FRANKLIN
CUSTODIAN
FUNDS, INC.
Semi-Annual Report
March 31, 1996
CONTENTS
PRESIDENT'S LETTER 1
FRANKLIN GROWTH FUND 2
seeks capital appreciation by
investing primarily in
common stocks or convertible
securities believed to offer favorable
possibilities for capital appreciation.
FRANKLIN UTILITIES FUND 6
seeks both capital appreciation
and current income from a portfolio
of public utility securities.
FRANKLIN INCOME FUND 10
seeks to maximize income while
maintaining prospects for
capital appreciation through
a diversified portfolio of securities.
FRANKLIN U.S. GOVERNMENT
SECURITIES FUND 14
seeks high current income from a portfolio
of U.S. government securities.
FRANKLIN DYNATECH FUND 18
seeks capital appreciation from a
portfolio of companies emphasizing
technological development in
fast-growing industries or in
situations which management
considers undervalued.
STATEMENT OF INVESTMENTS 21
FINANCIAL STATEMENTS 41
May 15, 1996
Dear Shareholder:
We are pleased to bring you the Franklin Custodian Funds Inc. semi-annual report
for the period ended March 31, 1996.
(PICTURE OMITTED)
Charles B. Johnson
President
The six months covered by this report demonstrated how volatile the markets can
be. On September 30, 1995, the S&P 500(R) stood at 584.41. By March 31, 1996, it
had risen 10.45% to 645.50. During the same period, the Dow Jones Industrial
Average(R) (the Dow) advanced 16.67% and long-term bond prices, as measured by
30-year Treasuries, fell 3.29% from 123.03 to 118.97.* As you might expect, the
markets experienced occasional turbulence along the way. For example, on March
8, an unexpectedly optimistic employment report temporarily caused the Dow to
tumble 171.24 points (-3.04%) in just one day.
Since such volatility is a normal part of investing, I would like to remind you
of several ways that may help you deal with the ups and downs inherent in
financial markets. First, develop a long-term investment plan based on
reasonable financial goals. Stay focused upon it and periodically consult with
your investment representative to make sure you are invested in funds that match
these goals. If you concentrate on the long term, you need not be unduly
concerned about the market volatility of the short term.
Next, consider using an investment technique called Dollar Cost Averaging. By
investing a fixed dollar amount at regular intervals, regardless of the markets'
direction, you automatically buy more shares when prices are low and fewer when
prices are high. As a result, you may significantly reduce your average cost per
share. Of course, no investment technique can assure a profit or completely
protect against loss. But Dollar Cost Averaging does provide you with a simple
investment strategy that may minimize the effects of market volatility and help
you make the most of your investment dollars.**
*Source: Standard & Poor's 500 Stock Index (R); Merrill Lynch Long-Term Bond
Index. Indices are unmanaged.
Dow Jones Industrial Average total return calculated by Wilshire
Associates, Inc. includes reinvested dividends.
** When using this strategy, you should consider your financial ability to
continue purchases through periods of low price levels or changing economic
conditions. For more information on Dollar Cost Averaging, see your investment
representative, or call Franklin Templeton Fund Information, toll free, at
1-800/ DIAL BEN (1-800/342-5236).
Finally, diversify your investments. Mutual funds offer a level of
diversification that would be almost impossible for individual investors to
achieve on their own. On the pages that follow, you will find detailed
discussions of the five funds included in this report. While each fund has a
distinct investment objective, management is dedicated to providing shareholders
with careful selection, broad diversification and constant professional
supervision.
We welcome your questions, thank you for your support, and look forward to
serving you in the years to come.
Sincerely,
Charles B. Johnson
President
Franklin Custodian Funds, Inc.
(PICTURE OMITTED)
FRANKLIN GROWTH FUND
During most of the reporting period, the U.S. economy experienced moderate
growth, low inflation, and falling interest rates. Lower interest rates made
stocks more attractive than other investments, and domestic equity markets
reached record levels during this time. This encouraged new investments and
caused the Dow Jones Industrial Average to rise significantly, from 4789.08 on
September 30, 1995 to 5587.14 on March 31, 1996.
The Franklin Growth Fund's Class I shares performed well within this
environment, recording total returns of +12.99% and +33.44% for the six-month
and one-year periods ended March 31, 1996, as discussed in the Performance
Summary on page 4. The fund's holdings with significant price gains during the
reporting period were Raychem Corp. (+43.3%), Tiffany & Co.
(+35.5%), Alza Corp.(+33.7%), and Avery Dennison Corp. (+28.6%).
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Our portfolio composition did not change dramatically during the period, which
reflects the fund's "buy and hold" investment strategy. We purchase stocks of
what we consider to be quality companies and hold onto them for the long term.
Our aim is not to achieve wealth overnight, but rather to provide investors with
the potential for solid growth over time. This strategy provides for relatively
low portfolio turnover, which helps to lower the fund's expenses, reduce payouts
of taxable capital gains and increase after-tax total return to shareholders.
On March 31, 1996, the fund held stocks of 88 companies across a diverse group
of industries, including health care, transportation, aerospace, data
processing, energy and energy services, and communications and entertainment.
Such broad diversification can often help smooth out jolts in the market because
weak performance in one sector can be offset by stronger performance in another.
We were particularly pleased with the performances of our pharmaceutical
holdings during the period. Large pharmaceutical companies such as Merck,
Pfizer, and Schering-Plough showed a great deal of strength as investors'
interest shifted to more defensive-type issues, which are usually less
susceptible to changes in the business cycle. Such companies provide basic
necessities to the population and, therefore, tend to perform well even in a
slow growth environment.
Franklin Growth Fund
Top 10 Holdings on March 31, 1996
Based on Total Net Assets
% of Total
Company Industry Net Assets
Computer Sciences Corp. Data Processing 3.52%
AMR Corp. Transportation 3.08%
Schering-Plough Corp. Pharmaceuticals 2.91%
Minnesota Mining
& Manufacturing Co. Diversified Manufacturers2.67%
Raytheon Co. Aerospace 2.52%
Pfizer, Inc. Pharmaceuticals 2.38%
Disney Co. Communications
& Entertainment 2.16%
Delta Air Lines, Inc. Transportation 2.14%
Johnson & Johnson, Inc. Health Care - Diversified2.05%
UAL Corp. Transportation 2.03%
For a complete list of portfolio holdings, please see page 21 of this report.
Computer Sciences Corp., a large U.S. data processing services company,
continued to represent the fund's single-largest holding at 3.52% of total net
assets on March 31, 1996. During the six-month period, the stocks of UAL Corp.
and Johnson & Johnson, Inc. posted impressive gains, placing these two holdings
among the fund's ten largest positions. Disney Co. also became one of our top
ten holdings following its takeover of Capital Cities/ABC, Inc., a company whose
stock we also held in the fund's portfolio. Individual holdings we added to
during the period include Genentech, Inc. (biotechnology), Loctite Corp.
(chemicals), Minnesota Mining & Manufacturing Co. (diversified manufacturer),
Zurn Industries, Inc. (environmental protection & purification), and U.S.
Surgical Corp. (health care - diversified).
Looking forward, we remain optimistic about the prospects for the Franklin
Growth Fund. Despite a stronger-than-expected employment report released in
early March, we believe there is still no clear evidence pointing to increased
inflation. In our opinion, the Federal Reserve Board may ease monetary policy
further if inflation remains subdued, which could be beneficial to equity
markets. As long as corporate earnings remain strong, we should see continued
strength in equity markets for the rest of 1996, though very likely not to the
extent enjoyed by investors in 1995.
This discussion reflects the strategies we employed for the fund during the
six-month period, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies and our
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the fund.
As always, we appreciate your continued support and look forward to serving your
investment needs in the years to come.
PERFORMANCE SUMMARY
CLASS I
The Franklin Growth Fund Class I shares produced a total return of +12.99% for
the six-month period ended March 31, 1996. Total return represents the change in
value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the fund's maximum initial sales charge. We
always maintain a long-term perspective when managing the fund, and we encourage
our shareholders to view their investments in a similar manner. As you can see
from the table to the right, the fund delivered a cumulative total return of
more than 259% for the 10-year period ended March 31, 1996.
As measured by net asset value, the price of the fund's Class I shares increased
from $19.38 on September 30, 1995 to $21.56 on March 31, 1996. During the
reporting period, shareholders received distributions of 16.38 cents ($0.1638)
per share in income dividends and 15.44 cents ($0.1544) per share in capital
gains, of which 0.14 cents ($0.0014) represented short-term gains and 15.3 cents
($0.153) represented long-term gains. Of course, past performance does not
guarantee future results, and distributions will vary depending on income earned
by the fund and any profits realized from the sale of securities in the
portfolio.
Franklin Growth Fund
Class I
Periods ended March 31, 1996
Since
Inception
1-Year 5-Year 10-Year (3/31/48)
Cumulative
Total Return1 33.44% 84.01% 259.29% 15,519.70%
Average Annual
Total Return2 27.46% 11.94% 13.13% 10.98%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the current, maximum 4.5%
initial sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the current, maximum
4.5% initial sales charge.
Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the public offering price. Thus,
actual total returns for purchasers of shares during that period would have
been somewhat different than noted above. Effective May 1, 1994, the fund
implemented a plan of distribution under Rule 12b-1 and eliminated the
sales charge on reinvested dividends, which affects subsequent performance.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value and reflect 12b-1 fees from the date of the plan's
implementation. Investment return and principal value will fluctuate with
market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results.
PERFORMANCE SUMMARY
CLASS II
The Franklin Growth Fund Class II shares reported a total return of +12.58% for
the six-month period ended March 31, 1996. Total return measures the change in
value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the fund's initial sales charge.
As measured by net asset value, the price of the fund's Class II shares
increased from $19.33 on September 30, 1995 to $21.43 on March 31, 1996. During
the reporting period, shareholders received distributions of 15.88 cents
($0.1588) per share in income dividends and 15.44 cents ($0.1544) per share in
capital gains, of which 0.14 cents ($0.0014) represented short-term gains and
15.30 cents ($0.153) represented long-term gains. Of course, past performance
does not guarantee future results, and distributions will vary depending on
income earned by the fund and any profits realized from the sale of securities
in the portfolio.
Franklin Growth Fund
Class II
Periods ended March 31, 1996
Since
Inception
Six-Month (5/1/95)
Cumulative
Total Return1 12.58% 29.15%
Aggregate
Total Return2 10.44% 26.87%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the 1.0% initial sales
charge and 1.0% Contingent Deferred Sales Charge (CDSC), applicable to
shares redeemed within the first 18 months of investment.
2. Aggregate total return represents the change in value of an investment
over the specified periods and reflects the 1.0% initial sales charge and
1.0% CDSC, applicable to shares redeemed within the first 18 months of
investment. Since Class II shares have existed for less than one year,
average annual total returns are not provided.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares. Past performance is not predictive of future results.
FRANKLIN UTILITIES FUND
During the first three months of the period under review, the Franklin Utilities
Fund benefited from a strong utility market. However, during the last three
months of the period, interest rates began to rise in response to investor
expectations of stronger U.S. economic growth. For example, the yield on the
benchmark 30-year U.S. Treasury bond rose from 5.95% on December 31, 1995, to
6.67% on March 31, 1996. Historically, rising interest rates tend to adversely
affect stock prices of the companies in which the fund invests, but the fund's
Class I shares still provided a total return of +7.59% for the six months under
review, as discussed in the Performance Summary on page 8. For the one year
period ended March 31, 1996, they provided a total return of +24.02%.
On March 31, 1996, the fund was strongly weighted (84.63% of total net assets)
in stocks of domestic electric utility companies. Throughout the period, we
focused on new investments among companies in this sector which have
above-average growth opportunities and seek to take advantage of the enormous
demand for electric generation capacity around the world. The World Bank
estimated that global spending on power generation projects will total more than
$700 billion over the next ten years, and we anticipate that well-managed
domestic electric utilities should use their expertise to construct and operate
many of these power projects.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
In our opinion, electric utility companies should also benefit from growth in
the telecommunications business. Many companies in which the fund invests have
the ability to provide communications services ranging from data transmission to
home security system monitoring. These services have only recently become
possible due to improved technology and the passage of legislation allowing
certain electric utility companies to take advantage of previously
under-utilized assets, thereby potentially increasing future earnings and
dividends.
In addition to the fund's primary emphasis on stocks and bonds of domestic
electric utility companies, approximately 12.66% of our current holdings are
stocks and bonds of telephone and natural gas utilities. These companies offer
many of the characteristics that we look for in selecting our electric utility
holdings, including potentially steady demand for their services and
historically consistent, predictable earnings growth.
Although bonds are a relatively small part of our total portfolio (10.3% of
total net assets), we recently found value in utility bonds and purchased issues
of U.S. West Communications Group, Philadelphia Electric Co. and Pacific Bell.
These bonds were bought at what we considered to be attractive valuations, with
high current yields and the credit safety of companies with strong balance
sheets.
Franklin Utilities Fund
Top Ten Holdings as of March 31, 1996
Based on Total Net Assets
% of Total
Company Net Assets
American Electric Power Co., Inc. 4.40%
General Public Utilities Corp. 4.29%
Allegheny Power System, Inc. 4.11%
Central & Southwest Corp. 4.03%
SCANA Corp. 3.98%
Texas Utilities Co. 3.97%
Entergy Corp. 3.61%
TECO Energy, Inc. 3.56%
Southern Company 3.45%
New England Electric System 3.39%
For a complete list of portfolio holdings, please see page 28 of this report.
Looking forward, we believe that utility companies will continue to provide
services that are an essential part of everyday life, and that their stocks will
continue to play an important role in a well-diversified investment portfolio.
The industry is continuing to change to a more competitive environment;
therefore, we are focusing on those utilities that we believe are best
positioned to handle increasing competition. Such companies have low production
costs, strong entrepreneurial management teams, and service territories located
in regions with positive demographic trends. We believe that these utilities
should produce higher total returns than their peers as they capture a larger
part of a more competitive market place.
This discussion reflects the strategies we employed for the fund during the past
six-month period, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings, may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the fund.
We thank you for your participation in the fund and, as always, welcome your
comments and suggestions.
PERFORMANCE SUMMARY
CLASS I
The Franklin Utilities Fund Class I shares produced a total return of +7.59% for
the six-month period ended March 31, 1996. Total return represents the change in
value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the fund's initial sales charge. We always
maintain a long-term perspective when managing the fund, and we encourage our
shareholders to view their investments in a similar manner. As you can see from
the table below, the fund delivered a total return of more than 150% for the
10-year period ended March 31, 1996.
The fund's Class I shares price, as measured by net asset value, increased from
$9.75 on September 30, 1995 to $10.15 on March 31, 1996. During the reporting
period, shareholders received distributions of 26.2 cents ($0.262) per share in
income dividends and 7.19 cents ($0.0719) per share in capital gains, of which
0.57 cents ($0.0057) represented short-term capital gains and 6.62 cents
($0.0662) represented long-term capital gains.
Based on the offering price of $10.60 on March 31, 1996, and the most recent
annualized quarterly dividend of 13.10 cents ($0.1310) per share, the fund's
Class I shares distribution rate was 4.94%. Of course, past performance does not
guarantee future results, and distributions will vary depending on income earned
by the fund and any profits realized from the sale of securities in the
portfolio.
Franklin Utilities Fund
Class I
Periods ended March 31, 1996
Since
Inception
1-Year 5-Year 10-Year (9/30/48)
Cumulative
Total Return1 24.02% 65.58% 150.45% 10,417.04%
Average Annual
Total Return2 18.70% 9.65% 9.14% 10.18%
30-Day Standardized Yield3 4.92%
Distribution Rate4 4.94%
1. Cumulative total return represents the change in value of an investment
over the specified periods and does not reflect the current, maximum 4.25%
initial sales charge. See Note below.
2. Average annual total return represents the average annual change in
value of an investment over the specified periods and reflects the current,
maximum 4.25% initial sales charge. See Note below.
3. Yield, calculated as required by the SEC, is based on the earnings of
the fund's portfolio for the 30 days ended March 31, 1996.
4. Distribution rate is based on an annualization of the fund's most recent
13.10 cents per share quarterly dividend and the offering price of $10.60
on March 31, 1996.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge, with dividends reinvested at the public offering price. Thus,
actual total returns for purchasers of shares during that period would have
been somewhat different than noted above. Effective May 1, 1994, the fund
implemented a plan of distribution under Rule 12b-1 and eliminated the
sales charge on reinvested dividends, which affects subsequent performance.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares. Past performance is not predictive of future results.
PERFORMANCE SUMMARY
CLASS II
The Franklin Utilities Fund Class II shares reported a total return of +7.31%
for the six-month period ended March 31, 1996. Total return measures the change
in value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include any sales charges.
The fund's Class II shares price, as measured by net asset value, increased from
$9.75 on September 30, 1995 to $10.14 on March 31, 1996. During the reporting
period, shareholders received distributions of 24.41 cents ($0.2441) per share
in income dividends and 7.19 cents ($0.0719) per share in capital gains, of
which 0.57 cents ($0.0057) represented short-term capital gains and 6.62 cents
($0.0662) represented long-term capital gains.
Based on the offering price of $10.24 on March 31, 1996, and the most recent
annualized quarterly dividend of 11.71 cents ($0.1171) per share, the fund's
Class II shares distribution rate was 4.57%. Of course, past performance does
not guarantee future results, and distributions will vary depending on income
earned by the fund and any profits realized from the sale of securities in the
portfolio.
