FRANKLIN
CUSTODIAN
FUNDS, INC.
Semi-Annual Report
March 31, 1997
CONTENTS
PRESIDENT'S LETTER1
FUND REPORTS
Franklin Growth Fund 2
Franklin Utilities Fund 7
Franklin Income Fund 12
Franklin U.S. Government
Securities Fund 17
Franklin DynaTech Fund 23
STATEMENT OF INVESTMENTS 27
FINANCIAL STATEMENTS 47
May 15, 1997
Dear Shareholder:
We are pleased to bring you the Franklin Custodian Funds, Inc. semi-annual
report for the period ended March 31, 1997.
A growing sense of nervousness from market participants and the Federal Reserve
Board shadowed the stock market's seemingly untethered rise over the last six
months. The question on everyone's mind: How high can the market go? The Dow
Jones Industrial Average, (the Dow) gained roughly 1,000 points during the
reporting period, pushing through the 7000-point mark for the first time in
mid-February 1997. A variety of catalysts contributed to this rise during the
reporting period, including low inflation, moderate growth and low interest
rates.*
The Dow peaked at 7085 in early March, two days before it slid more than 160
points. A quarter-point rate hike by the Federal Reserve Board later in the
month, and subsequent market declines -- closing March 31, 1997, at 6583 -- has
caused concern about the market's short-term direction. Analysts may speculate
where it will go, but keep in mind that such volatility is a normal part of
investing.*
*Source: Bloomberg.
I would like to remind you once again of several ways that may help you deal
with the ups and downs of financial markets. First, develop a long-term
investment plan based on reasonable financial goals. Stay focused on the plan
and periodically consult with your investment representative to make sure your
investments match your goals. To help reduce concern about short-term market
volatility, stay focused on your long-term goals.
Next, consider using an investment technique called Dollar Cost Averaging.** By
investing a fixed dollar amount at regular intervals, such as each month, 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 ensure a profit or completely protect
against loss. But Dollar Cost Averaging does provide a simple investment
strategy that may minimize the effects of market volatility and help make the
most of your investment dollars.
**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 is 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
investment selection, 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.
FRANKLIN GROWTH FUND
Your Fund's Objective:
Seeks capital appreciation by investing primarily in common stocks or
convertible securities believed to offer favorable possibilities for capital
appreciation.
The big news over the last six months has been the large flow of capital into
equity securities. In fact, the Dow Jones Industrial Average(R) set a number of
record high closings, including closing above the 7000-point mark for the first
time on February 13, 1997. And while economic growth was relatively moderate
(first quarter 1997 GDP was estimated at an annualized rate of 2.2%), the
meteoric rise of the stock market prompted some degree of fear on the part of
the Federal Reserve Board. The chief topic on Wall Street over the last six
months was whether the Federal Open Market Committee would increase the federal
funds rate. The rate was increased a quarter point in March, but we have not yet
seen major changes in the economy.
As the market continued to rise during the reporting period, we became
increasingly cautious in our investment selections. We have de-emphasized
companies that are extremely sensitive to the business cycle because of lofty
price/earnings ratios and the long-elapsed time between business lows. In fact,
no more than 20% of the fund's portfolio was invested in what we consider highly
cyclical issues at the end of the reporting period.
On March 31, 1997, the fund owned stocks of 89 companies in a diverse group of
industries, including transportation, health care, entertainment, aerospace,
communications, and energy and energy services. Broad diversification can help
soften the effects of market volatility because strong performance in one sector
may offset weak performance in another. Nearly a third of our portfolio (29.2%)
was in cash on March 31, 1997. While that may seem excessive, the net result of
such a large cash position is that $.71 of every dollar you have invested with
us was in common stock at the end of the reporting period. The remaining $.29
continued to earn interest in short-term securities while awaiting good
investment opportunities.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Growth Fund
Top Ten Holdings on March 31, 1997
Based on Total Net Assets
% of Total
Company Industry Net Assets
Schering-Plough Corp. Pharmaceuticals 2.62%
Minnesota Mining &
Manufacturing Co. Diversified Manufacturers 2.51%
Computer Sciences Corp. Data Services 2.22%
Pfizer, Inc. Pharmaceuticals 2.15%
AMR Corp. Transportation 2.05%
UAL Corp. Transportation 1.81%
Disney (Walt) Company Communications &
Entertainment 1.78%
Johnson & Johnson, Inc. Health Care-Diversified 1.69%
Delta Airlines, Inc. Transportation 1.68%
Raytheon Co. Aerospace & Defense 1.60%
For a complete list of portfolio holdings, please see page 27 of this report.
Many sectors performed well throughout the period, but the pharmaceuticals
sector's performance is particularly noteworthy. Two of our holdings in that
sector appreciated more than 30% in value over the last six months, and another
increased 26%. Regarding individual stock performance, the biggest success story
in this period was Avery Dennison Corp., a major supplier of business labels and
office equipment. Its stock rose 54% -- a strong gain in only six months. There
are disappointments, too, when you own a broad list of stocks. Cisco Systems,
Inc. did not meet our expectations over the period. We were also disappointed by
the performances of Computer Sciences, Lockheed Martin Corp., Raytheon Co., and
U.S. Surgical Corp.
There are changes in our top ten portfolio holdings since our last report.
American Home Products Corp., a strong performer six months ago, and Boeing Co.
did not make the list. In their places we now have Delta Airlines, Inc. and UAL
Corp. On March 31, 1997, Schering-Plough was our largest single holding in the
portfolio.
Looking forward, we believe that, although corporate earnings will vary by
industry sector, the economy should continue to grow moderately and inflation
should remain under control. It is our job to adjust to all types of economic
environments, and we are confident that our value-oriented approach to investing
should position the fund to perform well in the future.
Please note that this discussion reflects the strategies we employed for the
fund during the six-month reporting 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.
PERFORMANCE SUMMARY
CLASS I
Your fund's share price, as measured by net asset value, increased 63 cents,
from $22.84 on September 30, 1996, to $23.47 on March 31, 1997.
During the reporting period, shareholders received distributions totaling 22.7
cents ($0.227) per share in dividend income and 20.2 cents ($0.202) per share in
long-term capital gains. Of course, past performance is not predictive of future
results, and distributions will vary depending on income earned by the fund and
any profits realized from the sale of securities in the fund's portfolio.
The Franklin Growth Fund produced a total return of +4.60% for the six-month
period ended March 31, 1997. Total return represents the change in value of an
investment, assuming reinvestment of dividends and capital gains distributions,
and does not include sales charges.
Franklin Growth Fund
Class I
Periods ended March 31, 1997
Since
Inception
1-Year 5-Year 10-Year (3/31/48)
Cumulative
Total Return1 10.81% 86.88% 223.97% 17,208.40%
Average Annual
Total Return2 5.81% 12.28% 11.96% 10.99%
Value of a
$10,000
Investment3 $10,581 $17,843 $30,936 $1,654,058
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
Total Return4 3.84% 1.06% 20.43% 33.44% 10.81%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment over the periods indicated and include the 4.5% maximum sales charge.
See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the maximum 4.5% initial sales
charge.
4. Total return represents the change in value of an investment over the
one-year periods ended on the specified dates and does not include the initial
sales charge.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the 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
Your fund's share price, as measured by net asset value, increased 60 cents,
from $22.62 on September 30, 1996, to $23.22 on March 31, 1997.
During the reporting period, shareholders received distributions totaling 15.32
cents ($0.1532) per share in dividend income and 20.2 cents ($0.202) per share
in long-term capital gains. Of course, past performance is not predictive of
future results, and distributions will vary depending on income earned by the
fund and any profits realized from the sale of securities in the fund's
portfolio.
The Franklin Growth Fund produced a total return of +4.19% for the six-month
period ended March 31, 1997. Total return represents the change in value of an
investment, assuming reinvestment of dividends and capital gains distributions,
and does not include sales charges.
Franklin Growth Fund
Class II
Periods ended March 31, 1997
Since
Inception
1-Year (5/1/95)
Cumulative
Total Return1 9.97% 42.03%
Average Annual
Total Return2 7.87% 19.46%
Value of a
$10,000
Investment3 $10,787 $14,061
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment over the periods indicated and include the 1.0% initial sales charge
and the 1.0% Contingent Deferred Sales Charge (CDSC), applicable to shares
redeemed within the first 18 months of investment. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the sales charges.
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.
PERFORMANCE SUMMARY
Advisor Class
Your fund's share price, as measured by net asset value, increased 25 cents,
from $23.24 at inception on January 2, 1997, to $23.49 on March 31, 1997.
The Franklin Growth Fund - Advisor Class shares did not pay dividend
distributions for the period ended March 31, 1997.
Franklin Growth Fund
Advisor Class
Periods ended March 31, 1997
Since
Inception
(1/2/97)
Cumulative
Total Return1 1.08%
1. Cumulative total return measures the change in value of an investment over
the period indicated. See Note below.
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 UTILITIES FUND
Your Fund's Objective:
Seeks both capital appreciation and current income from a portfolio of public
utility industry securities.
Over the last six months, the U.S. economy continued to show signs of moderate
growth and inflation. The Gross Domestic Product (GDP) grew at an annualized
rate of 3.9% in the fourth quarter of 1996, and was predicted by economists to
continue along those lines in the first quarter of 1997. This stable economic
environment contributed to relatively unchanged yields on long-term government
securities; in particular, 30-year U.S. Treasury bonds were yielding 6.93% on
September 30, 1996, and ended the reporting period at 7.10%. The U.S. stock
market continued to appreciate over most of the reporting period, driven
primarily by the stable economic climate. In fact, the S&P 500(R) posted a total
return of 11.24% for the six-month period ended March 31, 1997.
Throughout the reporting period, electric utility stocks were unable to keep
pace with broader stock market indices for a number of reasons -- among these
were investor uncertainty regarding regulatory reforms within the industry, and
a stronger-than-expected economy which led investors away from utilities and
into other equity securities. Consequently, as shown in the performance summary
on page 9, the Franklin Utilities Fund's Class I shares turned in a six-month
total return of +3.17% -- slightly better than that of the S&P(R) Electric
Utilities Index (1.52%).
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The fund's asset composition changed relatively little in the last six months.
On March 31, 1997, 86.7% of the portfolio's total net assets was in stocks,
12.2% in corporate bonds, and the remaining 1.1% was in cash and other
short-term investments. Regarding our stock positions, we significantly lowered
our exposure to companies operating in the state of Texas due to the heightened
regulatory uncertainty and risk.
Franklin Utilities Fund
Top Ten Holdings on March 31, 1997
Based on Total Net Assets
% of Total
Company Net Assets
Pacific Gas & Electric 4.44%
Florida Progress Corp. 4.17%
FPL Group, Inc. 4.09%
Southern Co. 3.97%
CINergy Corp. 3.81%
Allegheny Power System, Inc. 3.81%
Duke Power Co. 3.74%
SCANA Corp. 3.49%
TECO Energy, Inc. 3.47%
Dominion Resources, Inc. 3.43%
For a complete list of portfolio holdings, please see page 34 of this report.
Over the reporting period, we continued to emphasize electric utility companies
that we believe are best prepared to enter today's deregulated and competitive
market. In particular, we seek companies that possess consistent, predictable
earnings growth and steady demand fundamentals. We also look for companies that
retain excellent management teams focused on developing successful,
post-monopoly-environment strategies. Additionally, we monitor the telephone and
gas utility companies for investment opportunities. Telephone and gas companies
are much further along in the process of restructuring and deregulation and, as
a result, have significant dividend and earnings growth opportunities.
We expect that restructuring within the electric utility industry will continue
to be a major influence on electric utility stock prices. Restructuring plans
are being contemplated -- and in some cases implemented -- at both state and
federal levels. To date, we have been encouraged by these developments in many
states. These solutions continue to be created in such a manner that both the
customer and the utility company receive benefit. If the utility companies'
financial health is not compromised and if this trend were to continue in more
states, we could expect valuations of electric utilities to improve.
On the whole, we believe that electric utility stocks are valued at the lower
range of their historical parameters. The steady and predictable demand for
electricity combined with high dividends are favorable characteristics of
conservative, defensive instruments which continue to offer investors attractive
long-term, total return prospects.
PERFORMANCE SUMMARY
CLASS I
Your fund's share price, as measured by net asset value, declined 37 cents, from
$9.73 on September 30, 1996, to $9.36 on March 31, 1997.
During the reporting period, shareholders received distributions totaling 26.2
cents ($0.262) per share in dividend income and 42.7 cents ($0.427) per share in
long-term capital gains. Based on an annualization of the current quarterly
dividend of 13.1 cents ($0.131) per share and the maximum offering price of
$9.78 on March 31, 1997, the fund's distribution rate was 5.36%. Of course, past
performance is not predictive of future results, and distributions will vary
depending on income earned by the fund and any profits realized from the sale of
securities in the fund's portfolio.
The Franklin Utilities Fund produced a total return of +3.17% for the six-month
period ended March 31, 1997. Total return represents the change in value of an
investment, assuming reinvestment of dividends and capital gains distributions,
and does not include sales charges.
Franklin Utilities Fund
Class I
Periods ended March 31, 1997
Since
Inception
1-Year 5-Year 10-Year (9/30/48)
Cumulative
Total Return1 1.59% 48.06% 127.79% 10,584.21%
Average Annual
Total Return2 -2.72% 7.23% 8.11% 10.01%
Value of a
$10,000
Investment3 $9,728 $14,179 $21,801 $1,021,146
Distribution Rate4 5.36%
30-Day Standardized Yield5 5.30%
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
Total Return6 23.79% -7.16% 2.25% 24.02% 1.59%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment over the periods indicated and include the 4.25% maximum sales
charge. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the maximum 4.25% initial sales
charge.
4. Distribution rate is based on an annualization of the fund's current 13.1
cent per share quarterly dividend and the maximum offering price of $9.78 on
March 31, 1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 1997.
6. Total return represents the change in value of an investment over the
one-year periods ended on the specified dates and does not include the initial
sales charge.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the 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
Your fund's share price, as measured by net asset value, declined 37 cents, from
$9.72 on September 30, 1996, to $9.35 on March 31, 1997.
During the reporting period, shareholders received distributions totaling 22.99
cents ($0.2299) per share in dividend income and 42.7 cents ($0.427) per share
in long-term capital gains. Based on an annualization of the current quarterly
dividend of 11.13 cents ($0.1113) per share and the offering price of $9.44 on
March 31, 1997, the fund's distribution rate was 4.72%. Of course, past
performance is not predictive of future results, and distributions will vary
depending on income earned by the fund and any profits realized from the sale of
securities in the fund's portfolio.
The Franklin Utilities Fund produced a total return of +2.84% for the six-month
period ended March 31, 1997. Total return represents the change in value of an
investment, assuming reinvestment of dividends and capital gains distributions,
and does not include sales charges.
Franklin Utilities Fund
Class II
Periods ended March 31, 1997
Since
Inception
1-Year (5/1/95)
Cumulative
Total Return1 1.00% 22.49%
Average Annual
Total Return2 -0.90% 10.58%
Value of a
$10,000
Investment3 $9,910 $12,125
Distribution Rate4 4.72%
30-Day Standardized Yield5 4.92%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment over the periods indicated and include the 1.0% initial sales charge
and the 1.0% Contingent Deferred Sales Charge (CDSC), applicable to shares
redeemed within the first 18 months of investment. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the sales charges.
4. Distribution rate is based on an annualization of the fund's current 11.13
cent per share quarterly dividend and the offering price of $9.44 on March 31,
1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 1997.
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.
PERFORMANCE SUMMARY
Advisor Class
Your fund's share price, as measured by net asset value, declined 19 cents, from
$9.55 at inception on January 2, 1997, to $9.36 on March 31, 1997.
During the abbreviated three-month reporting period, shareholders received
distributions totaling 13.42 cents ($0.1342) per share in dividend income. Based
on an annualization of the current quarterly dividend of 13.42 cents ($0.1342)
per share and the fund's net asset value price of $9.36 on March 31, 1997, the
fund's distribution rate was 5.74%. Of course, past performance is not
predictive of future results, and distributions will vary depending on income
earned by the fund and any profits realized from the sale of securities in the
fund's portfolio.
Franklin Utilities Fund
Advisor Class
Periods ended March 31, 1997
Since
Inception
(1/2/97)
Cumulative
Total Return1 -0.62%
Distribution Rate2 5.74%
30-Day Standardized Yield3 5.67%
1. Cumulative total return measures the change in value of an investment over
the period indicated. See Note below.
2. Distribution rate is based on an annualization of the fund's current 13.42
cent per share quarterly dividend and the $9.36 share price on March 31, 1997.
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, 1997.
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
Your Fund's Objective:
Seeks to maximize income while maintaining prospects for capital appreciation
through a diversified portfolio of securities.
