................... United States 35,000,000 18,637,500 6.875%, 4/01/16 ................................................... United States 10,000,000 5,250,000 Pinnacle Entertainment Inc., senior sub. note, 8.25%, 3/15/12 .................................................... United States 6,000,000 4,410,000 8.75%, 10/01/13 ................................................... United States 14,100,000 10,786,500 Royal Caribbean Cruises Ltd., senior deb., 7.25%, 3/15/18 ....................................... United States 17,000,000 9,775,000 senior note, 8.00%, 5/15/10 ....................................... United States 4,200,000 3,780,000 senior note, 6.875%, 12/01/13 ..................................... United States 13,800,000 8,349,000 Station Casinos Inc., senior note, 6.00%, 4/01/12 ....................................... United States 9,300,000 2,929,500 senior note, 7.75%, 8/15/16 ....................................... United States 8,200,000 2,542,000 senior sub. note, 6.50%, 2/01/14 .................................. United States 3,400,000 323,000 senior sub. note, 6.875%, 3/01/16 ................................. United States 8,400,000 861,000 Universal City Development, senior note, 11.75%, 4/01/10 ............. United States 10,000,000 6,525,000 -------------- 109,024,000 -------------- DIVERSIFIED FINANCIALS 3.4% GMAC LLC, 6.875%, 9/15/11 ............................................ United States 60,000,000 23,066,700 (d) JPMorgan Chase & Co., junior sub. note, 1, 7.90%, Perpetual .......... United States 23,000,000 18,050,055 (e) Lehman Brothers Holdings Inc., senior note, 6.20%, 9/26/14 .................................................... United States 17,000,000 1,785,000 7.00%, 9/27/27 .................................................... United States 8,000,000 840,000 Merrill Lynch & Co. Inc., senior note, 6.40%, 8/28/17 ................ United States 15,000,000 13,787,250 -------------- 57,529,005 --------------
20 | Semiannual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, NOVEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT(a) VALUE ------------------------- -------------- ----------- -------------- CORPORATE BONDS (CONTINUED) ENERGY 11.0% Atlas Pipeline Partners LP, senior note, 8.125%, 12/15/15 .................................................. United States $14,000,000 $ 9,170,000 (c) 144A, 8.75%, 6/15/18 .............................................. United States 11,000,000 7,095,000 Chesapeake Energy Corp., senior note, 6.625%, 1/15/16 ................................................... United States 10,000,000 7,025,000 6.25%, 1/15/18 .................................................... United States 27,600,000 18,216,000 Compagnie Generale de Geophysique-Veritas, senior note, 7.50%, 5/15/15 ........................................................... France 3,050,000 1,997,750 El Paso Corp., senior note, 6.875%, 6/15/14 .......................... United States 15,000,000 11,194,590 Mariner Energy Inc., senior note, 7.50%, 4/15/13 ..................... United States 27,000,000 17,685,000 MarkWest Energy Partners LP, senior note, 8.75%, 4/15/18 ............. United States 15,600,000 9,906,000 Peabody Energy Corp., senior note, 7.375%, 11/01/16 .................................................. United States 6,900,000 5,968,500 B, 6.875%, 3/15/13 ................................................ United States 5,000,000 4,275,000 (c) Petroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 .................................................... Switzerland 22,000,000 14,300,000 7.00%, 5/01/17 .................................................... Switzerland 6,400,000 4,000,000 Plains Exploration & Production Co., senior note, 7.625%, 6/01/18 .... United States 27,000,000 18,090,000 Pride International Inc., senior note, 7.35%, 7/15/14 ................ United States 10,000,000 8,575,000 (c) SandRidge Energy Inc., senior note, 144A, 8.00%, 6/01/18 ............. United States 14,750,000 9,513,750 Tesoro Corp., senior note, 6.50%, 6/01/17 ............................ United States 30,000,000 17,700,000 The Williams Cos. Inc., senior note, 7.875%, 9/01/21 ................................................... United States 13,100,000 9,973,829 8.75%, 3/15/32 .................................................... United States 13,000,000 9,508,993 -------------- 184,194,412 -------------- FOOD, BEVERAGE & TOBACCO 2.6% Dean Foods Inc., senior note, 7.00%, 6/01/16 ......................... United States 16,725,000 13,087,313 Reynolds American Inc., senior secured note, 7.625%, 6/01/16 ......... United States 17,850,000 14,126,561 Smithfield Foods Inc., senior note, 7.00%, 8/01/11 .................................................... United States 18,900,000 11,434,500 7.75%, 5/15/13 .................................................... United States 7,500,000 4,162,500 -------------- 42,810,874 -------------- HEALTH CARE EQUIPMENT & SERVICES 8.0% DaVita Inc., senior sub. note, 7.25%, 3/15/15 ........................ United States 25,000,000 21,750,000 FMC Finance III SA, senior note, 6.875%, 7/15/17 ..................... Germany 15,000,000 12,600,000 HCA Inc., senior note, 6.50%, 2/15/16 ....................................... United States 6,300,000 3,559,500 senior secured note, 9.125%, 11/15/14 ............................. United States 35,000,000 28,525,000 Tenet Healthcare Corp., senior note, 7.375%, 2/01/13 ................................................... United States 10,000,000 6,950,000 9.875%, 7/01/14 ................................................... United States 15,000,000 10,875,000 (b, g) U.S. Oncology Holdings Inc., senior note, PIK, FRN, 8.334%, 3/15/12 .. United States 26,868,789 17,599,057
Semiannual Report | 21 Franklin High Income Trust STATEMENT OF INVESTMENTS, NOVEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT(a) VALUE ------------------------- -------------- ----------- -------------- CORPORATE BONDS (CONTINUED) HEALTH CARE EQUIPMENT & SERVICES (CONTINUED) United Surgical Partners International Inc., senior sub. note, 8.875%, 5/01/17 ................................................... United States $ 8,500,000 $ 5,610,000 (g) PIK, 9.25%, 5/01/17 ............................................... United States 10,000,000 6,050,000 Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%, 10/01/14 .......................................................... United States 25,000,000 20,125,000 -------------- 133,643,557 -------------- MATERIALS 8.9% Crown Americas Inc., senior note, 7.75%, 11/15/15 .................... United States 25,000,000 22,750,000 Freeport-McMoRan Copper & Gold Inc., senior note, 8.25%, 4/01/15 .................................................... United States 12,000,000 8,717,400 8.375%, 4/01/17 ................................................... United States 17,400,000 12,370,426 Huntsman International LLC, senior sub. note, 7.875%, 11/15/14 ....... United States 20,000,000 13,300,000 (c) Ineos Group Holdings PLC, senior secured note, 144A, 8.50%, 2/15/16 .. United Kingdom 28,000,000 5,110,000 Ispat Inland ULC, senior secured note, 9.75%, 4/01/14 ................ United States 5,000,000 4,816,615 (c) MacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17 ............... United States 6,000,000 3,270,000 Nalco Co., senior sub. note, 8.875%, 11/15/13 ........................ United States 28,000,000 22,540,000 NewPage Corp., senior secured note, 10.00%, 5/01/12 .................. United States 25,000,000 13,625,000 Novelis Inc., senior note, 7.25%, 2/15/15 ............................ Canada 30,000,000 17,550,000 Owens-Brockway Glass Container Inc., senior note, 6.75%, 12/01/14 .... United States 5,000,000 4,375,000 Owens-Illinois Inc., senior note, 7.80%, 5/15/18 ..................... United States 20,000,000 16,500,000 Smurfit Kappa Funding PLC, senior sub. note, 7.75%, 4/01/15 .......... Ireland 5,700,000 3,847,500 -------------- 148,771,941 -------------- MEDIA 9.9% (e, f) Callahan Nordrhein-Westfallen, senior disc. note, 16.00%, 7/15/10 .... Germany 38,000,000 3,800 CanWest Media Inc., senior sub. note, 8.00%, 9/15/12 ................. Canada 26,500,000 10,467,500 CCH I Holdings LLC, senior note, 13.50%, 1/15/14 ..................... United States 15,500,000 2,480,000 CCH II LLC, senior note, 10.25%, 9/15/10 ............................. United States 33,800,000 17,322,500 CSC Holdings Inc., senior deb., 7.625%, 7/15/18 ...................................... United States 8,000,000 5,640,000 senior note, 6.75%, 4/15/12 ....................................... United States 7,750,000 6,529,375 Dex Media Inc., B, 8.00%, 11/15/13 ................................................ United States 7,500,000 1,012,500 senior disc. note, 9.00%, 11/15/13 ................................ United States 12,600,000 1,701,000 DIRECTV Holdings LLC, senior note, 8.375%, 3/15/13 ................................................... United States 5,000,000 4,625,000 7.625%, 5/15/16 ................................................... United States 23,375,000 20,044,062 EchoStar DBS Corp., senior note, 6.375%, 10/01/11 .................................................. United States 10,000,000 8,525,000 7.125%, 2/01/16 ................................................... United States 17,300,000 12,369,500 Idearc Inc., senior note, 8.00%, 11/15/16 ............................ United States 28,000,000 2,450,000 Lamar Media Corp., senior sub. note, 6.625%, 8/15/15 ................................................... United States 17,800,000 12,994,000 B, 6.625%, 8/15/15 ................................................ United States 10,000,000 7,300,000 Liberty Media Corp., senior note, 5.70%, 5/15/13 ..................... United States 25,000,000 16,898,625 LIN Television Corp., senior sub. note, 6.50%, 5/15/13 ............... United States 15,000,000 7,050,000
22 | Semiannual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, NOVEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT(a) VALUE ------------------------- -------------- ----------- -------------- CORPORATE BONDS (CONTINUED) MEDIA (CONTINUED) Quebecor Media Inc., senior note, 7.75%, 3/15/16 ..................... Canada $27,500,000 $ 18,562,500 R.H. Donnelley Corp., senior disc. note, A-1, 6.875%, 1/15/13 ........................... United States 900,000 121,500 senior disc. note, A-2, 6.875%, 1/15/13 ........................... United States 1,600,000 216,000 senior note, A-3, 8.875%, 1/15/16 ................................. United States 20,000,000 2,700,000 Radio One Inc., senior sub. note, B, 8.875%, 7/01/11 ................. United States 10,000,000 4,875,000 (c, g) Univision Communications Inc., senior note, 144A, PIK, 9.75%, 3/15/15 ........................................................... United States 15,000,000 1,987,500 -------------- 165,875,362 -------------- RETAILING 1.9% Dollar General Corp., senior note, 10.625%, 7/15/15 .................. United States 25,000,000 22,625,000 Michaels Stores Inc., senior note, 10.00%, 11/01/14 .................. United States 28,000,000 8,960,000 -------------- 31,585,000 -------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.3% Freescale Semiconductor Inc., senior note, 8.875%, 12/15/14 .......... United States 15,800,000 5,451,000 -------------- SOFTWARE & SERVICES 1.9% First Data Corp., senior note, 9.875%, 9/24/15 ....................... United States 15,000,000 8,700,000 SunGard Data Systems Inc., senior note, 9.125%, 8/15/13 ...................................... United States 11,100,000 8,658,000 senior sub. note, 10.25%, 8/15/15 ................................. United States 24,175,000 14,142,375 -------------- 31,500,375 -------------- TECHNOLOGY HARDWARE & EQUIPMENT 2.2% Celestica Inc., senior sub. note, 7.875%, 7/01/11 ................................................... Canada 13,400,000 11,457,000 7.625%, 7/01/13 ................................................... Canada 5,000,000 3,725,000 (c) Nortel Networks Ltd., senior note, 144A, 10.75%, 7/15/16 ............. Canada 20,000,000 5,900,000 Sanmina-SCI Corp., (b, c) senior note, 144A, FRN, 5.569%, 6/15/14 ........................... United States 5,000,000 3,375,000 senior sub. note, 6.75%, 3/01/13 .................................. United States 14,000,000 7,070,000 senior sub. note, 8.125%, 3/01/16 ................................. United States 10,000,000 4,550,000 -------------- 36,077,000 -------------- TELECOMMUNICATION SERVICES 9.9% (c) American Tower Corp., senior note, 144A, 7.00%, 10/15/17 ............. United States 10,000,000 8,650,000 (c) Digicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 ............... Jamaica 27,000,000 14,040,000 Inmarsat Finance PLC, senior note, 10.375%, 11/15/12 ................. United Kingdom 25,000,000 22,062,500 Intelsat Bermuda Ltd., senior note, 11.25%, 6/15/16 .................. Bermuda 5,000,000 4,050,000 (c) Intelsat Subsidiary Holding Co. Ltd., senior note, 144A, 8.50%, 1/15/13 ........................................................... Bermuda 25,000,000 21,500,000 (e) Iridium LLC, senior note, D, 10.875%, 7/15/05 ........................ Bermuda 17,000,000 85,000 MetroPCS Wireless Inc., senior note, 9.25%, 11/01/14 ................. United States 25,000,000 20,625,000 Millicom International Cellular SA, senior note, 10.00%, 12/01/13 .... Luxembourg 15,000,000 12,450,000 Nextel Communications Inc., senior note, D, 7.375%, 8/01/15 .......... United States 10,000,000 4,001,880 Qwest Communications International Inc., senior note, 7.50%, 2/15/14 .................................................... United States 10,000,000 6,550,000 B, 7.50%, 2/15/14 ................................................. United States 20,000,000 13,100,000
Semiannual Report | 23 Franklin High Income Trust STATEMENT OF INVESTMENTS, NOVEMBER 30, 2008 (UNAUDITED) (CONTINUED)
PRINCIPAL FRANKLIN HIGH INCOME FUND COUNTRY AMOUNT(a) VALUE ------------------------- -------------- ----------- -------------- CORPORATE BONDS (CONTINUED) TELECOMMUNICATION SERVICES (CONTINUED) (e) RSL Communications PLC, senior discount note, 10.125%, 3/01/08 ............................ United Kingdom $44,500,000 $ 636,350 senior note, 12.00%, 11/01/08 ..................................... United Kingdom 6,250,000 89,375 Virgin Media Finance PLC, senior note, 8.75%, 4/15/14 ................ United Kingdom 8,900,000 6,474,750 (c) Wind Acquisition Finance SA, senior note, 144A, 10.75%, 12/01/15 ..... Italy 28,000,000 23,100,000 Windstream Corp., senior note, 8.625%, 8/01/16 ....................... United States 10,000,000 7,850,000 -------------- 165,264,855 -------------- UTILITIES 9.4% The AES Corp., senior note, 8.00%, 10/15/17 ................................................... United States 20,000,000 13,900,000 (c) 144A, 8.00%, 6/01/20 .............................................. United States 5,000,000 3,225,000 Aquila Inc., senior note, 14.875%, 7/01/12 ........................... United States 15,500,000 15,123,257 Dynegy Holdings Inc., senior note, 8.375%, 5/01/16 ................... United States 15,000,000 10,500,000 Edison Mission Energy, senior note, 7.00%, 5/15/17 ................... United States 28,000,000 21,140,000 ESI Tractebel Acquisition Corp., secured note, 7.99%, 12/30/11 ....... United States 5,020,000 4,630,950 (c) Intergen NV, senior secured note, 144A, 9.00%, 6/30/17 ............... Netherlands 17,825,000 14,349,125 Mirant North America LLC, senior note, 7.375%, 12/31/13 .............. United States 21,700,000 18,879,000 NRG Energy Inc., senior note, 7.25%, 2/01/14 .................................................... United States 8,500,000 6,948,750 7.375%, 2/01/16 ................................................... United States 20,000,000 16,300,000 7.375%, 1/15/17 ................................................... United States 5,000,000 4,050,000 PNM Resources Inc., senior note, 9.25%, 5/15/15 ...................... United States 4,100,000 3,239,000 (c) Texas Competitive Electric Holdings Co. LLC, senior note, 144A, 10.25%, 11/01/15 .................................................. United States 40,000,000 25,800,000 -------------- 158,085,082 -------------- TOTAL CORPORATE BONDS (COST $2,421,508,084) .......................... 1,514,929,728 --------------
SHARES ----------- COMMON STOCKS 0.0%(h) AUTOMOBILES & COMPONENTS 0.0%(h) (i, j) Cambridge Industries Liquidating Trust Interest ...................... United States 4,853,892 -- (j, k) Harvard Industries Inc. .............................................. United States 793,966 2,382 -------------- 2,382 -------------- COMMERCIAL & PROFESSIONAL SERVICES 0.0% (i, j, k) VS Holdings Inc. ..................................................... United States 1,685,375 -- -------------- TELECOMMUNICATION SERVICES 0.0%(h) Sprint Nextel Corp. .................................................. United States 163,094 455,033 -------------- TOTAL COMMON STOCKS (COST $29,131,254) ............................... 457,415 -------------- CONVERTIBLE PREFERRED STOCKS (COST $26,500,000) 1.0% UTILITIES 1.0% CMS En ergy Trust I, 7.75%, cvt. pfd. ................................ United States 530,000 17,625,256 --------------
