ANNUAL
REPORT
SEPTEMBER 30, 1998
FRANKLIN CUSTODIAN FUNDS, INC.
Franklin DynaTech Fund
Franklin Growth Fund
Franklin Income Fund
Franklin U.S. Government Securities Fund
Franklin Utilities Fund
Thank you for investing with Franklin Templeton. We encourage our investors
to maintain a long-term perspective and remember that all securities markets
move both up and down, as do mutual fund share prices. We appreciate your
past support and look forward to serving your investment needs in the years
ahead.
Charles B. Johnson
President
Franklin Custodian Funds, Inc.
Contents
Shareholder Letter ....................... 1
Fund Reports
Franklin DynaTech Fund .................. 4
Franklin Growth Fund .................... 12
Franklin Income Fund .................... 24
Franklin U.S. Government
Securities Fund .......................... 38
Franklin Utilities Fund ................. 50
Financial Highlights &
Statement of Investments ................. 62
Financial Statements ..................... 87
Notes to
Financial Statements ..................... 92
Independent
Auditors' Report ......................... 98
Tax Designation .......................... 99
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you the Franklin Custodian Funds, Inc. annual report
for the period ended September 30, 1998.
Foreign Storms Bring Rain
Although El Nino's effects on domestic weather subsided in June, the U.S.
stock market faced its own version of adverse elements in August. By the end
of the reporting period, financial events at home mirrored the downpour
abroad, where washed-out currencies flooded foreign markets. On August 31,
storm clouds rained on American stock markets, washing away much of the first
half of 1998's spectacular gains. On that day the Dow Jones(R) Industrial
Average (DJIA) lost 512.61 points or 6.37% of its value.1 Many analysts
attributed this slide to concerns about Russia's economic and political
stability as well as evidence that the Asian countries' economic problems
were more deep-seated than originally believed. At home, 1998 U.S. corporate
profits, through the end of the reporting period, fell dramatically from 1997
levels. Those companies with significant Asian exports, competing with Asian
products or those in commodity businesses like paper, oil and steel were
especially hard hit.
1. Source: Bloomberg.
At the same time, the very factors negatively impacting the U.S. stock market
- -- the slowing domestic economy and Russian and Asian economic turmoil --
provided a boost to the U.S. bond market. Foreign investors flocking to U.S.
bonds, especially U.S. Treasuries, as a "safe haven" from stock market
volatility abroad, and low inflation at home drove bond prices higher. Bond
price and yield move in an inverse relationship, so yields on long-term bonds
fell to their lowest levels in years. The benchmark 30-year U.S. Treasury
bond ended the reporting period yielding 4.98%, compared with 6.41% a year
earlier.1
What is an investor to do faced with steeply fluctuating markets? While the
phrase "investment value may go down as well as up" abounds in financial
literature, the stock market's unusually high gains in the past few years may
have led many investors to believe otherwise. Putting the 1990s into
historical perspective, it is worth noting that the average yearly gain in
the S&P 500(R), which paints a broader picture of the U.S. market than the
DJIA, has been +10.51% since 1930; however, from January 1, 1990, through
June 30, 1998, the S&P 500 rose an average of 17.81% a year.2 Also, there
have been fewer market corrections during the 1990s than previous decades,
with a market correction being defined as a 10% or greater decline over a
period of days, weeks or months.
2. Source: Stocks, Bonds, Bills, and Inflation 1998 Yearbook, Ibbotson
Associates.
Weatherproofing Your Portfolio
In times like these, it's easy to understand why people can become emotional
about their investments. That's why I believe investors should call their
investment representatives, and plan to cover three points in their
conversations. One, review their current financial plans, recalling their
goals and why they made their investment choices in the first place. Two,
discuss the value of diversification, which can help reduce the risk that any
one type of security will have a negative impact on an overall portfolio, and
check if their investments are still properly diversified. As shown during
the reporting period, the bond and stock markets often behave differently. In
each of the five years since 1973 that stocks posted negative annual returns,
bonds posted positive returns.3 Three, review their investment timeframe to
help put recent market declines into perspective and avoid turning what could
be only a temporary paper loss into a permanent one. Maintaining a long-term
outlook is one of the keys to weathering market volatility.
3. Source: For bond market statistics based on the Lehman Brothers
Government/Corporate Bond Index -- Lehman Brothers; for stock market measured
by the S&P 500 Index -- Standard & Poor's(R).
An important component of a long-term approach is having a regular investment
plan. Investing on a scheduled basis, regardless of market directions, can
help investors take advantage of market downturns when prices are low, and
benefit from any market rallies. We encourage you to contact your investment
representative to discuss setting up a regular investment plan. While
investment success is the primary objective of investment planning, one
important by-product of a good plan can be peace of mind.
As always, we appreciate your support, welcome your questions and comments
and look forward to serving your investment needs in the years ahead.
Sincerely,
Charles B. Johnson
President
Franklin Custodian Funds, Inc.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 63
of this report.
FRANKLIN DYNATECH FUND
Franklin DynaTech Fund
In 1998, Franklin DynaTech Fund celebrated its 30th anniversary. For three
decades, the fund has offered investors a strong record of returns and
consistent portfolio management. Franklin DynaTech Fund's managers still
follow the disciplined investment approach established for the fund since its
inception on January 1, 1968.