Driven by solid economic growth, low inflation and healthy corporate earnings,
the stock market continued to appreciate during the six-month period under
review. The overall bond market, however, experienced volatility amid inflation
concerns. Still, it finished out the six months relatively unchanged, with the
30-year U.S. Treasury bond yielding 7.10% on March 31, 1997, up slightly from
6.93% on September 30, 1996. Most of the fund's sectors performed well over the
reporting period.
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.
Overall sector weightings in the portfolio, however, did not change
significantly during the six-month period. Net cash inflows were used to
maintain existing weightings and initiate new positions in securities we found
to offer attractive values. On March 31, 1997, 54.6% of the fund's total net
assets was invested in bonds, 38.5% in stocks, and 6.9% in cash.
The fund's fixed-income holdings consisted of corporate, foreign, and U.S.
Treasury bonds. We added to our Treasury holdings in March amid weakness caused
in part by concerns over the potential -- and subsequently realized -- federal
funds rate increase.
Our foreign bond positions turned in strong performances during the reporting
period. In November, during a Latin bond market rally, we sold our position in
Ecuadorian Brady bonds due to higher political risk following mid-year
elections. We also took advantage of strength in the portfolio's Mexican Brady
bonds by swapping into Brazilian Brady bonds, which appeared to offer better
total return potential.
Corporate bonds, which continued to represent our largest fixed-income
weighting, performed relatively well over the reporting period despite interest
rate volatility. When initiating corporate bond positions, we use our extensive
credit research capabilities in seeking bonds with attractive yield and capital
appreciation potential. We initiated a number of new positions over the period,
including International Home Foods (Food & Beverage) and The William Carter Co.
(Apparel & Textiles). We also purchased bonds issued to refinance the fund's
existing positions in Anacomp (Information Technology) and Revlon Worldwide
(Cosmetics) to take advantage of their continued positive business and credit
prospects.
Most of the fund's equity positions performed well during the reporting period,
with energy and pharmaceutical stocks leading the way. We continued to scale
back our pharmaceutical holdings during the six-month period, from 1.9% to 0.8%
of total net assets, as we believe the appreciation potential for these stocks
is limited at current valuations. Increasing oil and natural gas prices kept
energy stocks strong during most of the period, but these stocks sold off in
February due to an overall weakness in energy prices. We took advantage of this
weakness by adding to existing positions and initiating convertible positions in
Nuevo Energy and Swift Energy.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
We maintained our weighting in utility stocks over the reporting period (20.1%
of total net assets) as we believe many utility stocks are undervalued and offer
attractive, high current income. In addition, many utility companies made
significant progress in adapting to industry deregulation through cost cutting,
consolidation, and diversifying into unregulated -- but related -- business
lines. Over the six months, we added to existing positions in the portfolio and
also initiated a position in MidAmerica Energy, a mid-western electric and
natural gas utility.
Looking at other sectors in the portfolio, we initiated new convertible
positions in Host Marriott (Lodging) and Titanium Metals (Metals). These
securities provide attractive income and downside protection while offering
equity upside potential related to positive fundamental trends at the company
and industry levels. Additionally, due to valuation concerns, we recognized
significant gains on the fund's Altera Corp. convertible bond position we
purchased during the technology sell-off last July.
Please note that this discussion reflects the strategies we employed for the
fund during the six-month reporting 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.
With the stock market near all-time highs, we remain selective and opportunistic
as we search for attractive investments. We are comfortable with the fund's 6.9%
cash position on March 31, 1997, and feel that it should provide us with the
ability to take advantage of investment opportunities as they arise.
PERFORMANCE SUMMARY
CLASS I
Your fund's share price, as measured by net asset value, increased 2 cents, from
$2.30 on September 30, 1996, to $2.32 on March 31, 1997.
During the reporting period, shareholders received distributions totaling 9
cents ($0.09) per share in dividend income and 1 cent ($0.01) per share in
long-term capital gains. Based on an annualization of the current monthly
dividend of 1.5 cents ($0.015) per share and the maximum offering price of $2.42
on March 31, 1997, the fund's distribution rate was 7.44%. Of course, past
performance is not predictive of future results, and distributions will vary
depending on income earned by the fund and any profits realized from the sale of
securities in the fund's portfolio.
The Franklin Income Fund produced a total return of +5.25% for the six-month
period ended March 31, 1997. Total return represents the change in value of an
investment, assuming reinvestment of dividends and capital gains distributions,
and does not include sales charges.
Franklin Income Fund
Class I
Periods ended March 31, 1997
Since
Inception
1-Year 5-Year 10-Year (8/31/48)
Cumulative
Total Return1 9.97% 64.96% 164.48% 18,616.98%
Average Annual
Total Return2 5.37% 9.55% 9.72% 11.27%
Value of a
$10,000
Investment3 $10,537 $15,779 $25,294 $1,793,712
Distribution Rate4 7.44%
30-Day Standardized Yield5 7.43%
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
Total Return6 16.65% 6.72% 2.78% 17.23% 9.97%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment over the periods indicated and include the 4.25% maximum sales
charge. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the maximum 4.25% initial sales
charge.
4. Distribution rate is based on an annualization of the fund's current 1.5 cent
per share monthly dividend and the maximum offering price of $2.42 on March 31,
1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 1997. 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.
6. Total return represents the change in value of an investment over the
one-year periods ended on the specified dates and does not include the initial
sales charge.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the 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
Your fund's share price, as measured by net asset value, increased 3 cents, from
$2.30 on September 30, 1996, to $2.33 on March 31, 1997.
During the reporting period, shareholders received distributions totaling 8.4
cents ($0.084) per share in dividend income and 1 cent ($0.01) per share in
long-term capital gains. Based on an annualization of the current monthly
dividend of 1.4 cents ($0.014) per share and the offering price of $2.35 on
March 31, 1997, the fund's distribution rate was 7.15%. Of course, past
performance is not predictive of future results, and distributions will vary
depending on income earned by the fund and any profits realized from the sale of
securities in the fund's portfolio.
The Franklin Income Fund produced a total return of 5.44% for the six-month
period ended March 31, 1997. Total return represents the change in value of an
investment, assuming reinvestment of dividends and capital gains distributions,
and does not include sales charges.
Franklin Income Fund
Class II
Periods ended March 31, 1997
Since
Inception
1-Year (5/1/95)
Cumulative
Total Return1 9.39% 24.77%
Average Annual
Total Return2 7.46% 11.70%
Value of a
$10,000
Investment3 $10,746 $12,363
Distribution Rate4 7.15%
30-Day Standardized Yield5 7.11%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment over the periods indicated and include the 1.0% initial sales charge
and the 1.0% Contingent Deferred Sales Charge (CDSC), applicable to shares
redeemed within the first 18 months of investment. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the sales charges.
4. Distribution rate is based on an annualization of the fund's current 1.4 cent
per share monthly dividend and the offering price of $2.35 on March 31, 1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 1997. 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.
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. PERFORMANCE
SUMMARY ADVISOR CLASS Your fund's share price, as measured by net asset value,
declined 2 cents, from $2.34 at inception on January 2, 1997, to $2.32 on March
31, 1997.
During the abbreviated three-month reporting period, shareholders received
distributions totaling 4.56 cents ($0.0456) per share in dividend income. Based
on an annualization of the current monthly dividend of 1.53 cents ($0.0153) per
share and the fund's net asset value price of $2.32 on March 31, 1997, the
fund's distribution rate was 7.91%. Of course, past performance is not
predictive of future results, and distributions will vary depending on income
earned by the fund and any profits realized from the sale of securities in the
fund's portfolio.
Franklin Income Fund
Advisor Class
Periods ended March 31, 1997
Since
Inception
(1/2/97)
Cumulative
Total Return1 1.08%
Distribution Rate2 7.91%
30-Day Standardized Yield3 7.87%
1. Cumulative total return measures the change in value of an investment over
the period indicated. See Note below.
2. Distribution rate is based on an annualization of the fund's current 1.53
cent per share monthly dividend and the price of $2.32 on March 31, 1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 1997. 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.
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
Your Fund's Objective:
Seeks high current income from a portfolio of U.S. government securities.
Shareholders often ask:
What is "prepayment risk?"
In general, prepayment refers to paying a debt obligation before it is due.
Homeowners, for instance, may prepay their mortgage -- by refinancing -- when
interest rates are low. Prepayment risk is a situation experienced by the
mortgage lender. There is the risk that the borrower -- or homeowner, in this
case -- will prepay his high interest rate loan and replace it with a low
interest rate loan. When this occurs, the lender loses his high interest
earnings and is forced to now lend money at the current, lower interest rate.
This is why mortgage passthrough securities (such as the ones in which the fund
invests) offer more income than comparable, non-callable Treasuries -- as
compensation for risk. Keep in mind that prepayment risk is more than just
refinancing risk. General economic conditions can result in increased housing
turnover. In fact, any number of situations, including relocation, death, and
divorce, may result in a home being sold and its mortgage paid off.
The Franklin U.S. Government Securities Fund experienced positive performance
over the six-month reporting period as the fund's Government National Mortgage
Association (GNMA) investments did well. Although we can invest in a variety of
government securities, we like GNMAs for their incremental income and moderate
price volatility. The GNMA guarantee of principal and interest is backed by the
full faith and credit of the U.S. government.*
*Individual securities owned by the fund, but not shares of the fund, are
guaranteed by the U.S. government as to the timely payment of principal and
interest.
The U.S. economy grew fairly fast over the six-month reporting period as strong
U.S. equity markets and robust labor markets boosted consumer confidence and
encouraged strong consumer spending. Housing markets continued to be strong,
supporting increased demand for durable goods. Also, despite a strong dollar,
U.S. export growth was surprisingly strong during the fourth quarter of 1996.
Spending during the fourth quarter expanded faster than inventory growth,
setting the stage for higher production in the first quarter of 1997.
As reports of strong growth surfaced in the fourth quarter of 1996, U.S.
interest rates -- which had declined from the third quarter into December 1996
- -- reversed course and pushed higher. Investors feared that with labor markets
tight, higher growth would continue to push wage growth higher. This could
eventually be passed on to consumers in the form of higher prices. To no one's
surprise, the Federal Reserve Board nudged the federal funds rate slightly
higher at the Federal Open Market Committee meeting in March, citing heightened
inflation risk as the reason behind the quarter-point increase.
The mortgage passthrough market experienced lower prepayment risk as yields were
higher throughout most of 1996. This helped the mortgage passthroughs perform
well compared with other government bonds (including U.S. Treasury bonds) as
investors benefited from the added yield these securities provided. With 1996
interest rate movements being less volatile than those of 1994 and 1995,
investors were not exposed to the variability in average life that these
securities tend to exhibit during periods of rate volatility.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The chart on page 18 illustrates the fund's risk/return profile relative to 10-
and 30-year U.S. Treasuries and one-year certificates of deposit. Using
volatility as a measure of risk, the fund's risk-adjusted return performed
better than that of 10-year U.S. Treasuries.
Over the next several months, we expect interest rate volatility may increase,
which could cause yield spreads to widen. However, the general level of
prepayment risk should remain muted, encouraging investments in these
securities. Looking forward, we anticipate that GNMA securities should continue
to provide you with an attractive source of income.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
PERFORMANCE SUMMARY
CLASS I
Your fund's share price, as measured by net asset value, declined two cents,
from $6.72 on September 30, 1996, to $6.70 on March 31, 1997.
During the reporting period, shareholders received distributions totaling 24.6
cents ($0.246) per share in dividend income. Based on an annualization of the
current monthly dividend of 4.1 cents ($0.041) per share and the maximum
offering price of $7.00 on March 31, 1997, the fund's distribution rate was
7.03%. A comparable yield based on the redemption value of the net asset value
price on the same day was 7.60%. Of course, past performance is not predictive
of future results.
The Franklin U.S. Government Securities Fund produced a total return of +3.39%
for the six-month period ended March 31, 1997. Total return represents the
change in value of an investment, assuming reinvestment of dividends and capital
gains distributions, and does not include sales charges.
Franklin U.S. Government
Securities Fund
Class I
Periods ended March 31, 1997
Since
Inception
1-Year 5-Year 10-Year (2/1/77)
Cumulative
Total Return1 5.99% 37.60% 113.99% 595.01%
Average Annual
Total Return2 1.52% 5.68% 7.44% 7.32%
Distribution Rate3 7.03%
30-Day Standardized Yield4 6.68%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment over the periods indicated and include the 4.25% maximum sales
charge. See Note below.
3. Distribution rate is based on an annualization of the fund's current 4.1 cent
per share monthly dividend and the maximum offering price of $7.00 on March 31,
1997.
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, 1997.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge, with dividends reinvested at the 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
Your fund's share price, as measured by net asset value, declined two cents,
from $6.70 on September 30, 1996, to $6.68 on March 31, 1997.
During the reporting period, shareholders received distributions totaling 22.68
cents ($0.2268) per share in dividend income. Based on an annualization of the
current monthly dividend of 3.78 cents ($0.0378) per share and the offering
price of $6.75 on March 31, 1997, the fund's distribution rate was 6.72%. Of
course, past performance is not predictive of future results.
The Franklin U.S. Government Securities Fund produced a total return of 3.10%
for the six-month period ended March 31, 1997. Total return represents the
change in value of an investment, assuming reinvestment of dividends and capital
gains distributions, and does not include sales charges.
Franklin U.S. Government
Securities Fund
Class II
Periods ended March 31, 1997
Since
Inception
1-Year (5/1/95)
Cumulative
Total Return1 5.44% 13.88%
Average Annual
Total Return2 3.39% 6.43%
Distribution Rate3 6.72%
30-Day Standardized Yield4 6.36%
1. Cumulative total returns measure the change in value of an investment over
the periods indicated and do not include sales charges. See Note below.
2. Average annual total returns measure the average annual change in value of an
investment over the periods indicated and include the 1.0% initial sales charge
and the 1.0% Contingent Deferred Sales Charge (CDSC), applicable to shares
redeemed within the first 18 months of investment. See Note below.
3. Distribution rate is based on an annualization of the fund's current 3.78
cent per share monthly dividend and the offering price of $6.75 on March 31,
1997.
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, 1997.
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.
PERFORMANCE SUMMARY
ADVISOR CLASS
Your fund's share price, as measured by net asset value, declined six cents,
from $6.76 at inception on January 2, 1997, to $6.70 on March 31, 1997.
During the abbreviated three-month reporting period, shareholders received
distributions totaling 12.41 cents ($0.1241) per share in dividend income. Based
on an annualization of the current monthly dividend of 4.16 cents ($0.0416) per
share and the fund's net asset value price of $6.70 on March 31, 1997, the
fund's distribution rate was 7.45%. Of course, past performance is not
predictive of future results, and distributions will vary depending on income
earned by the fund and any profits realized from the sale of securities in the
fund's portfolio.
Franklin U.S. Government
Securities Fund
Advisor Class
Period ended March 31, 1997
Since
Inception
(1/2/97)
Cumulative
Total Return1 0.94%
Distribution Rate2 7.45%
30-Day Standardized Yield3 7.08%
1. Cumulative total return measures the change in value of an investment over
the period indicated. See Note below.
2. Distribution rate is based on an annualization of the fund's current 4.16
cent per share monthly dividend and the price of $6.70 on March 31, 1997.
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, 1997.
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 DYNATECH FUND
Your Fund's Objective:
Seeks capital appreciation from a portfolio of companies emphasizing
technological development in fast-growing industries or in situations management
considers undervalued.
During the six months under review, modest growth and low inflation created
favorable conditions for most equity markets. Technology stocks as a group,
however, experienced both a significant rise and a subsequent correction during
the reporting period.
Despite this volatility, the Franklin DynaTech Fund's Class I shares posted a
cumulative total return of +10.31% for the reporting period, and +25.31% for the
one-year period, ended March 31, 1997, as discussed in the Performance Summary
on page 25.
The fund benefited during the period from the strong performance of several top
holdings, including Microsoft and Intel. Although we realized a net gain from
selling some of our Intel shares, the corporation remained our largest holding,
and we maintain our long-term favorable outlook for it.
Investments in the pharmaceuticals sector also enhanced fund performance.
Holdings such as Warner-Lambert Co., Merck & Co., and Schering-Plough Corp.
posted solid gains during the last six months.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
We continue to focus on companies that are industry leaders and/or possess
superior management teams. The fund is heavily weighted in exciting growth areas
such as semiconductors, computer software and hardware, networking and data
services. During the period, we established new positions in SABRE Group, a
leading provider of electronic travel distribution information; Forrester
Research, a leading, independent information technology research firm; Network
Services, a provider of network management; and West TeleServices, a leading
provider of operator-oriented telecommunications services. We patiently await
attractive opportunities to invest in additional pharmaceutical and health-care
related companies.
Looking forward, we are cautiously optimistic about the long-term prospects for
technology companies. In late March, the Federal Reserve raised short-term
interest rates in an effort to slow economic growth and keep inflation near its
current low level. Although this created a temporary environment of uncertainty,
we believe exciting long-term growth opportunities can be found in companies
providing productivity enhancements and technological developments.
As we approach the next century, we believe that companies fitting our
investment criteria will enjoy steady growth. 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.