24 | Semiannual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, NOVEMBER 30, 2008 (UNAUDITED) (CONTINUED)
FRANKLIN HIGH INCOME FUND COUNTRY SHARES VALUE ------------------------- -------------- ----------- -------------- PREFERRED STOCKS (COST $10,000,000) 0.0%(h) BANKS 0.0%(h) Freddie Mac, 8.375%, pfd., Z ......................................... United States 400,000 $ 300,000 -------------- TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST $2,515,175,247) ............................................. 1,552,745,382 -------------- SHORT TERM INVESTMENTS (COST $78,705,894) 4.7% MONEY MARKET FUNDS 4.7% (l) Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.99% .................................................. United States 78,705,894 78,705,894 -------------- TOTAL INVESTMENTS (COST $2,593,881,141) 97.4% ........................ 1,631,451,276 OTHER ASSETS, LESS LIABILITIES 2.6% .................................. 42,860,232 -------------- NET ASSETS 100.0% .................................................... $1,674,311,508 ==============
SELECTED PORTFOLIO ABBREVIATIONS FRN - Floating Rate Note L/C - Letter of Credit PIK - Payment-In-Kind (a) The principal amount is stated in U.S. dollars unless otherwise indicated. (b) The coupon rate shown represents the rate at period end. (c) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust's Board of Trustees. At November 30, 2008, the aggregate value of these securities was $191,157,375, representing 11.42% of net assets. (d) Perpetual security with no stated maturity date. (e) See Note 8 regarding defaulted securities. (f) Security has been deemed illiquid because it may not be able to be sold within seven days. At November 30, 2008, the aggregate value of these securities was $54,705, representing less than 0.01% of net assets. (g) Income may be received in additional securities and/or cash. (h) Rounds to less than 0.1% of net assets. (i) See Note 9 regarding restricted and illiquid securities. (j) Non-income producing for the twelve months ended November 30, 2008. (k) See Note 10 regarding holdings of 5% voting securities. (l) See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio. The rate shown is the annualized seven-day yield at period end. The accompanying notes are an integral part of these financial statements. Semiannual Report | 25 Franklin High Income Trust FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES November 30, 2008 (unaudited)
FRANKLIN HIGH INCOME FUND --------------- Assets: Investments in securities: Cost - Unaffiliated issuers ......................................... $ 2,487,951,386 Cost - Non-controlled affiliated issuers (Note 10) .................. 27,223,861 Cost - Sweep Money Fund (Note 7) .................................... 78,705,894 --------------- Total cost of investments ........................................... $ 2,593,881,141 =============== Value - Unaffiliated issuers ........................................ $ 1,552,743,000 Value - Non-controlled affiliated issuers (Note 10) ................. 2,382 Value - Sweep Money Fund (Note 7) ................................... 78,705,894 --------------- Total value of investments .......................................... 1,631,451,276 Cash ................................................................... 83,306 Receivables: Investment securities sold .......................................... 2,173,722 Capital shares sold ................................................. 1,942,784 Interest ............................................................ 48,023,959 --------------- Total assets ..................................................... 1,683,675,047 --------------- Liabilities: Payables: Investment securities purchased ..................................... 2,436,339 Capital shares redeemed ............................................. 5,504,672 Affiliates .......................................................... 1,129,794 Accrued expenses and other liabilities ................................. 292,734 --------------- Total liabilities ................................................ 9,363,539 --------------- Net assets, at value .......................................... $ 1,674,311,508 =============== Net assets consist of: Paid-in capital ........................................................ $ 3,687,269,544 Undistributed net investment income .................................... 2,837,244 Net unrealized appreciation (depreciation) ............................. (962,429,865) Accumulated net realized gain (loss) ................................... (1,053,365,415) --------------- Net assets, at value .......................................... $ 1,674,311,508 ===============
The accompanying notes are an integral part of these financial statements. 26 | Semiannual Report Franklin High Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) November 30, 2008 (unaudited)
FRANKLIN HIGH INCOME FUND -------------- CLASS A: Net assets, at value ................................................... $1,324,986,533 -------------- Shares outstanding ..................................................... 974,749,915 -------------- Net asset value per share(a) ........................................... $ 1.36 -------------- Maximum offering price per share (net asset value per share / 95.75%) .. $ 1.42 -------------- CLASS B: Net assets, at value ................................................... $ 64,481,585 -------------- Shares outstanding ..................................................... 47,570,631 -------------- Net asset value and maximum offering price per share(a) ................ $ 1.36 -------------- CLASS C: Net assets, at value ................................................... $ 213,398,735 -------------- Shares outstanding ..................................................... 156,035,571 -------------- Net asset value and maximum offering price per share(a) ................ $ 1.37 -------------- CLASS R: Net assets, at value ................................................... $ 25,508,483 -------------- Shares outstanding ..................................................... 18,593,028 -------------- Net asset value and maximum offering price per share(a) ................ $ 1.37 -------------- ADVISOR CLASS: Net assets, at value ................................................... $ 45,936,172 -------------- Shares outstanding ..................................................... 33,761,676 -------------- Net asset value and maximum offering price per share(a) ................ $ 1.36 --------------
(a) Redemption price is equal to net asset value less contingent deferred sales charges, if applicable. The accompanying notes are an integral part of these financial statements. Semiannual Report | 27 Franklin High Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the six months ended November 30, 2008 (unaudited)
FRANKLIN HIGH INCOME FUND ------------- Investment income: Dividends: Unaffiliated issuers ................................................ $ 1,412,524 Sweep Money Fund (Note 7) ........................................... 611,800 Interest ............................................................... 102,548,590 ------------- Total investment income .......................................... 104,572,914 ------------- Expenses: Management fees (Note 3a) .............................................. 4,920,819 Distribution fees: (Note 3c) Class A ............................................................. 1,389,035 Class B ............................................................. 306,861 Class C ............................................................. 944,594 Class R ............................................................. 81,299 Transfer agent fees (Note 3e) .......................................... 1,548,071 Custodian fees (Note 4) ................................................ 12,446 Reports to shareholders ................................................ 80,399 Registration and filing fees ........................................... 80,298 Professional fees ...................................................... 33,452 Trustees' fees and expenses ............................................ 54,701 Other .................................................................. 30,329 ------------- Total expenses ................................................... 9,482,304 Expense reductions (Note 4) ...................................... (9,281) ------------- Net expenses .................................................. 9,473,023 ------------- Net investment income ...................................... 95,099,891 ------------- Realized and unrealized gains (losses): Net realized gain (loss) from investments .............................. (55,092,525) Net change in unrealized appreciation (depreciation) on investments .... (765,953,714) ------------- Net realized and unrealized gain (loss) ................................... (821,046,239) ------------- Net increase (decrease) in net assets resulting from operations ........... $(725,946,348) =============
