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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 six-month period ended November 30, 2011.
Performance Overview
Franklin High Income Fund – Class A had a -3.35% cumulative total return for the six months under review. The Fund underperformed the -2.59% total return of its benchmark, the Credit Suisse (CS) High Yield Index, which tracks the high yield debt market.1 The Fund performed better than the -4.65% total return of its peers, as measured by the Lipper High Current Yield Funds Classification Average, which consists of funds that aim at high relative current yield from fixed income securities.2 You can find the Fund’s long-term performance data in the Performance Summary beginning on page 7.
Economic and Market Overview
During the period under review, eurozone debt troubles, U.S. debt ceiling and deficit discussions, and fears surrounding developed market sovereign ratings downgrades dominated the headlines. Concerns regarding the potential impact of these issues on global economic growth negatively affected financial market performance, with those assets considered more sensitive to economic forces suffering disproportionately. In this environment, U.S. stocks as measured by the Standard & Poor’s® 500 Index (S&P 500®) declined 6.25%, while Japanese
1. Source: © 2011 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.
2. Source: Lipper Inc. For the six-month period ended 11/30/11, the Lipper High Current Yield Funds Classification Average consisted of 509 funds. Lipper calculations do not include sales charges but include reinvestment of any income or distributions. 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, and an index is not 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 17.
Semiannual Report | 3
and European stocks suffered bigger losses.3 In contrast, high-quality fixed income assets delivered solid performance, with the yield on the 10-year U.S. Treasury note declining from 3.05% at the beginning of the period to 2.08% on November 30, 2011. (Bond prices generally move in the opposite direction from yields.)
Although high yield bonds tended to perform better than stocks, general risk-averse sentiments across financial markets pressured the high yield corporate bond asset class. The CS High Yield Index had a -2.59% total return for the six-month period.3 However, given the decline in Treasury yields, high yield spreads relative to Treasuries meaningfully widened, ending November at 7.6 percentage points compared with 5.4 percentage points at the start of the period.
Even amid negative headlines, corporate credit fundamentals remained relatively supportive. Third quarter earnings increased compared to the year-ago period and generally exceeded analyst expectations. Upgrades of high yield issuer ratings outpaced downgrades from January through November 2011, and while default rates ticked up toward the end of the period, default rates remained near cycle lows. Although dedicated high yield mutual funds experienced temporary periods of shareholder redemptions, inflows into the high yield asset class remained positive in 2011 year-to-date. Moreover, as new-issue supply trailed off in the latter half of 2011, the supply/demand balance provided some pricing support for secondary trading of high yield bonds.
As high yield spreads widened compared with Treasury yields, valuations cheapened relative to their long-term averages. In our view, concerns regarding the outcome of eurozone fiscal and financial integration, as well as regulatory and political developments in the U.S., will likely impact near-term high yield market performance. Although U.S. economic conditions at period-end appeared more supportive than earlier in 2011, the domestic recovery remains somewhat fragile, which poses a challenge for more economically sensitive high yield issuers. Nonetheless, given earnings and cash flow gains experienced during the past two years, combined with generally healthy levels of liquidity, we believe the fundamental outlook for high yield credit is favorable. With spread valuations somewhat cheap compared to historical averages and modest default losses, we positioned the Fund with a somewhat higher beta positioning.4 We remain focused on individual investment opportunities for the Fund as we believe security selection will likely drive long-term relative performance.
3. Source: © 2011 Morningstar. STANDARD & POOR’S®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC. Standard & Poor’s does not sponsor, endorse, sell or promote any S&P index-based product. The index is unmanaged and includes reinvested distributions. One cannot invest directly in an index, and an index is not representative of the Fund’s portfolio.
4. Beta is a measure of portfolio volatility compared to a benchmark. Generally, higher beta positioning implies the portfolio seeks to opportunistically invest in securities that may offer higher capital appreciation amid historically higher volatility.
4 | Semiannual Report
| Dividend Distributions* | |||||
| 6/1/11–11/30/11 | |||||
| Dividend per Share | |||||
| Month | Class A | Class B | Class C | Class R | Advisor Class |
| June | 1.20 cents | 1.12 cents | 1.11 cents | 1.13 cents | 1.22 cents |
| July | 1.20 cents | 1.12 cents | 1.11 cents | 1.13 cents | 1.22 cents |
| August | 1.20 cents | 1.12 cents | 1.11 cents | 1.13 cents | 1.22 cents |
| September | 1.20 cents | 1.11 cents | 1.12 cents | 1.15 cents | 1.23 cents |
| October | 1.20 cents | 1.11 cents | 1.12 cents | 1.15 cents | 1.23 cents |
| November | 1.20 cents | 1.11 cents | 1.12 cents | 1.15 cents | 1.23 cents |
| Total | 7.20 cents | 6.69 cents | 6.69 cents | 6.84 cents | 7.35 cents |
*All Fund distributions will vary depending upon current market conditions, and past distributions are not indicative of future trends.
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.
Manager’s Discussion
Over the past six months, the Fund performed below the CS High Yield Index while it outperformed the average return of a group of peer funds.5
Looking at performance compared to the peer group, the Fund’s relative industry weightings had a generally favorable impact. The Fund’s meaningful overweighting in the energy sector was a positive contributor to relative performance. Continued merger and acquisition activity favored high yield energy issuers (including certain companies owned by the Fund) and perceived asset value support persisted even with more volatile commodity prices. The Fund’s lower weighting in the wireless telecommunications industry favorably impacted relative performance as that industry underperformed amid concerns regarding the competitive landscape as well as the highly leveraged debt profiles for certain wireless issuers.6 The Fund similarly benefited from its underweighted
5. 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.
6. Wireless telecommunications holdings are part of telecommunication services in the SOI.
Semiannual Report | 5
Top 10 Holdings by Issuer*
11/30/11
| Company | % of Total | |
| Sector/Industry | Net Assets | |
| Ford Motor Credit Co. LLC | 1.7 | % |
| Automobiles & Components | ||
| CIT Group Inc. | 1.7 | % |
| Banks | ||
| Sprint Nextel Corp. | 1.5 | % |
| Telecommunication Services | ||
| International Lease Finance Corp. | 1.4 | % |
| Diversified Financials | ||
| Intelsat Jackson Holdings SA | 1.3 | % |
| Telecommunication Services | ||
| HCA Inc. | 1.3 | % |
| Health Care Equipment & Services | ||
| DISH DBS Corp. | 1.2 | % |
| Media | ||
| Chesapeake Energy Corp. | 1.1 | % |
| Energy | ||
| Harrah’s Operating Co. Inc. | 1.1 | % |
| Consumer Services | ||
| Reynolds Group Issuer Inc./LLC/SA | 1.1 | % |
| Materials |
*Securities are listed by issuer, which may appear by another name in the SOI.
exposure to the financials sector, which was hampered by increasing concerns regarding capital buffers and liquidity profiles for more leveraged financial issuers.7
In contrast, the Fund’s lack of exposure to the food retailing industry was a drag on performance, as that industry was broadly viewed as more defensive in the current risk-averse market environment. Similarly, while health care and pay television represented two of the Fund’s larger weightings, the Fund’s somewhat lower exposures compared to its peer group detracted from relative performance, given those industries’ more defensive nature.8
Thank you for your continued participation in Franklin High Income Fund.