Franklin Utilities Fund
Class II
Periods ended March 31, 1996
Since
Inception
Six-Month (5/1/95)
Cumulative
Total Return1 7.31% 21.27%
Aggregate
Total Return2 5.23% 19.06%
30-Day Standardized Yield3 4.59%
Distribution Rate4 4.57%
1. Cumulative total return represents the change in value of an investment
over the specified periods and does not reflect the 1.0% initial sales
charge and 1.0% contingent deferred sales charge (CDSC), applicable to
shares redeemed within the first 18 months of investment. See Note below.
2. Aggregate total return represents the change in value of an investment
over the specified periods and reflects the 1.0% initial sales charge and
1.0% CDSC, applicable to shares redeemed within the first 18 months of
investment. Since Class II shares have existed for less than one year,
average annual total returns are not provided. See Note below.
3. Yield, calculated as required by the SEC, is based on the earnings of
the fund's portfolio for the 30 days ended March 31, 1996.
4. Distribution rate is based on an annualization of the fund's most recent
11.71 cents per share quarterly dividend and the offering price of $10.24
on March 31, 1996.
Note: All total return calculations assume reinvestment of dividends and
capital gains at net asset value. Investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares. Past performance is not predictive of future results.
FRANKLIN INCOME FUND
Driven by low inflation and healthy corporate earnings, the U.S. stock market
strengthened during most of the period under review. Domestic bond markets also
rallied, but declined somewhat in February and March amid signs of accelerating
economic growth and the continuing budget stalemate in Washington, D.C. Although
rising long-term interest rates during these months caused some weakness in the
financial markets, several of the fund's sectors performed well for the period
as a whole. The fund's Class I shares benefited from this strength and, as
discussed in the Performance Summary on page 12, provided a total return of
+4.74% for the six months under review. For the one-year period ended March 31,
1996, they recorded a total return of +17.23%.
As you know, we have the flexibility to adjust the portfolio's mix of stocks,
bonds and cash depending on market conditions and investment opportunities. In
response to mar- ket volatility resulting from rising interest rates toward the
end of the period, we used our cash position to purchase securities we believed
to be undervalued. On March 31, 1996, 52% of the fund's total net assets were
invested in bonds, 39% in stocks, and the remaining 9% in cash.
The fund's fixed-income holdings consisted of U.S. Treasury, corporate, and
foreign bonds. As indications of stronger U.S. economic growth led to rising
long-term interest rates in February and March, we increased our U.S. Treasury
exposure, from 3.1% to 6.2% of total net assets. Corporate bonds continued to
represent our largest fixed-income weighting. For the past several years, they
have been among the fund's best performing securities due mainly to declining
interest rates, an improving economy, and our extensive credit research. We
focus on companies with significant underlying assets and ample cash flow to
service debt, while seeking bonds with attractive yields and the potential for
capital appreciation through improved company operations and enhanced credit
ratings. Examples of securities that meet this criteria include the fund's new
corporate bond positions in AMF Group, Inc. (entertainment), Plains Resources,
Inc. (energy), and Riverwood International (forest products & paper). Investors
should be aware that the fund may invest a substantial amount of its assets in
lower-rated bonds, which entail a greater degree of credit risk than that of
investment grade bonds.*
Our foreign bond holdings, primarily U.S. dollar-denominated, collateralized
Brady bonds, performed strongly throughout most of the period before exhibiting
some weakness in February. At that time, we took advantage of market declines
and initiated positions in Ecuadorian and Brazilian Brady bonds. In January, the
fund's remaining peso-denominated Mexican CETES matured, which reduced our
overall currency exposure.
Several of the fund's equity positions were strong performers during the period,
with pharmaceutical and gold stocks appreciating the most. Taking a contrarian
approach, we increased our exposure to gold stocks when this sector was
experiencing weakness in the fourth quarter of 1995. In January, the price of
gold bullion rose above $400 per ounce, and gold stocks rebounded, helping to
offset periodic declines in other equity sectors in early 1996.
After benefiting from declining interest rates in the beginning of the period,
prices of utility stocks retreated in February as interest rates began to rise.
We took this opportunity to increase the fund's utility exposure, from 16.3% of
total net assets on September 30, 1995 to 20.2% on March 31, 1996. We generally
focus on utility companies having the ability to adapt to an increasingly
competitive environment through efficient, low-cost operations, forward-thinking
management, and a low dividend payout ratio. At the same time, we consider
valuations, dividend yields, and the prospects for future dividend growth. We
added to several of our existing utility holdings, including Central & Southwest
Corp., Entergy Corp., Potomac Electric Power Co., and Scana Corp., while
initiating positions in General Public Utilities and Peco Energy.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
*These and other risks are discussed in the fund's prospectus.
Other common stock positions we initiated during the period include Athabasca
Oil Sands Trust, a Canadian oil project; Ultramar Corp., a U.S. petroleum
refinery with operations in California and Canada; Hanson PLC, a British
conglomerate; Meditrust Corp., a real estate investment trust (REIT) with
health-care properties throughout 34 U.S. states; and US West Communications
Group, a provider of telecommunications services in the country's Northwest and
Rocky Mountain regions. We also added several new convertible securities to the
fund's portfolio, such as Ashanti Capital, Ltd. (metals), Cablevision Systems
Corp. (cable systems), Enron Corp. (energy), and Security Capital Industrial
Trust (REIT). Finally, responding to price appreciation, lower yields and
reduced upside potential, we sold several of the fund's convertible stock and
bond positions.
Looking forward, we will continue to follow our value-oriented investment
approach as we seek income and growth from a diversified mix of stocks, bonds
and cash. With the stock market at near-record levels at the end of the period,
we feel comfortable holding 9% of the fund's assets in cash while searching for
additional investment opportunities for our shareholders.
This discussion reflects the strategies we employed for the fund during the
six-month period, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies and our
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the fund.
We appreciate your participation in the fund and welcome any comments or
suggestions you may have.
PERFORMANCE SUMMARY
CLASS I
The Franklin Income Fund Class I shares produced a total return of +4.74% for
the six-month period ended March 31, 1996. Total return represents the change in
value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include the fund's maximum initial sales charge. We
always maintain a long-term perspective when managing the fund, and we encourage
our shareholders to view their investments in a similar manner. As you can see
from the table to the right, the fund delivered a cumulative total return of
more than 188% for the 10-year period ended March 31, 1996.
As measured by net asset value, the price of the fund's Class I shares decreased
from $2.30 on September 30, 1995 to $2.29 on March 31, 1996. During the
reporting period, shareholders received distributions of 9 cents ($0.09) per
share in income dividends and 2.7 cents ($0.027) per share in long-term capital
gains.
Based on the maximum offering price of $2.39 on March 31, 1996, and the most
recent annualized monthly dividend of 1.5 cents ($0.015) per share, the
distribution rate for the fund's Class I shares was 7.53%. Of course, past
performance does not guarantee future results, and distributions will vary
depending on income earned by the fund and any profits realized from the sale of
securities in the portfolio.
Franklin Income Fund
Class I
Periods ended March 31, 1996
Since
Inception
1-Year 5-Year 10-Year (8/31/48)
Cumulative
Total Return1 17.23% 93.63% 188.12% 16,919.98%
Average Annual
Total Return2 12.50% 13.19% 10.68% 11.29%
30-Day Standardized Yield3 7.41%
Distribution Rate4 7.53%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the current, maximum 4.25%
initial sales charge. See Note below.
2. Average annual total return represents the average annual change in
value of an investment over the specified periods and reflects the current,
maximum 4.25% initial sales charge. See Note below.
3. Yield, calculated as required by the SEC, is based on the earnings of
the fund's portfolio for the 30 days ended March 31, 1996. High yields
reflect the higher credit risks associated with certain lower rated
securities in the fund's portfolio and, in some cases, the lower market
prices for these instruments
4. Distribution rate is based on an annualization of the fund's most recent
monthly dividend of 1.5 cents per share and the maximum offering price of
$2.39 on March 31, 1996.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge, with dividends reinvested at the public offering price. Thus,
actual total returns for purchasers of shares during that period would have
been somewhat different than noted above. Effective May 1, 1994, the fund
implemented a plan of distribution under Rule 12b-1 and eliminated the
sales charge on reinvested dividends, which affects subsequent performance.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value and reflect 12b-1 fees from the date of the plan's
implementation. Investment return and principal value will fluctuate with
market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results.
PERFORMANCE SUMMARY
CLASS II
The Franklin Income Fund Class II shares reported a total return of +4.92% for
the six-month period ended March 31, 1996. Total return measures the change in
value of an investment, assuming reinvestment of dividends and capital gains
distributions, and does not include sales charges.
As measured by net asset value, the price of the fund's Class II shares began
and ended the period at $2.30. During the reporting period, shareholders
received distributions of 8.39 cents ($0.0839) per share in income dividends and
2.7 cents ($0.027) per share in long-term capital gains.
Based on the offering price of $2.32 on March 31, 1996, and an annualization of
the most recent monthly dividend of 1.4 cents ($0.014) per share, the
distribution rate for the fund's Class II shares was 7.24%. Of course, past
performance does not guarantee future results, and distributions will vary
depending on income earned by the fund and any profits realized from the sale of
securities in the portfolio.
Franklin Income Fund
Class II
Periods ended March 31, 1996
Since
Inception
Six-Month (5/1/95)
Cumulative
Total Return1 4.92% 14.84%
Aggregate
Total Return2 3.02% 12.80%
30-Day Standardized Yield3 7.14%
Distribution Rate4 7.24%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the 1.0% initial sales
charge and 1.0% Contingent Deferred Sales Charge (CDSC), applicable to
shares redeemed within the first 18 months of investment. See Note below.
2. Aggregate total return represents the change in value of an investment
over the specified periods and reflects the 1.0% initial sales charge and
1.0% CDSC, applicable to shares redeemed within the first 18 months of
investment. Since Class II shares have existed for less than one year,
average annual total returns are not provided. See Note below.
3. Yield, calculated as required by the SEC, is based on the earnings of
the fund's portfolio for the 30 days ended March 31, 1996. High yields
reflect the higher credit risks associated with certain lower rated
securities in the fund's portfolio and, in some cases, the lower market
prices for these instruments.
4. Distribution rate is based on an annualization of the fund's most recent
monthly dividend of 1.4 cents per share and the offering price of $2.32 on
March 31, 1996.
Note: All total return calculations assume reinvestment of dividends and
capital gains at net asset value. Investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when
you sell your shares. Past performance is not predictive of future results.
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
Since our last report dated September 30, 1995, swings in the economy have
seemed to confound investors and economists alike. Interest rates have declined
and risen: the yield of the 30-year U.S. Treasury bond stood at 6.49% on
September 30, 1995, declined to 5.96% by December 31, and finished the reporting
period at 6.64%. In addition, the markets continue to react to mixed economic
messages. A much stronger-than-expected employment report in early March, for
instance, prompted fears that inflation might take off. This concerned
investors, causing a 3% decline in bond prices and a short-lived 120 point drop
in the Dow Jones Industrial Average(R).
Over the reporting period, we worked to avoid this market volatility, continuing
to do what has worked well for us in the past. That is, to invest cash in
Government National Mortgage Association (GNMA) securities that appear to offer
the fund good value. Our strategy is to generate high current income with
limited price volatility while maintaining the fund's credit quality, and not
make large "bets" on the direction of rates. Additionally, your fund does not
invest, nor has it ever invested, in risky derivative securities, and we
continue to employ our conservative, "plain vanilla" investment strategy.
The chart on the following page illustrates the fund's risk/return profile
relative to 10- and 30-year U.S. Treasuries and one-year certificates of
deposit. Over the five years ended March 31, 1996, the average annual total
return of 10-year Treasuries, was only slightly higher than that of the Franklin
U.S. Government Securities Fund for the same period. However, their volatility
was significantly higher than that of the fund.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Looking forward, we expect that the fund's securities should perform well if the
economy maintains its slow growth pattern. However, expectations regarding a
federal balanced budget compromise have declined as we draw closer to the
presidential election. Also, unless economic growth changes dramatically from
what we've seen in the past six months, the political environment may come to
dominate the market. This could add a certain degree of volatility until the
presidential election. Regardless of market activity, we will continue to
position the fund to take advantage of relative value opportunities.
We appreciate your participation in the Franklin U.S. Government Securities Fund
and welcome your comments or suggestions.
PERFORMANCE SUMMARY
CLASS I
Your fund's Class I share price, as measured by net asset value, decreased
during the reporting period to $6.80 per share on March 31, 1996, from $6.87 on
September 30, 1995.
During the reporting period, Class I shares paid monthly income distributions
totaling 24.6 cents ($0.246) per share. Based on an annualization of the current
monthly dividend of 4.1 cents ($0.041) per share and the maximum offering price
of $7.10 on March 31, 1996, your fund's Class I shares distribution rate was
6.93%. Dividends will vary based on the earnings of the portfolio, and past
distributions are not necessarily indicative of future trends.
The Franklin U.S. Government Securities Fund Class I shares reported a six-month
cumulative total return of +2.57%, and a one-year cumulative total return of
+10.36% for the period ended March 31, 1996. Total return measures the change in
value of an investment, assuming reinvestment of dividends, and does not include
the initial sales charge.
Franklin U.S. Government
Securities Fund
Class I
Periods ended March 31, 1996
Since
Inception
1-Year 5-Year 10-Year (2/1/77)
Cumulative
Total Return1 10.36% 43.38% 121.06% 555.71%
Average Annual
Total Return2 5.73% 6.55% 7.78% 7.37%
Distribution Rate3 6.93%
30-Day Standardized Yield4 6.58%
1. Cumulative total returns measure the change in value of an investment
over the periods indicated and do not include the maximum 4.25% initial
sales charge. See note below.
2. Average annual total return represents the average annual change in
value of an investment over the specified periods and reflects the current,
maximum 4.25% initial sales charge. See note below.
3. Distribution rate is based on an annualization of the current 4.1 cent
per share monthly dividend and the maximum offering price of $7.10 on March
31, 1996.
4. Yield, calculated as required by the SEC, is based on the earnings of
the fund's portfolio for the 30 days ended March 31, 1996.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial
sales charge. Thus, actual total returns for purchasers of shares during
that period would have been somewhat different than noted above. Effective
May 1, 1994, the fund eliminated the sales charge on reinvested dividends
and implemented a plan of distribution under Rule 12b-1, which affects
subsequent performance. All total return calculations assume reinvestment
of dividends and capital gains at net asset value and reflect 12b-1 fees
from the date of the plan's implementation. Your investment return and
principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares. Past performance is not predictive
of future results.
PERFORMANCE SUMMARY
CLASS II
Your fund's Class II share price, as measured by net asset value, decreased
during the reporting period to $6.78 per share on March 31, 1996, from $6.85 on
September 30, 1995.
During the reporting period, Class II shares received monthly income
distributions totaling 22.26 cents ($0.2226) per share. Due to increased income
earned by the fund, we were able to raise the monthly dividend to 3.76 cents
($0.0376) from 3.7 cents ($0.037) per share, effective with the March 1996
distribution. Based on an annualization of the March dividend of 3.76 cents and
the offering price of $6.85 on March 31, 1996, your fund's Class II shares
distribution rate was 6.59%. Dividends will vary based on the earnings of the
portfolio, and past distributions are not necessarily indicative of future
trends.
The Franklin U.S. Government Securities Fund Class II shares reported a
six-month cumulative total return of +2.23% for the period ended March 31, 1996.
Total return measures the change in value of an investment, assuming
reinvestment of dividends and does not include sales charges.
Franklin U.S. Government
Securities Fund
Class II
Periods ended March 31, 1996
Since
Inception
(5/1/95)
Cumulative
Total Return1 8.67%
Aggregate
Total Return2 6.54%
Distribution Rate3 6.59%
30-Day Standardized Yield4 6.22%
1. Cumulative total return measures the change in value of an investment
over the periods indicated and does not include the 1.0% initial sales
charge and 1.0% contingent deferred sales charge (CDSC), applicable to
shares redeemed within the first 18 months of investment.
2. Aggregate total return represents the change in value of an investment
since the inception date and includes the 1.0% initial sales charge and the
1.0% CDSC, applicable to shares redeemed within the first 18 months of
investment. Since Class II shares have existed for less than one year,
average annual total returns are not provided.
3. Distribution rate is based on an annualization of the current 3.76 cent
per share monthly dividend and the offering price of $6.85 on March 31,
1996.
4. Yield, calculated as required by the SEC, is based on the earnings of
the fund's portfolio for the 30 days ended March 31, 1996.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions, and you may have a gain or loss when you
sell your shares. Past performance is not predictive of future results.
FRANKLIN DYNATECH FUND
During the six months under review, modest growth and low inflation created
favorable conditions for most equity markets. Technology stocks, however, were
particularly volatile. Following a rise of 58.1% during the first ten months of
1995, they suffered a correction of over 15% between November 1995 and January
1996.* Although they began to rebound during the latter half of the reporting
period, the fund was not immune to this sector's difficulties, and posted a
total return of -0.67% for the reporting period, as discussed in the Performance
Summary on page 20. For the one-year period ended March 31, 1996, it provided a
total return of +20.90%.
We saw the technology sector's volatility as an opportunity to purchase shares
of companies we believed had long-term potential, and by March 31, 1996, the
fund's cash position had declined from 24.7% on September 30, 1995 to 21.3% on
March 31, 1996. We increased our exposure to the computer industry, initiating
positions in Komag, a supplier of disk drive products; Lexmark International, a
computer printer company; and Visioneer, Inc., a maker of scanning devices for
personal computers. In the software industry, we purchased shares of Fractal
Design Corp., a provider of software used to create, edit, and manipulate
computer graphic images and digital art; Scopus Technology, a provider of
software for managing customer information; and Electronic Arts, a leading
supplier of cartridge and CD-ROM-based video games. Because of its rapid and
dynamic growth, we are likely to maintain our investments in this industry.