The accompanying notes are an integral part of these financial statements. 28 | Semiannual Report Franklin High Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN HIGH INCOME FUND ---------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2008 YEAR ENDED (UNAUDITED) MAY 31, 2008 ----------------- -------------- Increase (decrease) in net assets: Operations: Net investment income ................................................. $ 95,099,891 $ 196,757,793 Net realized gain (loss) from investments ............................. (55,092,525) (25,710,007) Net change in unrealized appreciation (depreciation) on investments ... (765,953,714) (188,327,872) -------------- -------------- Net increase (decrease) in net assets resulting from operations .... (725,946,348) (17,280,086) -------------- -------------- Distributions to shareholders from net investment income: Class A ............................................................... (75,561,634) (158,674,643) Class B ............................................................... (3,792,892) (9,703,289) Class C ............................................................... (11,450,926) (24,333,028) Class R ............................................................... (1,287,180) (2,259,223) Advisor Class ......................................................... (2,261,089) (3,799,920) -------------- -------------- Total distributions to shareholders ...................................... (94,353,721) (198,770,103) -------------- -------------- Capital share transactions: (Note 2) Class A ............................................................... (71,320,144) (64,393,064) Class B ............................................................... (16,738,637) (37,943,951) Class C ............................................................... (14,104,683) (23,405,612) Class R ............................................................... 1,723,422 11,368,320 Advisor Class ......................................................... 10,300,884 3,877,919 -------------- -------------- Total capital share transactions ......................................... (90,139,158) (110,496,388) -------------- -------------- Redemption fees .......................................................... 6,343 17,209 -------------- -------------- Net increase (decrease) in net assets .............................. (910,432,884) (326,529,368) Net assets: Beginning of period ...................................................... 2,584,744,392 2,911,273,760 -------------- -------------- End of period ............................................................ $1,674,311,508 $2,584,744,392 ============== ============== Undistributed net investment income included in net assets: End of period ............................................................ $ 2,837,244 $ 2,091,074 ============== ==============
The accompanying notes are an integral part of these financial statements. Semiannual Report | 29 Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) FRANKLIN HIGH INCOME FUND 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin High Income Trust (Trust) is registered under the Investment Company Act of 1940, as amended, (1940 Act) as a diversified, open-end investment company, consisting of one fund, the Franklin High Income Fund (Fund). The Fund offers five classes of shares: Class A, Class B, Class C, Class R, and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege. The following summarizes the Fund's significant accounting policies. A. SECURITY VALUATION Securities listed on a securities exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities and listed securities for which there is no reported sale are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Investments in open-end mutual funds are valued at the closing net asset value. Corporate debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Trust may utilize independent pricing services, quotations from bond dealers, and information with respect to bond and note transactions, to assist in determining a current market value for each security. The Trust's pricing services may use valuation models or matrix pricing which considers information with respect to comparable bond and note transactions, quotations from bond dealers, or by reference to other securities that are considered comparable in such characteristics as rating, interest rate and maturity date, option adjusted spread models, prepayment projections, interest rate spreads and yield curves, to determine current value. Foreign securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. If no sale is reported at that time, the foreign security will be valued within the range of the most recent quoted bid and ask prices. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the foreign security is determined. The Trust has procedures to determine the fair value of individual securities and other assets for which market prices are not readily available or which may not be reliably priced. Methods for valuing these securities may include: fundamental analysis, matrix pricing, discounts from market prices of similar securities, or discounts applied due to the nature and duration of restrictions on the disposition of the securities. Due to the inherent uncertainty of valuations of such securities, the fair values may differ significantly from the values that would have been used had a ready market for such investments existed. Occasionally, events occur between the time at which trading 30 | Semiannual Report Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FRANKLIN HIGH INCOME FUND 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. SECURITY VALUATION (CONTINUED) in a security is completed and the close of the NYSE that might call into question the availability (including the reliability) of the value of a portfolio security held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services. All security valuation procedures are approved by the Trust's Board of Trustees. B. SENIOR FLOATING RATE INTERESTS Senior secured corporate loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. These base lending rates are generally the prime rate offered by a designated U.S. bank or the London InterBank Offered Rate (LIBOR). Senior secured corporate loans often require prepayment of principal from excess cash flows or at the discretion of the borrower. As a result, actual maturity may be substantially less than the stated maturity. Senior secured corporate loans in which the Fund invests are generally readily marketable, but may be subject to some restrictions on resale. C. INCOME TAXES No provision has been made for U.S. income taxes because it is the Fund's policy to qualify as a regulated investment company under the Internal Revenue Code and to distribute to shareholders substantially all of its taxable income and net realized gains. The Fund has reviewed the tax positions, taken on federal income tax returns, for each of the three open tax years and as of November 30, 2008, and has determined that no provision for income tax is required in the Fund's financial statements. D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Facility fees are recognized as income over the expected term of the loan. Dividend income is recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date and are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis may differ from earnings recorded in accordance with accounting principles generally accepted in the United States of America. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods. Semiannual Report | 31 Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FRANKLIN HIGH INCOME FUND 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS (CONTINUED) Realized and unrealized gains and losses and net investment income, other than class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses. E. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. F. REDEMPTION FEES A short term trading redemption fee was imposed, with some exceptions, on any fund shares that were redeemed or exchanged within seven calendar days following their purchase date. The redemption fee was 2% of the amount redeemed. Such fees were retained by the Fund and accounted for as an addition to paid-in capital. Effective September 1, 2008, the redemption fee was eliminated. G. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust, on behalf of the Fund, enters into contracts with service providers that contain general indemnification clauses. The Trust's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote. 32 | Semiannual Report Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FRANKLIN HIGH INCOME FUND 2. SHARES OF BENEFICIAL INTEREST At November 30, 2008, there were an unlimited number of shares authorized (without par value). Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, 2008 MAY 31, 2008 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT ------------ ------------- ------------ ------------- CLASS A SHARES: Shares sold ................. 85,667,981 $ 152,284,955 173,560,166 $ 352,675,042 Shares issued in reinvestment of distributions ......... 24,128,261 43,403,991 43,619,445 88,682,262 Shares redeemed ............. (154,189,999) (267,009,090) (248,147,886) (505,750,368) ------------ ------------- ------------ ------------- Net increase (decrease) ..... (44,393,757) $ (71,320,144) (30,968,275) $ (64,393,064) ============ ============= ============ ============= CLASS B SHARES: Shares sold ................. 1,396,601 $ 2,454,892 2,503,992 $ 5,095,261 Shares issued in reinvestment of distributions ......... 1,091,557 1,966,240 2,473,506 5,020,836 Shares redeemed ............. (12,294,538) (21,159,769) (23,696,720) (48,060,048) ------------ ------------- ------------ ------------- Net increase (decrease) ..... (9,806,380) $ (16,738,637) (18,719,222) $ (37,943,951) ============ ============= ============ ============= CLASS C SHARES: Shares sold ................. 16,639,558 $ 29,412,241 28,407,791 $ 57,913,739 Shares issued in reinvestment of distributions ......... 3,721,431 6,742,535 6,936,322 14,182,632 Shares redeemed ............. (29,252,763) (50,259,459) (46,644,741) (95,501,983) ------------ ------------- ------------ ------------- Net increase (decrease) ..... (8,891,774) $ (14,104,683) (11,300,628) $ (23,405,612) ============ ============= ============ ============= CLASS R SHARES: Shares sold ................. 5,776,168 $ 10,219,763 10,895,936 $ 22,400,635 Shares issued in reinvestment of distributions ......... 689,284 1,248,058 1,079,632 2,207,881 Shares redeemed ............. (5,551,371) (9,744,399) (6,488,823) (13,240,196) ------------ ------------- ------------ ------------- Net increase (decrease) ..... 914,081 $ 1,723,422 5,486,745 $ 11,368,320 ============ ============= ============ ============= ADVISOR CLASS SHARES: Shares sold ................. 16,020,509 $ 27,131,671 14,933,482 $ 30,164,185 Shares issued in reinvestment of distributions ......... 930,367 1,656,277 1,298,268 2,635,367 Shares redeemed ............. (11,406,073) (18,487,064) (14,064,067) (28,921,633) ------------ ------------- ------------ ------------- Net increase (decrease) ..... 5,544,803 $ 10,300,884 2,167,683 $ 3,877,919 ============ ============= ============ =============
Semiannual Report | 33 Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FRANKLIN HIGH INCOME FUND 3. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers and/or directors of the following subsidiaries:
SUBSIDIARY AFFILIATION - ---------- ---------------------- Franklin Advisers, Inc. (Advisers) Investment manager Franklin Templeton Services, LLC (FT Services) Administrative manager Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES The Fund pays an investment management fee to Advisers based on the month-end net assets of the Fund as follows:
ANNUALIZED FEE RATE NET ASSETS - ------------------- --------------------------------------------------- 0.625% Up to and including $100 million 0.500% Over $100 million, up to and including $250 million 0.450% Over $250 million, up to and including $7.5 billion 0.440% Over $7.5 billion, up to and including $10 billion 0.430% Over $10 billion, up to and including $12.5 billion 0.420% Over $12.5 billion, up to and including $15 billion 0.400% Over $15 billion, up to and including $17.5 billion 0.380% Over $17.5 billion, up to and including $20 billion 0.360% Over $20 billion, up to and including $35 billion 0.355% Over $35 billion, up to and including $50 billion 0.350% In excess of $50 billion
B. ADMINISTRATIVE FEES Under an agreement with Advisers, FT Services provides administrative services to the Fund. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Fund. C. DISTRIBUTION FEES The Trust's Board of Trustees has adopted distribution plans for each share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1 under the 1940 Act. Under the Fund's Class A reimbursement distribution plan, the Fund reimburses Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund's shares up to the maximum annual plan rate. Under the Class A reimbursement distribution plan, costs exceeding the maximum for the current plan year cannot be reimbursed in subsequent periods. 34 | Semiannual Report Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FRANKLIN HIGH INCOME FUND 3. TRANSACTIONS WITH AFFILIATES (CONTINUED) C. DISTRIBUTION FEES (CONTINUED) In addition, under the Fund's Class B, C, and R compensation distribution plans, the Fund pays Distributors for costs incurred in connection with the servicing, sale and distribution of the Fund's shares up to the maximum annual plan rate for each class. The maximum annual plan rates, based on the average daily net assets, for each class, are as follows: Class A ........... 0.15% Class B ........... 0.65% Class C ........... 0.65% Class R ........... 0.50%
D. SALES CHARGES/UNDERWRITING AGREEMENTS Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund's shares for the year: Sales charges retained net of commissions paid to unaffiliated broker/dealers ................. $176,127 Contingent deferred sales charges retained ...... $ 36,923
E. TRANSFER AGENT FEES For the period ended November 30, 2008, the Fund paid transfer agent fees of $1,548,071, of which $955,024 was retained by Investor Services. 4. EXPENSE OFFSET ARRANGEMENT The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the period ended November 30, 2008, the custodian fees were reduced as noted in the Statement of Operations. Semiannual Report | 35 Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 5. INCOME TAXES For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2008, the capital loss carryforwards were as follows: Capital loss carryforwards expiring in: 2009 .................................. $110,935,066 2010 .................................. 147,493,159 2011 .................................. 291,020,377 2012 .................................. 273,193,753 2013 .................................. 56,708,693 2014 .................................. 100,305,761 ------------ $979,656,809 ============
For tax purposes, realized capital losses occurring subsequent to October 31, may be deferred and treated as occurring on the first day of the following fiscal year. At May 31, 2008, the Fund deferred realized capital losses of $34,709,187. At November 30, 2008, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows: Cost of investments .......................... $2,598,165,067 ============== Unrealized appreciation ...................... $ 1,184,142 Unrealized depreciation ...................... (967,897,933) -------------- Net unrealized appreciation (depreciation) ... $ (966,713,791) ==============