We appreciate your participation in the Franklin DynaTech Fund and look forward
to serving your investment needs in the months and years to come.
Franklin DynaTech Fund
Top Ten Holdings on March 31, 1997
Based on Total Net Assets
% of Total
Company Industry Net Assets
Intel Corp. Semiconductor/
Manufacturers 16.6%
Motorola, Inc. Telecommunications 6.7%
Microsoft Corp. Computer Software 6.6%
Hewlett-Packard Co. Computer Hardware 4.2%
Compaq Computer Corp. Computer Hardware 3.0%
Toys Us, Inc. Retail 2.4%
Cisco Systems, Inc. Networking 2.3%
Thermo Electron Corp. Precision Instruments/
Test Equipment 2.1%
Warner-Lambert Co. Pharmaceuticals 2.1%
WMX Technologies, Inc. Environmental Services 2.0%
For a complete list of portfolio holdings, please see page 31 of this report.
PERFORMANCE SUMMARY
CLASS I
The Franklin DynaTech Fund reported a total return of +10.31% for the six-month
period ended March 31, 1997. Cumulative 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, increased $1.00, from
$14.03 on September 30, 1996, to $15.03 on March 31, 1997. During the reporting
period, shareholders received distributions totaling 5.5 cents ($0.055) per
share in dividend income and 39.9 cents ($0.399) per share in capital gains, of
which .33 cent ($.0033) represented short-term gains and 39.57 cents ($0.3957)
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
Class I
Periods ended March 31, 1997
Since
Inception
1-Year 5-Year 10-Year (1/1/68)
Cumulative
Total Return1 25.31% 91.17% 223.13% 1,205.23%
Average Annual
Total Return2 19.69% 12.79% 11.94% 9.00%
Value of
$10,000
Investment3 $11,969 $18,256 $30,880 $124,490
3/31/93 3/31/94 3/31/95 3/31/96 3/31/97
Total Return4 7.78% 4.36% 12.18% 20.90% 25.31%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include sales charges. See Note below.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the maximum 4.5% initial
sales charge. See Note below.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the specified periods and include the initial sales charge.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include the
initial sales charge.
Note: Prior to July 1, 1994, fund shares were offered at a lower initial sales
charge with dividends reinvested at the 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 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 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
The Franklin DynaTech Fund reported a total return of +9.88% for the six-month
period ended March 31, 1997. Cumulative 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 sales charges.
The fund's share price, as measured by net asset value, increased $.94, from
$14.03 on September 30, 1996, to $14.97 on March 31, 1997. During the reporting
period, shareholders received distributions totaling 5.63 cents ($0.0563) per
share in dividend income and 39.9 cents ($0.399) per share in capital gains, of
which .33 cent ($.0033) represented short-term gains and 39.57 cents ($0.3957)
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
Class II
Periods ended March 31, 1997
Since
Inception
6-Months (9/16/96)
Cumulative
Total Return1 9.88% 12.78%
Average Annual
Total Return2 7.81% 10.64%
Value of $10,000 Investment3 $10,781 $11,064
1. Cumulative total return measures the change in value of an investment over
the period indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the period indicated and includes the 1.0% initial sales
charge and 1.0% contingent deferred sales charge, applicable to shares redeemed
within the first 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the specified periods and includes sales charges.
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 CUSTODIAN FUNDS, INC.
Statement of Investments in Securities and Net Assets, March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Shares/ Value
Warrants Growth Fund (Note 1)
Common Stocks & Warrants 70.8%
Aerospace & Defense 6.3%
<S> <C> <C>
202,100 Boeing Co. .......................................................................... $ 19,932,112
162,600 Lockheed Martin Corp. ............................................................... 13,658,400
442,000 Raytheon Co. ........................................................................ 19,945,250
50,000 Rockwell International Corp. ........................................................ 3,243,750
120,000 Thiokol Corp. ....................................................................... 6,630,000
200,000 United Technologies Corp. ........................................................... 15,050,000
-------------
78,459,512
-------------
Auto Parts 0.3%
90,000 Genuine Parts Co. ................................................................... 4,196,250
-------------
Biotechnology 1.9%
200,000 a Amgen, Inc. ......................................................................... 11,175,000
200,000 a Genentech, Inc. ..................................................................... 11,425,000
20,000 a Immunex Corp. ....................................................................... 530,000
8,000 a Therapeutic Discovery Corp. ......................................................... 88,000
-------------
23,218,000
-------------
Business Services 3.1%
220,000 Avery Dennison Corp. ................................................................ 8,470,000
244,000 Dun & Bradstreet Corp. .............................................................. 6,191,500
400,000 Equifax, Inc. ....................................................................... 10,900,000
250,000 Kelly Services, Inc., Class A ....................................................... 6,687,500
345,300 a,e,j Programming & Systems, Inc. ......................................................... 6,906
200,000 Wallace Computer Services, Inc. ..................................................... 6,625,000
-------------
38,880,906
-------------
Chemicals 4.1%
200,000 Air Products & Chemicals, Inc. ...................................................... 13,575,000
25,000 Eastman Chemical Co. ................................................................ 1,343,750
300,000 International Flavors and Fragrances, Inc. .......................................... 13,125,000
116,000 Mallinckrodt Group, Inc. ............................................................ 4,770,500
200,000 NCH Corp. ........................................................................... 11,825,000
200,000 Sigma-Aldrich Corp. ................................................................. 6,175,000
-------------
50,814,250
-------------
Communications & Entertainment 2.7%
81,333 a ACNielsen Corp. ..................................................................... 1,219,995
300,000 American Greetings Corp., Class A ................................................... 9,581,250
304,932 Disney (Walt) Co. ................................................................... 22,260,036
100,000 a Intervisual Books, Inc. ............................................................. 243,750
10,000 a King World Productions, Inc. ........................................................ 365,000
-------------
33,670,031
-------------
Computer Hardware 3.1%
360,000 Hewlett-Packard Co. ................................................................. 19,170,000
140,000 International Business Machines Corp. ............................................... 19,232,500
-------------
38,402,500
-------------
Computer Software 0.1%
20,000 a Microsoft Corp. ..................................................................... 1,833,750
-------------
Data Services 3.6%
400,000 Automatic Data Processing, Inc. ..................................................... 16,750,000
450,000 a Computer Sciences Corp. ............................................................. 27,787,500
-------------
44,537,500
-------------
Diversified Manufacturers 3.1%
11,428 Deltic Timber Corp. ................................................................. $ 324,270
372,000 Minnesota Mining & Manufacturing Co. ................................................ 31,434,000
100,000 National Service Industries, Inc. ................................................... 3,912,500
69,600 Teleflex, Inc. ...................................................................... 3,680,100
-------------
39,350,870
-------------
Electronics & Electrical Equipment 3.2%
400,000 AMP, Inc. ........................................................................... 13,750,000
80,000 Emerson Electric Co. ................................................................ 3,600,000
37,200 a Imation Corp. ....................................................................... 930,000
75,000 Molex, Inc. ......................................................................... 2,662,500
75,000 Molex, Inc., Class A ................................................................ 2,625,000
200,000 Raychem Corp. ....................................................................... 16,475,000
-------------
40,042,500
-------------
Energy/Energy Services 3.7%
90,000 Atlantic Richfield Co. .............................................................. 12,150,000
300,000 Coastal Co. ......................................................................... 14,400,000
40,000 Murphy Oil Corp. .................................................................... 1,880,000
70,000 Royal Dutch Petroleum Co., New York Shares .......................................... 12,250,000
30,000 Schlumberger, Ltd. .................................................................. 3,217,500
101,633 Union Pacific Resources Group, Inc. ................................................. 2,718,683
-------------
46,616,183
-------------
Environmental Services 5.3%
200,000 Betzdearborn, Inc. .................................................................. 12,625,000
165,000 Browning-Ferris Industries, Inc. .................................................... 4,764,375
230,000 a Ionics, Inc. ........................................................................ 10,666,250
400,000 Millipore Corp. ..................................................................... 16,950,000
256,500 a Osmonics, Inc. ...................................................................... 4,681,125
300,000 Pall Corp. .......................................................................... 6,937,500
270,000 Wheelabrator Technology, Inc. ....................................................... 3,543,750
210,000 WMX Technologies, Inc. .............................................................. 6,431,250
-------------
66,599,250
-------------
Food/Confectionery 1.0%
258,200 Hershey Foods Corp. ................................................................. 12,910,000
-------------
Health Care - Diversified 6.3%
200,000 Abbott Laboratories ................................................................ 11,225,000
50,000 Allegiance Corp ..................................................................... 1,106,250
200,000 Allergan, Inc. ...................................................................... 5,825,000
100,000 a Alza Corp., Class A ................................................................. 2,750,000
8,000 a Alza Corp., warrants ................................................................ 1,250
250,000 Baxter International, Inc. .......................................................... 10,781,250
244,000 Cognizant Corp. ..................................................................... 7,106,500
400,000 Johnson & Johnson, Inc. ............................................................. 21,150,000
75,625 a MedPartners, Inc. ................................................................... 1,607,031
33,000 Nature's Sunshine Products, Inc. .................................................... 478,500
200,000 a Perrigo Co. ......................................................................... 2,175,000
98,000 a Respironics, Inc. ................................................................... 2,082,500
400,000 U.S. Surgical Corp. ................................................................. 12,200,000
-------------
78,488,281
-------------
Imaging/Photography 1.3%
200,000 Eastman Kodak Co. ................................................................... $ 15,175,000
38,000 Polaroid Corp. ...................................................................... 1,510,500
-------------
16,685,500
-------------
Media & Broadcasting 1.8%
100,000 a HSN, Inc. ........................................................................... 2,537,500
450,000 Time Warner, Inc. ................................................................... 19,462,500
-------------
22,000,000
-------------
Networking 1.6%
450,000 a Cabletron Systems, Inc. ............................................................. 13,162,500
135,000 a Cisco Systems, Inc. ................................................................. 6,496,875
-------------
19,659,375
-------------
Pharmaceuticals 10.4%
300,000 American Home Products Corp. ........................................................ 18,000,000
320,000 Bristol-Myers Squibb Co. ............................................................ 18,880,000
200,000 Lilly (Eli) & Co. ................................................................... 16,450,000
200,000 Merck & Co., Inc. ................................................................... 16,850,000
320,000 Pfizer, Inc. ........................................................................ 26,920,000
450,000 Schering-Plough Corp. ............................................................... 32,737,500
-------------
129,837,500
-------------
Real Estate - Diversified
115,100 a FRM Nexus ........................................................................... 115
-------------
Retail 1.3%
401,000 Tiffany & Co. ....................................................................... 15,238,000
58,218 Weis Markets, Inc. .................................................................. 1,615,550
-------------
16,853,550
-------------
Toy Manufacturing 0.5%
275,000 Mattel, Inc. ........................................................................ 6,600,000
-------------
Transportation 6.1%
310,000 a AMR Corp. ........................................................................... 25,575,000
250,000 Delta Air Lines, Inc. ............................................................... 21,031,250
350,000 a UAL Corp. ........................................................................... 22,662,500
120,000 Union Pacific Corp. ................................................................. 6,810,000
-------------
76,078,750
-------------
Total Long Term Investments (Cost $433,476,466) ............................... 885,734,573
-------------
Face
Amount
i Receivables from Repurchase Agreements 29.0%
$368,032,927 Joint Repurchase Agreement, 6.417%, 04/01/97 (Maturity Value $362,080,300)
(Cost $362,015,771)
Aubrey G. Lanston & Co., Inc., (Maturity Value $43,518,669)
Collateral: U.S. Treasury Bills, 09/04/97
U.S. Treasury Notes, 6.75% - 7.00%, 04/15/99 - 05/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $21,759,335)
Collateral: U.S. Treasury Notes, 6.00% - 7.125%, 09/30/98 - 09/30/99
CIBC Wood Gundy Securities Corp., (Maturity Value $43,518,669)
Collateral: U.S. Treasury Notes, 6.25%, 06/30/98
Daiwa Securities America, Inc., (Maturity Value $43,518,669)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 06/30/98 - 12/03/01
Fuji Securities, Inc., (Maturity Value $43,518,669)
Collateral: U.S. Treasury Bills, 07/31/97
U.S. Treasury Notes, 5.875%, 04/30/98
Sanwa Securities (USA) Co., L.P., (Maturity Value $43,518,669)
Collateral: U.S. Treasury Bills, 05/15/97
U.S. Treasury Notes, 5.625% - 6.75%, 05/15/98 - 11/30/00
SBC Warburg, Inc., (Maturity Value $43,518,669)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
The Nikko Securities Co. International, Inc., (Maturity Value $35,690,282)
Collateral: U.S. Treasury Notes, 4.75% - 6.50%, 05/31/98 - 09/30/01
UBS Securities, L.L.C., (Maturity Value $43,518,669)
Collateral: U.S. Treasury Notes, 5.00% - 6.875%, 04/30/97 - 04/30/00 ............... $ 362,015,771
-------------
Total Investments (Cost $795,492,237) 99.8% .............................. 1,247,750,344
Other Assets and Liabilities, Net 0.2% ................................... 2,240,391
-------------
Net Assets 100.0% ........................................................ $1,249,990,735
=============
At March 31, 1997, the net unrealized appreciation based on the cost of investments
for income tax purposes of $795,492,237 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ............................................... $ 457,767,596
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ............................................... (5,509,489)
-------------
Net unrealized appreciation ....................................................... $ 452,258,107
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
aNon-income producing.
eSee Note 8 regarding holdings of 5% voting securities.
iFace amount for repurchase agreements is for the underlying collateral.
See Note 1(h) regarding joint repurchase agreement.
jTrading suspended.
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, 1997
(unaudited)
<TABLE>
<CAPTION>
Value
Shares DynaTech Fund (Note 1)
Common Stocks 72.3%
Biotechnology 0.4%
<S> <C> <C>
10,000 aAmgen, Inc. ............................................................................... $ 558,750
-------------
Business Services 3.3%
10,000 Cognizant Corp. ........................................................................... 291,250
20,000 Electronic Data Systems Corp .............................................................. 807,500
20,000 Equifax, Inc. ............................................................................. 545,000
50,000 First Data Corp. .......................................................................... 1,693,750
9,900 aForrester Research, Inc. .................................................................. 180,675
25,000 aSABRE Group Holdings, Inc. ................................................................ 631,250
-------------
4,149,425
-------------
Computer Hardware 8.6%
50,000 aCompaq Computer Corp. ..................................................................... 3,831,250
100,000 Hewlett-Packard Co. ....................................................................... 5,325,000
40,000 aKomag, Inc. ............................................................................... 1,215,000
1,562 aNCR Corp. ................................................................................. 55,061
20,000 aSilicon Graphics, Inc. .................................................................... 390,000
-------------
10,816,311
-------------
Computer Software 9.3%
20,000 Adobe Systems, Inc. ....................................................................... 802,500
30,000 aBroderbund Software, Inc. ................................................................. 656,250
10,000 aComputer Sciences Corp. ................................................................... 617,500
5,000 aDialogic Corp. ............................................................................ 96,875
10,000 aElectronic Arts, Inc. ..................................................................... 266,250
15,000 aFractal Design Corp. ...................................................................... 108,750
25,000 aIntuit, Inc. .............................................................................. 581,250
90,000 aMicrosoft Corp. ........................................................................... 8,251,875
11,250 aScopus Technology, Inc. ................................................................... 337,500
-------------
11,718,750
-------------
Energy/Energy Services 1.3%
15,000 Schlumberger, Ltd.......................................................................... 1,608,750
-------------
Environmental Services 2.4%
20,000 Browning-Ferris Industries, Inc. .......................................................... 577,500
80,000 WMX Technologies, Inc. .................................................................... 2,450,000
-------------
3,027,500
-------------
Financial Services 0.1%
3,600 Associates First Capital Corp. ............................................................ 154,800
-------------
Lodging 0.1%
10,000 aHost Marriott Corp. ....................................................................... 170,000
-------------
Media/Broadcasting 1.2%
37,312 Liberty Media Group, Class A............................................................... 743,908
20,000 News Corp., Ltd., Sponsored ADR............................................................ 360,000
10,000 Time Warner, Inc. ......................................................................... 432,500
-------------
1,536,408
-------------
Medical Services 4.6%
20,000 Bard (C.R.), Inc. ......................................................................... 570,000
22,500 Columbia/HCA Healthcare Corp. ............................................................. 756,562
15,000 HBO & Co. ................................................................................. 712,500
10,000 Medtronic, Inc. ........................................................................... 622,500
15,000 aPacifiCare Health Systems, Inc., Class B................................................... 1,293,750
Medical Services (cont.)