We look forward to serving your future investment needs.
Christopher J. Molumphy, CFA
Eric G. Takaha, CFA
Portfolio Management Team
Franklin High Income Fund
The foregoing information reflects our analysis, opinions and portfolio holdings as of November 30, 2011, 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.
7. The financials sector comprises banks, diversified financials and real estate in the SOI.
8. The health care sector comprises health care equipment and services; and pharmaceuticals, biotechnology and life sciences in the SOI. Pay television holdings are part of media in the SOI.
6 | Semiannual Report
Performance Summary as of 11/30/11
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 and graphs do 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 | 11/30/11 | 5/31/11 | |||||
| Net Asset Value (NAV) | -$ | 0.14 | $ | 1.91 | $ | 2.05 | ||
| Distributions (6/1/11–11/30/11) | ||||||||
| Dividend Income | $ | 0.0720 | ||||||
| Class B (Symbol: FHIBX) | Change | 11/30/11 | 5/31/11 | |||||
| Net Asset Value (NAV) | -$ | 0.15 | $ | 1.90 | $ | 2.05 | ||
| Distributions (6/1/11–11/30/11) | ||||||||
| Dividend Income | $ | 0.0669 | ||||||
| Class C (Symbol: FCHIX) | Change | 11/30/11 | 5/31/11 | |||||
| Net Asset Value (NAV) | -$ | 0.14 | $ | 1.93 | $ | 2.07 | ||
| Distributions (6/1/11–11/30/11) | ||||||||
| Dividend Income | $ | 0.0669 | ||||||
| Class R (Symbol: FHIRX) | Change | 11/30/11 | 5/31/11 | |||||
| Net Asset Value (NAV) | -$ | 0.15 | $ | 1.93 | $ | 2.08 | ||
| Distributions (6/1/11–11/30/11) | ||||||||
| Dividend Income | $ | 0.0684 | ||||||
| Advisor Class (Symbol: FVHIX) | Change | 11/30/11 | 5/31/11 | |||||
| Net Asset Value (NAV) | -$ | 0.15 | $ | 1.91 | $ | 2.06 | ||
| Distributions (6/1/11–11/30/11) | ||||||||
| Dividend Income | $ | 0.0735 | ||||||
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 Return1 | -3.35 | % | + | 3.68 | % | + | 34.26 | % | + | 118.84 | % | |||
| Average Annual Total Return2 | -7.42 | % | -0.81 | % | + | 5.19 | % | + | 7.66 | % | ||||
| Value of $10,000 Investment3 | $ | 9,258 | $ | 9,919 | $ | 12,882 | $ | 20,919 | ||||||
| Avg. Ann. Total Return (12/31/11)4 | + | 0.05 | % | + | 5.54 | % | + | 7.99 | % | |||||
| Distribution Rate5 | 7.24 | % | ||||||||||||
| 30-Day Standardized Yield6 | 7.01 | % | ||||||||||||
| Total Annual Operating Expenses7 | 0.76 | % |
Semiannual Report | 7
| Performance Summary (continued) | ||||||||||||
| Performance (continued) | ||||||||||||
| Class B | 6-Month | 1-Year | 5-Year | 10-Year | ||||||||
| Cumulative Total Return1 | -4.10 | % | + | 3.13 | % | + | 30.97 | % | + | 110.54 | % | |
| Average Annual Total Return2 | -7.81 | % | -0.70 | % | + | 5.25 | % | + | 7.73 | % | ||
| Value of $10,000 Investment3 | $ | 9,219 | $ | 9,930 | $ | 12,917 | $ | 21,054 | ||||
| Avg. Ann. Total Return (12/31/11)4 | + | 0.14 | % | + | 5.61 | % | + | 8.07 | % | |||
| Distribution Rate5 | 7.01 | % | ||||||||||
| 30-Day Standardized Yield6 | 6.88 | % | ||||||||||
| Total Annual Operating Expenses7 | 1.26 | % | ||||||||||
| Class C | 6-Month | 1-Year | 5-Year | 10-Year | ||||||||
| Cumulative Total Return1 | -3.57 | % | + | 3.65 | % | + | 31.33 | % | + | 108.29 | % | |
| Average Annual Total Return2 | -4.50 | % | + | 2.69 | % | + | 5.60 | % | + | 7.61 | % | |
| Value of $10,000 Investment3 | $ | 9,550 | $ | 10,269 | $ | 13,133 | $ | 20,829 | ||||
| Avg. Ann. Total Return (12/31/11)4 | + | 3.02 | % | + | 5.94 | % | + | 7.95 | % | |||
| Distribution Rate5 | 6.96 | % | ||||||||||
| 30-Day Standardized Yield6 | 6.81 | % | ||||||||||
| Total Annual Operating Expenses7 | 1.26 | % | ||||||||||
| Class R | 6-Month | 1-Year | 5-Year | Inception (1/1/02) | ||||||||
| Cumulative Total Return1 | -3.97 | % | + | 3.26 | % | + | 32.15 | % | + | 112.20 | % | |
| Average Annual Total Return2 | -3.97 | % | + | 3.26 | % | + | 5.73 | % | + | 7.91 | % | |
| Value of $10,000 Investment3 | $ | 9,603 | $ | 10,326 | $ | 13,215 | $ | 21,220 | ||||
| Avg. Ann. Total Return (12/31/11)4 | + | 4.14 | % | + | 6.08 | % | + | 8.20 | % | |||
| Distribution Rate5 | 7.15 | % | ||||||||||
| 30-Day Standardized Yield6 | 7.00 | % | ||||||||||
| Total Annual Operating Expenses7 | 1.11 | % | ||||||||||
| Advisor Class | 6-Month | 1-Year | 5-Year | 10-Year | ||||||||
| Cumulative Total Return1 | -3.76 | % | + | 3.82 | % | + | 35.14 | % | + | 121.80 | % | |
| Average Annual Total Return2 | -3.76 | % | + | 3.82 | % | + | 6.21 | % | + | 8.29 | % | |
| Value of $10,000 Investment3 | $ | 9,624 | $ | 10,382 | $ | 13,514 | $ | 22,180 | ||||
| Avg. Ann. Total Return (12/31/11)4 | + | 4.71 | % | + | 6.66 | % | + | 8.69 | % | |||
| Distribution Rate5 | 7.73 | % | ||||||||||
| 30-Day Standardized Yield6 | 7.50 | % | ||||||||||
| Total Annual Operating Expenses7 | 0.61 | % | ||||||||||
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, go to franklintempleton.com or call (800) 342-5236.