* Source: The Hambrecht & Quist Technology Index, which is an index of
approximately 200 communications, health care, and computer hardware and
software stocks, declined 15.38% from its November 3, 1995 peak, through January
9, 1996.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
In addition to technology stocks, we continued to focus on investment
opportunities in the health care sector, which seemed particularly attractive
because many companies were introducing innovative products and exhibited the
potential for strong earnings growth. During the period, we purchased shares of
C.R. Bard, Inc., a leading manufacturer of urological and cardiovascular
products; Ventritex, a maker of implantable defibrillators; and HBO & Company, a
developer of a broad range of information systems designed for hospitals,
physicians, and integrated delivery networks. At the end of the reporting
period, health care-related securities represented 11.8% of the fund's total net
assets, a 32.6% increase from their September 30, 1995 level.
Looking forward, we are optimistic about long-term prospects for technology
companies. Many indicators, such as low unemployment and increased job growth,
point toward a stronger economy, which, in our opinion, should benefit
technology and technology-related stocks, and consequently the fund. We remain
committed to our strategy of focusing on companies with superior management
teams that can lead their respective fields in technological development and
productivity enhancements, and expect to continue investing our cash position as
valuations of selected companies appear attractive. There are, of course,
special risks involved in aggressively seeking capital appreciation, including
investment in securities of a more speculative nature, with a greater emphasis
on short-term trading profits. These risks are further discussed in the fund's
prospectus.
This discussion reflects the strategies we employed for the fund during the six
months under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
and our evaluations, conclusions and decisions regarding portfolio holdings, may
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information can
be useful in analyzing securities we purchase or sell for the fund.
Franklin DynaTech Fund
Top 10 Holdings on March 31, 1996
Based on Total Net Assets
% of Total
Company Industry Net Assets
Intel Corp. Semiconductor 12.91%
Manufacturers
Motorola, Inc. Telecommunications 8.02%
Hewlett-Packard Co. Computer Hardware 5.08%
Microsoft Corp. Software 5.02%
Thermo Electron Corp. Precision Instruments/ 3.62%
Test Equipment
Toys R Us, Inc. Retail 3.15%
Cisco Systems, Inc. Networking 3.01%
WMX Technologies, Inc. Environmental Services 2.75%
Compaq Computer Corp. Computer Hardware 1.88%
Warner-Lambert Co. Pharmaceuticals 1.67%
For a complete list of portfolio holdings, please see page 25 of this report.
We appreciate your participation in the Franklin DynaTech Fund, thank you for
your continued support, and look forward to serving your investment needs in the
months and years to come.
PERFORMANCE SUMMARY
The Franklin DynaTech Fund reported a total return of -0.67% for the six-month
period ended March 31, 1996. For the one-year period ended on the same date, the
fund posted a total return of +20.90%. Over the long term, as you can see from
the table to the right, the fund has performed well. For the 10-year period
ended March 31, 1996, it delivered a total return of more than 190%. Total
return measures the change in value of an investment, assuming reinvestment of
dividends and capital gains distributions, and does not include the fund's
initial sales charge.
The fund's share price, as measured by net asset value, decreased from $12.78 on
September 30, 1995 to $12.35 on March 31, 1996. During the reporting period,
shareholders received distributions of 11.8 cents ($0.118) per share in income
dividends and 22.83 cents ($0.2283) per share in capital gains, of which 4.89
cents ($0.0489) represented short-term gains and 17.94 cents ($0.1794)
represented long-term gains. Of course, past performance does not guarantee
future results, and distributions will vary, depending on income earned by the
fund and any profits realized from the sale of securities in the portfolio.
Franklin DynaTech Fund
Periods ended March 31, 1996
Since
Inception
1-Year 5-Year 10-Year (1/1/68)
Cumulative
Total Return1 20.90% 73.07% 190.12% 941.58%
Average Annual
Total Return2 15.51% 10.58% 10.72% 8.46%
1. Cumulative total return represents the change in value of an investment
over the specified periods and does not reflect the maximum 4.5% initial
sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the specified periods and reflects the maximum 4.5%
initial sales charge.
Note: Prior to July 1, 1994, fund shares were offered
at a lower initial sales charge, with dividends reinvested at the public
offering price. Thus, actual total returns for purchasers of shares during
that period would have been somewhat different than noted above. Effective
May 1, 1994, the fund implemented a plan of distribution under Rule 12b-1
and eliminated the sales charge on reinvested dividends, which affects
subsequent performance. All total return calculations assume reinvestment of
dividends and capital gains at net asset value, and reflect 12b-1 fees from
the date of the plan's implementation. Investment return and principal value
will fluctuate with market conditions and you may have a gain or loss when
you sell your shares. Past performance is not predictive of future results.
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments in Securities and Net Assets, March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Shares Growth Fund (Note 1)
Common Stocks 87.1%
Aerospace 8.0%
<S> <C> <C>
200,000 Boeing Co. ............................................................................ $ 17,325,000
162,600 Lockheed Corp. ........................................................................ 12,337,275
442,000 Raytheon Co. .......................................................................... 22,652,500
50,000 Rockwell International Corp. .......................................................... 2,943,750
120,000 Thiokol Corp. ......................................................................... 5,265,000
100,000 United Technologies Corp. ............................................................. 11,225,000
-------------
71,748,525
-------------
Auto Parts .4%
90,000 Genuine Parts Co. ..................................................................... 4,050,000
-------------
a Biotechnology 2.1%
200,000 Amgen, Inc. ........................................................................... 11,625,000
140,000 Genentech, Inc. ....................................................................... 7,367,500
20,000 Immunex Corp. ......................................................................... 322,500
8,000 Therapeutic Discovery Corp. ........................................................... 71,000
-------------
19,386,000
-------------
Business Services 4.7%
110,000 Avery Dennison Corp. .................................................................. 5,940,000
244,000 Dun & Bradstreet Corp. ................................................................ 14,792,500
400,000 Equifax, Inc. ......................................................................... 8,050,000
250,000 Kelly Services, Inc., Class A ......................................................... 8,007,825
345,300a,e,f Programming & Systems, Inc. ........................................................... 6,906
100,000 Wallace Computer Services, Inc. ....................................................... 5,837,500
-------------
42,634,731
-------------
Chemicals 4.1%
200,000 Air Products & Chemicals, Inc. ........................................................ 10,925,000
25,000 Eastman Chemical Co. .................................................................. 1,728,125
75,000 International Flavors and Fragrances, Inc. ............................................ 3,590,625
32,000 Loctite Corp. ......................................................................... 1,616,000
116,000 Mallinckrodt Group, Inc. .............................................................. 4,364,500
159,700 NCH Corp. ............................................................................. 9,043,013
100,000 Sigma-Aldrich Corp. ................................................................... 5,725,000
-------------
36,992,263
-------------
Communications & Entertainment 5.5%
300,000 American Greetings Corp., Class A...................................................... 8,287,500
304,932 Disney (Walt) Co. ..................................................................... 19,477,536
100,000 a Intervisual Books, Inc. ............................................................... 262,500
10,000 a King World Productions, Inc. .......................................................... 413,750
100,000 Silver King Communications............................................................. 3,100,000
300,000 Time Warner, Inc. ..................................................................... 12,262,500
200,000 Turner Broadcasting Systems, Class A .................................................. 5,425,000
-------------
49,228,786
-------------
Data Processing 7.0%
400,000 Automatic Data Processing, Inc. ....................................................... 15,750,000
450,000 a Computer Sciences Corp. ............................................................... 31,668,750
140,000 International Business Machines Corp. ................................................. 15,557,500
-------------
62,976,250
-------------
Diversified Manufacturers 3.4%
370,000 Minnesota Mining & Manufacturing Co. .................................................. $ 24,003,750
100,000 National Service Industries, Inc. ..................................................... 3,625,000
66,600 Teleflex, Inc. ........................................................................ 3,005,325
-------------
30,634,075
-------------
Electronics & Electrical Equipment 6.1%
30,000 a American Power Conversion Corp. ....................................................... 300,000
400,000 AMP, Inc. ............................................................................. 16,550,000
40,000 Emerson Electric Co. .................................................................. 3,230,000
180,000 Hewlett-Packard Co. ................................................................... 16,920,000
75,000 Molex, Inc. ........................................................................... 2,615,625
75,000 Molex, Inc., Class A .................................................................. 2,400,000
200,000 Raychem Corp. ......................................................................... 12,900,000
-------------
54,915,625
-------------
Energy/Energy Services 4.1%
90,000 Atlantic Richfield Co. ................................................................ 10,710,000
300,000 Coastal Co. ........................................................................... 11,850,000
40,000 Murphy Oil Corp. ...................................................................... 1,715,000
70,000 Royal Dutch Petroleum Co., New York Shares ............................................ 9,887,500
30,000 Schlumberger, Ltd. .................................................................... 2,373,750
-------------
36,536,250
-------------
Environmental Protection & Purification 6.7%
100,000 Betz Laboratories, Inc. ............................................................... 4,650,000
165,000 Browning-Ferris Industries, Inc. ...................................................... 5,197,500
230,000 a Ionics, Inc. .......................................................................... 9,602,500
400,000 Millipore Corp......................................................................... 15,300,000
256,500 a Osmonics, Inc. ........................................................................ 4,809,375
209,100 Pall Corp. ............................................................................ 5,358,188
270,000 Wheelabrator Technology, Inc. ......................................................... 4,488,750
210,000 WMX Technologies, Inc. ................................................................ 6,667,500
200,000 Zurn Industries, Inc. ................................................................. 4,100,000
-------------
60,173,813
-------------
Food/Confectionery 1.1%
129,100 Hershey Foods Corp. ................................................................... 9,617,950
-------------
Health Care - Diversified 9.7%
200,000 Abbott Laboratories ................................................................... 8,150,000
200,000 Allergan, Inc. ........................................................................ 7,375,000
100,000 a Alza Corp., Class A ................................................................... 3,075,000
150,000 American Home Products Corp. .......................................................... 16,256,250
250,000 Baxter International, Inc. ............................................................ 11,312,500
62,500 Caremark International, Inc. .......................................................... 1,570,312
180,000 a Forest Laboratories, Inc., Class A .................................................... 8,775,000
200,000 Johnson & Johnson, Inc. ............................................................... 18,450,000
33,000 Natures Sunshine Products, Inc. ...................................................... 849,750
98,000 a Respironics, Inc. ..................................................................... 2,058,000
300,000 U.S. Surgical Corp. ................................................................... 9,825,000
-------------
87,696,812
-------------
Imaging/Photography 1.8%
200,000 Eastman Kodak Co. ..................................................................... $ 14,200,000
38,000 Polaroid Corp. ........................................................................ 1,710,000
-------------
15,910,000
-------------
Pharmaceuticals 9.6%
160,000 Bristol-Myers Squibb Co. .............................................................. 13,700,000
200,000 Lilly (Eli) & Co. ..................................................................... 13,000,000
200,000 Merck & Co., Inc. ..................................................................... 12,450,000
320,000 Pfizer, Inc. .......................................................................... 21,440,000
450,000 Schering-Plough Corp. ................................................................. 26,156,250
-------------
86,746,250
-------------
Retailers 2.4%
200,000 a Perrigo Co. ........................................................................... 2,700,000
300,000 Tiffany & Co. ......................................................................... 17,025,000
58,218 Weis Markets, Inc. .................................................................... 1,753,817
-------------
21,478,817
-------------
a Telecommunications 2.0%
225,000 Cabletron Systems, Inc. ............................................................... 14,906,250
60,000 Cisco Systems, Inc. ................................................................... 2,782,500
200,000 Network Computing Devices ............................................................. 800,000
-------------
18,488,750
-------------
Toy Manufacturing .2%
50,000 Mattel, Inc. .......................................................................... 1,356,250
-------------
Transportation 8.2%
310,000 a AMR Corp. ............................................................................. 27,745,000
250,000 Delta Air Lines, Inc. ................................................................. 19,218,750
87,500 a UAL Corp. ............................................................................. 18,243,750
120,000 Union Pacific Corp. ................................................................... 8,235,000
-------------
73,442,500
-------------
Total Common Stocks (Cost $416,281,281) ......................................... 784,013,647
-------------
Face
Amount
j Receivables from Repurchase Agreements 13.1%
$118,189,604 Joint Repurchase Agreement, 5.423%, 04/01/96 (Maturity Value $117,667,477)
(Cost $117,614,325)
B.T. Securities Corp., (Maturity Value $22,708,862)
Collateral: U.S. Treasury Notes, 6.75% - 7.125%, 09/30/99 - 04/30/00
Daiwa Securities America, Inc., (Maturity Value $26,832,029)
Collateral: U.S. Treasury Bills, 06/27/96 - 09/26/96
Fuji Securities, Inc., (Maturity Value $22,708,862)
Collateral: U.S. Treasury Bills, 06/13/96 - 11/14/96
U.S. Treasury Notes, 6.125%, 09/30/00
Lehman Brothers, Inc., (Maturity Value $22,708,862)
Collateral: U.S. Treasury Notes, 6.125%, 05/31/97
Nikko Securities Co. International, Inc., (Maturity Value $22,708,862)
Collateral: U.S. Treasury Notes, 5.625% - 8.50%, 04/30/97 - 11/15/00................. 117,614,325
-------------
Total Investments (Cost $533,895,606) 100.2%................................ 901,627,972
Other Assets and Liabilities, Net (0.2)%.................................... (1,780,775)
-------------
Net Assets 100.0%........................................................... $899,847,197
=============
At March 31, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $533,895,606 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost......................................................... $372,948,737
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value......................................................... (5,216,371)
-------------
Net unrealized appreciation.......................................................... $367,732,366
=============
</TABLE>
aNon-income producing.
eSee Note 9 regarding holdings of 5% voting securities.
fTrading suspended.