Net investment income differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities, payments-in-kind, and bond discounts and premiums. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales and bond discounts and premiums. 6. INVESTMENT TRANSACTIONS Purchases and sales of investments (excluding short term securities) for the period ended November 30, 2008, aggregated $128,317,563 and $251,452,804, respectively. 36 | Semiannual Report Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FRANKLIN HIGH INCOME FUND 7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management and administrative fees paid by the Sweep Money Fund. 8. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 90.17% of its portfolio invested in high yield, senior secured floating rate notes, or other securities rated below investment grade. These securities may be more sensitive to economic conditions causing greater price volatility and are potentially subject to a greater risk of loss due to default than higher rated securities. The Fund held defaulted securities and/or other securities for which the income has been deemed uncollectible. At November 30, 2008, the aggregate value of these securities was $3,490,430, representing 0.21% of the Fund's net assets. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. The securities have been identified on the accompanying Statement of Investments. 9. RESTRICTED SECURITIES The Fund may invest in securities that are restricted under the Securities Act of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed upon restrictions on resale. Restricted securities are often purchased in private placement transactions, and cannot be sold without prior registration unless the sale is pursuant to an exemption under the 1933 Act. Disposal of these securities may require greater effort and expense, and prompt sale at an acceptable price may be difficult. The Fund may have registration rights for restricted securities. The issuer generally incurs all registration costs. At November 30, 2008, the Fund held investments in restricted securities, excluding 144A securities deemed to be liquid, valued in accordance with procedures approved by the Trust's Board of Trustees as reflecting fair value, as follows:
ACQUISITION SHARES ISSUER DATE COST VALUE ------ ----------------------------------------------------- ----------- ---------- ----- 4,853,892 Cambridge Industries Liquidating Trust Interest ..... 1/09/02 $ -- $-- 1,685,375 VS Holdings Inc. .................................... 12/06/01 1,685,375 -- --- TOTAL RESTRICTED SECURITIES (0.00% of Net Assets) ... $-- ===
Semiannual Report | 37 Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FRANKLIN HIGH INCOME FUND 10. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES The 1940 Act defines "affiliated companies" to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in "affiliated companies" for the Fund for the period ended November 30, 2008, were as shown below.
NUMBER OF NUMBER OF SHARES HELD SHARES HELD VALUE AT REALIZED AT BEGINNING GROSS GROSS AT END OF END OF INVESTMENT CAPITAL NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS PERIOD PERIOD INCOME GAIN (LOSS) - -------------- ------------ --------- ---------- ----------- -------- ---------- ----------- Harvard Industries Inc. ............................ 793,966 -- -- 793,966 $2,382 $-- $-- VS Holdings Inc. ................................... 1,685,375 -- -- 1,685,375 -- -- -- ------ --- --- TOTAL AFFILIATED SECURITIES (0.00%(a) of Net Assets) .................................. $2,382 $-- $-- ====== === ===
(a) Rounds to less than 0.01% of net assets. 11. FAIR VALUE MEASUREMENTS The Fund adopted Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, "Fair Value Measurement" (SFAS 157), on June 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The Fund has determined that the implementation of SFAS 157 did not have a material impact on the Fund's financial statements. SFAS 157 establishes a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Trust's own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund's investments and are summarized in the following fair value hierarchy: - Level 1 - quoted prices in active markets for identical securities - Level 2 - other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speed, credit risk, etc.) - Level 3 - significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. 38 | Semiannual Report Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FRANKLIN HIGH INCOME FUND 11. FAIR VALUE MEASUREMENTS (CONTINUED) The following is a summary of the inputs used as of November 30, 2008, in valuing the Fund's assets carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ----------- -------------- ------- -------------- ASSETS: Investments in Securities $79,463,309 $1,551,933,262 $54,705 $1,631,451,276
At November 30, 2008, the reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value, is as follows:
INVESTMENTS IN SECURITIES -------------- Beginning Balance - June 1, 2008 ................................... $ 929,079 Net realized gain (loss) ........................................ (16,496,355) Net change in unrealized appreciation (depreciation) ............ 16,458,981 Net purchases (sales) ........................................... -- Transfers in and/or out of Level 3 .............................. (837,000) ------------ Ending Balance ..................................................... $ 54,705 ============ Net change in unrealized appreciation (depreciation) attributable to assets still held at end of period ........................... $ (35,499) ============
12. NEW ACCOUNTING PRONOUNCEMENTS In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" (SFAS 161), which expands disclosures about derivative investments and hedging activities. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Fund is currently evaluating the impact, if any, of applying the various provisions of SFAS 161. Semiannual Report | 39 Franklin High Income Trust SHAREHOLDER INFORMATION FRANKLIN HIGH INCOME FUND PROXY VOTING POLICIES AND PROCEDURES The Trust's investment manager has established Proxy Voting Policies and Procedures (Policies) that the Trust uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Trust's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Trust's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Trust files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330. 40 | Semiannual Report Literature Request LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT (800) DIAL BEN/(800) 342-5236 OR VISIT franklintempleton.com. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. TO ENSURE THE HIGHEST QUALITY OF SERVICE, WE MAY MONITOR, RECORD AND ACCESS TELEPHONE CALLS TO OR FROM OUR SERVICE DEPARTMENTS. THESE CALLS CAN BE IDENTIFIED BY THE PRESENCE OF A REGULAR BEEPING TONE. FRANKLIN TEMPLETON FUNDS VALUE Franklin All Cap Value Fund Franklin Balance Sheet Investment Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund(1) Franklin MidCap Value Fund Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund(2) Mutual Shares Fund BLEND Franklin Focused Core Equity Fund Franklin Large Cap Equity Fund Franklin Rising Dividends Fund GROWTH Franklin Capital Growth Fund(1) Franklin Flex Cap Growth Fund Franklin Growth Fund Franklin Growth Opportunities Fund(3) Franklin Small Cap Growth Fund(4) Franklin Small-Mid Cap Growth Fund SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Real Estate Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Mutual Financial Services Fund GLOBAL Mutual Discovery Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund INTERNATIONAL Franklin India Growth Fund Franklin International Growth Fund Franklin International Small Cap Growth Fund Mutual European Fund Templeton BRIC Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Emerging Markets Small Cap Fund Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Frontier Markets Fund HYBRID Franklin Balanced Fund Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Templeton Income Fund ASSET ALLOCATION Franklin Templeton Corefolio(R) Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives Allocation Fund Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund Franklin Templeton 2015 Retirement Target Fund Franklin Templeton 2025 Retirement Target Fund Franklin Templeton 2035 Retirement Target Fund Franklin Templeton 2045 Retirement Target Fund FIXED INCOME Franklin Adjustable U.S. Government Securities Fund(5) Franklin Floating Rate Daily Access Fund Franklin High Income Fund Franklin Limited Maturity U.S. Government Securities Fund(5) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(5) Templeton Global Bond Fund Templeton Global Total Return Fund Templeton International Bond Fund TAX-FREE INCOME(6) NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(7) LIMITED-/INTERMEDIATE-TERM FUNDS California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC Alabama Arizona California(8) Colorado Connecticut Florida Georgia Kentucky Louisiana Maryland Massachusetts(7) Michigan(7) Minnesota(7) Missouri New Jersey New York(8) North Carolina Ohio(7) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(9) (1.) The fund is closed to new investors. Existing shareholders and select retirement plans can continue adding to their accounts. (2.) The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. (3.) Effective 11/1/07, Franklin Aggressive Growth Fund changed its name to Franklin Growth Opportunities Fund. The fund's investment goal and strategy remained the same. (4.) Effective 3/31/08, Franklin Small Cap Growth Fund II changed its name to Franklin Small Cap Growth Fund. The fund's investment goal and strategy remained the same. (5.) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (6.) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (7.) The fund invests primarily in insured municipal securities. (8.) These funds are available in four or more variations, including long-term portfolios, intermediate-term portfolios, portfolios of insured securities, a high-yield portfolio (CA only) and money market portfolios. (9.) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. Not part of the semiannual report (FRANKLIN TEMPLETON INVESTMENTS LOGO) One Franklin Parkway San Mateo, CA 94403-1906 - - WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. SEMIANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN HIGH INCOME FUND INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. (800) DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES (800) 632-2301 Authorized for distribution only when accompanied or preceded by a prospectus. Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. The prospectus contains this and other information; please read it carefully before investing. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. 105 S2008 01/09 ITEM 2. CODE OF ETHICS. (a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer. (c) N/A (d) N/A (f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The Registrant has an audit committee financial expert serving on its audit committee. (2) The audit committee financial expert is John B. Wilson and he is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A ITEM 6. SCHEDULE OF INVESTMENTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. ITEM 11. CONTROLS AND PROCEDURES. (A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant's filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant's management, including the Registrant's principal executive officer and the Registrant's principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on such evaluation, the Registrant's principal executive officer and principal financial officer concluded that the Registrant's disclosure controls and procedures are effective. (B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR. ITEM 12. EXHIBITS. (a)(1) Code of Ethics (a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Jennifer J. Bolt, Chief Executive Officer - Finance and Administration, and Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Jennifer J. Bolt, Chief Executive Officer - Finance and Administration, and Laura F. Fergerson, Chief Financial Officer and Chief Accounting Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN HIGH INCOME TRUST By /S/JENNIFER J. BOLT ------------------- Jennifer J. Bolt Chief Executive Officer - Finance and Administration Date January 27, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /S/JENNIFER J. BOLT ------------------ Jennifer J. Bolt Chief Executive Officer - Finance and Administration Date January 27, 2009 By /S/LAURA F. FERGERSON --------------------- Laura F. Fergerson Chief Financial Officer and Chief Accounting Officer Date January 27, 2009 EX-99.CERT 2 fhit302cert-109.txt SECTION 302 CERTIFICATION Exhibit 12(a)(2) I, Jennifer J. Bolt, certify that: 1. I have reviewed this report on Form N-CSR of FRANKLIN HIGH INCOME TRUST; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 1/27/2009 S/JENNIFER J. BOLT Jennifer J. Bolt Chief Executive Officer - Finance and Administration PAGE I, Laura F. Fergerson, certify that: 1. I have reviewed this report on Form N-CSR of FRANKLIN HIGH INCOME TRUST; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 1/27/2009 S/LAURA F. FERGERSON Laura F. Fergerson Chief Financial Officer and Chief Accounting Officer EX-99.906CERT 3 fhit906cert-109.txt SECTION 906 CERTIFICATION Exhibit 12(b) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jennifer J. Bolt, Chief Executive Officer of the FRANKLIN HIGH INCOME TRUST (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 11/30/2008 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: 1/27/2009 S/ENNIFER J. BOLT Jennifer J. Bolt Chief Executive Officer - Finance and Administration CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Laura F. Fergerson, Chief Financial Officer of the FRANKLIN HIGH INCOME TRUST (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 11/30/2008 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: 1/27/2009 S/LAURA F. FERGERSON Laura F. Fergerson Chief Financial Officer and Chief Accounting Officer EX-99.CODE ETH 4 ncsr_code308.txt Exhibit 12(a)(1) CODE OF ETHICS FOR PRINCIPAL EXECUTIVES & SENIOR FINANCIAL OFFICERS - ------------------------------------------------------------------------------ PROCEDURES Revised March 06, 2008 - ------------------------------------------------------------------------------- FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. Covered Officers and Purpose of the Code This code of ethics (the "Code") applies to the Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the "Covered Officers," each of whom is set forth in Exhibit A) of each investment company advised by a Franklin Resources subsidiary and that is registered with the United States Securities & Exchange Commission ("SEC") (collectively, "FT Funds") for the purpose of promoting: o Honest and ethical conduct, including the ethical resolution of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds; o Compliance with applicable laws and governmental rules and regulations; o The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o Accountability for adherence to the Code. Each Covered Officer will be expected to adhere to a high standard of business ethics and must be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Franklin Resources, Inc. has separately adopted the CODE OF ETHICS AND BUSINESS CONDUCT ("Business Conduct"), which is applicable to all officers, directors and employees of Franklin Resources, Inc., including Covered Officers. It summarizes the values, principles and business practices that guide the employee's business conduct and also provides a set of basic principles to guide officers, directors and employees regarding the minimum ethical requirements expected of them. It supplements the values, principles and business conduct identified in the Code and other existing employee policies. Additionally, the Franklin Templeton Funds have separately adopted the CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING governing personal securities trading and other related matters. The Code for Insider Trading provides for separate requirements that apply to the Covered Officers and others, and therefore is not part of this Code. Insofar as other policies or procedures of Franklin Resources, Inc., the Funds, the Funds' adviser, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superceded by this Code to the extent that they overlap or conflict with the provisions of this Code. Please review these other documents or consult with the Legal Department if have questions regarding the applicability of these policies to you. III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of apposition with the FT Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as "affiliated persons" of the FT Funds. The FT Funds' and the investment advisers' compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds. Each Covered Officer must: o Not use his or her personal influence or personal relationships improperly to influence investment decisions orfinancial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds; o Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds; o Not retaliate against