8 | 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 manager applies various techniques and analyses in making investment decisions for the Fund, but there can be no guarantee that these decisions will produce the desired results. The Fund’s prospectus also includes a description of the main investment risks.
Class B: Class C: |
These shares have higher annual fees and expenses than Class A shares. 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. 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 11/30/11.
6. The 30-day standardized yield for the 30 days ended 11/30/11 reflects an estimated yield to maturity (assuming all portfolio securities are held to maturity). It should be regarded as an estimate of the Fund’s rate of investment income, and it may not equal the Fund’s actual income distribution rate (which reflects the Fund’s past dividends paid to shareholders) or the income reported in the Fund’s financial statements.
7. Figures are as stated in the Fund’s prospectus current as of the date of this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
Semiannual Report | 9
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
- 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.
10 | 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. 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 | ||||
| Class A | Value 6/1/11 | Value 11/30/11 | Period* 6/1/11–11/30/11 | |||
| Actual | $ | 1,000 | $ | 966.50 | $ | 3.74 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.20 | $ | 3.84 |
| Class B | ||||||
| Actual | $ | 1,000 | $ | 959.00 | $ | 6.17 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,018.70 | $ | 6.36 |
| Class C | ||||||
| Actual | $ | 1,000 | $ | 964.30 | $ | 6.19 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,018.70 | $ | 6.36 |
| Class R | ||||||
| Actual | $ | 1,000 | $ | 960.30 | $ | 5.44 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,019.45 | $ | 5.60 |
| Advisor Class | ||||||
| Actual | $ | 1,000 | $ | 962.40 | $ | 2.99 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,021.95 | $ | 3.08 |
*Expenses are calculated using the most recent six-month expense ratio, annualized for each class (A: 0.76%; B: 1.26%; C: 1.26%; R: 1.11%; and Advisor: 0.61%), multiplied by the average account value over the period, multiplied by 183/366 to reflect the one-half year period.
Semiannual Report | 11
aThe 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.
bBased on average daily shares outstanding.
cEffective September 1, 2008, the redemption fee was eliminated.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gBenefit of expense reduction rounds to less than 0.01%.
12 | The accompanying notes are an integral part of these financial statements. | Semiannual Report
aThe 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.
bBased on average daily shares outstanding.
cEffective September 1, 2008, the redemption fee was eliminated.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gBenefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these financial statements. | 13
aThe 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.
bBased on average daily shares outstanding.
cEffective September 1, 2008, the redemption fee was eliminated.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gBenefit of expense reduction rounds to less than 0.01%.
14 | The accompanying notes are an integral part of these financial statements. | Semiannual Report
aThe 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.
bBased on average daily shares outstanding.
cEffective September 1, 2008, the redemption fee was eliminated.
dAmount rounds to less than $0.01 per share.
eTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable, and is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gBenefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these financial statements. | 15
aThe 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.
bBased on average daily shares outstanding.
cEffective September 1, 2008, the redemption fee was eliminated.
dAmount rounds to less than $0.01 per share.
eTotal return is not annualized for periods less than one year.
fRatios are annualized for periods less than one year.
gBenefit of expense reduction rounds to less than 0.01%.
16 | The accompanying notes are an integral part of these financial statements. | Semiannual Report
Semiannual Report | 17
Franklin High Income Trust
Statement of Investments, November 30, 2011 (unaudited) (continued)
18 | Semiannual Report
Franklin High Income Trust
Statement of Investments, November 30, 2011 (unaudited) (continued)
Semiannual Report | 19
Franklin High Income Trust
Statement of Investments, November 30, 2011 (unaudited) (continued)
| Franklin High Income Fund | Country | Principal Amount* | Value | |
| Corporate Bonds (continued) | ||||
| Energy (continued) | ||||
| CONSOL Energy Inc., senior note, | ||||
| 8.00%, 4/01/17 | United States | 8,300,000 | $ | 8,881,000 |
| 8.25%, 4/01/20 | United States | 5,700,000 | 6,156,000 | |
| d144A, 6.375%, 3/01/21 | United States | 2,600,000 | 2,574,000 | |
| Copano Energy LLC/Copano Energy Finance Corp., senior note, | ||||
| 7.125%, 4/01/21 | United States | 9,000,000 | 9,045,000 | |
| Crosstex Energy LP/Crosstex Energy Finance Corp., senior note, | ||||
| 8.875%, 2/15/18 | United States | 17,000,000 | 18,190,000 | |
| dEagle Rock Energy Partners LP/Finance Corp., senior note, 144A, | ||||
| 8.375%, 6/01/19 | United States | 15,500,000 | 15,422,500 | |
| El Paso Corp., | ||||
| senior bond, 6.50%, 9/15/20 | United States | 5,000,000 | 5,358,155 | |
| senior note, 7.00%, 6/15/17 | United States | 10,000,000 | 10,914,960 | |