jFace amount for repurchase agreements is for the underlying collateral,
see Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments in Securities and Net Assets, March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Shares DynaTech Fund (Note 1)
Common Stocks 78.5%
Computer Hardware 9.1%
<S> <C> <C>
45,000 a Compaq Computer Corp. ...................................................................... $ 1,738,125
50,000 Hewlett-Packard Co. ........................................................................ 4,700,000
40,000 a Komag, Inc. ................................................................................ 970,000
25,000 a Lexmark Intl. Group, Inc. - Class A ........................................................ 484,375
20,000 a Silicon Graphics, Inc. ..................................................................... 500,000
1,300 a Visioneer, Inc. ............................................................................ 19,500
-------------
8,412,000
-------------
Computer Software 9.6%
15,000 Adobe Systems, Inc. ........................................................................ 483,750
1,400 a Advent Software, Inc. ...................................................................... 27,650
30,000 a Broderbund Software, Inc. .................................................................. 1,132,500
10,000 a Computer Sciences Corp. .................................................................... 703,750
10,000 a Electronic Arts, Inc. ...................................................................... 265,000
15,000 a Fractal Design Corp. ....................................................................... 183,750
10,000 a Intuit, Inc. ............................................................................... 450,000
45,000 a Microsoft Corp. ............................................................................ 4,640,625
15,000 a Oracle Corp. ............................................................................... 706,875
4,800 a Red Brick Systems, Inc. .................................................................... 206,400
7,500 a Scopus Technology, Inc. .................................................................... 112,500
-------------
8,912,800
-------------
Data Services 2.3%
20,000 Equifax, Inc. .............................................................................. 402,500
17,000 First Data Corp. ........................................................................... 1,198,500
10,000 General Motors Corp. - Class E ............................................................. 570,000
-------------
2,171,000
-------------
Environmental Services 3.4%
20,000 Browning-Ferris Industries, Inc. ........................................................... 630,000
80,000 WMX Technologies, Inc. ..................................................................... 2,540,000
-------------
3,170,000
-------------
Media/Programming 2.0%
24,875 a Liberty Media Group - Class A .............................................................. 656,078
20,000 News Corp. Ltd., ADR ....................................................................... 460,000
19,500 a Tele-Communications, Inc. .................................................................. 361,968
10,000 Time Warner, Inc. .......................................................................... 408,750
-------------
1,886,796
-------------
Medical Services 6.3%
10,000 Bard (C.R.), Inc. .......................................................................... 356,250
15,000 Columbia/HCA Healthcare Corp. .............................................................. 866,250
5,000 HBO & Co. .................................................................................. 472,500
50,000 a Humana, Inc. ............................................................................... 1,256,250
10,000 Medtronic, Inc. ............................................................................ 596,250
5,000 a PacifiCare Health Systems, Inc. - Class B .................................................. 426,250
25,000 United Healthcare Corp. .................................................................... 1,537,500
20,000 a Ventritex, Inc. ............................................................................ 307,500
-------------
5,818,750
-------------
Networking 4.2%
5,000 a Cabletron Systems, Inc. .................................................................... $ 331,250
60,000 a Cisco Systems, Inc. ........................................................................ 2,782,500
20,000 a 3Com Corp................................................................................... 797,500
-------------
3,911,250
-------------
Pharmaceutical Manufacturers 4.0%
15,000 Merck & Co., Inc. .......................................................................... 933,750
20,000 Schering-Plough Corp. ...................................................................... 1,162,500
15,000 Warner-Lambert Co. ......................................................................... 1,548,750
-------------
3,645,000
-------------
Precision Instruments/Test Equipment 4.9%
10,000 Schlumberger, Ltd. ......................................................................... 791,250
56,250 a Thermo Electron Corp. ...................................................................... 3,346,875
13,800 a Waters Corp. ............................................................................... 334,650
-------------
4,472,775
-------------
Retail 4.6%
15,000 Estee Lauder Cos. - Class A ................................................................ 536,250
10,000 a Federated Department Stores, Inc. .......................................................... 322,500
10,000 Home Depot, Inc. ........................................................................... 478,750
108,000 a Toys R Us, Inc. ............................................................................ 2,916,000
-------------
4,253,500
-------------
Semiconductor/Manufacturer 13.4%
7,700 a AVX Corp. .................................................................................. 168,438
210,000 Intel Corp. ................................................................................ 11,943,750
10,000 a Xilinx, Inc. ............................................................................... 317,500
-------------
12,429,688
-------------
Specialty Pharmaceuticals 1.5%
15,000 a Noven Pharmaceuticals, Inc. ................................................................ 215,625
20,000 Sigma-Aldrich Corp. ........................................................................ 1,145,000
-------------
1,360,625
-------------
Telecommunications 10.2%
10,000 a AirTouch Communications .................................................................... 311,250
25,000 AT&T Corp. ................................................................................. 1,531,250
140,000 Motorola, Inc. ............................................................................. 7,420,000
1,600 a United States Satellite Broadcasting Co., Inc. ............................................. 52,400
3,000 a Westell Technologies, Inc. ................................................................. 111,000
-------------
9,425,900
-------------
Transportation 1.0%
10,000 a AMR Corp. .................................................................................. 895,000
-------------
Miscellaneous 2.0%
1,000 a Berg Electronics Corp. ..................................................................... 23,500
25,000 Duracell International, Inc. ............................................................... 1,240,625
10,000 a Host Marriott Corp. ........................................................................ 135,000
2,000 a Host Marriott Services Corp. ............................................................... 14,000
10,000 The PMI Group, Inc. ........................................................................ 436,250
-------------
1,849,375
-------------
Total Common Stocks (Cost $29,180,436)................................................ 72,614,459
-------------
Preferred Stocks .2%
10,000 News Corp., Ltd., $4.00 pfd., ADR........................................................... $ 202,500
2,026 a Standard Management Corp., $8.00 pfd., Class S ............................................. 13,169
-------------
Total Preferred Stocks (Cost $178,551)................................................ 215,669
-------------
Total Long Term Investments (Cost $29,358,987)........................................ 72,830,128
-------------
Face
Amount
Short Term Investments
i Commercial Paper 8.6%
$ 4,000,000 General Electric Capital, 5.25%, 06/18/96 .................................................. 3,951,800
4,000,000 Svenska Handelsbanken, Inc., 5.10%, 06/06/96 ............................................... 3,959,120
-------------
Total Commercial Paper (Cost $7,917,100).............................................. 7,910,920
-------------
Total Investments Before Repurchase Agreement (Cost $37,276,087)...................... 80,741,048
-------------
Receivables from Repurchase Agreement 13.5%
12,549,233 j Joint Repurchase Agreement, 5.423%, 04/01/96 (Maturity Value $12,494,211)
(Cost $12,488,568)
B.T. Securities Corp., (Maturity Value $2,411,281)
Collateral: U.S. Treasury Notes, 6.75% - 7.125%, 09/30/99 - 04/30/00
Daiwa Securities America, Inc., (Maturity Value $2,849,087)
Collateral: U.S. Treasury Bills, 06/27/96 - 09/26/96
Fuji Securities, Inc., (Maturity Value $2,411,281)
Collateral: U.S. Treasury Bills, 06/13/96 - 11/14/96
U.S. Treasury Notes, 6.125%, 09/30/00
Lehman Brothers, Inc., (Maturity Value $2,411,281)
Collateral: U.S. Treasury Notes, 6.125%, 05/31/97
Nikko Securities Co. International, Inc., (Maturity Value $2,411,281)
Collateral: U.S. Treasury Notes, 5.625% - 8.50%, 04/30/97 - 11/15/00 ..................... 12,488,568
-------------
Total Investments (Cost $49,764,655) 100.8%...................................... 93,229,616
Liabilities in Excess of Other Assets (.8%)...................................... (706,266)
-------------
Net Assets 100.0%................................................................ $92,523,350
=============
At March 31, 1996, the net unrealized appreciation based on the cost of investment
for income tax purposes of $49,764,655 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost.............................................................. $44,118,876
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value.............................................................. (653,915)
-------------
Net unrealized appreciation............................................................... $43,464,961
=============
aNon-income producing.
iCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
jFace amount for repurchase agreements is for the underlying collateral. See
Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments in Securities and Net Assets, March 31, 1996 (unaudited)
Value
Shares Utilities Fund (Note 1)
Common Stocks 87.8%
<S> <C> <C>
653,200 a AirTouch Communications, Inc. ........................................................... $ 20,330,850
3,708,900 Allegheny Power System, Inc. ............................................................ 112,657,838
2,886,100 American Electric Power Co., Inc. ....................................................... 120,494,675
200,000 Ameritech Corp. ......................................................................... 10,900,000
357,200 Bellsouth Corp. ......................................................................... 13,216,400
3,878,000 Central & South West Corp. .............................................................. 110,523,000
10,000 Central Louisiana Electric, Inc. ........................................................ 268,750
2,353,300 CINergy Corp. ........................................................................... 70,599,000
1,306,690 CIPSCO, Inc. ............................................................................ 50,470,901
1,967,800 Delmarva Power & Light Co. .............................................................. 41,815,750
2,053,950 Dominion Resources, Inc. ................................................................ 81,387,769
444,200 DPL, Inc. ............................................................................... 10,605,275
1,500,000 Duke Power Co. .......................................................................... 75,750,000
1,891,400 Edison International .................................................................... 32,390,225
3,125,600 Enova Corp. ............................................................................. 71,498,100
3,534,000 Entergy Corp. ........................................................................... 98,952,000
2,220,175 Florida Progress Corp. .................................................................. 75,763,472
1,951,000 FPL Group, Inc. ......................................................................... 88,282,750
3,562,000 General Public Utilities Corp. .......................................................... 117,546,000
1,864,100 GTE Corp. ............................................................................... 81,787,388
863,050 Hawaiian Electric Industries, Inc. ...................................................... 30,206,750
33,000 Ipalco Enterprises, Inc. ................................................................ 882,750
36,000 Kansas City Power & Light Co. ........................................................... 918,000
802,200 MidAmerican Energy Co. .................................................................. 14,339,325
28,000 Montana Power Co. ....................................................................... 605,500
661,700 Nevada Power Co. ........................................................................ 14,474,688
2,427,050 New England Electric System.............................................................. 92,834,663
1,204,050 New York State Electric & Gas Corp. ..................................................... 28,295,175
1,160,300 NIPSCO Industries, Inc. ................................................................. 43,221,175
4,110,000 Pacific Gas & Electric Co. .............................................................. 92,988,750
2,195,900 PacifiCorp............................................................................... 45,839,413
190,000 Panhandle Eastern Co. ................................................................... 5,913,750
1,321,100 Peco Energy Co. ......................................................................... 35,174,288
668,485 Pinnacle West Capital Corp. ............................................................. 19,302,504
258,700 Public Service Co. of Colorado........................................................... 9,119,175
247,800 Public Service Enterprise Group, Inc. ................................................... 6,814,500
1,389,500 Puget Sound Power & Light Co. ........................................................... 35,432,250
182,100 SBC Communications....................................................................... 9,583,013
3,968,800 SCANA Corp. ............................................................................. 109,142,000
350,000 Sierra Pacific Resources................................................................. 8,793,750
525,110 SIGCORP, Inc. ........................................................................... 18,313,211
3,963,500 Southern Co. ............................................................................ 94,628,563
1,200,200 Southwestern Public Service Co. ......................................................... 39,906,650
3,922,400 TECO Energy, Inc. ....................................................................... 97,569,700
935,000 Telefonos de Mexico, ADR................................................................. 30,738,125
2,628,150 Texas Utilities Co. ..................................................................... 108,739,706
268,200 Williams Cos. Inc. ...................................................................... 13,510,575
34,800 Unitil Corp. ............................................................................ 804,750
2,768,900 U S West Communications Group............................................................ 89,643,138
793,200 Wisconsin Energy Corp. .................................................................. 22,507,048
-------------
Total Common Stocks (Cost $2,134,284,067).......................................... 2,405,483,028
-------------
Corporate Bonds 10.3%
$ 9,900,000 Alabama Power Co., 8.75%, 12/01/21 ...................................................... $ 10,468,011
4,950,000 Alabama Power Co., 8.50%, 05/01/22 ...................................................... 5,158,216
10,500,000 Arizona Public Service Co., 10.25%, 05/15/20 ............................................ 11,668,995
14,500,000 Arizona Public Service Co., 9.00%, 12/15/21 ............................................. 15,525,425
10,000,000 Cincinnati Gas & Electric Co., 8.50%, 09/01/22 .......................................... 10,384,459
2,000,000 Commonwealth Edison Co., 8.875%, 10/01/21 ............................................... 2,071,872
5,000,000 Commonwealth Edison Co., 8.50%, 07/15/22 ................................................ 5,085,864
10,000,000 Commonwealth Edison Co., 8.375%, 09/15/22 ............................................... 9,928,470
5,000,000 Duquesne Light Co., 8.375%, 05/15/24 .................................................... 5,042,390
19,000,000 Enron Corp., 7.00%, 08/15/23 ............................................................ 17,233,550
3,750,000 Gulf States Utilities Co., 9.72%, 07/01/98 .............................................. 3,869,430
11,000,000 c Hidro Electrica Alicuras, 8.375%, 03/15/99 .............................................. 10,395,000
10,000,000 Illinois Power Co., 8.00%, 02/15/23 ..................................................... 9,950,000
15,000,000 Long Island Lighting Co., 9.75%, 05/01/21 ............................................... 15,300,000
10,000,000 Louisiana Power & Light Co., 8.50%, 07/01/22 ............................................ 10,213,399
14,538,088 Midland CoGeneration Venture, 10.33%, 07/23/02 .......................................... 15,322,563
7,500,000 Niagara Mohawk Power Corp., 9.50%, 03/01/21 ............................................. 7,213,364
5,000,000 Niagara Mohawk Power Corp., 8.75%, 04/01/22 ............................................. 4,483,545
3,000,000 Northwest Pipeline Corp., 7.125%, 12/01/25 .............................................. 2,803,638
8,000,000 Ohio Edison Co., 8.75%, 06/15/22 ........................................................ 8,258,199
10,000,000 Pacific Bell, 7.75%, 09/15/32 ........................................................... 9,805,499
10,000,000 Pacific Bell, 7.50%, 02/01/33 ........................................................... 9,637,500
20,000,000 Panhandle Eastern Co., 7.20%, 08/15/24 .................................................. 18,733,917
15,000,000 Philadelphia Electric Co., 8.75%, 04/01/22 .............................................. 15,555,883
4,000,000 Philadelphia Electric Co., 7.75%, 03/01/23 .............................................. 3,892,092
10,000,000 Texas Utilities Co., 8.75%, 11/01/23 .................................................... 10,594,870
10,000,000 Texas Utilities Co., 8.50%, 08/01/24 .................................................... 10,417,639
10,000,000 Texas Utilities Co., 7.375%, 10/01/25 ................................................... 9,360,899
15,000,000 U S West Communications Group, 6.875%, 09/15/33 ......................................... 13,387,500
-------------
Total Corporate Bonds (Cost $280,015,512).......................................... 281,762,189
-------------
Total Long Term Investments (Cost $2,414,299,579).................................. 2,687,245,217
-------------
j Receivable from Repurchase Agreement 2.2%
60,177,271 Joint Repurchase Agreement, 5.423%, 04/01/96 (Maturity Value $59,911,151)
(Cost $59,884,088)
B.T. Securities Corp., (Maturity value $11,562,363)
Collateral: U.S. Treasury Notes, 6.75% - 7.125%, 09/30/99 - 04/30/00
Daiwa Securities America, Inc., (Maturity value $13,661,700)
Collateral: U.S. Treasury Bills, 06/27/96 - 09/26/96
Fuji Securities Inc., (Maturity value $11,562,363)
Collateral: U.S. Treasury Bills, 06/13/96 - 11/14/96
U.S. Treasury Notes, 6.125%, 09/30/00
Lehman Brothers, Inc., (Maturity value $11,562,363)
Collateral: U.S. Treasury Notes, 6.125%, 05/31/97
Nikko Securities Co. International, Inc., (Maturity value $11,562,362)
Collateral: U.S. Treasury Notes, 5.625% - 8.50%, 04/30/97 - 11/15/00 .................. 59,884,088
-------------
Total Investments (Cost $2,474,183,667) 100.3%................................ 2,747,129,305
Liabilities in Excess of Other Assets, Net (.3%).............................. (7,454,026)
-------------
Net Assets 100.0%............................................................. $2,739,675,279
=============
At March 31, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $2,474,186,067 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost......................................................... $ 353,220,020
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value......................................................... (80,276,782)
-------------
Net unrealized appreciation............................................................ $ 272,943,238
=============
aNon-income producing.
cSee Note 7 regarding Rule 144A securities.
jFace amount for repurchase agreements is for the underlying collateral.
See Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments in Securities and Net Assets, March 31, 1996 (unaudited)
Shares/ Value
Warrants Income Fund (Note 1)
Common Stocks 29.8%
Conglomerates .4%
<S> <C> <C>
1,900,000 Hanson Plc., Sponsored ADR........................................................... $ 28,500,000
-------------
Consumer Products 1.1%
33,652 a Gillett Holdings, Inc., Class 2...................................................... 874,952
850,000 Philip Morris Cos., Inc. ............................................................ 74,587,500
498,750 a,c Specialty Foods Corp. ............................................................... 249,375
-------------
75,711,827
-------------
Energy 1.2%
2,870,000 Athabasca Oil Sands Trust............................................................ 26,846,044
150,000 Atlantic Richfield Co. .............................................................. 17,850,000
400,000 Pennzoil Co. ........................................................................ 15,900,000
650,000 Ultramar Corp. ...................................................................... 18,768,750
-------------
79,364,794
-------------
Home Builders .1%
348,978 a NVR, Inc. ........................................................................... 3,337,102
165,744 a Walter Industries, Inc., Class A..................................................... 2,278,980
-------------
5,616,082
-------------
Metals 1.8%
700,000 Driefontein Consolidated Mines, Ltd., ADR............................................ 11,112,500
2,525,000 Free State Consolidated Gold Mines, Ltd., ADR........................................ 23,987,500
2,300,000 Hartebeestfontein Gold Mining Co., Ltd., ADR......................................... 8,387,410
1,184,200 Impala Platinum Holdings, Ltd., ADR.................................................. 19,656,062
460,000 Kinross Mines, Ltd., ADR............................................................. 5,552,982
917,741 Rustenburg Platinum Holdings, Ltd., ADR.............................................. 16,156,379
350,000 Samancor, Ltd., ADR.................................................................. 4,287,500
187,500 St. Helena Gold Mines, Ltd., ADR..................................................... 1,382,813
1,236,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR....................................... 11,819,250
312,000 Western Deep Levels, Ltd., ADR....................................................... 14,313,000
-------------
116,655,396
-------------
Pharmaceuticals 3.8%
700,000 American Home Products Corp. ........................................................ 75,862,500
850,000 Bristol-Myers Squibb Co. ............................................................ 72,781,250
973,400 Merck & Co., Inc. ................................................................... 60,594,150
1,000,000 Pharmacia & Upjohn, Inc. ............................................................ 39,875,000
-------------
249,112,900
-------------
Real Estate Investment Trust .3%
600,000 Meditrust Corp. ..................................................................... 20,325,000
-------------
Retail .1%
300,000 a Federated Department Stores, Inc. ................................................... 9,675,000
-------------
Telecommunication Services .8%
1,650,000 US West Communications Group ........................................................ 53,418,750
-------------
Utilities 20.2%
2,200,000 American Electric Power Co., Inc. ................................................... 91,850,000
3,572,400 Central & South West Corp. .......................................................... 101,813,400
2,390,000 CINergy Corp. ....................................................................... 71,700,000
2,200,000 Delmarva Power & Light Co. .......................................................... 46,750,000
1,800,000 Dominion Resources, Inc. ............................................................ 71,325,000
3,100,000 Edison International................................................................. 53,087,500
2,100,000 Enova Corp. ......................................................................... 48,037,500
Utilities (cont.)
2,050,000 Entergy Corp. ....................................................................... $ 57,400,000
2,000,000 Florida Progress Corp. .............................................................. 68,250,000
1,400,000 FPL Group, Inc. ..................................................................... 63,350,000
1,625,000 General Public Utilities Corp. ...................................................... 53,625,000
610,000 Hawaiian Electric Industries, Inc. .................................................. 21,350,000
1,700,000 Houston Industries, Inc. ............................................................ 36,762,500
1,800,000 Long Island Lighting Co. ............................................................ 31,725,000
825,000 Nevada Power Co. .................................................................... 18,046,875
1,100,000 New England Electric System Co. ..................................................... 42,075,000
1,500,000 New York State Electric & Gas Corp. ................................................. 35,250,000
2,050,000 Ohio Edison Co. ..................................................................... 46,381,250
3,200,000 Pacific Gas & Electric Co. .......................................................... 72,400,000
525,000 PacifiCorp........................................................................... 10,959,375
629,800 Peco Energy Co. ..................................................................... 16,768,425
1,022,000 Potomac Electric Power Co. .......................................................... 26,699,750
1,447,100 Public Service Enterprise Group, Inc. ............................................... 39,795,250
650,000 Scana Corp. ......................................................................... 17,875,000
2,450,000 Southern Co. ........................................................................ 58,493,750
1,864,800 Southwestern Public Service Co. ..................................................... 62,004,600
1,725,000 Texas Utilities Co. ................................................................. 71,371,875
-------------
1,335,147,050
-------------
Total Common Stocks (Cost $1,667,785,118)...................................... 1,973,526,799
-------------
Preferred Stocks 9.3%
Airlines .1%
150,000 USAir Group, Inc., $4.375 cvt. pfd., Series B........................................ 7,762,500
-------------
Apparel/Textiles .1%
150,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A................................... 6,900,000
52,230 JPS Textile Group, Inc., senior exch. adj. rate pfd., Series A....................... 52,230
-------------
6,952,230
-------------
Automotive .2%
450,000 Harvard Industries, Inc., 14.25% pfd., PIK........................................... 12,037,500
-------------
Cable Systems .9%
1,200,000 Cablevision Systems Corp., 8.50% cvt. pfd., Series I................................. 33,900,000
253,554 c Cablevision Systems Corp., 11.125% pfd., PIK, Series L............................... 25,228,623
-------------
59,128,623
-------------
Communications .8%
504,000 Nortel, Inc., pfd., Series B......................................................... 7,056,000
1,050,000 Nortel Inversora, SA, 10.00% cvt. pfd. .............................................. 44,100,000
-------------
51,156,000
-------------
Consumer Products .4%
75,000 Pantry Pride, Inc., $14.875 pfd., Series B........................................... 7,528,125
3,000,000 RJR Nabisco Holding Corp., $0.835 cvt. pfd., Series A................................ 18,375,000
-------------
25,903,125
-------------
Energy 3.3%
793,200 Enron Corp., 6.25% cvt. pfd. ........................................................ 20,127,450
375,000 Gerrity Oil & Gas Corp., $1.50 cvt. pfd. ............................................ 4,875,000
617,500 Maxus Energy Corp., $4.00 cum. cvt. pfd. ............................................ 26,706,875
1,100,000 c McDermott International, Inc., $2.875 cvt. pfd., Series C............................ 42,625,000
Energy (cont.)