30,000 United Healthcare Corp. ................................................................... $ 1,428,750
20,000 aVentritex, Inc. ........................................................................... 335,000
-------------
5,719,062
-------------
Networking 4.0%
20,000 a3Com Corp. ................................................................................ 655,000
5,000 aAscend Communications, Inc. ............................................................... 203,750
60,000 aCisco Systems, Inc. ....................................................................... 2,887,500
35,000 aInternational Network Services ............................................................ 656,250
20,000 aNewbridge Networks Corp. .................................................................. 572,500
-------------
4,975,000
-------------
Pharmaceutical Manufacturers 4.2%
15,000 Merck & Co., Inc. ......................................................................... 1,263,750
20,000 Schering-Plough Corp. ..................................................................... 1,455,000
30,000 Warner-Lambert Co. ........................................................................ 2,595,000
-------------
5,313,750
-------------
Precision Instruments/Test Equipment 2.4%
84,375 aThermo Electron Corp. ..................................................................... 2,605,077
13,800 aWaters Corp. .............................................................................. 369,150
-------------
2,974,227
-------------
Retail 3.7%
20,000 Estee Lauder Cos., Class A................................................................. 967,500
10,000 aFederated Department Stores, Inc. ......................................................... 328,750
10,000 aSaks Holdings, Inc. ....................................................................... 287,500
108,000 aToys R Us, Inc. ........................................................................... 3,024,000
-------------
4,607,750
-------------
Semiconductor/Manufacturer 17.3%
150,000 Intel Corp. ............................................................................... 20,868,750
10,000 Linear Technology Corp. ................................................................... 442,500
10,000 aXilinx, Inc. .............................................................................. 487,500
-------------
21,798,750
-------------
Specialty Pharmaceuticals 1.1%
23,000 aNoven Pharmaceuticals, Inc. ............................................................... 207,000
40,000 Sigma-Aldrich Corp. ....................................................................... 1,235,000
-------------
1,442,000
-------------
Telecommunications 8.0%
10,000 aAirTouch Communications ................................................................... 230,000
25,000 AT&T Corp. ................................................................................ 868,750
8,102 Lucent Technologies, Inc. ................................................................. 427,381
140,000 Motorola, Inc. ............................................................................ 8,452,500
3,900 aWest TeleServices Corp. ................................................................... 50,213
-------------
10,028,844
-------------
Transportation 0.3%
10,000 Air Express International Corp. ........................................................... 317,500
-------------
Total Long Term Investments (Cost $33,194,965)....................................... 90,917,577
-------------
iReceivables from Repurchase Agreements 27.8%
$35,613,268 Joint Repurchase Agreement, 6.417%, 04/01/97 (Maturity Value $35,038,001) (Cost $35,031,757)
Aubrey G. Lanston & Co., Inc., (Maturity Value $4,211,240)
Collateral: U.S. Treasury Bills, 09/04/97
U.S. Treasury Notes, 6.75% - 7.00%, 04/15/99 - 05/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $2,105,621)
Collateral: U.S. Treasury Notes, 6.00% - 7.125%, 09/30/98 - 09/30/99
CIBC Wood Gundy Securities Corp., (Maturity Value $4,211,240)
Collateral: U.S. Treasury Notes, 6.25%, 06/30/98
Daiwa Securities America, Inc., (Maturity Value $4,211,240)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 06/30/98 - 12/03/01
Fuji Securities, Inc., (Maturity Value $4,211,240)
Collateral: U.S. Treasury Bills, 07/31/97
U.S. Treasury Notes, 5.875%, 04/30/98
Sanwa Securities (USA) Co., L.P., (Maturity Value $4,211,240)
Collateral: U.S. Treasury Bills, 05/15/97
U.S. Treasury Notes, 5.625% - 6.75%, 05/15/98 - 11/30/00
SBC Warburg, Inc., (Maturity Value $4,211,240)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
The Nikko Securities Co. International, Inc., (Maturity Value $3,453,700)
Collateral: U.S. Treasury Notes, 4.75% - 6.50%, 05/31/98 - 09/30/01
UBS Securities, L.L.C., (Maturity Value $4,211,240)
Collateral: U.S. Treasury Notes, 5.00% - 6.875%, 04/30/97 - 04/30/00 ..................... $ 35,031,757
-------------
Total Investments (Cost $68,226,722) 100.1% .................................... 125,949,334
Liabilities in Excess of Other Assets (0.1)% ................................... (102,535)
-------------
Net Assets 100.0% ............................................................. $125,846,799
=============
At March 31, 1997, the net unrealized appreciation based on the cost of investment
for income tax purposes of $68,226,722 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ..................................................... $ 59,629,689
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ..................................................... (1,907,077)
-------------
Net unrealized appreciation ............................................................. $ 57,722,612
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
aNon-income producing.
iFace amount for repurchase agreements is for the underlying collateral.
See Note 1(h) regarding joint repurchase agreement.
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments in Securities and Net Assets, March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Value
Shares Utilities Fund (Note 1)
Long Term Investments 98.9%
Common Stocks 84.1%
<S> <C> <C>
350,000 AGL Resources, Inc. ..................................................................... $ 6,431,250
403,200 aAirTouch Communications, Inc............................................................. 9,273,600
2,708,900 Allegheny Power System, Inc. ............................................................ 80,251,163
1,526,100 American Electric Power Co., Inc. ....................................................... 62,951,625
250,000 AT&T Corp. .............................................................................. 8,687,500
2,326,900 Central & South West Corp. .............................................................. 49,737,488
2,353,300 CINergy Corp. ........................................................................... 80,306,363
2,359,800 Delmarva Power & Light Co. .............................................................. 43,361,325
1,983,950 Dominion Resources, Inc. ................................................................ 72,166,181
1,785,000 Duke Power Co. .......................................................................... 78,763,125
104,200 aEchelon International Corp., Inc......................................................... 1,888,625
1,120,800 Edison International .................................................................... 25,218,000
2,805,600 Enova Corp. ............................................................................. 61,723,200
2,899,100 Entergy Corp. ........................................................................... 71,027,950
2,893,775 Florida Progress Corp. .................................................................. 87,898,416
1,951,000 FPL Group, Inc. ......................................................................... 86,087,875
1,237,000 GPU, Inc................................................................................. 39,738,625
1,200,000 GTE Corp. ............................................................................... 55,950,000
1,188,480 Hawaiian Electric Industries, Inc. ...................................................... 40,259,760
2,059,800 MidAmerican Energy Holdings Co. ......................................................... 35,274,075
28,000 Montana Power Co. ....................................................................... 602,000
661,700 Nevada Power Co. ........................................................................ 13,151,288
885,450 New England Electric System ............................................................. 30,437,344
245,500 New Jersey Resources Corp. .............................................................. 6,996,750
1,010,300 NIPSCO Industries, Inc. ................................................................. 39,654,275
444,300 OGE Energy Corp. ........................................................................ 18,605,063
560,800 Pacific Enterprises ..................................................................... 16,964,200
3,978,000 PG & E Corp. ............................................................................ 93,483,000
1,695,900 PacifiCorp .............................................................................. 36,249,863
518,485 Pinnacle West Capital Corp. ............................................................. 15,619,361
561,800 Public Service Co. of Colorado .......................................................... 21,769,750
333,300 Public Service Enterprise Group, Inc..................................................... 8,749,125
900,000 Puget Sound Power & Light Co. ........................................................... 22,725,000
182,100 SBC Communications ...................................................................... 9,583,013
2,898,500 SCANA Corp. ............................................................................. 73,549,438
350,000 Sierra Pacific Resources ................................................................ 10,281,250
787,665 SIGCORP, Inc............................................................................. 18,411,669
3,963,500 Southern Co. ............................................................................ 83,728,938
1,249,100 Southwestern Public Service Co. ......................................................... 44,811,463
3,047,400 TECO Energy, Inc. ....................................................................... 73,137,600
1,662,750 Texas Utilities Co. ..................................................................... 56,949,188
572,300 Unicom Corp. ............................................................................ 11,159,850
1,300,000 US West Communications Group ............................................................ 44,200,000
806,200 Western Resources, Inc................................................................... 24,186,000
-------------
Total Common Stocks (Cost $1,703,771,376) ......................................... 1,772,001,574
-------------
Preferred Stocks 2.6%
400,000 AES Trust I, Series A, 5.375%, 03/31/27 ................................................. 19,450,000
108,400 MCN Financing III, 8.00%, 05/16/00 ...................................................... 5,325,150
650,000 Nortel Inversora, SA, 10.00% cvt. pfd., MEDS ............................................ 29,250,000
-------------
Total Preferred Stocks (Cost $51,981,042) ......................................... 54,025,150
-------------
Corporate Bonds 12.2%...................................................................
$ 9,900,000 Alabama Power Co., 8.75%, 12/01/21 ...................................................... $ 10,337,717
4,950,000 Alabama Power Co., 8.50%, 05/01/22 ...................................................... 4,983,774
10,500,000 Arizona Public Service Co., 10.25%, 05/15/20 ............................................ 11,412,460
14,500,000 Arizona Public Service Co., 9.00%, 12/15/21 ............................................. 14,931,345
10,000,000 Cincinnati Gas & Electric Co., 8.50%, 09/01/22 .......................................... 10,053,909
2,000,000 Commonwealth Edison Co., 8.875%, 10/01/21 ............................................... 2,036,736
5,000,000 Commonwealth Edison Co., 8.50%, 07/15/22 ................................................ 4,950,584
10,000,000 Commonwealth Edison Co., 8.375%, 09/15/22 ............................................... 9,777,499
5,000,000 Duquesne Light Co., 8.375%, 05/15/24 .................................................... 4,965,580
19,000,000 Enron Corp., 7.00%, 08/15/23 ............................................................ 16,901,885
2,448,000 Gulf States Utilities Co., 9.72%, 07/01/98 .............................................. 2,463,520
10,000,000 Illinois Power Co., 8.00%, 02/15/23 ..................................................... 9,634,299
10,000,000 bItron, Inc., 6.75%, 03/31/04 ............................................................ 10,100,000
10,000,000 Long Island Lighting Co., 9.75%, 05/01/21 ............................................... 10,329,169
10,000,000 Louisiana Power & Light Co., 8.50%, 07/01/22 ............................................ 9,652,419
12,881,201 Midland CoGeneration Venture, 10.33%, 07/23/02 .......................................... 13,847,292
7,500,000 Niagara Mohawk Power Corp., 9.50%, 03/01/21 ............................................. 7,603,364
5,000,000 Niagara Mohawk Power Corp., 8.75%, 04/01/22 ............................................. 4,778,763
3,000,000 Northwest Pipeline Corp., 7.125%, 12/01/25 .............................................. 2,693,555
8,000,000 Ohio Edison Co., 8.75%, 06/15/22 ........................................................ 7,919,158
10,000,000 Pacific Bell, 7.75%, 09/15/32 ........................................................... 9,491,878
10,000,000 Pacific Bell, 7.50%, 02/01/33 ........................................................... 9,275,000
20,000,000 Panhandle Eastern Co., 7.20%, 08/15/24 .................................................. 17,806,878
15,000,000 Philadelphia Electric Co., 8.75%, 04/01/22 .............................................. 15,937,272
10,000,000 Texas Utilities Co., 8.75%, 11/01/23 .................................................... 10,071,050
10,000,000 Texas Utilities Co., 8.50%, 08/01/24 .................................................... 10,279,658
16,000,000 US West Communications Group, 6.875%, 09/15/33 .......................................... 13,780,000
-------------
Total Corporate Bonds (Cost $258,247,097) ......................................... 256,014,764
-------------
Total Long Term Investments (Cost $2,013,999,515) ................................. 2,082,041,488
-------------
iReceivables from Repurchase Agreements 0.7%
15,451,814 Joint Repurchase Agreement, 6.417%, 04/01/97 (Maturity Value $15,201,087)
(Cost $15,198,378)
Aubrey G. Lanston & Co., Inc., (Maturity Value $1,827,029)
Collateral: U.S. Treasury Bills, 09/04/97
U.S. Treasury Notes, 6.75% - 7.00%, 04/15/99 - 05/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $913,513)
Collateral: U.S. Treasury Notes, 6.00% - 7.125%, 09/30/98 - 09/30/99
CIBC Wood Gundy Securities Corp., (Maturity Value $1,827,029)
Collateral: U.S. Treasury Notes, 6.25%, 06/30/98
Daiwa Securities America, Inc., (Maturity Value $1,827,029)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 06/30/98 - 12/31/01
Fuji Securities, Inc., (Maturity Value $1,827,029)
Collateral: U.S. Treasury Bills, 07/31/97
U.S. Treasury Notes, 5.875%, 04/30/98
Sanwa Securities (USA) Co., L.P., (Maturity Value $1,827,029)
Collateral: U.S. Treasury Bills, 05/15/97
U.S. Treasury Notes, 5.625% - 6.75%, 05/15/98 - 11/30/00
SBC Warburg, Inc., (Maturity Value $1,827,029)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
The Nikko Securities Co. International, Inc., (Maturity Value $1,498,371)
Collateral: U.S. Treasury Notes, 4.75% - 6.50%, 05/31/98 - 09/30/01
UBS Securities, L.L.C., (Maturity Value $1,827,029)
Collateral: U.S. Treasury Notes, 5.00% - 6.875%, 04/30/97 - 04/30/00 ................... $ 15,198,378
-------------
Total Investments (Cost $2,029,197,893) 99.6%................................. 2,097,239,866
Other Assets and Liabilities, Net 0.4% ....................................... 9,279,400
-------------
Net Assets 100.0% ............................................................ $2,106,519,266
=============
At March 31, 1997, the net unrealized appreciation based on the cost of investments
for income tax purposes of $2,029,200,293 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost ................................................... $ 182,871,254
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ................................................... (114,831,681)
-------------
Net unrealized appreciation ........................................................... $ 68,039,573
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
MEDS - Mandatorially Exchangeable Debt Security
aNon-income producing.
bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.
iFace amount for repurchase agreements is for the underlying collateral.
See Note 1(h) regarding joint repurchase agreement.