| Energy Transfer Equity LP, senior note, 7.50%, 10/15/20 | United States | 21,400,000 | 22,256,000 | |
| Energy XXI Gulf Coast Inc., senior note, 9.25%, 12/15/17 | United States | 30,250,000 | 31,157,500 | |
| gEnterprise Products Operating LLC, junior sub. note, FRN, 7.034%, | ||||
| 1/15/68 | United States | 15,000,000 | 15,525,405 | |
| dExpro Finance Luxembourg, senior secured note, 144A, 8.50%, | ||||
| 12/15/16 | United Kingdom | 35,000,000 | 30,275,000 | |
| dGoodrich Petroleum Corp., senior note, 144A, 8.875%, 3/15/19 | United States | 23,600,000 | 23,246,000 | |
| Holly Energy Partners LP, senior note, 8.25%, 3/15/18 | United States | 13,200,000 | 13,794,000 | |
| dKinder Morgan Finance Co. LLC, senior secured note, 144A, 6.00%, | ||||
| 1/15/18 | United States | 20,000,000 | 20,500,000 | |
| dKodiak Oil & Gas Corp., senior note, 144A, 8.125%, 12/01/19 | United States | 11,600,000 | 11,774,000 | |
| Linn Energy LLC/Finance Corp., senior note, | ||||
| 8.625%, 4/15/20 | United States | 22,000,000 | 23,100,000 | |
| 7.75%, 2/01/21 | United States | 12,000,000 | 12,060,000 | |
| MarkWest Energy Partners LP/Finance Corp., senior note, | ||||
| 6.75%, 11/01/20 | United States | 4,300,000 | 4,445,125 | |
| 6.50%, 8/15/21 | United States | 9,400,000 | 9,635,000 | |
| Martin Midstream Partners LP, senior note, 8.875%, 4/01/18 | United States | 11,500,000 | 11,787,500 | |
| Oasis Petroleum Inc., senior note, | ||||
| 6.50%, 11/01/21 | United States | 9,000,000 | 8,797,500 | |
| d144A, 7.25%, 2/01/19 | United States | 5,400,000 | 5,535,000 | |
| Offshore Group Investment Ltd., senior secured note, 11.50%, | ||||
| 8/01/15 | United States | 18,900,000 | 20,364,750 | |
| Peabody Energy Corp., senior note, | ||||
| 7.375%, 11/01/16 | United States | 6,900,000 | 7,503,750 | |
| 6.50%, 9/15/20 | United States | 12,500,000 | 12,687,500 | |
| d144A, 6.00%, 11/15/18 | United States | 8,400,000 | 8,431,500 | |
| Petrohawk Energy Corp., senior note, | ||||
| 7.25%, 8/15/18 | United States | 9,275,000 | 10,434,375 | |
| 6.25%, 6/01/19 | United States | 10,000,000 | 11,000,000 | |
| dPetroplus Finance Ltd., senior note, 144A, 6.75%, 5/01/14 | Switzerland | 19,700,000 | 13,888,500 | |
| Plains Exploration & Production Co., senior note, | ||||
| 7.625%, 6/01/18 | United States | 27,000,000 | 28,485,000 | |
| 6.75%, 2/01/22 | United States | 6,100,000 | 6,237,250 |
20 | Semiannual Report
Franklin High Income Trust
Statement of Investments, November 30, 2011 (unaudited) (continued)
| Franklin High Income Fund | Country | Principal Amount* | Value | |
| Corporate Bonds (continued) | ||||
| Energy (continued) | ||||
| Quicksilver Resources Inc., senior note, | ||||
| 8.25%, 8/01/15 | United States | 20,000,000 | $ | 20,500,000 |
| 9.125%, 8/15/19 | United States | 5,000,000 | 5,268,750 | |
| SandRidge Energy Inc., senior note, | ||||
| 8.75%, 1/15/20 | United States | 3,300,000 | 3,250,500 | |
| 7.50%, 3/15/21 | United States | 2,700,000 | 2,484,000 | |
| d144A, 8.00%, 6/01/18 | United States | 25,000,000 | 24,125,000 | |
| dSESI LLC, senior note, 144A, | ||||
| 6.375%, 5/01/19 | United States | 11,700,000 | 11,758,500 | |
| h7.125%, 12/15/21 | United States | 15,000,000 | 15,300,000 | |
| dW&T Offshore Inc., senior note, 144A, 8.50%, 6/15/19 | United States | 14,600,000 | 14,709,500 | |
| dWPX Energy Inc., senior note, 144A, 6.00%, 1/15/22 | United States | 22,200,000 | 21,922,500 | |
| 842,497,675 | ||||
| Food & Staples Retailing 1.0% | ||||
| Rite Aid Corp., senior secured note, | ||||
| 9.75%, 6/12/16 | United States | 17,100,000 | 18,681,750 | |
| 8.00%, 8/15/20 | United States | 17,000,000 | 18,445,000 | |
| 37,126,750 | ||||
| Food, Beverage & Tobacco 2.8% | ||||
| dBlue Merger Sub Inc., senior note, 144A, 7.625%, 2/15/19 | United States | 28,000,000 | 25,200,000 | |
| dCEDC Finance Corp. International Inc., senior secured note, 144A, | ||||
| 9.125%, 12/01/16 | Poland | 8,450,000 | 5,492,500 | |
| Dean Foods Co., senior note, 9.75%, 12/15/18 | United States | 29,000,000 | 30,595,000 | |
| JBS USA LLC/Finance Inc., senior note, 11.625%, 5/01/14 | United States | 15,000,000 | 16,725,000 | |
| Pinnacle Foods Finance LLC, senior note, 8.25%, 9/01/17 | United States | 26,500,000 | 27,096,250 | |
| 105,108,750 | ||||
| Health Care Equipment & Services 5.5% | ||||
| Amerigroup Corp., senior note, 7.50%, 11/15/19 | United States | 20,300,000 | 20,909,000 | |
| Aviv Healthcare Properties LP, senior note, 7.75%, 2/15/19 | United States | 10,000,000 | 9,500,000 | |
| Community Health Systems Inc., senior note, 8.875%, 7/15/15 | United States | 21,075,000 | 21,707,250 | |
| DaVita Inc., senior note, 6.375%, 11/01/18 | United States | 8,300,000 | 8,175,500 | |
| DJO Finance LLC, senior note, 7.75%, 4/15/18 | United States | 10,000,000 | 8,075,000 | |
| Emergency Medical Services Corp., senior note, 8.125%, 6/01/19 | United States | 11,200,000 | 11,060,000 | |
| dExamWorks Group Inc., senior note, 144A, 9.00%, 7/15/19 | United States | 6,500,000 | 5,833,750 | |
| FMC Finance III SA, senior note, 6.875%, 7/15/17 | Germany | 10,000,000 | 10,650,000 | |
| HCA Holdings Inc., senior note, 7.75%, 5/15/21 | United States | 10,000,000 | 9,875,000 | |
| HCA Inc., | ||||
| senior note, 6.50%, 2/15/16 | United States | 6,300,000 | 6,315,750 | |
| senior note, 8.00%, 10/01/18 | United States | 5,000,000 | 5,131,250 | |
| senior note, 7.50%, 2/15/22 | United States | 8,100,000 | 7,998,750 | |
| senior secured bond, 7.25%, 9/15/20 | United States | 4,300,000 | 4,439,750 | |
| senior secured note, 7.875%, 2/15/20 | United States | 15,000,000 | 15,862,500 | |