750,000 Noble Drilling Corp., $1.50 cvt. pfd. ............................................... $ 23,812,500
490,000 c Occidental Petroleum Corp., $3.875 cvt. pfd. ........................................ 30,625,000
700,000 c Parker & Parsley Capital, 6.25% cvt. pfd. ........................................... 34,125,000
400,000 Santa Fe Energy Resources, Inc., 7.00% cvt. pfd. .................................... 7,950,000
2,457,900 Santa Fe Energy Resources, Inc., 8.25% cvt. pfd. .................................... 26,115,188
163,900 Snyder Oil Corp., $1.50 cvt. exch. pfd. ............................................. 3,011,663
-------------
219,973,676
-------------
Metals 2.6%
562,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B........................................... 32,174,500
283,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A......................................... 14,185,375
114,200 Armco, Inc., $4.50 cvt. pfd., Series B............................................... 5,595,800
222,200 Battle Mountain Gold Co., $3.25 cvt. pfd. ........................................... 11,804,375
940,000 Coeur D'Alene Mines Corp., 7.00% cvt. pfd. .......................................... 19,857,500
120,000 Cyprus Minerals, $4.00 cvt. pfd., Series A........................................... 7,650,000
400,000 Freeport-McMoran Copper & Gold, Inc., $1.75 cvt. pfd. ............................... 12,650,000
450,000 c Freeport-McMoran, Inc., 4.375% cvt. exch. pfd. ...................................... 33,918,750
400,000 Freeport-McMoran, Inc., 8.75% cvt. pfd. ............................................. 14,700,000
375,000 Hecla Mining Co., $3.50 cvt. pfd., Series B.......................................... 16,312,500
-------------
168,848,800
-------------
Real Estate Investment Trust .7%
800,000 Security Capital Industrial Trust, 7.00% cvt. pfd. .................................. 18,800,000
1,040,000 Security Capital Pacific Trust, $1.75 cvt. pfd., Series A............................ 27,690,000
-------------
46,490,000
-------------
Restaurants .2%
1,200,000 Flagstar Cos., $2.25 cvt. pfd., Series A............................................. 16,500,000
-------------
Total Preferred Stocks (Cost $601,362,713)..................................... 614,752,454
-------------
Partnership Units .2%
500,000 BP Prudhoe Bay Royalty Trust......................................................... 8,250,000
300,000 Freeport-McMoRan Resource, Ltd., depository units.................................... 6,375,000
59,259 a,b Zale Corp., Ltd. .................................................................... 28,444
-------------
Total Partnership Units (Cost $19,645,667)..................................... 14,653,444
-------------
Warrants .1%
1,281,869 a,b Boardwalk Casino, Inc. .............................................................. 4,099,417
29,143 a NVR, Inc. ........................................................................... 30,964
-------------
Total Warrants (Cost $2,767,713)............................................... 4,130,381
-------------
a Miscellaneous
127,100 Miscellaneous securities (Cost $43,214) ............................................. 43,214
-------------
Total Common Stocks, Preferred Stocks, Partnership Units and Warrants
(Cost $2,291,604,425)............................................................... 2,607,106,292
-------------
Face
Amount
Corporate Bonds 31.5%
Apparel/Textiles 2.0%
$ 35,000,000 d Bibb Co., senior sub. notes, 14.00%, 10/01/99 ....................................... 12,425,000
41,500,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ................ 37,557,500
6,000,000 d Forstmann Textiles, Inc., S.F., senior sub. deb., 14.75%, 04/15/99 .................. 1,410,000
35,000,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ................................ 29,925,000
25,141,000 JPS Textile Group, Inc., S.F., sub. notes, 10.25%, 06/01/99 ......................... 14,707,485
Apparel/Textiles (cont.)
$ 8,390,000 JPS Textile Group, Inc., S.F., sub. notes, 10.85%, 06/01/99 ......................... $ 4,908,150
30,000,000 JPS Textile Group, Inc., S.F., sub. notes, 7.00%, 05/15/00 .......................... 8,550,000
25,000,000 Westpoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 ......................... 24,937,500
-------------
134,420,635
-------------
Automotive .9%
4,000,000 Exide Corp., senior notes, 10.75%, 12/15/02 ......................................... 4,110,000
20,000,000 Harvard Industries, Inc., senior notes, 11.125%, 08/01/05 ........................... 20,200,000
35,000,000 Motor Wheels Corp., senior notes, Series B, 11.50%, 03/01/00 ........................ 37,187,500
-------------
61,497,500
-------------
Biotechnology .2%
16,500,000 Centocor, Inc., Eurobond cvt. sub. deb., 6.75%, 10/16/01 ............................ 15,427,500
Building Products .5%
5,000,000 American Standard, Inc., S.F., senior sub. deb., 9.25%, 12/01/16 .................... 5,125,000
30,000,000 Inter-City Products Corp., senior notes, 9.75%, 03/01/00 ............................ 26,550,000
-------------
31,675,000
-------------
Cable Systems 1.7%
2,000,000 Cablevision Industries Corp., senior notes, 10.75%, 01/30/02 ........................ 2,170,000
25,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ....................... 26,000,000
30,000,000 Continental Cablevision, Inc., senior sub. deb., 9.50%, 08/01/13 .................... 33,825,000
35,000,000 Helicon Group LP Corp., senior secured notes, 9.00%, 11/01/03 ....................... 35,262,500
16,000,000 Storer Communication, Inc., sub. deb., 10.00%, 05/15/03 ............................. 16,080,000
-------------
113,337,500
-------------
Chemicals 1.2%
29,000,000 Applied Extrusion Technology, senior unsecured notes, 11.50%, 04/01/02 .............. 30,015,000
16,000,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 ................ 17,360,000
8,900,000 Uniroyal Chemical Co., Inc., senior sub. notes, 10.50%, 05/01/02 .................... 9,389,500
20,000,000 Uniroyal Chemical Co., Inc., senior sub. notes, 11.00%, 05/01/03 .................... 20,850,000
-------------
77,614,500
-------------
Communications .4%
25,000,000 CommNet Cellular, Inc., sub. notes, 11.25%, 07/01/05 ................................ 26,625,000
Computer/Technology .8%
30,000,000 d Anacomp, Inc., senior sub. notes, 15.00%, 11/01/00 .................................. 27,750,000
18,000,000 Conner Peripheral, Inc., cvt. sub. deb., 6.75%, 03/01/01 ............................ 18,742,500
11,750,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 ....................................... 8,768,438
-------------
55,260,938
-------------
Conglomerates
1,596,000 Coltec Industries, Inc., S.F., senior sub. deb., 11.25%, 12/01/15 ................... 1,655,850
Consumer Products 2.0%
8,500,000 Calmar, Inc., senior sub notes, 11.50%, 08/15/05 .................................... 8,542,500
18,000,000 Mafco, Inc., senior sub. deb., 11.875%, 11/15/02 .................................... 18,810,000
38,500,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ................... 34,746,250
30,000,000 Revlon Consumer Products Corp., senior sub. notes, Series B, 10.50%, 02/15/03 ....... 30,450,000
35,000,000 RJR Nabisco, Inc., senior sub. notes, 9.25%, 08/15/13 ............................... 33,731,250
8,650,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 ..................................... 8,736,500
-------------
135,016,500
-------------
Energy 3.4%
$ 10,000,000 Energy Ventures, senior notes, 10.25%, 03/15/04 ..................................... $ 10,600,000
15,000,000 Falcon Drilling, senior sub. notes, 12.50%, 03/15/05 ................................ 17,025,000
40,000,000 Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 07/15/04 ........................ 41,600,000
19,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 ......................... 20,805,000
45,000,000 Mesa Capital Corp., secured disc. notes, 12.75%, 06/30/98 ........................... 44,325,000
43,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 .................................... 38,700,000
8,000,000 c Plains Resources, Inc., senior sub. notes, 10.25%, 03/15/06 ......................... 8,040,000
6,697,000 Pogo Producing Co., cvt. sub. deb., 8.00%, 12/31/05 ................................. 6,914,653
33,500,000 Snyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 .................................. 28,307,500
6,969,000 Tesoro Petroleum Corp., S.F., sub. deb., 12.75%, 03/15/01 ........................... 7,108,380
-------------
223,425,533
-------------
Entertainment .2%
10,000,000 c AMF Group, Inc., senior sub. notes, 10.875%, 03/15/06 ............................... 9,975,000
-------------
Food & Beverages 1.9%
2,980,000 Chock Full O'Nuts Corp., S.F., cvt. sub. deb., 8.00%, 09/15/06 ...................... 2,812,375
27,000,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ...................... 26,595,000
52,857,000 b Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 .................................. 38,057,040
2,000,000 Doane Products Co., senior notes, 10.625%, 03/01/06 ................................. 2,050,000
6,600,000 Dr. Pepper Bottling Co. of Texas, senior sub. notes, 10.25%, 02/15/00 ............... 6,963,000
13,000,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 ............... 13,325,000
20,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ................ 17,200,000
20,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 ........... 18,550,000
-------------
125,552,415
-------------
Food Chains 1.9%
33,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 ...................... 34,485,000
35,000,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 .................................. 33,862,500
33,000,000 Grand Union Capital Corp., senior notes, 12.00%, 09/01/04 ........................... 29,040,000
35,000,000 Ralphs Grocery Co., senior sub notes, 11.00%, 06/15/05 .............................. 31,412,500
-------------
128,800,000
-------------
Gaming & Leisure 1.7%
35,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 .................................... 35,437,500
40,000,000 b Boardwalk Casino, Inc., first mortgage bonds, 16.50%, 03/31/05 ...................... 37,356,145
35,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ...................... 37,450,000
-------------
110,243,645
-------------
Health Care .8%
8,100,000 Grancare, Inc., cvt. sub. deb., 6.50%, 01/15/03 ..................................... 7,553,250
15,000,000 c Medical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 ................... 15,525,000
16,300,000 OrNda Healthcorp., Inc., senior sub. notes, 12.25%, 05/15/02 ........................ 17,767,000
10,000,000 Sola Group, Ltd., senior sub. notes, 6.00%, 12/15/03 ................................ 9,450,000
-------------
50,295,250
-------------
Industrial Products 2.1%
18,500,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ................................... 17,667,500
40,000,000 Pace Industries, Inc., senior notes, Series B, 10.625%, 12/01/02 .................... 37,600,000
29,950,000 c RBX Corp., senior sub. notes, 11.25%, 10/15/05 ...................................... 29,201,250
30,000,000 RHI Holdings, Inc., senior sub. deb., 11.875%, 03/01/99 ............................. 30,187,500
14,500,000 Thermadyne Industries, Inc., notes, 10.75%, 11/01/03 ................................ 14,572,500
7,393,000 Thermadyne Industries, Inc., senior notes, 10.25%, 05/01/02 ......................... 7,466,930
-------------
136,695,680
-------------
Media & Broadcasting .2%
$ 12,250,000 Benedek Broadcasting, senior notes, 11.875%, 03/01/05 ............................... $ 12,985,000
2,300,000 Time Warner, Inc., S.F., sub. deb., 8.75%, 04/01/17 ................................. 2,346,000
-------------
15,331,000
-------------
Metals 2.1%
7,000,000 Armco Steel, Inc., senior notes, 11.375%, 10/15/99 .................................. 7,315,000
5,000,000 Armco Steel, Inc., senior notes, 9.375%, 11/01/00 ................................... 5,050,000
22,000,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03................................... 22,770,000
900,000 Coeur D' Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 .................. 895,500
20,000,000 Coeur D' Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 ........................ 20,450,000
13,020,000 FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 01/16/05 ........................ 12,531,750
34,000,000 Jorgensen, Earle M. Co., senior notes, 10.75%, 03/01/00 ............................. 33,660,000
32,000,000 Republic Engineered Steel Co., first mortgage, 9.875%, 12/15/01 ..................... 29,600,000
4,805,000 UCAR Global Enterprises, senior sub. notes, 12.00%, 01/15/05 ........................ 5,561,788
-------------
137,834,038
-------------
Paper & Forest Products 1.1%
43,000,000 Rapp International Finance, company guaranteed secured notes, 13.25%, 12/15/05....... 42,355,000
29,000,000 Riverwood International, senior sub. notes, 10.875%, 04/01/08 ....................... 28,927,500
-------------
71,282,500
-------------
Pollution Control .3%
21,000,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 ....................... 18,427,500
-------------
Publishing .2%
12,500,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 .............................. 13,312,500
-------------
Railroads .6%
500,000 Missouri Pacific Railroad Co., gen. mortgage, Series A, 4.75%, 01/01/20 ............. 303,317
500,000 Missouri Pacific Railroad Co., gen. mortgage, Series B, 4.75%, 01/01/30 ............. 307,721
1,200,000 Missouri Pacific Railroad Co., income deb., 5.00%, 01/01/45.......................... 702,473
37,500,000 Southern Pacific Rail Corp., senior notes, 9.375%, 08/15/05 ......................... 39,750,000
-------------
41,063,511
-------------
Real Estate Development .3%
20,000,000 Rouse Co., cvt. sub. deb., 5.75%, 07/23/02 .......................................... 19,400,000
-------------
Restaurants .9%
40,000,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 ............................ 29,500,000
30,000,000 Foodmaker, Inc., senior sub. notes, 14.25%, 05/15/98 ................................ 30,600,000
-------------
60,100,000
-------------
Retail .7%
9,000,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ................................ 6,592,500
41,000,000 Levitz Furniture Co., senior sub. notes, 13.375%, 10/15/98 .......................... 39,667,500
-------------
46,260,000
-------------
Transportation .1%
8,000,000 AMR Corp., cvt. sub. deb., 6.125%, 11/01/24 ......................................... 9,220,000
-------------
Utilities 3.3%
975,837,500 h ESCOM, E168, utility deb., (South Africa), 11.00%, 06/01/08 ......................... 190,148,732
7,715,091 Midland CoGeneration Venture, deb. notes, Series C-91, 10.33%, 07/23/02 ............. 8,112,079
14,953,462 Midland CoGeneration Venture, S.F., sub. deb., Series C, 10.33%, 07/23/02 ........... 15,760,351
6,000,000 Texas-New Mexico Power Co., secured deb., 10.75%, 09/15/03 .......................... 6,449,592
-------------
220,470,754
-------------
Total Corporate Bonds (Cost $2,135,878,128).................................... 2,090,220,249
-------------
U.S. Government Securities 6.2%....................................................