any other Covered Officer or any employee of the FT Funds or their affiliated persons for reports of potential violations that are made in good faith; o Report at least annually the following affiliations or other relationships:/ 1 o all directorships for public companies and all companies that are required to file reports with the SEC; o any direct or indirect business relationship with any independent directors of the FT Funds; o any direct or indirect business relationship with any independent public accounting firm (which are not related to the routine issues related to the firm's service as the Covered Persons accountant); and o any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources). These reports will be reviewed by the Legal Department for compliance with the Code. There are some conflict of interest situations that should always be approved in writing by Franklin Resources General Counsel or Deputy General Counsel, if material. Examples of these include/2: o Service as a director on the board of any public or private Company; o The receipt of any gifts in excess of $100 from any person, from any corporation or association o The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval from the Franklin Resources General Counsel for any entertainment with a value in excess of $1000. o Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund's service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof; o A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. Franklin Resources General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting. IV. Disclosure and Compliance o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the FT Funds, the FT Fund's adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. Reporting and Accountability Each Covered Officer must: o Upon becoming a covered officer affirm in writing to the Board that he or she has received, read, and understands the Code (see Exhibit B); o Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and o Notify Franklin Resources' General Counsel or Deputy General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself is a violation of this Code. Franklin Resources' General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation./3 However, the Independent Directors of the respective FT Funds will consider any approvals or waivers/4 sought by any Chief Executive Officers of the Funds. The FT Funds will follow these procedures in investigating and enforcing this Code: o Franklin Resources General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to the Legal Department; o If, after such investigation, the General Counsel or Deputy General Counsel believes that no violation has occurred, The General Counsel is not required to take any further action; o Any matter that the General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund; o If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate FT Fund or Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Independent Directors will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules./5 VI. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the FT Funds, the FT Funds' advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FT Code of Ethics and Policy Statement On Insider Trading, adopted by the FT Funds, FT investment advisers and FT Fund's principal underwriter pursuant to Rule 17j-1 under the Investment Company Act, the Code of Ethics and Business Conduct and more detailed policies and procedures set forth in FT's Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code. VII. Amendments Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds' Board including a majority of independent directors. VIII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds' Board and their counsel. IX. Internal Use The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion. X. Disclosure on Form N-CSR Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so. The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant's annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention. The Legal Department shall be responsible for ensuring that: o a copy of the Code is filed with the SEC as an exhibit to each Fund's annual report; and o any amendments to, or waivers (including implicit waivers) from, a provision of the Code is disclosed in the registrant's annual report on Form N-CSR. In the event that the foregoing disclosure is omitted or is determined to be incorrect, the Legal Department shall promptly file such information with the SEC as an amendment to Form N-CSR. In such an event, the Fund Chief Compliance Officer shall review the Code and propose such changes to the Code as are necessary or appropriate to prevent reoccurrences. EXHIBIT A Persons Covered by the Franklin Templeton Funds Code of Ethics March 2008 FRANKLIN GROUP OF FUNDS Edward B. Jamieson President and Chief Executive Officer - Investment Management Charles B. Johnson President and Chief Executive Officer - Investment Management Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management William J. Lippman President and Chief Executive Officer - Investment Management Christopher Molumphy President and Chief Executive Officer - Investment Management Galen G. Vetter Senior Vice President and Chief Executive Officer - Finance and Administration Jimmy D. Gambill Vice President Laura Fergerson Chief Financial Officer and Chief Accounting Officer FRANKLIN MUTUAL SERIES FUNDS Peter Langerman Chief Executive Officer-Investment Management Galen G. Vetter Senior Vice President and Chief Executive Officer - Finance and Administration Jimmy D. Gambill Vice President Laura Fergerson Chief Financial Officer and Chief Accounting Officer TEMPLETON GROUP OF FUNDS Mark Mobius President and Chief Executive Officer - Investment Management Christopher J. Molumphy President and Chief Executive Officer - Investment Management Gary P. Motyl President and Chief Executive Officer - Investment Management Donald F. Reed President and Chief Executive Officer - Investment Management Galen G. Vetter Senior Vice President and Chief Executive Officer - Finance and Administration Jimmy D. Gambill Vice President Laura Fergerson Chief Financial Officer and Chief Accounting Officer EXHIBIT B ACKNOWLEDGMENT FORM DECEMBER FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS INSTRUCTIONS: 1. Complete all sections of this form. 2. Print the completed form, sign, and date. 3. Submit completed form to FT's General Counsel c/o Maria Abbott within 10 days of becoming a Covered Officer and by January 30th of each subsequent year. INTER-OFFICE MAIL: Maria Abbott, Manager, Code of Ethics, Global Compliance SM-920/2 TELEPHONE: (650) 312-5698 Fax: (650) 312-5646 E-MAIL: Abbott, Maria (internal address); mabbott@frk.com (external address) - ---------------------------------------------------------------------------- COVERED OFFICER'S NAME: - ---------------------------------------------------------------------------- TITLE: - ---------------------------------------------------------------------------- DEPARTMENT: - ---------------------------------------------------------------------------- LOCATION: - ---------------------------------------------------------------------------- CERTIFICATION FOR YEAR ENDING: - ---------------------------------------------------------------------------- TO: Franklin Resources General Counsel, Legal Department I hereby acknowledge receipt of a copy of Franklin Templeton Fund's code of ethics for Principal Executive Officers and Senior Financial Officers (the "Code") that I have read and understand. I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment. - ---------------------------- ---------------------- Signature Date signed - ----------------------------- 1. Reporting of these affiliations or other relationships shall be made by completing the annual Directors and Officers Questionnaire and returning the questionnaire to Franklin Resources Inc, General Counsel or Deputy General Counsel. 2. Any activity or relationship that would present a conflict for a Covered Officer may also present a conflict for the Covered Officer if a member of the Covered Officer's immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT's General Counsel in such situations. 3. Franklin Resources General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so. 4. Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. See Part X. 5. See Part X. -----END PRIVACY-ENHANCED MESSAGE-----