| dHealth Management Associates Inc., senior note, 144A, 7.375%, | ||||
| 1/15/20 | United States | 5,500,000 | 5,548,125 | |
| MedAssets Inc., senior note, 8.00%, 11/15/18 | United States | 10,000,000 | 9,850,000 |
Semiannual Report | 21
Franklin High Income Trust
Statement of Investments, November 30, 2011 (unaudited) (continued)
| Franklin High Income Fund | Country | Principal Amount* | Value | |
| Corporate Bonds (continued) | ||||
| Health Care Equipment & Services (continued) | ||||
| Tenet Healthcare Corp., senior secured bond, 8.875%, 7/01/19 | United States | 10,000,000 | $ | 10,950,000 |
| United Surgical Partners International Inc., senior sub. note, | ||||
| 8.875%, 5/01/17 | United States | 8,500,000 | 8,478,750 | |
| iPIK, 9.25%, 5/01/17 | United States | 15,000,000 | 15,000,000 | |
| Vanguard Health Holding Co. II LLC/Inc., senior note, 8.00%, | ||||
| 2/01/18 | United States | 10,000,000 | 9,550,000 | |
| Vanguard Health Systems Inc., senior note, zero cpn., 2/01/16 | United States | 368,000 | 237,360 | |
| 205,147,735 | ||||
| Household & Personal Products 0.2% | ||||
| dSally Holdings LLC/Capital Inc., senior note, 144A, 6.875%, | ||||
| 11/15/19 | United States | 6,500,000 | 6,678,750 | |
| Materials 7.8% | ||||
| Atkore International Inc., senior secured note, 9.875%, 1/01/18 | United States | 10,400,000 | 10,166,000 | |
| dCemex SAB de CV, senior secured note, 144A, 9.00%, 1/11/18 | Mexico | 37,000,000 | 27,040,895 | |
| dEuramax International Inc., senior secured note, 144A, 9.50%, | ||||
| 4/01/16 | United States | 20,000,000 | 16,000,000 | |
| dExopack Holding Corp., senior note, 144A, 10.00%, 6/01/18 | United States | 15,300,000 | 15,223,500 | |
| dFMG Resources August 2006 Pty. Ltd., senior note, 144A, | ||||
| 7.00%, 11/01/15 | Australia | 9,200,000 | 9,027,500 | |
| 6.875%, 2/01/18 | Australia | 25,000,000 | 23,062,500 | |
| 8.25%, 11/01/19 | Australia | 5,650,000 | 5,572,313 | |
| Huntsman International LLC, | ||||
| senior note, 5.50%, 6/30/16 | United States | 1,100,000 | 1,056,000 | |
| senior sub. note, 8.625%, 3/15/21 | United States | 10,000,000 | 10,200,000 | |
| dIneos Finance PLC, senior secured note, 144A, 9.00%, 5/15/15 | United Kingdom | 5,000,000 | 5,062,500 | |
| dIneos Group Holdings Ltd., senior secured note, 144A, 8.50%, | ||||
| 2/15/16 | United Kingdom | 22,000,000 | 17,270,000 | |
| dKinove German Bondco GmbH, senior secured note, 144A, 9.625%, | ||||
| 6/15/18 | Germany | 13,100,000 | 11,921,000 | |
| dMacDermid Inc., senior sub. note, 144A, 9.50%, 4/15/17 | United States | 25,000,000 | 24,000,000 | |
| eNewPage Corp., senior secured note, 11.375%, 12/31/14 | United States | 30,000,000 | 21,075,000 | |
| Novelis Inc., senior note, | ||||
| 8.375%, 12/15/17 | Canada | 2,400,000 | 2,508,000 | |
| 8.75%, 12/15/20 | Canada | 14,700,000 | 15,582,000 | |
| OMNOVA Solutions Inc., senior note, 7.875%, 11/01/18 | United States | 9,000,000 | 7,650,000 | |
| dReynolds Group Issuer Inc./LLC/SA, senior note, 144A, | ||||
| 9.00%, 5/15/18 | United States | 32,000,000 | 29,280,000 | |
| 9.00%, 4/15/19 | United States | 2,300,000 | 2,081,500 | |
| 9.875%, 8/15/19 | United States | 1,200,000 | 1,104,000 | |
| 8.25%, 2/15/21 | United States | 10,000,000 | 8,500,000 | |
| dSealed Air Corp., senior note, 144A, | ||||
| 8.125%, 9/15/19 | United States | 9,100,000 | 9,691,500 | |
| 8.375%, 9/15/21 | United States | 4,400,000 | 4,719,000 | |
| Solo Cup Co., senior sub. note, 8.50%, 2/15/14 | United States | 15,000,000 | 13,875,000 | |
| 291,668,208 |
22 | Semiannual Report
Franklin High Income Trust
Statement of Investments, November 30, 2011 (unaudited) (continued)
| Franklin High Income Fund | Country | Principal Amount* | Value | |
| Corporate Bonds (continued) | ||||
| Media 7.4% | ||||
| dAMC Networks Inc., senior note, 144A, 7.75%, 7/15/21 | United States | 11,500,000 | $ | 12,218,750 |
| dBresnan Broadband Holdings LLC, senior note, 144A, 8.00%, | ||||
| 12/15/18 | United States | 7,900,000 | 8,038,250 | |
| Cablevision Systems Corp., senior note, 8.625%, 9/15/17 | United States | 15,000,000 | 15,750,000 | |
| CCH II LLC/CCH II Capital Corp., senior note, 13.50%, 11/30/16 | United States | 10,000,000 | 11,575,000 | |
| CCO Holdings LLC/Capital Corp., senior note, | ||||
| 7.25%, 10/30/17 | United States | 5,000,000 | 5,131,250 | |
| 7.875%, 4/30/18 | United States | 4,100,000 | 4,269,125 | |
| 6.50%, 4/30/21 | United States | 15,000,000 | 14,531,250 | |
| Clear Channel Communications Inc., senior note, 9.00%, 3/01/21 | United States | 45,000,000 | 37,350,000 | |
| CSC Holdings Inc., | ||||
| senior deb., 7.625%, 7/15/18 | United States | 5,000,000 | 5,425,000 | |
| dsenior note, 144A, 6.75%, 11/15/21 | United States | 10,000,000 | 10,100,000 | |
| dCumulus Media Inc., senior note, 144A, 7.75%, 5/01/19 | United States | 8,000,000 | 6,960,000 | |
| DISH DBS Corp., senior note, | ||||
| 7.75%, 5/31/15 | United States | 5,000,000 | 5,300,000 | |
| 7.125%, 2/01/16 | United States | 35,000,000 | 36,137,500 | |
| 6.75%, 6/01/21 | United States | 5,000,000 | 4,900,000 | |
| Media General Inc., senior secured note, 11.75%, 2/15/17 | United States | 16,800,000 | 15,708,000 | |
| iRadio One Inc., senior sub. note, PIK, 15.00%, 5/24/16 | United States | 14,038,181 | 11,817,944 | |
| dUnitymedia Hessen/NRW, senior secured note, 144A, 8.125%, | ||||
| 12/01/17 | Germany | 10,000,000 | 10,344,000 | |
| dUnivision Communications Inc., senior secured note, 144A, | ||||
| 6.875%, 5/15/19 | United States | 16,500,000 | 15,386,250 | |
| 7.875%, 11/01/20 | United States | 8,000,000 | 7,600,000 | |