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS IN SECURITIES AND NET ASSETS, MARCH 31, 1997
(UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
SHARES/ VALUE
WARRANTS INCOME FUND (NOTE 1)
COMMON STOCKS 27.6%
Apparel/Textiles 0.2%
<S> <C> <C>
2,097,122 a,eBibb Co. ............................................................................ $ 17,563,397
-------------
Chemicals
135,713 Millennium Chemicals, Inc. .......................................................... 2,544,619
-------------
Computer/Technology 0.2%
1,233,882 a,eAnacomp, Inc. ....................................................................... 13,572,702
-------------
Conglomerates 0.7%
237,500 Hanson, Plc., Sponsored ADR.......................................................... 5,403,125
-------------
Consumer Products 1.6%
475,000 aImperial Tobacco Group, Plc., ADR.................................................... 6,524,505
1,000,000 Philip Morris Cos., Inc. ............................................................ 114,125,000
498,750 a,bSpecialty Foods Corp. ............................................................... 124,688
-------------
120,774,193
-------------
Energy/Energy Services 1.8%
2,700,000 gAthabasca Oil Sands Trust, (Canada).................................................. 39,497,923
150,000 Atlantic Richfield Co. .............................................................. 20,250,000
2,300,000 b,gCanadian Oil Sands Trust, (Canada)................................................... 35,640,238
237,500 Energy Group, Plc., Sponsored ADR.................................................... 7,629,688
1,000,000 aNoble Drilling Corp. ................................................................ 17,250,000
625,000 Ultramar Diamond Shamrock Corp. ..................................................... 19,843,750
-------------
140,111,599
-------------
Gaming & Leisure
67,304 aVail Resorts, Inc. .................................................................. 1,312,428
-------------
Home Builders
165,744 aWalter Industries, Inc., Class A..................................................... 2,258,262
-------------
Metals 1.2%
204,067 Avgold, Ltd., ADR.................................................................... 4,201,862
700,000 Driefontein Consolidated Mines, Ltd., ADR ........................................... 6,475,000
460,000 Evander Gold Mines, Ltd., ADR........................................................ 2,706,180
2,525,000 Free State Consolidated Gold Mines, Ltd., ADR ....................................... 17,754,033
408,329 Freeport-McMoRan Copper & Gold, Inc., Class A........................................ 11,994,664
1,184,200 Impala Platinum Holdings, Ltd., ADR ................................................. 14,134,256
943,158 Rustenburg Platinum Holdings, Ltd., ADR ............................................. 15,258,698
300,000 Samancor, Ltd., ADR ................................................................. 3,640,110
187,500 St. Helena Gold Mines, Ltd., ADR .................................................... 1,042,969
1,236,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR ...................................... 7,493,250
312,000 Western Deep Levels, Ltd., ADR ...................................................... 9,009,000
-------------
93,710,022
-------------
Pharmaceuticals 0.8%
300,000 American Home Products Corp. ........................................................ 18,000,000
300,000 Bristol-Myers Squibb Co. ............................................................ 17,700,000
200,000 Merck & Co., Inc. ................................................................... 16,850,000
300,000 Pharmacia & Upjohn, Inc. ............................................................ 10,987,500
-------------
63,537,500
-------------
Real Estate
79,600 aEchelon International Corp., Inc. ................................................... 1,442,750
-------------
Real Estate Investment Trusts 0.3%
600,000 Meditrust Corp. ..................................................................... 22,350,000
-------------
Telecommunications 0.8%
1,700,000 US West Communications Group ........................................................ $ 57,800,000
-------------
Utilities 20.0%
2,200,000 American Electric Power Co., Inc. ................................................... 90,750,000
3,800,000 Central & South West Corp. .......................................................... 81,225,000
2,400,000 CINergy Corp. ....................................................................... 81,900,000
2,800,000 Delmarva Power & Light Co. .......................................................... 51,450,000
2,077,300 Dominion Resources, Inc. ............................................................ 75,561,788
3,100,000 Edison International ................................................................ 69,750,000
2,800,000 Enova Corp. ......................................................................... 61,600,000
3,400,000 Entergy Corp. ....................................................................... 83,300,000
2,300,000 Florida Progress Corp. .............................................................. 69,862,500
1,400,000 FPL Group, Inc. ..................................................................... 61,775,000
1,700,000 GPU, Inc. ........................................................................... 54,612,500
610,000 Hawaiian Electric Industries, Inc. .................................................. 20,663,750
1,800,000 Houston Industries, Inc. ............................................................ 37,575,000
1,800,000 Long Island Lighting Co. ............................................................ 43,200,000
903,400 MidAmerican Energy Holdings Co. ..................................................... 15,470,725
825,000 Nevada Power Co. .................................................................... 16,396,875
1,900,000 New England Electric System ......................................................... 65,312,500
1,500,000 New York State Electric & Gas Corp. ................................................. 32,437,500
2,100,000 Ohio Edison Co. ..................................................................... 44,362,500
3,200,000 PG & E Corp. ........................................................................ 75,200,000
525,000 PacifiCorp .......................................................................... 11,221,875
2,700,000 PECO Energy Co. ..................................................................... 55,012,500
1,200,000 Potomac Electric Power Co. .......................................................... 29,400,000
2,250,000 Public Service Enterprise Group, Inc. ............................................... 59,062,500
650,000 SCANA Corp. ......................................................................... 16,493,750
2,500,000 Southern Co. ........................................................................ 52,812,500
1,900,000 Southwestern Public Service Co. ..................................................... 68,162,500
2,100,000 Texas Utilities Co. ................................................................. 71,925,000
1,726,400 Western Resources, Inc. ............................................................. 51,792,000
-------------
1,548,288,263
-------------
Total Common Stocks (Cost $1,900,122,314)...................................... 2,090,668,860
-------------
Preferred Stocks 10.7%
Apparel/Textiles 0.2%
400,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A .................................. 16,800,000
-------------
Automotive
514,125 Harvard Industries, Inc., 14.25% pfd., PIK .......................................... 1,478,109
-------------
Cable Systems 0.3%
1,300,000 Cablevision Systems Corp., 8.50% cvt. pfd., Series I................................. 26,812,500
-------------
Consumer Products 0.3%
75,000 Pantry Pride, Inc., $14.875 pfd., Series B .......................................... 7,537,500
3,000,000 RJR Nabisco Holding Corp., $0.835 cvt. pfd., Series A ............................... 19,500,000
-------------
27,037,500
-------------
Energy/Energy Services 3.4%
600,000 bDevon Financing Trust, $3.25 cvt. pfd. .............................................. 36,375,000
1,900,000 Enron Corp., 6.25% cvt. pfd. ........................................................ 40,850,000
1,100,000 bMcDermott International, Inc., $2.875 cvt. pfd., Series C ........................... 45,375,000
900,000 Nuevo Energy Co., 5.75% cvt. pfd., Series A.......................................... 43,312,500
Energy/Energy Services (cont.)
490,000 bOccidental Petroleum Corp., $3.875 cvt. pfd. ........................................ $ 28,787,500
675,000 bParker & Parsley Capital, 6.25% cvt. pfd. ........................................... 36,956,250
158,100 Patina Oil & Gas Corp., 7.125% cvt. pfd. ............................................ 4,663,950
1,300,000 Santa Fe Energy Resources, Inc., 8.25% cvt. pfd. .................................... 15,275,000
178,900 eSnyder Oil Corp., $1.50 cvt. exch. pfd. ............................................. 4,204,150
-------------
255,799,350
-------------
Lodging
1,100,000 bHost Marriott Corp., 6.75% cvt. pfd. ................................................ 61,875,000
-------------
Metals 2.3%
650,000 Amax Gold, Inc., $3.75 cvt. pfd., Series B .......................................... 35,100,000
300,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A ........................................ 12,487,500
114,200 Armco, Inc., $4.50 cvt. pfd., Series B .............................................. 5,424,500
260,000 Battle Mountain Gold Co., $3.25 cvt. pfd. ........................................... 13,000,000
600,000 Coeur D'Alene Mines Corp., 7.00% cvt. pfd. .......................................... 10,650,000
120,000 Cyprus Minerals, $4.00 cvt. pfd., Series A .......................................... 6,570,000
450,000 bFreeport-McMoRan, Inc., 4.375% cvt. exch. pfd. ...................................... 25,762,500
400,000 Freeport-McMoRan, Inc., 8.75% cvt. pfd. ............................................. 12,550,000
375,000 Hecla Mining Co., $3.50 cvt. pfd., Series B ......................................... 17,531,250
700,000 bTitanium Metals, 6.625% cvt. pfd. ................................................... 32,550,000
-------------
171,625,750
-------------
Media & Broadcasting 0.5%
32,258 Time Warner, Inc., 10.25% pfd., Series M............................................. 34,798,318
-------------
Paper & Forest Products 0.7%
60,000,000 bAsia Pulp & Paper Co., Ltd., 12.00% pfd. ............................................ 57,600,000
-------------
Real Estate Investment Trusts 2.2%
1,800,000 FelCor Suite Hotels, Inc., $1.95 cvt. pfd., Series A ................................ 51,300,000
800,000 Security Capital Industrial Trust, 7.00% cvt. pfd. .................................. 21,600,000
1,040,000 Security Capital Pacific Trust, $1.75 cvt. pfd., Series A............................ 33,800,000
-------------
106,700,000
-------------
Telecommunications 0.8%
1,200,000 Nortel Inversora, SA, 10.00% cvt. pfd. .............................................. 54,000,000
504,000 Nortel Inversora, SA, ADR, 10.00% cvt. pfd., Series B................................ 6,804,000
-------------
60,804,000
-------------
Total Preferred Stocks (Cost $811,347,777)..................................... 821,330,527
-------------
Partnership Units 0.2%
500,000 BP Prudhoe Bay Royalty Trust ........................................................ 8,062,500
300,000 Freeport-McMoRan Resource Partners, Ltd., depository units .......................... 5,025,000
59,258 a,cJewel Recovery, L.P. ................................................................ 28,444
-------------
Total Partnership Units (Cost $18,922,667) .................................... 13,115,944
-------------
Warrants
1,281,869 a,c,eBoardwalk Casino, Inc. (Cost $2,643,855)............................................. 2,597,708
-------------
Miscellaneous
127,100 aMiscellaneous (Cost $43,214)......................................................... 63,550
-------------
Total Common Stocks, Preferred Stocks, Partnership Units, Warrants and
Miscellaneous (Cost $2,733,079,827)................................................. 2,927,776,589
-------------
CORPORATE BONDS 32.9%
Apparel/Textiles 1.7%
$ 50,000,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ................ $ 51,375,000
35,000,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ................................ 35,262,500
13,000,000 Polysindo International Finance Co., secured notes, 11.375%, 06/15/06 ............... 13,942,500
25,000,000 Westpoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 ......................... 25,125,000
6,000,000 The William Carter Co., senior sub. notes, 10.375%, 12/01/06 ........................ 6,090,000
-------------
131,795,000
-------------
Automotive 1.1%
35,000,000 Collins & Aikman Corp., senior sub. notes., 11.50%, 04/15/06 ........................ 38,325,000
30,000,000 bExide Corp., cvt. sub. notes, 2.90%, 12/15/05 ....................................... 16,950,000
4,000,000 Exide Corp., senior notes, 10.75%, 12/15/02 ......................................... 4,125,000
50,000,000 Harvard Industries, Inc., senior notes, 11.125%, 08/01/05 ........................... 25,250,000
-------------
84,650,000
-------------
Biotechnology 0.2%
16,500,000 Centocor, Inc., Eurobond cvt. sub. deb., 6.75%, 10/16/01 ............................ 16,335,000
-------------
Building Products 0.5%
5,000,000 American Standard, Inc., S.F., senior sub. deb., 9.25%, 12/01/16 .................... 5,068,750
30,000,000 Inter-City Products Corp., senior notes, 9.75%, 03/01/00 ............................ 30,300,000
-------------
35,368,750
-------------
Cable Systems 1.8%
50,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ....................... 48,000,000
30,000,000 Continental Cablevision, Inc., senior sub. deb., 9.50%, 08/01/13 .................... 33,347,639
35,000,000 Helicon Group L.P. Corp., senior secured notes, 9.00%, 11/01/03 ..................... 35,612,500
16,000,000 Storer Communication, Inc., sub. deb., 10.00%, 05/15/03 ............................. 16,200,000
-------------
133,160,139
-------------
Chemicals 1.0%
29,000,000 Applied Extrusion Technology, senior unsecured notes, 11.50%, 04/01/02 .............. 30,160,000
16,000,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 ................ 17,343,022
8,900,000 Uniroyal Chemical Co., senior notes, 10.50%, 05/01/02 ............................... 9,589,750
20,000,000 Uniroyal Chemical Co., senior sub. notes, 11.00%, 05/01/03 .......................... 21,350,000
-------------
78,442,772
-------------
Computer/Technology 1.9%
29,000,000 Acclaim Entertainment, Inc., cvt. sub. notes, 10.00%, 03/01/02 ...................... 29,000,000
55,000,000 bAnacomp, Inc., senior sub. notes, 10.875%, 04/01/04 ................................. 52,800,000
22,938,389 Anacomp, Inc., senior sub. notes, PIK, 13.00%, 06/04/02 ............................. 23,970,617
11,750,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 ....................................... 8,283,750
27,000,000 bXilinx, Inc., cvt. sub. notes, 5.25%, 11/01/02 ...................................... 31,050,000
-------------
145,104,367
-------------
Consumer Products 1.8%
5,000,000 E&S Holdings Corp., senior sub. notes, 10.375%, 10/01/06 ............................ 5,100,000
18,000,000 Mafco, Inc., senior sub. deb., 11.875%, 11/15/02 .................................... 19,125,000
38,500,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ................... 38,403,750
30,000,000 Revlon Consumer Products Corp., senior sub. notes, Series B, 10.50%, 02/15/03 ....... 31,575,000
35,000,000 RJR Nabisco, Inc., senior sub. notes, 9.25%, 08/15/13 ............................... 34,562,500
8,650,000 Sealy Corp., senior sub. notes, 10.25%, 05/01/03 .................................... 8,909,500
-------------
137,675,750
-------------
Containers & Packaging 1.1%
$ 30,000,000 Calmar, Inc., senior sub notes, 11.50%, 08/15/05 .................................... $ 30,675,000
28,000,000 Packaging Resources, Inc., senior notes, 11.625%, 05/01/03 .......................... 28,980,000
15,000,000 Printpack, Inc., senior sub. notes, Series B, 10.625%, 08/15/06 ..................... 15,712,500
6,000,000 U.S. Can Corp., company guaranteed, 10.125%, 10/15/06 ............................... 6,270,000
-------------
81,637,500
-------------
Electrical Equipment 0.1%
8,000,000 eTrans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 ................................... 8,320,000
-------------
Energy/Energy Services 2.9%
10,000,000 Energy Ventures, senior notes, 10.25%, 03/15/04 ..................................... 10,750,000
15,000,000 Falcon Drilling, senior sub. notes, 12.50%, 03/15/05 ................................ 16,725,000
40,000,000 Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 07/15/04 ........................ 43,600,000
19,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 ......................... 20,211,250
5,000,000 Mesa Operating Co., 10.625%, 07/01/06 ............................................... 5,212,500
45,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 .................................... 43,200,000
8,000,000 Plains Resources, Inc., senior sub. notes, 10.25%, 03/15/06 ......................... 8,340,000
36,000,000 eSnyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 .................................. 36,360,000
40,000,000 Swift Energy Co., cvt. sub. notes, 6.25%,11/15/06 ................................... 39,100,000
-------------
223,498,750
-------------
Entertainment 0.2%
12,000,000 AMF Group, Inc., Series B, 10.875%, 03/15/06 ........................................ 12,705,000
-------------
Financial Services 0.2%
10,000,000 First Nationwide Holdings, Inc., senior sub. notes, 10.625%, 10/01/03 ............... 10,625,000
-------------
Food & Beverages 3.0%
3,980,000 Chock Full O'Nuts Corp., S.F., cvt. sub. deb., 8.00%, 09/15/06 ...................... 3,950,150
45,000,000 Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 02/01/05 ...................... 48,487,500
40,018,921 Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 .................................. 42,420,056
21,000,000 Doane Products Co., senior notes, 10.625%, 03/01/06 ................................. 21,997,500
6,600,000 Dr. Pepper Bottling Co. of Texas, senior sub. notes, 10.25%, 02/15/00 ............... 6,897,000
29,000,000 International Home Foods, senior sub. notes, 10.375%, 11/01/06 ...................... 29,145,000
32,500,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 .......................... 33,637,500
25,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 ................ 22,000,000
20,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 ........... 19,550,000
-------------
228,084,706
-------------
Food Chains 2.9%
18,000,000 Americold Corp., senior sub. notes, 12.875%, 05/01/08 ............................... 18,540,000
33,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 ...................... 34,897,500
35,000,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 .................................. 35,743,750
33,000,000 Grand Union Capital Corp., senior notes, 12.00% 09/01/04 ............................ 32,917,500
40,000,000 Ralphs Grocery Co., senior sub notes, 11.00%, 06/15/05 .............................. 41,400,000
48,000,000 Smith's Food & Drug, senior sub. notes, 11.25%, 05/15/07 ............................ 52,440,000
-------------
215,938,750
-------------
Gaming & Leisure 2.1%
60,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 .................................... 61,050,000
40,000,000 cBoardwalk Casino, Inc., first mortgage bonds, 16.50%, 03/31/05 ...................... 40,072,000
8,000,000 Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 08/15/06 ....................... 8,440,000
11,000,000 Harveys Casino Resorts, senior sub. notes, 10.625%, 06/01/06 ........................ 11,797,500
35,000,000 Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 07/15/05 ...................... 36,837,500
-------------
158,197,000
-------------
Health Care 0.6%
$ 22,000,000 Dade International, Inc., senior sub. notes, 11.125%, 05/01/06 ...................... $ 24,145,000
15,000,000 bMedical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 ................... 14,850,000
10,000,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625% thereafter,
12/15/03 ........................................................................... 9,300,000
-------------
48,295,000
-------------
Industrial Products 1.6%
18,500,000 Nortek, Inc., senior sub. notes, 9.875%, 03/01/04 ................................... 18,268,750
60,000,000 RBX Corp., senior sub. notes, Series B, 11.25%, 10/15/05 ............................ 49,050,000
30,000,000 RHI Holdings, Inc., senior sub. deb., 11.875%, 03/01/99 ............................. 30,000,000
14,500,000 Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 ........................... 14,645,000
7,393,000 Thermadyne Industries, Inc., senior sub. notes, 10.25%, 05/01/02 .................... 7,485,413
-------------
119,449,163
-------------
Media & Broadcasting 0.2%
12,250,000 Benedek Broadcasting, senior notes, 11.875%, 03/01/05 ............................... 13,383,125
-------------
Metals 2.3%
7,000,000 Armco Steel, Inc., senior notes, 11.375%, 10/15/99 .................................. 7,280,000
5,000,000 Armco Steel, Inc., senior notes, 9.375%, 11/01/00 ................................... 5,112,500
45,000,000 Ashanti Capital, Ltd., cvt. notes, 5.50%, 03/15/03 .................................. 38,812,500
900,000 Coeur D' Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 .................. 805,500
20,000,000 Coeur D' Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 ........................ 19,000,000
13,020,000 FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 01/16/05 ........................ 12,238,800
40,000,000 Jorgensen, Earle M. Co., senior notes, 10.75%, 03/01/00 ............................. 39,500,000
50,000,000 Republic Engineered Steel Co., first mortgage, 9.875%, 12/15/01 ..................... 44,750,000
4,805,000 UCAR Global Enterprises, senior sub. notes, 12.00%, 01/15/05 ........................ 5,453,675
-------------
172,952,975
-------------
Paper & Forest Products 1.3%
6,000,000 Four M Corp., senior notes, 12.00%, 06/01/06 ........................................ 6,015,000
45,000,000 Rapp International Finance, secured notes, 13.25%, 12/15/05 ......................... 45,450,000
55,000,000 Riverwood International, senior sub. notes, 10.875%, 04/01/08 ....................... 45,650,000
-------------
97,115,000
-------------
Pollution Control 0.2%
21,000,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 ....................... 18,532,500
-------------
Publishing 0.2%
12,500,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 .............................. 13,218,750
-------------
Railroads
500,000 Missouri Pacific Railroad Co., gen. mortgage, Series A, 4.75%, 01/01/20 ............. 290,367
500,000 Missouri Pacific Railroad Co., gen. mortgage, Series B, 4.75%, 01/01/30 ............. 297,001
1,200,000 Missouri Pacific Railroad Co., income deb., 5.00%, 01/01/45 ......................... 648,439
-------------
1,235,807
-------------
Real Estate Development 0.1%
10,000,000 Rouse Co., cvt. sub. deb., 5.75%, 07/23/02 .......................................... 10,550,000
-------------
Restaurants 0.2%
40,000,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 ............................ 18,100,000
-------------
Retail 0.8%
9,000,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ................................ 7,425,000
50,000,000 Levitz Furniture Co., senior sub. notes, 13.375%, 10/15/98 .......................... 49,750,000
-------------
57,175,000
-------------
Telecommunications 0.3%
$ 25,000,000 CommNet Cellular, Inc., sub. notes, 11.25%, 07/01/05 ................................ $ 26,062,500
-------------
Utilities 2.6%
975,837,500 fESCOM, E168, utility deb., (South Africa), 11.00%, 06/01/08 ......................... 170,099,991
6,835,812 Midland CoGeneration Venture, deb. notes, Series C-91, 10.33%, 07/23/02 ............. 7,348,498
13,249,236 Midland CoGeneration Venture, S.F., sub. deb., Series C, 10.33%, 07/23/02 ........... 14,242,929
6,000,000 Texas-New Mexico Power Co., secured deb., 10.75%, 09/15/03 .......................... 6,323,004
-------------
198,014,422
-------------
Total Corporate Bonds (Cost $2,502,757,094) ................................... 2,495,622,726
-------------
U.S. Government Securities 8.4%
534,000,000 U.S Treasury Bonds, 6.00% - 6.375%, 12/31/97 - 08/15/02 ............................. 485,576,102
150,000,000 U.S. Treasury Notes, 7.125%, 02/15/23 ............................................... 148,078,193
-------------
Total U.S. Government Securities (Cost $665,544,665)........................... 633,654,295
-------------
Foreign Government Securities 9.6%
50,000,000 fGovernment of Canada, first coupon deb., 8.00%, 06/01/23 ............................ 39,317,320
520,000,000 Republic of Argentina, FRN, 5.25%, 03/31/23 ......................................... 323,700,000
200,000,000 Republic of Brazil, 5.00%, 04/15/24 ................................................. 124,500,000
65,000,000 Republic of Brazil, FRN deb., 6.50%, 04/15/06 ....................................... 57,931,250
82,867,500 Republic of Brazil, FRN, Series A, 6.50%, 01/01/01 .................................. 80,899,397
515,000,000 fRepublic of South Africa, 12.00%, 02/28/05 .......................................... 100,016,858
-------------
Total Foreign Government Agencies (Cost $680,834,700).......................... 726,364,825
-------------
Zero Coupon/Step-up Bonds 3.8%
30,000,000 AMF Group, Inc., senior disc. notes, Series B, zero coupon to 03/15/01 (original accretion
rate 12.25%), 12.25% thereafter, 03/15/06 .......................................... 20,737,500
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 ....................................................... 50,375,000
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 .................... 10,642,500
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 ........................................................ 8,437,500
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 ............................................. 36,250,000
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 ........................................................ 4,550,000
75,000,000 Marcus Cable Co., senior disc. notes, zero coupon to 06/15/00, (original accretion rate
14.25%), 14.25% thereafter, 12/15/05 ............................................... 52,875,000
15,000,000 Mesa Operating Co., company guaranteed, zero coupon to 07/01/01, (original accretion
rate 11.625%), 11.625% thereafter, 07/01/06 ........................................ 10,237,500
45,000,000 bRevlon Worldwide Corp., senior disc. notes, (original accretion rate 10.75%), 0.00%,
03/15/01 ........................................................................... 27,900,000
40,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B (original accretion rate
12.00%), 0.00%, 03/15/98 .......................................................... 37,900,000
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 ...................... 13,549,376
12,000,000 UCC Investors, discount notes, zero coupon to 05/01/98, (original accretion rate 12.00%),
12.00% thereafter, 05/01/05 ........................................................ 10,860,000
-------------
Total Zero Coupon/Step-up Bonds (Cost $284,748,199)............................ 284,314,376
-------------
Total Long Term Investments (Cost $6,866,964,485).............................. 7,067,732,811
-------------
iReceivables from Repurchase Agreements 5.4%.........................................