$ 305,000,000 U.S Treasury Bonds, 6.25%, 08/15/23 ................................................. $ 282,220,126
128,000,000 U.S. Treasury Notes, 6.00% - 6.375%,12/31/97 - 08/15/02 ............................. 128,691,864
-------------
Total U.S. Government Securities (Cost $422,942,249)........................... 410,911,990
-------------
Foreign Government Agencies 10.7%
50,000,000 h Government of Canada, first coupon deb., 8.00%, 06/01/23 ............................ 36,179,891
520,000,000 Republic of Argentina, FRN, 5.25%, 03/31/23 ......................................... 270,400,000
180,000,000 Republic of Brazil, 4.25%, 04/15/24 ................................................. 91,575,000
111,832,500 Republic of Brazil, FRN, Series A, 6.375%, 01/01/01 ................................. 100,369,669
176,000,000 Republic of Equador, 3.25%, 02/28/25 ................................................ 61,490,000
255,000,000 h Republic of South Africa, 12.00%, 02/28/05 .......................................... 54,568,877
150,000,000 United Mexican States, Series B, 6.25%, 12/31/19 .................................... 95,250,000
-------------
Total Foreign Government Agencies (Cost $731,834,863).......................... 709,833,437
-------------
g Zero Coupon/Step-up Bonds 2.9%
18,000,000 c AMF Group, Inc., senior disc. notes, zero coupon to 03/15/00, (original accretion rate
12.25%), 12.25% thereafter, 03/15/06 ............................................... 9,877,500
65,000,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00, (original accretion rate 11.50%),
11.50% thereafter, 03/01/05 ........................................................ 42,575,000
11,000,000 Dr. Pepper Bottling Holdings Co., S.F., senior sub. disc. notes, zero coupon to 02/15/98,
(original accretion rate 11.625%), 11.625% thereafter, 02/15/03 .................... 9,405,000
9,000,000 Exide Corp., senior sub. deb., zero coupon to 12/15/97, (original accretion rate 12.25%),
12.25% thereafter, 12/15/04 ........................................................ 7,650,000
50,000,000 Food 4 Less, Inc., senior disc. deb., zero coupon to 06/15/00, (original accretion rate
13.625%), 13.625% thereafter, 07/15/05 ............................................. 22,250,000
7,000,000 b L.F.C. Holding, senior deb., zero coupon to 06/15/97, (original accretion rate 15.00%),
15.00% thereafter, 06/15/02 ........................................................ 4,858,000
65,750,000 Marcus Cable Co., senior disc. notes, zero coupon to 06/15/00, (original accretion rate
14.25%), 14.25% thereafter, 12/15/05 ............................................... 42,408,750
40,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B, (original accretion rate
12.00%), 0.00%, 03/15/98 ........................................................... 31,500,000
33,250,000 Specialty Foods Corp., senior secured disc. deb., Series B, zero coupon to 08/15/99,
(original accretion rate 13.00%), 13.00% thereafter, 08/15/05 ...................... 14,962,500
12,000,000 Uniroyal Chemical Co., Inc., senior notes, zero coupon to 05/01/98, (original accretion
rate 12.00%), 12.00% thereafter, 05/01/05 .......................................... 9,660,000
-------------
Total Zero Coupon/Step-up Bonds (Cost $197,332,096)............................ 195,146,750
-------------
Total Long Term Investments (Cost $5,779,591,761).............................. 6,013,218,718
-------------
i Short Term Investments 2.1%
Certificates of Deposit 1.8%
20,000,000 Australia-New Zealand Bank, 5.375%, 04/23/96 ........................................ 19,999,800
100,000,000 Societe Generale, Inc., New York Branch, 5.25% - 5.45%, 04/02/96 - 04/16/96 ......... 100,000,000
-------------
Total Certificates of Deposits (Cost $120,001,888)............................. 119,999,800
-------------
Commercial Paper .3%
20,000,000 Ciesco LP, 5.25%, 04/30/96 (Cost $19,915,417)........................................ 19,904,600
-------------
Total Investments Before Repurchase Agreements (Cost $5,919,509,066)........... 6,153,123,118
-------------
j Receivables from Repurchase Agreements 6.4%
423,299,780 Joint Repurchase Agreement, 5.423%, 04/01/96, (Maturity Value $421,353,978)
(Cost $421,163,647)
BT Securities Corp., (Maturity Value $81,321,318)
Collateral: U.S. Treasury Notes, 6.75% - 7.125%, 09/30/99 - 04/30/00
Daiwa Securities America, Inc., (Maturity Value $96,068,706)
Collateral: U.S. Treasury Bills, 06/27/96 - 09/26/96
Fuji Securities, Inc., (Maturity Value $81,321,318)
Collateral: U.S. Treasury Bills, 06/13/96 - 11/14/96
U.S. Treasury Notes, 6.125%, 09/30/00
Lehman Government Securities, Inc., (Maturity Value $81,321,318)
Collateral: U.S. Treasury Bills, 06/20/96
U.S. Treasury Notes, 6.125%, 05/31/97
The Nikko Securities Co. International, Inc., (Maturity Value $81,321,318)
Collateral: U.S. Treasury Notes, 5.625% - 8.50%, 04/30/97 - 11/15/00 ............. $ 421,163,647
-------------
Total Investments (Cost $6,340,672,713) 99.2%............................. 6,574,286,765
Other Assets and Liabilities, Net .8%..................................... 50,985,381
-------------
Net Assets 100.0%......................................................... $6,625,272,146
=============
At March 31, 1996, the net unrealized appreciation based on the cost of investments
for income tax purposes of $6,340,672,713 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost....................................................... $ 478,620,026
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value....................................................... (245,005,974)
-------------
Net unrealized appreciation........................................................ $ 233,614,052
=============
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
PIK - Payment-in-Kind
S.F. - Sinking Fund
aNon-income producing.
bSee Note 6 regarding restricted securities.
cSee Note 7 regarding Rule 144A securities.
dSee Note 8 regarding defaulted securities.
gZero coupon/step-up bonds. The current effective yield may vary. The original
accretion rate will remain constant.
hFace amount is stated in foreign currency and value is stated in U.S. dollars.
iCertain short-term securities are traded on a discount basis; the rates
shown are the discount rates at the time of purchase by the Fund. Other
securities bear interest at rates shown, payable at fixed dates or upon
maturity.
jFace amount for repurchase agreements is for the underlying collateral.
See Note 1(h) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments in Securities and Net Assets, March 31, 1996
(unaudited)
Face Value
Amount U.S. Government Securities Fund (Note 1)
Government National Mortgage Association (GNMA) 98.0%
<C> <C> <C>
$ 23,779,200 GNMA I, SF, 6.00%, 09/15/23 - 11/15/23 .............................................. $ 21,965,916
1,231,269,385 GNMA I, SF, 6.50%, 03/15/03 - 03/15/24 .............................................. 1,168,545,964
32,147,128 GNMA PL, 6.50%, 05/15/24 ............................................................ 30,348,751
37,408,735 GNMA II, 6.50%, 06/20/24 - 01/20/26 ................................................. 35,222,491
36,474,198 GNMA PL, 6.75%, 01/15/34 ............................................................ 34,923,861
2,211,809,075 GNMA I, SF, 7.00%, 04/15/16 - 07/15/25 .............................................. 2,158,577,293
300,542,224 GNMA II, 7.00%, 03/20/24 - 03/20/26 ................................................. 291,242,824
9,036,015 GNMA PL, 7.00%, 09/15/35 ............................................................ 8,773,364
8,984,892 GNMA I, SF, 7.25%, 10/15/25 - 01/15/26 .............................................. 8,879,552
35,575,528 GNMA PL, 7.375%, 04/15/29 ........................................................... 35,200,133
21,280,074 GNMA PL, 7.425%, 07/15/29 ........................................................... 21,108,066
1,649,179,070k GNMA I, SF, 7.50%, 06/15/05 - 08/15/25 .............................................. 1,650,190,258
327,654,614 GNMA II, 7.50%, 10/20/22 - 12/20/25 ................................................. 325,813,245
5,832,662 GNMA PL, 7.75%, 10/15/12 ............................................................ 5,871,822
1,438,858,793 GNMA I, SF, 8.00%, 10/15/07 - 06/15/25 .............................................. 1,471,676,172
27,231,339 GNMA II, 8.00%, 08/20/16 - 03/20/19 ................................................. 27,648,194
48,066,145 GNMA PL, 8.00%, 04/15/22 - 05/15/32 ................................................. 48,681,773
8,891,551 GNMA I, GPM, 8.25%, 03/15/17 - 11/15/17 ............................................. 9,099,907
24,852,205 GNMA PL, 8.25%, 12/15/20 - 02/15/28 ................................................. 25,434,565
376,661,040k GNMA I, SF, 8.50%, 05/15/16 - 06/15/23 .............................................. 393,243,318
72,516,678 GNMA II, 8.50%, 04/20/16 - 06/20/25 ................................................. 75,077,090
1,681,350 GNMA I, GPM, 8.75%, 03/20/17 - 07/20/17 ............................................. 1,744,655
488,954,668 GNMA I, SF, 9.00%, 10/15/04 - 07/15/23 .............................................. 515,233,520
16,899,178 GNMA II, 9.00%, 02/20/20 - 11/20/21 ................................................. 17,575,060
6,828,106 GNMA I, GPM, 9.25%, 05/15/16 - 01/15/17 ............................................. 7,186,547
275,203,956 GNMA I, SF, 9.50%, 05/15/09 - 02/15/23 .............................................. 295,154,857
34,030,452 GNMA II, 9.50%, 09/20/15 - 04/20/25 ................................................. 35,901,955
8,282,738 GNMA I, GPM, 10.00%, 11/15/09 - 11/15/13 ............................................ 9,038,538
338,546,057 GNMA I, SF, 10.00%, 04/15/12 - 04/15/25 ............................................. 373,247,028
44,340,490 GNMA II, 10.00%, 08/20/13 - 03/20/21 ................................................ 47,970,867
6,402,082 GNMA I, GPM, 10.25%, 02/15/16 - 02/15/21 ............................................ 6,992,270
244,291,090 GNMA I, SF, 10.50%, 08/15/00 - 10/15/21 ............................................. 271,849,319
67,978,874 GNMA II, 10.50%, 09/20/13 - 03/20/21 ................................................ 74,181,946
16,645,303 GNMA I, GPM, 11.00%, 12/15/09 - 03/15/11 ............................................ 18,543,915
206,371,626 GNMA I, SF, 11.00%, 01/15/01 - 05/15/21 ............................................. 232,490,630
19,873,836 GNMA II, 11.00%, 07/20/13 - 01/20/21 ................................................ 21,929,545
7,887,092 GNMA I, GPM, 11.25%, 06/15/13 - 01/15/16 ............................................ 8,836,011
3,400,655 GNMA I, GPM, 11.50%, 03/15/10 - 01/20/14 ............................................ 3,809,799
42,864,021 GNMA I, SF, 11.50%, 02/15/13 - 12/15/17 ............................................. 48,824,819
2,984,284 GNMA II, 11.50%, 08/20/13 - 04/20/18 ................................................ 3,327,477
2,007,800 GNMA I, GPM, 11.75%, 07/15/13 - 12/15/15 ............................................ 2,263,482
839,115 GNMA I, GPM, 12.00%, 10/15/10 - 03/15/13 ............................................ 950,822
198,434,933 GNMA I, SF, 12.00%, 05/15/11 - 08/15/19 ............................................. 228,324,195
9,125,878 GNMA II, 12.00%, 09/20/13 - 02/20/16 ................................................ 10,280,877
1,394,268 GNMA I, GPM, 12.50%, 04/15/10 - 10/15/12 ............................................ 1,592,952
172,326,140 GNMA I, SF, 12.50%, 01/15/10 - 08/15/18 ............................................. 200,329,138
7,755,261 GNMA II, 12.50%, 09/20/13 - 11/20/15 ................................................ 8,821,610
122,112 GNMA I, GPM, 12.75%, 11/15/13 - 06/15/15 ............................................ 139,971
157,860,027 GNMA I, SF, 13.00%, 07/15/10 - 01/15/16 ............................................. 184,696,231
4,933,343 GNMA II, 13.00%, 09/20/13 - 09/20/15 ................................................ 5,648,678
-------------
Total Long Term Investments (Cost $10,495,195,396) ............................ 10,484,411,273
-------------
i Short Term Investments 1.5%.........................................................
$ 163,400,000 U.S. Treasury Bills, 4.75% - 5.30%, 04/18/96 - 09/05/96 (Cost $161,188,857).......... $ 161,123,366
-------------
Total Investments (Cost $10,656,384,253) 99.5%............................ 10,645,534,639
Other Assets and Liabilities, Net .5%..................................... 49,228,536
-------------
Net Assets 100.0%......................................................... $10,694,763,175
=============
At March 31, 1996, the net unrealized depreciation based on the cost of investments
for income tax purposes of $10,656,384,253 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost....................................................... $ 144,081,561
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value....................................................... (154,931,175)
-------------
Net unrealized depreciation........................................................ $ (10,849,614)
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
GPM - Graduated Payment Mortgage
PL - Project Loan
SF - Single Family
I - Original SF Program
II - Programs consisting of different types of mortgages
iCertain short-term securities are traded on a discount basis;
the rates shown are the discount rates at the time of the
purchase by the Fund. Other securities bear interest at the rates shown,
payable at fixed dates or upon maturity.
kSee Note 1 (i) regarding securities purchased on a when-issued basis.
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements
Statements of Assets and Liabilities
March 31, 1996 (unaudited)
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
---------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost....................... $416,281,281 $37,276,087 $2,414,299,579 $5,919,509,066 $10,656,384,253
========== ========= =========== =========== =============
At value................................. 784,013,647 80,741,048 2,687,245,217 6,153,123,118 10,645,534,639
Receivables from repurchase agreements,
at value and cost......................... 117,614,325 12,488,568 59,884,088 421,163,647 --
Cash...................................... 842,945 -- 625,269 2,575,430 6,744
Receivables:
Dividends and interest................... 750,936 57,709 13,638,418 103,314,972 67,928,762
Investment securities sold............... -- -- 3,546,332 1,947,724 7,303,424
Capital shares sold...................... 928,548 61,462 567,533 14,769,407 6,205,582
---------- --------- ----------- ----------- -------------
Total assets......................... 904,150,401 93,348,787 2,765,506,857 6,696,894,298 10,726,979,151
---------- --------- ----------- ----------- -------------
Liabilities:
Payables:
Investment securities purchased:
Regular delivery........................ 3,536,027 347,462 16,430,735 65,408,314 --
When-issued basis (Note 1).............. -- -- -- -- 17,685,063
Capital shares repurchased............... 112,706 386,672 7,193,477 1,459,910 6,445,313
Management fees.......................... 185,335 48,372 1,050,461 2,503,261 4,026,141
Distribution fees........................ 315,918 31,216 585,942 1,406,310 1,254,564
Shareholder servicing costs.............. 55,226 8,495 71,584 841,583 962,419
Accrued expenses and other liabilities.... 97,992 3,220 499,379 2,774 1,842,476
---------- --------- ----------- ----------- -------------
Total liabilities.................... 4,303,204 825,437 25,831,578 71,622,152 32,215,976
---------- --------- ----------- ----------- -------------
Net assets, at value....................... $899,847,197 $92,523,350 $2,739,675,279 $6,625,272,146 $10,694,763,175
========== ========= =========== =========== =============
Net assets consist of:
Undistributed net investment income....... $ 4,318,370 $ 281,478 $ 5,271,056 $ 7,399,774 $ 21,974,952
Unrealized appreciation on investments
and translation of assets and liabilities
denominated in foreign currencies......... 367,732,366 43,464,961 272,945,638 233,031,780 (10,849,614)
Net realized gain (loss) from investment
and foreign currency transactions......... 7,368,150 390,976 43,180,649 13,008,245 (690,125,353)
Class I capital shares.................... 409,128 74,901 2,681,601 27,947,492 15,674,492
Class II capital shares................... 8,308 -- 16,733 926,201 52,625
Additional paid-in capital Class I........ 503,403,103 48,311,034 2,399,325,667 6,130,933,520 11,322,023,948
Additional paid-in capital Class II....... 16,607,772 -- 16,253,935 212,025,134 36,012,125
---------- --------- ----------- ----------- -------------
Net assets, at value....................... $899,847,197 $92,523,350 $2,739,675,279 $6,625,272,146 $10,694,763,175
========== ========= =========== =========== =============
Class I Shares:
Net assets, at value...................... $882,042,816 $92,523,350 $2,722,708,825 $6,412,610,384 $10,659,062,446
========== ========= =========== =========== =============
Shares outstanding........................ 40,912,845 7,490,067 268,160,130 2,794,749,208 1,567,449,219
========== ========= =========== =========== =============
Net asset value per share*................ $21.56 $12.35 $10.15 $2.29 $6.80
========== ========= =========== =========== =============
Class II Shares:
Net assets, at value...................... $ 17,804,381 -- $ 16,966,454 $ 212,661,762 $ 35,700,729
========== ========= =========== =========== =============
Shares outstanding........................ 830,828 -- 1,673,253 92,620,122 5,262,491
========== ========= =========== =========== =============
Net asset value per share*................ $21.43 -- $10.14 $2.30 $6.78
========== ========= =========== =========== =============
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (cont.)
Statements of Operations
for the six months ended March 31, 1996 (unaudited)
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
--------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends....................................... $ 5,480,872 $ 196,814 $ 16,186,338 $162,501,066 $--
Interest (Note 1)............................... 2,264,007 575,776 64,604,506 92,483,741 425,888,865
--------- -------- ---------- ---------- -----------
Total income............................... 7,744,879 772,590 80,790,844 254,984,807 425,888,865
--------- -------- ---------- ---------- -----------
Expenses:
Management fees, net (Note 5)................... 1,813,028 290,562 6,515,779 14,514,679 24,839,979
Distribution fees - Class I (Note 5)............ 829,442 92,433 1,771,492 4,082,095 4,139,093
Distribution fees - Class II (Note 5)........... 51,718 -- 41,577 426,505 75,502
Shareholder servicing costs (Note 5)............ 431,663 63,687 1,038,454 1,821,915 3,334,233
Reports to shareholders......................... 222,000 18,931 824,021 698,244 1,639,495
Custodian fees.................................. 29,492 4,088 118,566 530,960 508,229
Registration and filing fees.................... 24,526 6,510 30,174 57,355 104,970
Professional fees............................... 12,908 3,407 38,352 73,225 91,505
Directors' fees and expenses.................... 2,381 420 7,506 18,143 27,613
Other........................................... 10,033 2,447 32,265 77,344 126,586
--------- -------- ---------- ---------- -----------
Total expenses............................. 3,427,191 482,485 10,418,186 22,300,465 34,887,205
--------- -------- ---------- ---------- -----------
Net investment income.................. 4,317,688 290,105 70,372,658 232,684,342 391,001,660
--------- -------- ---------- ---------- -----------
Realized and unrealized gain (loss) from
investments and foreign currency:
Net realized gain (loss) from:
Investments................................... 10,951,354 391,410 43,207,320 31,779,951 (19,536,478)
Foreign currency transactions................. -- -- -- (582,997) --
Net unrealized appreciation (depreciation) on:
Investments................................... 82,807,041 (1,346,046) 94,849,115 27,145,428 (88,889,339)
Translation of assets and liabilities
denominated in foreign currencies............... -- -- -- (658,993) --
--------- --------- ---------- ---------- -----------
Net realized and unrealized gain (loss) from
investments and foreign currencies.............. 93,758,395 (954,636) 138,056,435 57,683,389 (108,425,817)
--------- --------- ---------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations....................... $98,076,083 $ (664,531) $208,429,093 $290,367,731 $282,575,843
========= ========= ========== ========== ===========
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (cont.)