| dUPCB Finance III Ltd., senior secured note, 144A, 6.625%, | ||||
| 7/01/20 | Netherlands | 25,000,000 | 24,000,000 | |
| WMG Acquisition Corp., senior secured note, 9.50%, 6/15/16 | United States | 15,000,000 | 15,825,000 | |
| 278,367,319 | ||||
| Pharmaceuticals, Biotechnology & Life Sciences 2.6% | ||||
| dEndo Pharmaceuticals Holdings Inc., senior note, 144A,7.00%, | ||||
| 7/15/19 | United States | 6,200,000 | 6,386,000 | |
| 12/15/20 | United States | 10,300,000 | 10,634,750 | |
| dGiant Funding Corp., senior secured note, 144A, 8.25%, 2/01/18 | Spain | 16,750,000 | 17,336,250 | |
| dinVentiv Health Inc., senior note, 144A, 10.00%, 8/15/18 | United States | 19,000,000 | 18,097,500 | |
| d,hJaguar Holding Co. II/Merger Sub Inc., senior note, 144A, 9.50%, | ||||
| 12/01/19 | United States | 9,200,000 | 9,292,000 | |
| dMylan Inc., senior note, 144A, | ||||
| 6.00%, 11/15/18 | United States | 4,600,000 | 4,611,500 | |
| 7.875%, 7/15/20 | United States | 26,700,000 | 28,569,000 | |
| 94,927,000 | ||||
| Real Estate 0.4% | ||||
| Forest City Enterprises Inc., senior note, 7.625%, 6/01/15 | United States | 16,100,000 | 15,939,000 | |
| Retailing 1.7% | ||||
| dAcademy Ltd./Finance Corp., senior note, 144A, 9.25%, 8/01/19 | United States | 15,000,000 | 14,700,000 | |
| Michaels Stores Inc., senior note, 7.75%, 11/01/18 | United States | 25,000,000 | 24,562,500 |
Semiannual Report | 23
| Franklin High Income Trust | ||||
| Statement of Investments, November 30, 2011 (unaudited) (continued) | ||||
| Franklin High Income Fund | Country | Principal Amount* | Value | |
| Corporate Bonds (continued) | ||||
| Retailing (continued) | ||||
| dNeedle Merger Sub Corp., senior note, 144A, 8.125%, 3/15/19 | United States | 8,000,000 | $ | 7,400,000 |
| dPetco Animal Supplies Inc., senior note, 144A, 9.25%, 12/01/18 | United States | 15,000,000 | 15,937,500 | |
| 62,600,000 | ||||
| Semiconductors & Semiconductor Equipment 1.7% | ||||
| Advanced Micro Devices Inc., senior note, | ||||
| 8.125%, 12/15/17 | United States | 6,100,000 | 6,237,250 | |
| 7.75%, 8/01/20 | United States | 10,000,000 | 10,100,000 | |
| Freescale Semiconductor Inc., | ||||
| senior note, 10.125%, 12/15/16 | United States | 1,700,000 | 1,776,500 | |
| senior note, 8.05%, 2/01/20 | United States | 13,600,000 | 12,376,000 | |
| senior note, 10.75%, 8/01/20 | United States | 11,610,000 | 11,958,300 | |
| dsenior secured note, 144A, 9.25%, 4/15/18 | United States | 5,000,000 | 5,237,500 | |
| dNXP BV/NXP Funding LLC, senior secured note, 144A, 9.75%, | ||||
| 8/01/18 | Netherlands | 14,400,000 | 15,624,000 | |
| 63,309,550 | ||||
| Software & Services 2.2% | ||||
| First Data Corp., | ||||
| dsenior bond, 144A, 12.625%, 1/15/21 | United States | 10,792,000 | 8,957,360 | |
| senior note, 9.875%, 9/24/15 | United States | 403,000 | 365,723 | |
| senior note, 9.875%, 9/24/15 | United States | 2,011,000 | 1,835,037 | |
| dsenior secured bond, 144A, 8.25%, 1/15/21 | United States | 25,000,000 | 21,750,000 | |
| Sitel LLC/Finance Corp., senior note, 11.50%, 4/01/18 | United States | 15,900,000 | 12,481,500 | |
| dSterling Merger Inc., senior note, 144A, 11.00%, 10/01/19 | United States | 6,900,000 | 6,675,750 | |
| SunGard Data Systems Inc., | ||||
| senior note, 7.625%, 11/15/20 | United States | 15,000,000 | 14,925,000 | |
| senior sub. note, 10.25%, 8/15/15 | United States | 15,000,000 | 15,525,000 | |
| 85,515,370 | ||||
| Technology Hardware & Equipment 1.2% | ||||
| dCDW Escrow Corp., senior note, 144A, 8.50%, 4/01/19 | United States | 30,000,000 | 28,350,000 | |
| dCommScope Inc., senior note, 144A, 8.25%, 1/15/19 | United States | 15,000,000 | 14,550,000 | |
| 42,900,000 | ||||
| Telecommunication Services 8.2% | ||||
| Cricket Communications Inc., senior note, 7.75%, 10/15/20 | United States | 38,000,000 | 29,925,000 | |
| Crown Castle International Corp., senior note, 9.00%, 1/15/15 | United States | 10,000,000 | 10,925,000 | |
| dDigicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 | Jamaica | 20,000,000 | 19,800,000 | |
| deAccess Ltd., senior note, 144A, 8.25%, 4/01/18 | Japan | 18,000,000 | 17,415,000 | |
| Frontier Communications Corp., senior note, | ||||
| 8.25%, 4/15/17 | United States | 4,300,000 | 4,208,625 | |
| 8.50%, 4/15/20 | United States | 20,000,000 | 19,100,000 | |
| 8.75%, 4/15/22 | United States | 11,100,000 | 10,434,000 | |
| dIntegra Telecom Inc., senior secured note, 144A, 10.75%, 4/15/16 | United States | 21,800,000 | 19,347,500 | |
| Intelsat Jackson Holdings SA, senior note, | ||||
| 11.25%, 6/15/16 | Luxembourg | 20,000,000 | 20,850,000 | |
| d144A, 7.25%, 10/15/20 | Luxembourg | 3,900,000 | 3,724,500 | |
| d144A, 7.50%, 4/01/21 | Luxembourg | 27,000,000 | 25,717,500 | |
| MetroPCS Wireless Inc., senior note, 7.875%, 9/01/18 | United States | 10,000,000 | 9,700,000 | |
| 24 | Semiannual Report | ||||
Franklin High Income Trust
Statement of Investments, November 30, 2011 (unaudited) (continued)
| Franklin High Income Fund | Country | Principal Amount* | Value | ||
| Corporate Bonds (continued) | |||||
| Telecommunication Services (continued) | |||||
| c,eRSL Communications PLC, | |||||
| senior discount note, 10.125%, 3/01/08 | United Kingdom | 44,500,000 | $ | 89,000 | |
| senior note, 12.00%, 11/01/08 | United Kingdom | 6,250,000 | 15,625 | ||
| Sprint Nextel Corp., | |||||
| senior note, 8.375%, 8/15/17 | United States | 40,000,000 | 34,500,000 | ||
| dsenior note, 144A, 9.00%, 11/15/18 | United States | 21,950,000 | 22,169,500 | ||
| West Corp., senior note, 7.875%, 1/15/19 | United States | 35,000,000 | 35,175,000 | ||
| dWind Acquisition Finance SA, senior secured note, 144A, 11.75%, | |||||