$ 417,824,907 Joint Repurchase Agreement, 6.417%, 04/01/97, (Maturity Value $411,066,965)
(Cost $410,993,705)
Aubrey G. Lanston & Co., Inc., (Maturity Value $49,406,409)
Collateral: U.S. Treasury Bills, 09/04/97
U.S. Treasury Notes, 6.75% - 7.00%, 04/15/99 - 05/31/99
Barclays de Zoete Wedd Securities, Inc., (Maturity Value $24,703,202)
Collateral: U.S. Treasury Notes, 6.00% - 7.125%, 09/30/98 - 09/30/99
CIBC Wood Gundy Securities Corp., (Maturity Value $49,406,409)
Collateral: U.S. Treasury Notes, 6.25%, 06/30/98
Daiwa Securities America, Inc., (Maturity Value $49,406,409)
Collateral: U.S. Treasury Notes, 5.00% - 7.50%, 06/30/98 - 12/31/01
Fuji Securities, Inc., (Maturity Value $49,406,409)
Collateral: U.S. Treasury Bills, 07/31/97
U.S. Treasury Notes, 5.875%, 04/30/98
Sanwa Securities (USA) Co., L.P., (Maturity Value $49,406,409)
Collateral: U.S. Treasury Bills, 05/15/97
U.S. Treasury Notes, 5.625% - 6.75%, 05/15/98 - 11/30/00
SBC Warburg, Inc., (Maturity Value $49,406,409)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
The Nikko Securities Co. International, Inc., (Maturity Value $40,518,900)
Collateral: U.S. Treasury Notes, 4.75% - 6.50%, 05/31/98 - 09/30/01
UBS Securities, L.L.C., (Maturity Value $49,406,409)
Collateral: U.S. Treasury Notes, 5.00% - 6.875%, 04/30/97 - 04/30/00 ............... $ 410,993,705
-------------
Total Investments (Cost $7,277,958,190) 98.6% ............................ 7,478,726,516
Other Assets and Liabilities, Net 1.4% ................................... 102,679,381
-------------
Net Assets 100.0% ........................................................ $7,581,405,897
=============
At March 31, 1997, the net unrealized appreciation based on the cost of investments
for income tax purposes of $7,277,958,190 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost ......................................... $ 531,962,215
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value ........................................ (331,193,889)
-------------
Net unrealized appreciation ....................................................... $ 200,768,326
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
L.L.C. - Limited Liability Corp.
L.P. - Limited Partnership
PIK - Payment-in-Kind
S.F. - Sinking Fund
aNon-income producing.
bPurchased in a private placement transaction, resale may only be to qualified
institutional buyers.
cSee Note 6 regarding restricted securities.
eSee Note 8 regarding holdings of 5% voting securities.
fFace amount is stated in foreign currency and value is stated in U.S. dollars.
gSecurities traded in foreign currency and value is stated in U.S. dollars.
iFace 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, 1997
(unaudited)
<TABLE>
<CAPTION>
Face Value
Amount U.S. Government Securities Fund (Note 1)
Government National Mortgage Association (GNMA) 97.3%
<S> <C> <C>
$ 22,666,318 GNMA I, SF, 6.00%, 09/15/23 - 11/15/23 ............................................... $ 20,617,734
1,144,495,519 GNMA I, SF, 6.50%, 03/15/03 - 03/15/24 ............................................... 1,070,929,076
31,751,570 GNMA PL, 6.50%, 05/15/24 ............................................................. 29,564,522
70,206,585 GNMA II, 6.50%, 06/20/24 - 05/20/26 .................................................. 64,925,731
36,271,718 GNMA PL, 6.75%, 01/15/34 ............................................................. 33,996,389
3,779,021 GNMA I, SF, 6.75%, 03/15/26 - 05/15/26 ............................................... 3,557,834
351,802,909 GNMA II, 7.00%, 03/20/24 - 01/20/27 .................................................. 335,159,682
8,994,656 GNMA PL, 7.00%, 09/15/35 ............................................................. 8,561,203
2,053,677,040 GNMA I, SF, 7.00%, 04/15/16 - 06/15/26 ............................................... 1,976,092,280
8,804,133 GNMA SF, 7.25%, 10/15/25 - 01/15/26 .................................................. 8,536,257
35,328,263 GNMA PL, 7.375%, 04/15/29 ............................................................ 34,338,342
21,136,803 GNMA PL, 7.425%, 07/15/29 ............................................................ 20,603,803
1,510,858,268 GNMA I, SF, 7.50%, 06/15/05 - 02/15/27 ............................................... 1,494,869,209
419,422,294 GNMA II, 7.50%, 10/20/22 - 02/20/27 .................................................. 411,570,742
5,656,744 GNMA PL, 7.75%, 10/15/12 ............................................................. 5,622,634
1,299,682,451 GNMA I, SF, 8.00%, 10/15/07 - 05/15/26 ............................................... 1,319,946,269
97,226,859 GNMA II, 8.00%, 08/20/16 - 10/20/26 .................................................. 97,879,353
47,645,425 GNMA PL, 8.00%, 04/15/22 - 05/15/32 .................................................. 47,987,793
7,790,037 GNMA I, GPM, 8.25%, 03/15/17 - 11/15/17 .............................................. 8,012,443
24,623,380 GNMA PL, 8.25%, 12/15/20 - 02/15/28 .................................................. 24,790,883
312,511,678 GNMA I, SF, 8.50%, 05/15/16 - 11/15/24 ............................................... 324,524,770
60,388,495 GNMA II, 8.50%, 04/20/16 - 06/20/25 .................................................. 62,422,423
1,334,907 GNMA I, GPM, 8.75%, 03/20/17 - 07/20/17 .............................................. 1,397,140
395,690,408 GNMA I, SF, 9.00%, 10/15/04 - 07/15/23 ............................................... 420,822,800
12,835,151 GNMA II, 9.00%, 02/20/20 - 11/20/21 .................................................. 13,525,059
5,757,798 GNMA I, GPM, 9.25%, 05/15/16 - 01/15/17 .............................................. 6,098,278
214,191,618 GNMA I, SF, 9.50%, 05/15/09 - 02/15/23 ............................................... 231,572,668
22,690,959 GNMA II, 9.50%, 09/20/15 - 04/20/25 .................................................. 24,277,186
6,879,075 GNMA I, GPM, 10.00%, 11/15/09 - 11/15/13 ............................................. 7,550,815
259,013,534 GNMA I, SF, 10.00%, 04/15/12 - 04/15/25 .............................................. 285,525,347
32,555,600 GNMA II, 10.00%, 08/20/13 - 03/20/21 ................................................. 35,699,066
3,659,932 GNMA I, GPM, 10.25%, 02/15/16 - 02/15/21 ............................................. 3,944,338
185,196,748 GNMA I, SF, 10.50%, 01/15/98 - 10/15/21 .............................................. 202,323,469
50,527,706 GNMA II, 10.50%, 09/20/13 - 03/20/21 ................................................. 54,607,967
12,943,585 GNMA I, GPM, 11.00%, 12/15/09 - 03/15/11 ............................................. 14,224,376
157,014,114 GNMA I, SF, 11.00%, 01/15/01 - 05/15/21 .............................................. 174,418,919
14,560,964 GNMA II, 11.00%, 07/20/13 - 01/20/21 ................................................. 16,053,300
6,291,863 GNMA I, GPM, 11.25%, 06/15/13 - 01/15/16 ............................................. 7,006,656
2,301,552 GNMA I, GPM, 11.50%, 03/15/10 - 06/25/13 ............................................. 2,579,609
32,925,409 GNMA I, SF, 11.50%, 02/15/13 - 12/15/17 .............................................. 37,178,433
288,266 GNMA II, GPM, 11.50%, 07/20/13 - 01/20/14 ............................................ 321,900
2,229,737 GNMA II, 11.50%, 08/20/13 - 04/20/18 ................................................. 2,492,648
1,272,656 GNMA I, GPM, 11.75%, 07/15/13 - 12/15/15 ............................................. 1,429,336
750,269 GNMA I, GPM, 12.00%, 10/15/10 - 03/15/13 ............................................. 846,810
154,289,906 GNMA I, SF, 12.00%, 05/15/11 - 08/15/19 .............................................. 175,805,452
7,227,461 GNMA II, 12.00%, 09/20/13 - 02/20/16 ................................................. 8,171,539
1,120,283 GNMA I, GPM, 12.50%, 04/15/10 - 10/15/12 ............................................. 1,279,478
134,390,283 GNMA I, SF, 12.50%, 01/15/10 - 08/15/18 .............................................. 155,199,839
6,077,857 GNMA II, 12.50%, 09/20/13 - 11/20/15 ................................................. 6,977,186
98,561 GNMA I, GPM, 12.75%, 11/15/13 - 06/15/15 ............................................. 114,216
$ 125,046,546 GNMA I, SF, 13.00%, 07/15/10 - 01/15/16 .............................................. $ 146,570,449
3,842,104 GNMA II, 13.00%, 10/20/13 - 09/20/15 ................................................. 4,476,169
-------------
Total Long Term Investments (Cost $9,552,951,336) .............................. 9,446,999,820
hShort Term Investments 2.2%
212,215,000 U.S. Treasury Bills, 4.915% - 5.17%, 04/17/97 - 06/12/97 (Cost $210,873,128).......... 210,850,539
-------------
Total Investments (Cost $9,763,824,464) 99.5%.............................. 9,657,850,359
Other Assets and Liabilities, Net 0.5%..................................... 48,892,322
-------------
Net Assets 100.0%.......................................................... $9,706,742,681
=============
At March 31, 1997, the net unrealized depreciation based on the cost of investments
for income tax purposes of $9,763,824,464 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost................................................. $ 141,902,553
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value ................................................ (247,876,658)
-------------
Net unrealized depreciation ........................................................ $ (105,974,105)
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
I - Original SF Program
II - Programs consisting of different types of mortgages
GPM - Graduated Payment Mortgage
PL - Project Loan
SF - Single Family
hSecurities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements
Statements of Assets and Liabilities
March 31, 1997 (unaudited)
<TABLE>
<CAPTION>
DynaTech U.S. Government
Assets: Growth Fund Fund Utilities Fund Income Fund Securities Fund
------------ ---------- ----------- ----------- -----------
Investments in securities:
<S> <C> <C> <C> <C> <C>
At identified cost ...................... $ 433,476,466 $ 33,194,965 $2,013,999,515 $6,866,964,485 $9,763,824,464
============ ========== =========== =========== ===========
At value ................................ 885,734,573 90,917,577 2,082,041,488 7,067,732,811 9,657,850,359
Receivables from repurchase agreements,
at value and cost ........................ 362,015,771 35,031,757 15,198,378 410,993,705 --
Cash ..................................... 915,194 -- -- -- 103,780
Receivables:
Dividends and interest .................. 807,607 67,475 13,236,743 110,743,225 62,364,281
Investment securities sold .............. -- -- 3,028,653 -- --
Capital shares sold ..................... 2,242,969 498,217 1,197,628 25,690,534 7,974,721
Prepaid expenses ........................ 67,772 -- -- -- --
------------ ---------- ----------- ----------- -----------
Total assets ........................ 1,251,783,886 126,515,026 2,114,702,890 7,615,160,275 9,728,293,141
------------ ---------- ----------- ----------- -----------
Liabilities:
Payables:
Investment securities purchased ......... -- -- -- 16,942,110 --
Capital shares repurchased .............. 746,021 439,021 6,695,937 11,152,747 16,203,732
Management fees ......................... 489,287 62,900 812,380 2,862,835 3,662,870
Distribution fees ....................... 557,843 42,504 475,062 2,195,140 1,355,018
Shareholder servicing costs ............. -- 377 30,706 137,323 328,840
Accrued expenses and other liabilities ... -- 123,425 169,539 464,223 --
------------ ---------- ----------- ----------- -----------
Total liabilities ................... 1,793,151 668,227 8,183,624 33,754,378 21,550,460
------------ ---------- ----------- ----------- -----------
Net assets, at value ...................... $1,249,990,735 $125,846,799 $2,106,519,266 $7,581,405,897 $9,706,742,681
============ ========== =========== =========== ===========
Net assets consist of:
Undistributed net investment income...... $ 8,006,265 $ 247,964 $ 10,596,071 $ 62,156,694 $ 7,842,125
Net unrealized appreciation (depreciation)
on investments and translation of assets
and liabilities denominated in foreign
currencies............................... 452,258,107 57,722,612 68,041,973 200,996,251 (105,974,105)
Accumulated net realized gain (loss) from
investments .............................. 4,813,578 5,777,626 52,361,278 84,390,737 (470,943,206)
Class I capital shares ................... 695,455,146 61,405,476 1,947,188,534 6,722,159,950 10,185,289,379
Class II capital shares .................. 80,397,878 693,121 23,325,919 502,468,302 85,545,790
Advisor class capital shares ............. 9,059,761 -- 5,005,491 9,233,963 4,982,698
------------ ---------- ----------- ----------- -----------
Net assets, at value ...................... $1,249,990,735 $125,846,799 $2,106,519,266 $7,581,405,897 $9,706,742,681
============ ========== =========== =========== ===========
Class I Shares:
Net assets, at value ..................... $1,156,541,843 $125,184,387 $2,079,296,286 $7,066,417,138 $9,616,027,491
============ ========== =========== =========== ===========
Shares outstanding ....................... 49,269,948 8,328,612 222,115,035 3,039,675,992 1,435,705,242
============ ========== =========== =========== ===========
Net asset value per share* ............... $23.47 $15.03 $9.36 $2.32 $6.70
============ ========== =========== =========== ===========
Class II Shares:
Net assets, at value ..................... $84,602,417 $662,412 $22,406,201 $ 505,953,128 $85,792,983
============ ========== =========== =========== ===========
Shares outstanding ....................... 3,642,764 44,248 2,395,466 217,496,580 12,846,169
============ ========== =========== =========== ===========
Net asset value per share* ............... $23.22 $14.97 $9.35 $2.33 $6.68
============ ========== =========== =========== ===========
Advisor Class Shares:
Net assets, at value ..................... $8,846,475 $4,816,779 $9,035,631 $4,922,207
============ =========== =========== ===========
Shares outstanding ....................... 376,658 514,546 3,896,631 734,177
============ =========== =========== ===========
Net asset value per share ................ $23.49 $9.36 $2.32 $6.70
============ =========== =========== ===========
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (cont.)