Statements of Changes in Net Assets
for the six months ended March 31, 1996 (unaudited)
and the year ended September 30, 1995
Growth Fund DynaTech Fund Utilities Fund
--------------------- ------------------- ------------------------
1996 1995 1996 1995 1996 1995
---------- ---------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........... $ 4,317,688 $ 6,365,342 $ 290,105 $ 856,910 $ 70,372,658 $ 154,801,327
Net realized gain from
investments and foreign
currency transactions............ 10,951,354 2,390,493 391,410 1,652,070 43,207,320 19,981,831
Net unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies............... 82,807,041 156,404,122 (1,346,046) 19,366,149 94,849,115 398,271,409
---------- ---------- --------- --------- ----------- ------------
Net increase (decrease)
in net assets resulting
from operations.................. 98,076,083 165,159,957 (664,531) 21,875,129 208,429,093 573,054,567
Distributions to shareholders from:
Undistributed net investment
income:
Class I........................ (6,277,569) (4,752,106) (854,470) (337,856) (71,874,819) (154,359,654)
Class II....................... (58,030) -- -- -- (318,085) (100,164)
Net realized capital gains:
Class I......................... (5,917,362) (1,478,440) (1,652,504) (896,402) (19,929,424) (1,914,525)
Class II........................ (56,335) -- -- -- (79,078) --
Increase (decrease) in net assets
from capital share transactions
(Note 2)......................... 97,054,316 41,477,162 2,708,217 4,933,183 (150,896,831) (214,844,085)
---------- ---------- --------- --------- ----------- ------------
Net increase (decrease)
in net assets.................... 182,821,103 200,406,573 (463,288) 25,574,054 (34,669,144) 201,836,139
Net assets:
Beginning of period.............. 717,026,094 516,619,521 92,986,638 67,412,584 2,774,344,423 2,572,508,284
---------- ---------- --------- --------- ----------- ------------
End of period.................... $899,847,197 $717,026,094 $92,523,350 $92,986,638 $2,739,675,279 $2,774,344,423
========== ========== ========= ========= =========== ============
Undistributed net investment
income included in net assets:
Beginning of period............. $ 6,336,281 $ 4,733,342 $ 845,843 $ 326,789 $ 7,091,302 $ 6,749,793
========== ========== ========= ========= =========== ============
End of period................... $ 4,318,370 $ 6,336,281 $ 281,478 $ 845,843 $ 5,271,056 $ 7,091,302
========== ========== ========= ========= =========== ============
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (cont.)
Statements of Changes in Net Assets (cont.)
for the six months ended March 31, 1996 (unaudited)
and the year ended September 30, 1995
Income Fund U.S. Government Securities Fund
----------------------- ---------------------------
1996 1995 1996 1995
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income................................ $ 232,684,342 $ 429,152,388 $ 391,001,660 $ 836,543,555
Net realized gain (loss) from investments and
foreign currency transactions........................ 31,196,954 34,267,583 (19,536,478) (57,944,614)
Net unrealized appreciation (depreciation)
on investments and translation of assets and
liabilities denominated in foreign currencies......... 26,486,435 247,694,923 (88,889,339) 636,365,221
------------ ----------- ------------ ------------
Net increase in net assets
resulting from operations............................. 290,367,731 711,114,894 282,575,843 1,414,964,162
Distributions to shareholders from:
Undistributed net investment income:
Class I.............................................. (238,874,069) (424,364,184) (392,914,464) (818,027,564)
Class II............................................. (4,342,533) (658,851) (698,129) (102,491)
Net realized capital gains:
Class I.............................................. (70,834,799) (62,309,280) -- --
Class II............................................. (1,196,764) -- -- --
Increase (decrease) in net assets from capital
share transactions (Note 2)........................... 698,542,223 836,323,234 (307,499,947) (1,152,281,674)
------------ ----------- ------------ ------------
Net increase (decrease) in net assets............ 673,661,789 1,060,105,813 (418,536,697) (555,447,567)
Net assets:
Beginning of period................................... 5,951,610,357 4,891,504,544 11,113,299,872 11,668,747,439
------------ ----------- ------------ ------------
End of period......................................... $6,625,272,146 $5,951,610,357 $10,694,763,175 $11,113,299,872
============ =========== ============ ============
Undistributed net investment income
included in net assets:
Beginning of period.................................. $ 1,820,982 $ 8,679,566 $ 24,585,885 $ 6,172,385
============ =========== ============ ============
End of period........................................ $ 7,399,774 $ 1,820,982 $ 21,974,952 $ 24,585,885
============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Custodian Funds, Inc. (the Corporation) is an open-end, diversified
management investment company (mutual fund), registered under the Investment
Company Act of 1940 as amended. The Corporation's shares are offered in five
different Series (the Funds) with each Fund, in effect, representing a separate
fund and each of the Funds maintaining a totally separate investment portfolio.
The investment objectives of each Fund are as follows:
Capital Growth Growth and Income Current Income
---------- ------------ -----------------------
Growth Fund Utility Fund U.S. Government Securities Fund
Dynatech Fund Income Fund
All of the Funds, except for the DynaTech fund, offer two classes of shares,
Class I and Class II. Class I shares are sold with a higher front-end sales
charge than Class II shares. Each class of shares may be subject to a contingent
deferred sales charge, and has the same rights, except with respect to the
effect of the respective sales charges, the distribution fees borne by each
class, voting rights on matters affecting a single class and the exchange
privilege of each class.
The offering of Class II shares began May 1, 1995, at which time all previously
outstanding shares became Class I shares. Realized and unrealized gains or
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.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. Portfolio securities which are traded both in the over the counter
market and on a securities exchange are valued according to the broadest and
most representative market as determined by the investment manager. The Funds
may utilize a pricing service, bank or broker/dealer experienced in such matters
to perform any of the pricing functions, under procedures approved by the Board
of Directors (the Board). Securities for which market quotations are not
available are valued in accordance with procedures established by the Board.
The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange (Exchange). That value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at noon, New York
time, on the day the value of the foreign security is determined. If no sale is
reported at that time, the mean between the current bid and asked prices is
used. Occasionally, events which affect the values of foreign securities and
foreign Exchange rates may occur between the times at which they are determined
and the close of the exchange and will, therefore, not be reflected in the
computation of the Fund's net asset value, unless material. If events which
materially affect the value of these foreign securities occur during such
period, these securities will be valued in accordance with procedures
established by the Board.
The fair values of securities restricted as to resale are determined following
procedures established by the Board.
b. Income Taxes:
The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
them from income and excise taxes. Each Fund is treated as a separate entity in
the determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily. Bond
discount is amortized as required by the Internal Revenue Code. Realized and
unrealized gains or 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.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities-- see Note 8. Net realized
capital gains and losses differ for financial statement and tax purposes
primarily due to differing treatment of wash sale transactions.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
e. Accounting Estimates:
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the amounts of income and expense during
the reporting period. Actual results could differ from those estimates.
f. Expense Allocation:
Common expenses incurred by the Corporation are allocated among the Funds based
on the ratio of net assets of each Fund to the combined net assets. In all other
respects, expenses are charged to each Fund as incurred on a specific
identification basis.
g. Foreign Currency Translation:
The accounting records of the Funds are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.
The Funds do not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, gains or
losses realized between the trade date and settlement dates on security
transactions, the difference between the amounts of dividends and interest, and
foreign withholding taxes recorded on the Funds books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized appreciation
or depreciation on translation of assets and liabilities denominated in foreign
currencies arise from changes in the value of assets and liabilities other than
investments in securities at the end of the reporting period, resulting from
changes in exchange rates.
h. Repurchase Agreements
All Funds, except the U.S. Government Securities Fund, may enter into a joint
repurchase agreement whereby its uninvested cash balance is deposited into a
joint cash account to be used to invest in one or more repurchase agreements
with government securities dealers recognized by the Federal Reserve Board
and/or member banks of the Federal Reserve System. The value and face amount of
the joint repurchase agreement are allocated to the Funds based on its pro-rata
interest.
A repurchase agreement is accounted for as a loan by the Fund to the seller,
collateralized by underlying U.S. government securities, which are delivered to
the Fund's custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Funds Portfolio, with the value of the underlying securities
marked to market daily to maintain coverage of at least 100%. At March 31, 1996,
all outstanding repurchase agreements held by the Funds had been entered into on
that date.
i. Securities Purchased on a When-Issued or Delayed Delivery Basis
The Funds may trade securities on a when-issued or delayed delivery 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 Funds will
generally purchase these securities with the intention of holding them, they may
sell the securities before the settlement date. These securities are identified
on the accompanying Statement of Investments in Securities and Net Assets. At
March 31, 1996, the U.S. Government Securities Fund set aside sufficient
investment securities as collateral for these purchase commitments.
2. CAPITAL STOCK
At March 31, 1996, there were 14 billion shares of capital stock authorized. The
shares of $.01 par value capital stock were allocated to the Funds as follows:
<TABLE>
<CAPTION>
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Class I...................................... 250,000,000 250,000,000 400,000,000 3,600,000,000 2,500,000,000
========= ========= ========= ========== ==========
Class II..................................... 250,000,000 250,000,000+ 400,000,000 3,600,000,000 2,500,000,000
========= ========= ========= ========== ==========
</TABLE>
+No Class II shares were offered for the DynaTech Fund during this period.
2. CAPITAL STOCK (cont.)
Transactions in each of the Funds' shares for the periods ended March 31, 1996
and September 30, 1995, were as follows:
<TABLE>
<CAPTION>
Growth Fund DynaTech Fund Utilities Fund
--------------------- -------------------- ----------------------
Shares Amount Shares Amount Shares Amount
-------- ----------- -------- ---------- --------- -----------
Class I Shares:
Six months ended March 31, 1996
<S> <C> <C> <C> <C> <C> <C>
Shares sold........................ 6,823,068 $140,107,756 1,333,875 $16,667,307 12,799,055 $130,539,084
Shares issued in reinvestment
of distributions................... 540,802 10,967,560 177,721 2,205,538 6,919,406 69,407,232
Shares redeemed ................... (3,239,772) (66,681,748) (1,295,612) (16,164,628) (35,221,794) (359,151,744)
-------- ----------- -------- ---------- --------- -----------
Net increase (decrease)........... 4,124,098 $ 84,393,568 215,984 $ 2,708,217 (15,503,333) $(159,205,428)
======== =========== ======== ========== ========= ===========
Year ended September 30, 1995
Shares sold ....................... 8,141,407 $135,982,519 2,713,802 $30,766,303 44,589,208 $392,675,656
Shares issued in reinvestment
of distributions................... 376,366 5,532,585 109,288 1,078,651 12,895,110 114,654,996
Shares redeemed.................... (6,256,752) (103,993,273) (2,395,735) (26,911,771) (82,691,074) (730,136,809)
-------- ----------- -------- ---------- --------- -----------
Net increase (decrease)........... 2,261,021 $ 37,521,831 427,355 $ 4,933,183 (25,206,756) $(222,806,157)
======== =========== ======== ========== ========= ===========
Class II Shares:
Six months ended March 31, 1996+
Shares sold ....................... 709,908 $ 14,631,919 -- -- 884,983 $ 9,026,120
Shares issued in reinvestment
of distributions................... 4,960 100,287 -- -- 32,899 329,955
Shares redeemed.................... (99,314) (2,071,458) -- -- (103,386) (1,047,478)
-------- ----------- -------- ---------- --------- -----------
Net increase...................... 615,554 $ 12,660,748 -- -- 814,496 $ 8,308,597
======== =========== ======== ========== ========= ===========
Year ended September 30, 1995*+
Shares sold ....................... 233,454 $ 4,286,079 -- -- 859,907 $ 7,973,029
Shares issued in reinvestment
of distributions .................. -- -- -- -- 8,744 80,958
Shares redeemed.................... (18,180) (330,748) -- -- (9,894) (91,915)
-------- ----------- -------- ---------- --------- -----------
Net increase...................... 215,274 $ 3,955,331 -- -- 858,757 $ 7,962,072
======== =========== ======== ========== ========= ===========
Income Fund U.S. Government Securities Fund
----------------------- ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Class I Shares:
Six months ended March 31, 1996
<S> <C> <C> <C> <C>
Shares sold.............................................. 342,105,809 $ 791,896,857 45,329,339 $ 312,536,226
Shares issued in reinvestment of distributions........... 84,195,454 193,360,761 25,850,141 178,144,648
Shares redeemed ......................................... (188,204,849) (435,194,500) (119,414,164) (822,628,305)
---------- ------------ ---------- ------------
Net increase (decrease)................................. 238,096,414 $ 550,063,118 (48,234,684) $ (331,947,431)
========== ============ ========== ============
Year ended September 30, 1995
Shares sold ............................................. 583,098,728 $1,274,109,225 79,866,189 $ 530,154,088
Shares issues in reinvestment of distributions .......... 135,535,586 293,424,537 54,489,699 359,042,632
Shares redeemed.......................................... (365,279,824) (795,682,760) (312,000,457) (2,053,095,659)
---------- ------------ ---------- ------------
Net increase (decrease).................................. 353,336,490 $ 771,851,002 (177,644,569) $(1,163,898,939)
========== ============ ========== ============
*For the period May 1, 1995 to September 30, 1995.
+No Class II shares were offered for the DynaTech Fund during this period.
2. CAPITAL STOCK (cont.)
Income Fund U.S. Government Securities Fund
----------------------- ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Class II Shares:
Six months ended March 31, 1996
<S> <C> <C> <C> <C>
Shares sold............................................. 65,110,957 $ 151,003,672 3,753,971 $ 25,808,724
Shares issued in reinvestment of distributions........... 1,527,961 3,516,217 63,194 434,721
Shares redeemed.......................................... (2,599,971) (6,040,784) (261,847) (1,795,961)
---------- ------------ ---------- ------------
Net increase............................................. 64,038,947 $ 148,479,105 3,555,318 $ 24,447,484
========== ============ ========== ============
Year ended September 30, 1995*
Shares sold.............................................. 29,016,628 $ 65,457,754 1,732,757 $ 11,791,414
Shares issues in reinvestment of distributions .......... 169,489 381,668 8,234 55,942
Shares redeemed.......................................... (604,942) (1,367,190) (33,818) (230,091)
---------- ------------ ---------- ------------
Net increase............................................ 28,581,175 $ 64,472,232 1,707,173 $ 11,617,265
========== ============ ========== ============
*For the period May 1, 1995 to September 30, 1995.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At September 30, 1995, for tax purposes, the Funds had accumulated net realized gains or capital loss carryovers as
follows:
DynaTech
Growth Fund Fund Utilities Fund Income Fund
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Accumulated net realized gains............................... $2,390,493 $1,652,070 $19,981,831 $69,953,906
======== ======== ========= =========
U.S. Government
Securities Fund
----------
Capital loss carryovers
<S> <C>
Expiring in:1996........................................................................................ $266,310,966
1997........................................................................................ 92,974,800
1998........................................................................................ 74,910,973
1999........................................................................................ 67,082,683
2002........................................................................................ 111,364,839
2003........................................................................................ 57,944,614
----------
$670,588,875
==========
The U.S. Government Securities Fund had capital loss carryovers of $61,421,160 that expired on September 30, 1995 and
were reclassified to paid-in-capital. For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower or unrealized depreciation is higher) than for financial reporting purposes at March 31, 1996 by
$2,400 in the Utilities Fund.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term securities) for the period ended March 31,
1996, were as follows:
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
--------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Purchases................................... $26,840,187 $6,057,366 $273,811,613 $2,255,659,580 $486,730,688
========= ======== ========== =========== ===========
Sales....................................... $ 8,671,541 $2,345,362 $217,195,668 $ 978,440,775 $693,915,241
========= ======== ========== =========== ===========
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Fund, and receives fees computed monthly based on the net assets of each
Fund on the last day of the month as follows:
Annualized Fee Rate Month End Net Assets
------------ ----------------------------------
0.625% First $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% In excess of $15 billion
The terms of the management agreement provide that aggregate annual expenses of
each Fund be limited to the extent necessary to comply with the limitations set
forth in the laws, regulations and administrative interpretations of the states
in which each Fund's shares are registered. For the period ended March 31, 1996,
the Funds' expenses did not exceed these limitations.
b. Distribution Plans and Underwriting Agreement:
Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Funds will reimburse Franklin/Templeton
Distributors, Inc. (Distributors), in an amount up to a maximum of 0.15% per
annum for Class I and 0.65% per annum for Class II, of the average daily net
assets of such class of the Income, Utilities and U.S. Government Securities
Funds and up to a maximum of 0.25% per annum for Class I and 1.00% per annum for
Class II, of the average daily net assets of such class of the Growth Fund, for
costs incurred in the promotion, offering and marketing of the Funds' shares.
The Plans do not permit nor require payments of excess costs after termination.
Fees incurred by the Funds under the Plans aggregated $11,417,424 for the period
ended March 31, 1996.
Under the terms of the Plans, the DynaTech Fund will reimburse Distributors in
an amount up to 0.25% per annum of the Fund's average daily net assets for costs
incurred in the promotion, offering and marketing of the Funds' shares. The
Plans do not permit nor require payments of excess costs after termination. Fees
incurred by the DynaTech Fund under the agreement aggregated $92,433 for the
period ended March 31, 1996.