| 7/15/17 | Italy | 20,000,000 | 17,437,500 | ||
| d,iWind Acquisition Holdings Finance SA, senior secured note, 144A, | |||||
| PIK, 12.25%, 7/15/17 | Italy | 6,033,658 | EUR | 5,753,850 | |
| 306,287,600 | |||||
| Transportation 2.7% | |||||
| d,eAmerican Airlines Inc., senior secured note, 144A, 7.50%, 3/15/16 | United States | 36,350,000 | 27,807,750 | ||
| dCeva Group PLC, senior secured note, 144A, | |||||
| 11.625%, 10/01/16 | United Kingdom | 6,600,000 | 6,649,500 | ||
| 8.375%, 12/01/17 | United Kingdom | 2,600,000 | 2,457,000 | ||
| 11.50%, 4/01/18 | United Kingdom | 18,700,000 | 16,830,000 | ||
| Hertz Corp., senior note, | |||||
| 7.50%, 10/15/18 | United States | 12,200,000 | 12,291,500 | ||
| 6.75%, 4/15/19 | United States | 21,800,000 | 21,255,000 | ||
| Marquette Transportation Co. Inc./Finance Corp., senior secured note, | |||||
| 10.875%, 1/15/17 | United States | 15,000,000 | 14,775,000 | ||
| 102,065,750 | |||||
| Utilities 2.4% | |||||
| dCalpine Corp., senior secured note, 144A, | |||||
| 7.875%, 7/31/20 | United States | 5,000,000 | 5,212,500 | ||
| 7.50%, 2/15/21 | United States | 23,000,000 | 23,575,000 | ||
| 7.875%, 1/15/23 | United States | 5,000,000 | 5,187,500 | ||
| CMS Energy Corp., senior note, 8.75%, 6/15/19 | United States | 10,000,000 | 11,513,400 | ||
| dIntergen NV, senior secured note, 144A, 9.00%, 6/30/17 | Netherlands | 20,000,000 | 20,850,000 | ||
| Texas Competitive Electric Holdings Co. LLC, senior note, A, 10.25%, | |||||
| 11/01/15 | United States | 15,000,000 | 5,625,000 | ||
| Texas Competitive Electric Holdings Co. LLC/Texas Competitive Electric | |||||
| Holdings Finance Inc., senior secured note, | |||||
| B, 15.00%, 4/01/21 | United States | 14,200,000 | 8,449,000 | ||
| d144A, 11.50%, 10/01/20 | United States | 10,000,000 | 8,350,000 | ||
| 88,762,400 | |||||
| Total Corporate Bonds (Cost $3,579,612,976) | 3,469,362,084 | ||||
| g,jSenior Floating Rate Interests 0.9% | |||||
| Media 0.6% | |||||
| Cumulus Media Holdings Inc., Second Lien Term Loan, 7.50%, | |||||
| 9/16/19 | United States | 15,000,000 | 14,250,000 | ||
| Univision Communications Inc., Initial Term Loan, 2.26%, 9/29/14 | United States | 8,741,476 | 8,369,963 | ||
| 22,619,963 |
Semiannual Report | 25
26 | Semiannual Report
Franklin High Income Trust
Statement of Investments, November 30, 2011 (unaudited) (continued)
Franklin High Income Fund
At November 30, 2011, the Fund had the following forward exchange contracts outstanding. See Note 1(d).
| Settlement | Unrealized | Unrealized | ||||||||
| Currency | Counterparty | Type | Quantity | Contract Amount | Date | Appreciation | Depreciation | |||
| Euro | DBAB | Sell | 5,618,750 | $ | 7,472,595 | 12/15/11 | $ — | $ | (79,426 | ) |
| See Abbreviations on page 45. | ||||||||||
Semiannual Report | The accompanying notes are an integral part of these financial statements. | 27
28 | The accompanying notes are an integral part of these financial statements. | Semiannual Report
Semiannual Report | The accompanying notes are an integral part of these financial statements. | 29
30 | The accompanying notes are an integral part of these financial statements. | Semiannual Report
Semiannual Report | The accompanying notes are an integral part of these financial statements. | 31
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 an 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. Financial Instrument Valuation
The Fund’s investments in securities and other financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Under procedures approved by the Trust’s Board of Trustees, the Fund may utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.
Equity securities listed on an 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 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. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.
Debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund’s pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the date that the values of the foreign debt securities are determined.
32 | Semiannual Report
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
| a. | Financial Instrument Valuation (continued) |
Certain derivative financial instruments (derivatives) trade in the over-the-counter market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair market value of the contract, is included in net assets.
The Fund has procedures to determine the fair value of securities and other financial instruments for which market prices are not readily available or which may not be reliably priced. Under these procedures, the Fund primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed.
Trading in securities on foreign securities stock exchanges and over-the-counter markets may be completed before the daily close of business on the NYSE. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the investment manager monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities 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.
b. Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. The Fund may enter into foreign currency exchange contracts to facilitate
Semiannual Report | 33
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
| b. | Foreign Currency Translation (continued) |
transactions denominated in a foreign currency. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Portfolio securities and assets and liabilities denominated in foreign currencies contain risks that those currencies will decline in value relative to the U.S. dollar. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Trust’s Board of Trustees.