Statements of Operations
for the six months ended March 31, 1997 (unaudited)
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
--------- --------- ---------- ---------- -----------
Investment income:
<S> <C> <C> <C> <C> <C>
Dividends .......................................... $ 6,220,795 $ 220,203 $58,766,490 $ 84,165,250 $--
Interest ........................................... 7,693,675 635,660 11,974,784 220,580,213 387,951,132
--------- --------- ---------- ---------- -----------
13,914,470 855,863 70,741,274 304,745,463 387,951,132
--------- --------- ---------- ---------- -----------
Expenses:
Management fees (Note 5) ........................... 2,831,084 367,275 5,316,882 17,068,439 22,686,368
Distribution fees - Class I (Note 5) ............... 1,261,082 124,162 1,449,551 5,022,279 4,138,539
Distribution fees - Class II (Note 5) .............. 358,031 860 71,336 1,459,406 231,635
Shareholder servicing costs (Note 5) ............... 575,038 70,916 1,003,849 2,079,372 2,744,939
Reports to shareholders ............................ 179,410 20,248 453,054 944,995 1,041,247
Registration and filing fees ....................... 37,964 7,709 32,854 123,194 48,129
Professional fees .................................. 7,400 2,060 29,987 46,662 119,789
Directors' fees and expenses (Note 5) .............. 3,226 593 8,054 21,051 30,847
Custodian fees ..................................... 3,115 -- 9,970 235,037 47,482
Other .............................................. 11,435 2,134 40,410 73,881 119,886
--------- --------- ---------- ---------- -----------
Total expenses ................................ 5,267,785 595,957 8,415,947 27,074,316 31,208,861
--------- --------- ---------- ---------- -----------
Net investment income ........................ 8,646,685 259,906 62,325,327 277,671,147 356,742,271
--------- --------- ---------- ---------- -----------
Realized and unrealized gain (loss) from investments
and foreign currency:
Net realized gain (loss) from:
Investments ...................................... 4,856,200 5,779,371 52,457,033 118,895,955 (15,778,370)
Foreign currency transactions .................... -- -- -- (19,298) --
Net unrealized appreciation (depreciation) on:
Investments ...................................... 35,978,337 4,354,572 (33,231,794) (18,685,613) (619,748)
Translation of assets and liabilities denominated in
foreign currencies ................................. -- -- -- 397,185 --
--------- --------- ---------- ---------- -----------
Net realized and unrealized gain (loss) on investments
and foreign currencies ............................. 40,834,537 10,133,943 19,225,239 100,588,229 (16,398,118)
--------- --------- ---------- ---------- -----------
Net increase in net assets resulting from operations $49,481,222 $10,393,849 $81,550,566 $378,259,376 $340,344,153
========= ========= ========== ========== ===========
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (cont.)
Statements of Changes in Net Assets
for the six months ended March 31, 1997 (unaudited)
and the year ended September 30, 1996
Growth Fund DynaTech Fund Utilities Fund
------------------------ --------------------- ------------------------
Six months Year Six months Year Six months Year
ended 3/31/97 ended 9/30/96 ended 3/31/97 ended 9/30/96 ended 3/31/97 ended 9/30/96
----------- ----------- ---------- ---------- ----------- -----------
Increase (decrease) in
net assets:
Operations:
<S> <C> <C> <C> <C> <C> <C>
Net investment income .. $ 8,646,685 $ 10,213,551 $ 259,906 $ 413,044 $ 62,325,327 $ 141,159,184
Net realized gain from
investments and
foreign currency
transactions ............. 4,856,200 13,376,673 5,779,371 3,012,745 52,457,033 101,323,796
Net unrealized appre-
ciation (depreciation)
on investments and
translation of assets
and liabilities denomi-
nated in foreign
currencies ............... 35,978,337 131,354,444 4,354,572 8,557,033 (33,231,794) (76,822,756)
----------- ----------- ---------- ---------- ----------- -----------
Net increase in
net assets resulting
from operations .......... 49,481,222 154,944,668 10,393,849 11,982,822 81,550,566 165,660,224
Distributions to shareholders
from:
Undistributed net
investment income:
Class I ............... (10,432,519) (6,279,423) (415,687) (854,965) (60,541,165) (138,119,821)
Class II .............. (420,405) (57,905) (177) -- (512,163) (747,247)
Advisor Class ......... -- -- -- -- (60,763) --
Net realized capital gain:
Class I ................ (9,283,518) (5,915,536) (3,013,236) (1,652,070) (100,516,294) (19,902,855)
Class II ............... (554,319) (56,415) (1,254) -- (903,261) (78,972)
Increase (decrease) in net
assets from capital share
transactions (Note 2).... 157,297,054 204,241,737 14,375,142 2,045,737 (232,713,598) (360,939,808)
----------- ----------- ---------- ---------- ----------- -----------
Net increase
(decrease) in
net assets............... 186,087,515 346,877,126 21,338,637 11,521,524 (313,696,678) (354,128,479)
Net assets:
Beginning of period ...... 1,063,903,220 717,026,094 104,508,162 92,986,638 2,420,215,944 2,774,344,423
----------- ----------- ---------- ---------- ----------- -----------
End of period ............ $1,249,990,735 $1,063,903,220 $125,846,799 $104,508,162 $2,106,519,266 $2,420,215,944
=========== =========== ========== ========== =========== ===========
Undistributed net
investment income
included in net assets:
Beginning of period ..... $ 10,212,504 $ 6,336,281 $ 403,922 $ 845,843 $ 9,384,835 $ 7,091,302
=========== =========== ========== ========== =========== ===========
End of period ........... $ 8,006,265 $ 10,212,504 $ 247,964 $ 403,922 $ 10,596,071 $ 9,384,835
=========== =========== ========== ========== =========== ===========
Income Fund U.S. Government Securities Fund
------------------------ ---------------------------
Six months Year Six months Year
ended 3/31/97 ended 9/30/96 ended 3/31/97 ended 9/30/96
----------- ----------- ------------ ------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income ............................... $ 277,671,147 $ 521,625,487 $ 356,742,271 $ 767,312,081
Net realized gain (loss) from investments and foreign
currency transactions ................................ 118,876,657 54,450,898 (15,778,370) (50,886,927)
Net unrealized appreciation (depreciation) on
investments and translation of assets and liabilities
denominated in foreign currencies .................... (18,288,428) 12,739,334 (619,748) (183,394,082)
----------- ----------- ------------ ------------
Net increase in net assets resulting from
operations ........................................... 378,259,376 588,815,719 340,344,153 533,031,072
Distributions to shareholders from:
Undistributed net investment income:
Class I ............................................. (268,868,904) (496,461,082) (363,853,114) (772,347,077)
Class II ............................................ (14,875,203) (14,090,940) (2,316,796) (2,259,432)
Advisor Class ....................................... (64,668) -- (21,693) --
Net realized capital gain:
Class I ............................................. (29,744,125) (70,836,803) -- --
Class II ............................................ (1,712,570) (1,197,351) -- --
Increase (decrease) in net assets from capital share
transactions (Note 2) ................................ 394,944,737 1,165,627,354 (454,550,124) (684,584,180)
----------- ----------- ------------ ------------
Net increase (decrease) in net assets ........... 457,938,643 1,171,856,897 (480,397,574) (926,159,617)
Net assets:
Beginning of period .................................. 7,123,467,254 5,951,610,357 10,187,140,255 11,113,299,872
----------- ----------- ------------ ------------
End of period ........................................ $7,581,405,897 $7,123,467,254 $ 9,706,742,681 $10,187,140,255
=========== =========== ============ ============
Undistributed net investment income included in
net assets:
Beginning of period ................................. $ 34,315,598 $ 1,820,982 $ 17,291,457 $ 24,585,885
=========== =========== ============ ============
End of period ....................................... $ 62,156,694 $ 34,315,598 $ 7,842,125 $ 17,291,457
=========== =========== ============ ============
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Custodian Funds, Inc. (the Corporation) is an open-end, 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, representing a separate fund and each of the Funds
maintaining a totally separate investment portfolio. All of the Funds are
diversified, and their investment objectives are as follows:
Capital Growth Growth and Income Current Income
----------- ------------ -----------------------
Growth Fund Utilities Fund U.S. Government Securities Fund
DynaTech Fund Income Fund
The Funds, except for the DynaTech Fund, offer three classes of shares, Class I,
Class II, and Advisor Class. The DynaTech Fund offers two classes of shares,
Class I and Class II. Class I shares are sold with a higher front-end sales
charge than Class II. There is no front-end sales load nor distribution fees for
Advisor Class Shares. Class I and Class II 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 September 16, 1996 for the DynaTech Fund
and May 1, 1995 for the other Funds, at which time all previously outstanding
shares became Class I shares. The offering of Advisor Class shares began January
2, 1997.
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 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,
and securities restricted as to resale, 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. 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.
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 shareholders which will be sufficient to relieve the
Funds 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.
Original issue 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 and foreign currency
transactions - see Note 7.
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatment of wash sale and foreign currency
transactions.
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.
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 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 arises
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
The Funds, except the U.S. Government Securities Fund, may enter into a joint
repurchase agreement whereby their uninvested cash balances are 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 their
pro-rata interest. A repurchase agreement is accounted for as a loan by the
Funds to the seller, collateralized by underlying U.S. government securities,
which are delivered to the Funds' 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, with the value of the underlying
securities marked to market daily to maintain coverage of at least 100%. At
March 31, 1997, all outstanding repurchase agreements held by the Funds had been
entered into on that date.
2. CAPITAL STOCK
At March 31, 1997, there were 19 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 4,600,000,000 2,500,000,000
Class II ......................................... 250,000,000 250,000,000 400,000,000 3,600,000,000 2,500,000,000
Advisor Class .................................... 1,000,000,000 -- 1,000,000,000 1,000,000,000 1,000,000,000
</TABLE>
Transactions in each of the Funds' shares for the six months ended March 31,
1997 and the year ended September 30, 1996, 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, 1997
<S> <C> <C> <C> <C> <C> <C>
Shares sold ........................... 9,326,879 $221,660,860 3,047,705 $46,954,242 6,552,893 $ 63,809,540
Shares issued in reinvestment of
distributions ......................... 742,441 17,759,211 199,059 3,045,627 13,137,226 126,185,412
Shares redeemed ....................... (5,514,839) (131,244,998) (2,364,779) (36,317,649) (44,227,322) (431,336,968)
-------- ----------- -------- ---------- --------- -----------
Net increase (decrease) ................ 4,554,481 $108,175,073 881,985 $13,682,220 (24,537,203) $(241,342,016)
======== =========== ======== ========== ========= ===========
Year ended September 30, 1996
Shares sold ........................... 14,573,392 $309,789,082 3,079,877 $39,604,883 21,426,300 $215,939,345
Shares issued in reinvestment of
distributions ......................... 540,805 10,967,608 177,727 2,205,599 11,952,242 118,303,241
Shares redeemed ....................... (7,187,477) (152,895,280) (3,085,060) (39,764,944) (70,389,767) (706,923,314)
-------- ----------- -------- ---------- --------- -----------
Net increase (decrease) ................ 7,926,720 $167,861,410 172,544 $ 2,045,538 (37,011,225) $(372,680,728)
======== =========== ======== ========== ========= ===========
Class II Shares:
Six months ended March 31, 1997
Shares sold ........................... 2,060,068 $ 48,006,581 55,319 $ 861,406 516,375 $ 5,030,218
Shares issued in reinvestment of
distributions ......................... 38,527 914,252 94 1,430 120,648 1,158,851
Shares redeemed ....................... (376,913) (8,858,613) (11,179) (169,914) (263,443) (2,566,142)
-------- ----------- -------- ---------- --------- -----------
Net increase ........................... 1,721,682 $ 40,062,220 44,234 $ 692,922 373,580 $ 3,622,927
======== =========== ======== ========== ========= ===========
Year ended September 30, 1996
Shares sold ........................... 1,925,516 $ 41,102,731 14 $ 199 1,459,417 $ 14,693,105
Shares issued in reinvestment of
distributions ......................... 4,957 100,242 -- -- 67,296 663,744
Shares redeemed ....................... (224,665) (4,822,646) -- -- (363,584) (3,615,929)
-------- ----------- -------- ---------- --------- -----------
Net increase ........................... 1,705,808 $ 36,380,327 14 $ 199 1,163,129 $ 11,740,920
======== =========== ======== ========== ========= ===========
Advisor Class Shares:
January 1, 1997 to March 31, 1997
Shares sold .......................... 465,011 $ 11,195,648 596,096 $ 5,780,963
Shares issued in reinvestment of
distributions ......................... -- -- 6,310 60,763
Shares redeemed ...................... (88,353) (2,135,887) (87,860) (836,235)
-------- ----------- --------- -----------
Net increase ........................... 376,658 $ 9,059,761 514,546 $ 5,005,491
======== =========== ========= ===========
Income Fund U.S. Government Securities Fund
---------------------- -----------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
Class I Shares:
Six months ended March 31, 1997
Shares sold ................................................ 277,338,972 $ 652,561,184 37,567,884 $ 254,384,444
Shares issued in reinvestment of distributions ............. 77,079,865 180,565,359 25,007,127 168,915,817
Shares redeemed ............................................ (258,713,804) (608,735,442) (134,610,379) (911,481,679)
---------- ----------- ---------- -----------
Net increase (decrease) ..................................... 95,705,033 $ 224,391,101 (72,035,368) $ (488,181,418)
========== =========== ========== ===========
Year ended September 30, 1996
Shares sold ................................................ 642,104,925 $1,473,287,913 85,184,579 $ 579,402,859
Shares issued in reinvestment of distributions ............. 150,894,313 344,863,416 51,937,467 352,406,036
Shares redeemed ............................................ (405,681,073) (929,200,372) (245,065,339) (1,663,170,694)
---------- ----------- ---------- -----------
Net increase (decrease) ..................................... 387,318,165 $ 888,950,957 (107,943,293) $ (731,361,799)
========== =========== ========== ===========
For the period September 16, 1996 to September 30, 1996 for the DynaTech Fund.