In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Fund's capital stock. Commissions are
deducted from the gross proceeds received from the sale of the capital stock of
the Funds, and as such are not expenses of the Funds.
Distributors may also make payments, out of its own resources, to dealers for
certain sales of the Funds' Class I and Class II shares. Commissions received by
Distributors, and the amounts paid to other dealers and any applicable
contingent deferred sales charges for the period ended March 31, 1996, were as
follows:
<TABLE>
<CAPTION>
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
-------- ------- --------- --------- -----------
Class I
<S> <C> <C> <C> <C> <C>
Total commissions received .......................... $1,933,458 $159,806 $2,450,619 $24,127,784 $7,158,578
Paid to other dealers............................... $1,760,520 $143,871 $2,315,754 $23,115,988 $6,801,769
Contingent deferred sales charges.................... $ 1 -- $ 4 $ 1,670 $ 486
Class II
Total commissions received.......................... $ 135,214 -- $ 88,368 $ 1,283,623 $ 259,714
Paid to other dealers .............................. $ 264,176 -- $ 178,412 $ 2,987,363 $ 512,869
Contingent deferred sales charges.................... $ 2,333 -- $ 1,558 $ 31,762 $ 3,603
</TABLE>
c. Shareholder Services Agreement:
Under the terms of a shareholder service agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Funds pay costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Funds for
the period ended March 31, 1996, aggregated $6,689,952 of which $5,896,338 was
paid to Investor Services.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
d. Other Affiliated Parties and Transactions:
During the period ended March 31, 1996, legal fees of $36,874 were incurred to a
law firm in which Brian E. Lorenz, Secretary of the Corporation, is a partner.
Such fees were allocated to each fund as described in Note 1.
Certain officers and directors of the Corporation are also officers and/or
directors of Distributors, Advisers, Investor Services, all wholly-owned
subsidiaries of Franklin Resources, Inc.
6. RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities Exchange Commission pursuant to the Securities Act of 1933. The Fund
may purchase restricted securities through a private offering and they cannot be
sold without prior registration under the Securities Act of 1933 unless such
sale is pursuant to an exemption therefrom. Subsequent costs of registration of
such securities are borne by the issuer. A secondary market exists for certain
privately placed securities. The Fund's restricted securities are currently
valued as disclosed in Note 1. At March 31, 1996, the Income Fund held
restricted securities with a value aggregating $84,399,046, representing 1.27%
of the Fund's net assets. Such securities are:
<TABLE>
<CAPTION>
Face Amount Security Acquisition Date Cost Value
- --------- ---------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C> <C>
$52,857,000 Del Monte Corp., subnotes, PIK, 12.25%, 09/01/02............... 02/15/94 $52,659,038 $38,057,040
40,000,000 Boardwalk Casino, Inc., First Mortgage Bonds, 16.50%, 03/31/05 04/12/95 37,453,840 37,356,145
7,000,000 L.F.C. Holding, senior deb., zero coupon to 06/15/97
(original accretion rate 15.00%), 15.00% thereafter, 06/15/02................ 03/24/93 6,239,206 4,858,000
Shares
- ---------
1,281,869 Boardwalk Casino, Inc., Warrants.............................. 04/12/95 2,643,855 4,099,417
59,259 Zale Corp., Ltd Partnership .................................. 07/30/93 42,074 28,444
</TABLE>
7. RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the registration
requirements of the Securities Act of 1933 for specified resales of restricted
securities to qualified institutional investors. The Funds value these
securities as disclosed in Note 1. At March 31, 1996, the Utilities Fund and the
Income Fund held 144A securities with a value aggregating $10,395,000, and
$239,390,498, respectively, representing 0.38% and 3.61% of the respective
Fund's net assets. See the accompanying Statement of Investments in Securities
and Net Assets for specific information of such securities.
8. CREDIT RISK
Although the Income Fund has a diversified portfolio, the Fund has 39.94% of its
portfolio invested in lower rated and comparable quality unrated high yield
securities. Investments in higher yield securities are accompanied by a greater
degree of credit risk and such lower rated quality securities tend to be more
sensitive to economic conditions than higher rated securities.
The risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities, because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. At March
31, 1996, the Income Fund held 3 defaulted securities with a value of
$41,585,000, representing 0.63% of the Fund's net assets. For information as to
the specific securities, see the accompanying Statement of Investments in
Securities and Net Assets.
For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
Although each of the Funds has a diversified investment portfolio, there are
certain credit risks due to the manner in which certain Funds are invested. The
Utilities Fund has investments in excess of 10% of its total net assets in the
Utilities Industry. The Income Fund has investments in excess of 10% of its
total net assets in various foreign government agencies. Such concentration may
subject the Funds more significantly to economic changes occurring in certain
industries, or sectors.
9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments in portfolio companies, 5% or more of whose outstanding voting
securities are held by any of the Funds, are defined in the Investment Company
Act of 1940 as affiliated companies. The Growth Fund had investments in such
affiliated companies at March 31, 1996, with a value in the amount of $6,906.
10. OTHER CONSIDERATIONS
Franklin Advisers, Inc., as the Fund's manager, may serve as a member of various
credit committees, representing credit interests in certain corporate
restructuring negotiations. Currently, the manager serves on the credit
committees for Anacomp Inc. and Bibb Company. As a result of this involvement in
these committees, Franklin Advisers, Inc. may be in possession of certain
material non-public information. The Fund's manager has not nor does it intend
to sell any of its holdings in these securities while in possession of material
non-public information in contravention of the Federal Securities laws.
11. FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each
period, by Fund, are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data+++
-------------------------------------------------------- ----------------------------------
Net Net Distri- Distri- Ratio
Asset Realized & Total butions butions Net of Net
Value at Net Unrealized From From from Asset Net Assets Ratio of Investment
Begin- Invest- Gain Invest- Net In- Realized Total Value at at End Expenses Income to
Period ning of ment (Loss) on ment vestment Capital Distri- End of Total of Period to Average Average
Ended Period Income SecuritiesOperations Income Gains butions Period Return*** (in 000's) Net Assets Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Growth Fund:**
Class I Shares:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $10.69 $.325 $2.703 $3.028 $(.268) $-- $(.268) $13.45 28.63% $ 331,392 .70% 2.58%
1992 13.45 .229 .524 .753 (.353) (.150) (.503) 13.70 5.73 532,971 .66 2.06
1993 13.70 .232 .575 .807 (.189) (.068) (.257) 14.25 5.87 560,824 .64 1.64
1994 14.25 .190 .899 1.089 (.297) (.082) (.379) 14.96 7.63 516,620 .77 1.23
1995 14.96 .170 4.427 4.597 (.135) (.042) (.177) 19.38 31.11 712,866 .90 1.08
1996++++ 19.38 .100 2.398 2.498 (.164) (.154) (.318) 21.56 12.99 882,043 .84++ 1.07++
Class II Shares:
1995+ 16.88 .023 2.427 2.450 -- -- -- 19.33 14.72 4,161 1.79++ 0.37++
1996++++ 19.33 .004 2.409 2.413 (.159) (.154) (.313) 21.43 12.58 17,804 1.62++ .28++
DynaTech Fund:**
Class I Shares:
1991 6.77 .126 1.952 2.078 (.168) -- (.168) 8.68 31.21 48,867 .93 1.57
1992 8.68 .120 .522 .642 (.112) -- (.112) 9.21 7.29 64,595 .81 1.42
1993 9.21 .102 1.207 1.309 (.117) (.112) (.229) 10.29 14.36 71,469 .81 1.03
1994 10.29 .070 .210 .280 (.124) (.596) (.720) 9.85 2.89 67,413 1.00 .69
1995 9.85 .118 2.991 3.109 (.049) (.130) (.179) 12.78 32.10 92,987 1.01 1.11
1996++++ 12.78 .040 (.124) (.084) (.118) (.228) (.346) 12.35 (.67) 92,523 1.04++ .62++
Utilities Fund:
Class I Shares:
1991 7.48 .535 1.385 1.920 (.590) -- (.590) 8.81 26.15 1,226,118 .59 6.44
1992 8.81 .530 .849 1.379 (.559) -- (.559) 9.63 15.89 2,191,095 .57 5.90
1993 9.63 .534 1.161 1.695 (.545) -- (.545) 10.78 17.83 3,626,774 .55 5.30
1994 10.78 .550 (2.436) (1.886) (.524) (.040) (.564) 8.33 (17.94) 2,572,508 .64 5.76
1995 8.33 .527 1.424 1.951 (.524) (.007) (.531) 9.75 24.19 2,765,976 .73 5.88
1996++++ 9.75 .260 .474 .734 (.262) (.072) (.334) 10.15 7.31 2,722,709 .73++ 4.97++
Class II Shares:
1995+ 8.89 .228 .880 1.108 (.248) -- (.248) 9.75 13.01 8,369 1.21++ 5.15++
1996++++ 9.75 .210 .496 .706 (.244) (.072) (.316) 10.14 7.59 16,966 1.27++ 4.47++
Income Fund:
Class I Shares:
1991 1.76 .190 .350 .540 (.220) -- (.220) 2.08 32.60 1,673,187 .56 10.17
1992 2.08 .190 .194 .384 (.205) (.009) (.214) 2.25 18.80 2,483,501 .55 9.11
1993 2.25 .180 .227 .407 (.185) (.012) (.197) 2.46 18.76 3,935,444 .54 7.84
1994 2.46 .170 (.201) (.031) (.180) (.029) (.209) 2.22 (1.52) 4,891,505 .64 7.37
1995 2.22 .180 .108 .288 (.180) (.028) (.208) 2.30 14.00 5,885,788 .71 8.26
1996++++ 2.30 .090 .017 .107 (.096) (.027) (.117) 2.29 4.74 6,412,610 .69++ 7.89++
Class II Shares:
1995+ 2.18 .079 .113 .192 (.072) -- (.072) 2.30 8.96 65,822 1.23++ 7.89++
1996++++ 2.30 .080 .031 .111 (.084) (.027) (.111) 2.30 4.92 212,662 1.22++ 7.21++
Average
Portfolio Com-
Period Turnover mission
Ended Rate Rate
- -------- -----------------
Growth Fund:**
Class I Shares:
1991 7.98% --%
1992 .81 --
1993 1.70 --
1994 6.52 --
1995 1.39 --
1996++++ 1.19 5.24
Class II Shares:
1995+ 1.39 --
1996++++ 1.19 5.24
DynaTech Fund:**
Class I Shares:
1991 7.12 --
1992 10.70 --
1993 26.56 --
1994 9.73 --
1995 9.84 --
1996++++ 3.24 5.57
Utilities Fund:
Class I Shares:
1991 .89 --
1992 1.39 --
1993 7.81 --
1994 6.34 --
1995 5.55 --
1996++++ 8.29 4.79
Class II Shares:
1995+ 5.55 --
1996++++ 8.29 4.79
Income Fund:
Class I Shares:
1991 33.92 --
1992 23.30 --
1993 25.41 --
1994 23.37 --
1995 58.64 --
1996++++ 18.73 5.17
Class II Shares:
1995+ 58.64 --
1996++++ 18.73 5.17
11. FINANCIAL HIGHLIGHTS (cont.)
Per Share Operating Performance Ratios/Supplemental Data+++
-------------------------------------------------------- ----------------------------------
Net Net Distri- Distri- Ratio
Asset Realized & Total butions butions Net of Net
Value at Net Unrealized From From from Asset Net Assets Ratio of Investment
Begin- Invest- Gain Invest- Net In- Realized Total Value at at End Expenses Income to
Period ning of ment (Loss) on ment vestment Capital Distri- End of Total of Period to Average Average
Ended Period Income SecuritiesOperations Income Gains butions Period Return*** (in 000's) Net AssetsNet Assets
- -------------------------------------------------------------------------------------------------------------------------------
U.S. Government Securities Fund:*
Class I Shares:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $ 6.86 $.653 $ .287 $ .940 $(.660) $-- $(.660) $ 7.14 13.97% $12,426,910 .52% 9.26%
1992 7.14 .609 .106 .715 (.595) -- (.595) 7.26 10.14 13,617,157 .53 8.46
1993 7.26 .557 (.056) .501 (.561) -- (.561) 7.20 6.86 14,268,516 .52 7.71
1994 7.20 .500 (.678) (.178) (.512) -- (.512) 6.51 (2.75) 11,668,747 .55 7.37
1995 6.51 .497 .348 .845 (.485) -- (.485) 6.87 13.56 11,101,605 .61 7.50
1996++++ 6.87 .245 (.069) .176 (.246) -- (.246) 6.80 2.57 10,659,062 .63++ 7.09++
Class II Shares:
1995+ 6.67 .206 .167 .373 (.193) -- (.193) 6.85 5.66 11,695 1.18++ 6.48++
1996++++ 6.85 .235 (.082) .153 (.223) -- (.223) 6.78 2.23 35,701 1.20++ 7.03++
11. FINANCIAL HIGHLIGHTS (cont.)
Average
Portfolio Com-
Period Turnover mission
Ended Rate Rate
- ---------- -----------------
U.S. Government Securities Fund:*
Class I Shares:
1991 22.14% --%
1992 38.75 --
1993 43.10 --
1994 18.28 --
1995 5.48 --
1996++++ 4.52 --
Class II Shares:
1995+ 5.48 --
1996++++ 4.52 --
</TABLE>
+For the period ended May 1, 1995 (effective date) to September 30, 1995.
++Annualized.
+++Ratios for the year ended 1995, Class I and Class II, have been calculated
using the daily average net assets during the period.
++++For the six months ended March 31, 1996.
*Maturity of U.S. government issues and the reinvestment of the proceeds thereof
are considered as purchases and sales of securities in computing the portfolio
turnover rate.
**Data prior to 1992 has been adjusted to reflect a two-for-one stock split in
the form of a 100% stock dividend to shareholders of record effective on the
beginning of business on June 1, 1992.
***Total return measures the changes in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or contingent deferred sales charge and assumes reinvestment of dividends
and capital gains at net asset value. Prior to May 1, 1994, dividends were
reinvested at the maximum offering price, and capital gains at net asset value.
Effective May 1, 1994, with the implementation of the Rule 12b-1 distribution
plan for Class I shares, the sales charge on reinvested dividends were
eliminated.
Franklin Custodian Funds, Inc.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie chart format the fund's portfolio breakdown on March 31,
1996 as a percentage of the fund's total net assets.
<TABLE>
<CAPTION>
Franklin Growth Fund
Portfolio Breakdown on 3/31/96
Based on Total Net Assets
<S> <C>
Aerospace 8.0%
Biotechnology 2.1%
Business Services 4.7%
Chemicals 4.1%
Communications & Entertainment 5.5%
Data Processing 7.0%
Diversified Manufacturers 3.4%
Electronics & Electrical Equipment 6.1%
Energy & Energy Services 4.1%
Environmental Protection & Purification 6.7%
Health Care - Diversified 9.7%
Pharmaceuticals 9.6%
Retailers 2.4%
Telecommunications 2.0%
Transportation 8.2%
Other Stocks 3.5%
Short-Term Obligations & Other Net Assets 12.9%
</TABLE>
GRAPHIC MATERIAL (2)
This chart shows in pie chart format the fund's portfolio breakdown on March 31,
1996 as a percentage of the fund's total net assets.
<TABLE>
<CAPTION>
Franklin Utilities Fund
Portfolio Breakdown on 3/31/96
Based on Total Net Assets
<S> <C>
Common Stocks 87.5%
Corporate Bonds 10.3%
Short-Term Obligations & Other Net Assets 2.2%
</TABLE>
GRAPHIC MATERIAL (3)
This chart shows in pie chart format the fund's portfolio breakdown on March 31,
1996 as a percentage of the fund's total net assets.
<TABLE>
<CAPTION>
Franklin Income Fund
Portfolio Breakdown on 3/31/96
Based on Total Net Assets
<S> <C>
Corporate Bonds 31.5%
Foreign Bonds 13.6%
U.S. Treasury Bonds & Notes 6.2%
REITS 1.0%
Utilities Stocks 20.2%
Cable & Media Stocks 0.9%
Consumer Goods Stocks 1.5%
Telecommunication Services Stocks 1.6%
Oil & Gas Stocks 4.5%
Pharmaceutical Stocks 3.8%
Gold & Other Metals Stocks 4.4%
Other Stocks 1.5%
Cash & Equivalents 9.3%
</TABLE>
GRAPHIC MATERIAL (4)
This bar chart shows the comparison between the Franklin U.S. Government
Securities Fund's 30-day yield of 6.58%, the Average Ginnie Mae Fund 30-day
yield of 5.78%, the One-year CD of 5.08%, and the Average Money Market Fund
yield of 4.60%.
GRAPHIC MATERIAL (5)
This chart shows in pie chart format the fund's portfolio breakdown on March 31,
1996 as a percentage of the fund's total net assets.
<TABLE>
<CAPTION>
Franklin DynaTech Fund
Portfolio Breakdown on 3/31/96
Based on Total Net Assets
<S> <C>
Semiconductors 13.4%
Telecommunications 10.2%
Software 9.6%
Computers 9.1%
Pharmaceuticals 5.5%
Managed Care 4.9%
Precision Instruments 4.5%
Networking 4.2%
Retail 4.1%
Environmental Services 3.4%
Other 9.8%
Short-Term Obligations & Other Net Assets 21.3%
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)
GRAPHIC MATERIAL (6)
This point graph demonstrates the risk vs. return rate of the fund against the
Merrill Lynch 10-Year Treasury, Merrill Lynch 20-Year Treasury and the average
one-year Certificate of Deposit.
Risk vs. Return (4/91 - 3/96)
ML10yr 8.6 6.97
ML30yr 10.22 9.85
USG 7.53 3.35
CDs 1 Yr $U 4.47 0.33
</TABLE>