The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments on the Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.
c. Securities Purchased on a When-Issued Basis
The Fund purchases securities on a when-issued basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities.
d. Derivative Financial Instruments
The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements which expose the Fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. Realized gain and loss and unrealized appreciation and depreciation on these contracts for the period are included in the Statement of Operations.
34 | Semiannual Report
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
| d. | Derivative Financial Instruments (continued) |
The Fund entered into forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date. Pursuant to the terms of the forward exchange contracts, cash or securities may be required to be deposited as collateral. Unrestricted cash may be invested according to the Fund’s investment objectives.
See Note 10 regarding other derivative information.
e. Senior Floating Rate Interests
The Fund invests in senior secured corporate loans that 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.
f. Income Taxes
It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required. The Fund files U.S. income tax returns as well as tax returns in certain other jurisdictions. The Fund records a provision for taxes in its financial statements including penalties and interest, if any, for a tax position taken on a tax return (or expected to be taken) when it fails to meet the more likely than not (a greater than 50% probability) threshold and based on the technical merits, the tax position may not be sustained upon examination by the tax authorities. As of November 30, 2011, and for all open tax years, the Fund has determined that no provision for income tax is required in the Fund’s financial statements. Open tax years are those that remain subject to examination and are based on each tax jurisdiction statute of limitation.
Semiannual Report | 35
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
| 1. | ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) |
| g. | 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.
Realized and unrealized gains and losses and net investment income, not including 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.
h. 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.
i. 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.
36 | Semiannual Report
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
2. SHARES OF BENEFICIAL INTEREST
At November 30, 2011, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares were as follows:
Semiannual Report | 37
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 Fund are also officers and/or directors of the following subsidiaries:
a. Management Fees
The Fund pays an investment management fee to Advisers based on the month-end net assets of the Fund as follows:
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.
38 | 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:
d. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the period:
e. Transfer Agent Fees
For the period ended November 30, 2011, the Fund paid transfer agent fees of $2,366,606, of which $1,215,350 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, 2011, the custodian fees were reduced as noted in the Statement of Operations.
Semiannual Report | 39
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital gains, if any. At May 31, 2011, the capital loss carryforwards were as follows:
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous law. Any post-enactment capital losses generated will be required to be utilized prior to the losses incurred in pre-enactment tax years.
For tax purposes, realized currency 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, 2011, the Fund deferred realized currency losses of $302,556.
At November 30, 2011, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
Differences between income and/or capital gains as determined on a book basis and a tax basis are primarily due to differing treatments of defaulted securities, foreign currency transactions, payments-in-kind, bond discounts and premiums, corporate actions and wash sales.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the period ended November 30, 2011, aggregated $607,703,626 and $507,979,702, respectively.
40 | Semiannual Report
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund invests in the 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
At November 30, 2011, the Fund had 94.35% 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, 2011, the aggregate value of these securities was $49,000,780, representing 1.31% 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 invests 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, 2011, the Fund held investments in restricted securities, excluding certain securities exempt from registration under the 1933 Act deemed to be liquid, as follows:
Semiannual Report | 41
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
10. OTHER DERIVATIVE INFORMATION
At November 30, 2011, the Fund has invested in derivative contracts which are reflected on the Statement of Assets and Liabilities as follows:
For the period ended November 30, 2011, the effect of derivative contracts on the Fund’s Statement of Operations was as follows:
For the period ended November 30, 2011, the average month end market value of derivatives represented 0.01% of average month end net assets. The average month end number of open derivative contracts for the period was two.
See Note 1(d) regarding derivative financial instruments.
11. 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, 2011, were as shown below.
42 | Semiannual Report
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
12. SPECIAL SERVICING AGREEMENT
The Fund, which is an eligible underlying investment of one or more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds), participates in a Special Servicing Agreement (SSA) with the Allocator Funds and certain service providers of the Fund and the Allocator Funds. Under the SSA, the Fund may pay a portion of the Allocator Funds’ expenses (other than any asset allocation, administrative, and distribution fees) to the extent such payments are less than the amount of the benefits realized or expected to be realized by the Fund (e.g., due to reduced costs associated with servicing accounts) from the investment in the Fund by the Allocator Funds. The Allocator Funds are either managed by Franklin Advisers, Inc. or administered by FT Services. For the period ended November 30, 2011, the Fund was held by one or more of the Allocator Funds and the amount of expenses borne by the Fund is noted in the Statement of Operations. At November 30, 2011, 1.57% of the Fund’s outstanding shares was held by one or more of the Allocator Funds.
13. CREDIT FACILITY
The Fund, together with other U.S. registered and foreign investment funds (collectively, Borrowers), managed by Franklin Templeton Investments, are borrowers in a joint syndicated senior unsecured credit facility totaling $750 million (Global Credit Facility) which matures on January 20, 2012. This Global Credit Facility provides a source of funds to the Borrowers for temporary and emergency purposes, including the ability to meet future unanticipated or unusually large redemption requests.
Under the terms of the Global Credit Facility, the Fund shall, in addition to interest charged on any borrowings made by the Fund and other costs incurred by the Fund, pay its share of fees and expenses incurred in connection with the implementation and maintenance of the Global Credit Facility, based upon its relative share of the aggregate net assets of all of the Borrowers, including an annual commitment fee of 0.08% based upon the unused portion of the Global Credit Facility, which is reflected in other expenses on the Statement of Operations. During the period ended November 30, 2011, the Fund did not use the Global Credit Facility.
Semiannual Report | 43
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
14. FAIR VALUE MEASUREMENTS
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’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.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
The following is a summary of the inputs used as of November 30, 2011, in valuing the Fund’s assets and liabilities carried at fair value:
44 | Semiannual Report
Franklin High Income Trust
Notes to Financial Statements (unaudited) (continued)
Franklin High Income Fund
15. NEW ACCOUNTING PRONOUNCEMENTS
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in the ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) and include new guidance for certain fair value measurement principles and disclosure requirements. The ASU is effective for interim and annual periods beginning after December 15, 2011. The Fund is currently reviewing the requirements and believe the adoption of this ASU will not have a material impact on the financial statements.
16. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
Semiannual Report | 45
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, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, 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.
46 | Semiannual Report
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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, 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/LAURA F. FERGERSON
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date January 25, 2012
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/LAURA F. FERGERSON
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date January 25, 2012
By /s/GASTON GARDEY
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date January 25, 2012