Income Fund U.S. Government Securities Fund
---------------------- -----------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
Class II Shares:
Six months ended March 31, 1997
<S> <C> <C> <C> <C>
Shares sold ................................................ 75,128,866 $ 176,978,974 5,190,019 $ 35,061,107
Shares issued in reinvestment of distributions ............. 4,387,859 10,295,990 220,287 1,485,773
Shares redeemed ............................................ (11,015,959) (25,955,291) (1,169,922) (7,898,284)
---------- ----------- ---------- -----------
Net increase ................................................ 68,500,766 $ 161,319,673 4,240,384 $ 28,648,596
========== =========== ========== ===========
Year ended September 30, 1996
Shares sold ................................................ 126,159,539 $ 289,827,410 7,668,930 $ 51,954,655
Shares issued in reinvestment of distributions ............. 4,108,044 9,379,710 212,412 1,428,321
Shares redeemed ............................................ (9,852,944) (22,530,723) (982,730) (6,605,357)
---------- ----------- ---------- -----------
Net increase ................................................ 120,414,639 $ 276,676,397 6,898,612 $ 46,777,619
========== =========== ========== ===========
Advisor Class Shares:
January 1, 1997 to March 31, 1997
Shares sold ................................................ 3,980,970 $ 9,433,161 810,223 $ 5,494,473
Shares issued in reinvestment of distributions ............. 27,053 64,093 2,964 20,060
Shares redeemed ............................................ (111,392) (263,291) (79,010) (531,835)
---------- ----------- ---------- -----------
Net increase ................................................ 3,896,631 $ 9,233,963 734,177 $ 4,982,698
========== =========== ========== ===========
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At September 30, 1996, for tax purposes, the Funds had accumulated net realized capital gains or capital loss carryovers
as follows:
DynaTech
Growth Fund Fund Utilities Fund Income Fund
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Accumulated net realized gains ......................................... $9,795,215 $3,012,745 $101,326,200 $30,949,499
======== ======== =========== =========
U.S. Government
Securities Fund
----------
Capital loss carryovers
Expiring in:
<C> <C>
1997 ....................................................................................................... $ 92,974,800
1998 ....................................................................................................... 74,910,973
1999 ....................................................................................................... 67,082,683
2002 ....................................................................................................... 111,364,839
2003 ....................................................................................................... 3,698,366
2004 ....................................................................................................... 57,539,178
$407,570,839
==========
</TABLE>
From November 1, 1995 through September 30, 1996, the U.S. Government Securities
Fund incurred $47,593,997 of net realized capital losses. As permitted by tax
regulations, the U.S. Government Securities Fund intends to elect to defer these
losses and treat them as having arisen in the year ending September 30, 1997.
The U.S. Government Securities Fund had capital loss carryovers of $266,310,966
which expired at September 30, 1996 and were reclassified to paid-in capital
pursuant to Statement of Position (SOP) 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies.
For tax purposes, the aggregate cost of securities is higher (and unrealized
appreciation is lower) than for financial statement purposes at March 31, 1997
by $2,400 in the Utilities Fund.
4. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the six months ended March 31, 1997, were as follows:
<TABLE>
<CAPTION>
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
--------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Purchases ..................................... $13,018,456 $3,263,313 $102,656,152 $922,212,195 $131,408,085
Sales ......................................... $27,908,196 $9,590,557 $363,894,499 $499,437,206 $590,212,216
</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
Fees are further reduced on net assets over $10 billion.
Under an agreement with Advisers, Franklin Templeton Services, Inc. (FT
Services) provides administrative services and facilities for the Funds. The fee
is paid by Advisers and computed monthly based on average daily net assets. It
is not a separate expense of the Funds.
B. SHAREHOLDER SERVICES AGREEMENT:
Under the terms of a shareholder services 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 six months ended March 31, 1997, aggregated $6,474,114, all of which was
paid to Investor Services.
C. 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 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 and
DynaTech Funds, 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
$14,116,881 for the six months ended March 31, 1997.
In its capacity as underwriter for the shares of the Funds, Distributors
receives commissions on sales of the Funds' 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 the dealers for certain sales of the
Funds' shares. Commissions received by Distributors, the amounts paid to other
dealers, and any applicable contingent deferred sales charges (CDSC) for the six
months ended March 31, 1997, were as follows:
<TABLE>
<CAPTION>
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
-------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Total commissions received, including CDSC ................. $3,433,559 $225,382 $1,014,608 $20,440,887 $5,144,046
Paid to other dealers ...................................... $3,706,604 $214,912 $1,005,820 $21,402,039 $5,410,350
CDSC ....................................................... $ 23,179 $ 880 $ 7,993 $ 112,791 $ 25,180
</TABLE>
d. Other Affiliates and Related Party Transactions:
During the six months ended March 31, 1997, legal fees of $35,555 were incurred
to the 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, and FT 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 Funds
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 Funds value these restricted securities as
disclosed in Note 1. At March 31, 1997, the Income Fund held restricted
securities with a value aggregating $42,698,152 representing 0.6% of the Fund's
net assets, as follows:
<TABLE>
<CAPTION>
Face
Amount Security Acquisition Date Cost Value
- --------- --------------------------------------------------- ----------- --------- -----------
<C> <S> <C> <C> <C>
$40,000,000 Boardwalk Casino, Inc., first mortgage bonds, 16.50%, 03/31/05...... 4/12/95 $37,356,145 $40,072,000
Warrants Security Acquisition Date Cost Value
- --------- --------------------------------------------------- ----------- --------- -----------
1,281,869 Boardwalk Casino, Inc. ............................................. 4/12/95 2,643,855 2,597,708
Shares
- ---------
59,258 Jewel Recovery, L.P................................................. 7/30/93 42,074 28,444
</TABLE>
7. CREDIT RISK
The Income Fund has 40.7% of its portfolio invested in lower rated and
comparable quality unrated high yield securities. Investments in high yield
securities are accompanied by a greater degree of credit risk and such lower
rated 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 yield securities, because such
securities are generally unsecured and are often subordinated to other creditors
of the issuer.
8. 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 and the Income Fund had
investments in such affiliated companies at March 31, 1997, with a value in the
amount of $6,906 and $82,617,957, respectively. See the accompanying Statement
of Investments in Securities and Net Assets for specific information on such
securities.
9. OTHER CONSIDERATIONS
As the Manager of the Funds, Advisers may serve as a member of various credit
committees, representing credit interests in certain corporate restructuring
negotiations. Currently, Advisers serves on the credit committee for Flagstar
Corporation, and therefore may be in possession of certain material non-public
information. Advisers has not sold, nor does it intend to sell, any of the
Income Fund's holdings in this security while in possession of material
non-public information in contravention of the Federal Securities laws.
10. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period by
Fund are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
----------------------------------------------------- --------------------------------
Distri- Distri- Ratio
Net Net butions butions Net Net of Net
Asset Net Realized & From from Asset Assets Ratio of Investment Average
Year Value at Invest-Unrealized Total From Net In- Realized Total Value at at End Expenses Income toPortfolio Com-
Ended Beginning ment Gain (Loss) Investment vestment Capital Distri- End of Total of Periodto Average Average Turnovermission
Sept.30 of PeriodIncomeon SecuritiesOperations Income Gains butions Period Return1(in 000's)Net AssetsNet Assets Rate Rate2
Growth Fund:
Class I Shares:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 $13.45 $.23 $ .523 $ .753 $(.353) $(.150) $(.503) $13.70 5.73% $ 532,971 0.66% 2.06% .81% --
1993 13.70 .23 .577 .807 (.189) (.068) (.257) 14.25 5.87 560,824 .64 1.64 1.70 --
1994 14.25 .19 .899 1.089 (.297) (.082) (.379) 14.96 7.63 516,620 .77 1.23 6.52 --
1995 14.96 .17 4.427 4.597 (.135) (.042) (.177) 19.38 31.11 712,866 .90 1.08 1.39 --
1996 19.38 .22 3.538 3.758 (.164) (.154) (.318) 22.82 19.60 1,020,486 .87 1.16 2.03 .0543
19973 22.82 .16 .919 1.079 (.227) (.202) (.429) 23.47 4.69 1,156,542 .84+++ 1.51+++ 1.46 .0554
Class II Shares:
1995+ 16.88 .02 2.430 2.450 -- -- -- 19.33 14.72 4,161 1.79+++ 0.37+++ 1.39 --
1996 19.33 .12 3.463 3.583 (.159) (.154) (.313) 22.60 18.73 43,417 1.63 0.40 2.03 .0543
19973 22.60 .09 .885 .975 (.153) (.202) (.355) 23.22 4.28 84,602 1.61+++ 0.71+++ 1.46 .0554
Advisor Class Shares:
19974 23.43 .10 (.040) .060 -- -- -- 23.49 0.26 8,846 .59+++ 1.69+++ 1.46 .0554
DynaTech Fund:
Class I Shares:
1992 8.68 .12 .522 .642 (.112) -- (.112) 9.21 7.29 64,595 .81 1.42 10.70 --
1993 9.21 .10 1.209 1.309 (.117) (.112) (.229) 10.29 14.36 71,469 .81 1.03 26.56 --
1994 10.29 .07 .210 .280 (.124) (.596) (.720) 9.85 2.89 67,413 1.00 0.69 9.73 --
1995 9.85 .12 2.89 3.109 (.049) (.130) (.179) 12.78 32.10 92,987 1.01 1.11 9.83 --
1996 12.78 .06 1.536 1.596 (.118) (.228) (.346) 14.03 12.84 104,508 1.05 0.43 11.94 .0551
19973 14.03 .03 1.424 1.454 (.055) (.399) (.454) 15.03 10.31 125,184 .99+++ 0.43+++ 3.43 .0514
Class II Shares:
1996++ $13.57 $-- $ .464 $ .464 $ -- $ -- $ -- $14.03 3.39% $-- 1.85%+++(.14)%+++11.94% .0551
19973 14.03 (.01) 1.405 1.395 (.056) (.399) (.455) 14.97 9.88 662 1.62+++ (.20)+++ 3.43 .0514
Utilities Fund:
Class I Shares:
1992 8.81 .53 .849 1.379 (.559) -- (.559) 9.63 15.89 2,191,095 .57 5.90 1.39 --
1993 9.63 .53 1.165 1.695 (.545) -- (.545) 10.78 17.83 3,626,774 .55 5.30 7.81 --
1994 10.78 .55 (2.436) (1.886) (.524) (.040) (.564) 8.33 (17.94) 2,572,508 .64 5.76 6.34 --
1995 8.33 .53 1.421 1.951 (.524) (.007) (.531) 9.75 24.19 2,765,976 .73 5.88 5.55 --
1996 9.75 .54 .036 .576 (.524) (.072) (.596) 9.73 5.94 2,400,561 .71 5.24 17.05 .0486
19973 9.73 .27 .049 .319 (.262) (.427) (.689) 9.36 3.17 2,079,296 .72+++ 5.37+++ 4.52 .0501
Class II Shares:
1995+ 8.89 .23 .878 1.108 (.248) -- (.248) 9.75 13.01 8,369 1.21+++ 5.15+++ 5.55 --
1996 9.75 .46 .063 .523 (.481) (.072) (.553) 9.72 5.39 19,655 1.23 4.86 17.05 .0486
19973 9.72 .24 .047 .287 (.230) (.427) (.657) 9.35 2.84 22,406 1.25+++ 4.83+++ 4.52 .0501
Advisor Class Shares:
19974 9.63 .13 (.266) (.136) (.134) -- (.134) 9.36 (1.45) 4,817 .63+++ 5.50+++ 4.52 .0501
Income Fund:
Class I Shares:
1992 2.08 .19 .194 .384 (.205) (.009) (.214) 2.25 18.80 2,483,501 .55 9.11 23.30 --
1993 2.25 .18 .227 .407 (.185) (.012) (.197) 2.46 18.76 3,935,444 .54 7.84 25.41 --
1994 2.46 .17 (.201) (.031) (.180) (.029) (.209) 2.22 (1.52) 4,891,505 .64 7.37 23.37 --
1995 2.22 .18 .108 .288 (.180) (.028) (.208) 2.30 14.00 5,885,788 .71 8.26 58.64 --
1996 2.30 .19 .017 .207 (.180) (.027) (.207) 2.30 9.43 6,780,153 .70 8.27 25.29 .0518
19973 2.30 .09 .030 .120 (.090) (.010) (.100) 2.32 5.25 7,066,417 .69+++ 7.43+++ 7.26 .0490
Class II Shares:
1995+ 2.18 .08 .112 .192 (.072) -- (.072) 2.30 8.96 65,822 1.23+++ 7.89+++ 58.64 --
1996 2.30 .17 .025 .195 (.168) (.027) (.195) 2.30 8.86 343,314 1.21 7.84 25.29 .0518
19973 2.30 .08 .044 .124 (.084) (.010) (.094) 2.33 5.44 505,953 1.19+++ 7.19+++ 7.26 .0490
Advisor Class Shares:
19974 2.34 .05 (.024) .026 (.046) -- (.046) 2.32 0.22 9,036 .54+++ 7.24+++ 7.26 .0490
U.S. Government Securities Fund:*
Class I Shares:
1992 7.14 .61 .105 .715 (.595) -- (.595) 7.26 10.14 13,617,157 .53 8.46 38.75 --
1993 7.26 .56 (.059) .501 (.561) -- (.561) 7.20 6.86 14,268,516 .52 7.71 43.10 --
1994 7.20 .50 (.678) (.178) (.512) -- (.512) 6.51 (2.75) 11,668,747 .55 7.37 18.28 --
1995 6.51 .50 .345 .845 (.485) -- (.485) 6.87 13.56 11,101,605 .61 7.50 5.48 --
1996 6.87 .49 (.148) .342 (.492) -- (.492) 6.72 5.15 10,129,483 .61 7.18 8.01 --
19973 6.72 .24 (.014) .226 (.246) -- (.246) 6.70 3.39 9,616,027 .62+++ 7.10+++ 1.34 --
Class II Shares:
1995+ 6.67 .21 .163 .373 (.193) -- (.193) 6.85 5.66 11,695 1.18+++ 6.48+++ 5.48 --
1996 6.85 .45 (.148) .302 (.452) -- (.452) 6.70 4.55 57,657 1.17 6.80 8.01 --
19973 6.70 .22 (.013) .207 (.227) -- (.227) 6.68 3.10 85,793 1.19+++ 6.53+++ 1.34 --
Advisor Class Shares:
19974 6.76 .14 (.076) .064 (.124) -- (.124) 6.70 0.65 4,922 .55+++ 7.17+++ 1.34 --
+For the period ended May 1, 1995 (effective date) to September 30, 1995.
++For the period September 16, 1996 (effective date) to September 30, 1996.
+++Annualized
*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.
1Total return measures the change 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 was eliminated. The total return may differ from that reported
in the Manager's Discussion due to differences between net asset values quoted and net asset values calculated for
financial reporting purposes.
2Represents the average broker commission rate per share paid by the Fund in connection with the execution of the Fund's
portfolio transactions in equity securities.
3For the six months ended March 31, 1997.
4For the period January 1, 1997 (effective date) to March 31, 1997.
</TABLE>
Franklin Custodian Funds Semi-Annual Report March 31, 1997.
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 format the portfolio breakdown of the fund's securities
on 3/31/97, based on total net assets.
Portfolio Breakdown on March 31, 1997
Pharmaceuticals 10.4%
Aerospace 6.3%
Health Care - Diversified 6.3%
Transportation 6.1%
Environmental Services 5.3%
Chemicals 4.1%
Energy & Energy Services 3.7%
Data Services 3.6%
Electronics
& Electrical Equipment
Other Industries 21.8%
Short-Term Obligations 29.2%
& Other Net Assets
GRAPHIC MATERIAL (2)
This chart shows in pie format the breakdown of the fund's securities on
3/31/97, based on total net assets.
Utilities Stocks 86.7%
Utilities Bonds 12.2%
Short-Term Obligations 1.1%
& Other Net Assets
GRAPHIC MATERIAL (3)
This chart shows in pie format the breakdown of the fund's securities on
3/31/97, based on total net assets.
Corporate Bonds 34.4%
Utilities Stocks 20.1%
Foreign Bonds 11.8%
U.S. Treasury Bonds & Notes 8.4%
Oil & Gas Stocks 5.2%
Metals 3.6%
REITs 1.7%
Consumer Goods Stocks 1.9%
Telecommunications 1.6%
Services Stocks
Pharmaceutical Stocks 0.8%
Cable & Media Services 0.8%
Other Stocks 2.8%
Cash & Equivalents 6.9%
GRAPHIC MATERIAL (4)
The following point graph chart compares the fund's risk/return against that of
an average one-year CD, Merrill Lynch 10-year Treasury, and Merrill Lynch
30-year Treasury.
Risk vs. Return (4/92 - 3/97)
Fund 3.40% 6.59%
ML 10-Year 6.69% 6.60%
ML 30-Year 9.77% 7.38%
1-Year CD 0.32% 4.51%
GRAPHIC MATERIAL (5)
This bar chart shows the comparison between the fund's Class I shares yield of
6.68%, the average Ginnie Mae fund yield of 6.03%, the one-year CD yield of
5.90%, and the average money market fund yield of 4.68%, for the 30 days ended
3/31/97.
GRAPHIC MATERIAL (6)
This chart shows in pie format the breakdown of the fund's securities on
3/31/97, based on total net assets.
Portfolio Breakdown on March 31, 1997
Semiconductor Manufacturers 17.3%
Computer Software 9.3%
Computer Hardware 8.6%
Telecommunications 8.0%
Pharmatceuticals 5.3%
Medical Services 4.6%
Networking 4.0%
Retail 3.7%
Business Services 3.3%
Precision Instruments/ 2.4%
Test Equipment
Environmental Services 2.4%
Other 3.4%
Short-Term Obligations 27.7%
& Other Net Assets