Your Fund's Goal: Franklin DynaTech Fund seeks capital appreciation by
investing primarily in companies emphasizing technological development.
Over the reporting period, the U.S. economy continued to expand at a moderate
pace until the second quarter of 1998, when the gross domestic product fell
to a 1.8% annual growth rate, from the first quarter's 5.5% rate. The Asian
crisis and its impact on other regions like Latin America was partly
responsible for the slowdown. These regions experienced a decreased capacity
to absorb American exports, while at the same time our stronger dollar made
for cheaper imports, making American products less competitive at home and
abroad. This translated into lower corporate earnings. Many companies over
the reporting period pre-announced that projected earnings estimates were too
high. Historically, deteriorating business conditions, as announced by lower
earnings expectations, have preceded significant stock market declines.
However, in the first part of the year, our market took these earnings
warnings in stride, and continued its euphoric rise as the Dow Jones
Industrial Average (DJIA) registered an all-time high of 9337.97 on July 17,
1998.
Valuations during this period were at extreme levels, unsustainable, in our
opinion, given the deteriorating business environment. As prudent managers,
we refrained from buying overvalued companies and let cash reserves build up
in anticipation of better opportunities. From their highs in July to their
lows in August, the DJIA and the Standard & Poor's 500 Index declined more
than 19%. More importantly, the Hambrecht & Quist Technology Index declined
27.4%. During this same period, Franklin DynaTech Fund's net asset value
declined only -12%. For the year under review, your fund has returned +3.06%,
compared with the 9.05% for the S&P 500 and -7.09% for the Hambrecht and
Quist Technology Index.
The depressed valuations of the calendar third quarter gave us an opportunity
to utilize some of our cash reserves. Over this period, we added to existing
holdings in those companies where we felt the fundamental outlook remained
strong, given the slowing economic environment. In the communications
industry, we focused on stocks that had declined 30% or more from their
highs, and increased our positions in Lucent Technologies, Inc., and Loral
Space & Communications, Ltd. These companies have leading-edge technologies
and commanding market share positions.
We added to other portfolio holdings, including Amgen Inc., Time Warner Inc.
and IMS Health, Inc. A biotechnology company, Amgen, has a new product,
Infergen, with FDA approval for treatment of hepatitis C. Time Warner is the
world's largest entertainment company, with business interests in movies,
publishing, music and cable TV. Its Pathfinder service, which showcases Time
Warner and subsidiary products, is one of the Web's most popular sites.
Finally, we are particularly excited about IMS Health, a spin-off from
Cognizant Technology Solutions Corp. IMS Health commands a 93% market share
in providing pharmaceutical companies with mission-critical information
during the research and development phase. The company operates the world's
most extensive database, Midas, used by every pharmaceutical, biotechnology
and health care distributor. IMS Health has been in operation for over 40
years, and has consistently provided income growth of more than 20%.
There are high barriers to entry in this profitable market, which boasts
70%-75% recurring revenues.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
We are enthusiastic about one new initial public offering purchased during
the reporting period -- Equant NV. This company is a global data network
provider, supplying all the needs to corporations in a "one stop" format. The
company designs, integrates, installs and supports intranet data networks.
Equant's customers include American Express, Hilton, Interpol, ING Bank, P&O
Nedlloyd, Rhone-Poulenc, Samsung, Shell, Xerox and other multinational
organizations with substantial cross-border data communication needs.* Equant
is advantageously positioned to provide data services in more than 200
countries around the world.
*Source: www.equant.com, Press Releases.
Looking forward, we expect the markets to remain volatile until foreign
officials take action to address their economic problems with stimulative
monetary packages. The U.S. Federal Reserve Board began its initiative during
this period to reignite American economic growth when they lowered the
Federal Funds target rate by a quarter percent (25 basis points) at the
Federal Open Market Committee Meeting on September 29. Historically, a 100
basis point decline is needed before the impact is felt from improving
economic activity. During this period of volatility, we will attempt to put
our cash reserves to work. We will continue to monitor the fund's existing
positions, where we found value in some outstanding companies during the
reporting period, and examine new company ideas, as their valuations become
attractive.
Please remember, this discussion reflects our views and opinions as of
September 30, 1998, the end of the reporting period. However, market and
economic conditions are changing constantly, which may affect our strategies
and portfolio holdings. Although historic performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
Sincerely,
Rupert Johnson
Lisa Costa
Portfolio Management Team
Franklin DynaTech Fund
PERFORMANCE SUMMARY
Class I
Franklin DynaTech Fund - Class I produced a +3.06% cumulative total return
for the one-year period ended September 30, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions and does not include the sales charge. We have always
maintained a long-term perspective when managing the fund, and we encourage
shareholders to view their investments in a similar manner. As you can see
from the table on page 9, the fund's Class I shares delivered a +339.60%
cumulative total return for the 10-year period ended September 30, 1998.
The fund's share price, as measured by net asset value, decreased 64 cents,
from $18.48 on September 30, 1997, to $17.84 on September 30, 1998. During
the reporting period, shareholders received per-share distributions of 17
cents ($0.17) in dividend income and 97 cents ($0.97) in long-term capital
gains. Distributions will vary depending on income earned by the fund and any
profits realized from the sale of securities in the fund's portfolio. Past
distributions are not indicative of future trends.
The graph on page 8 compares the performance of the fund's Class I shares
over the past 10 years with that of the Standard & Poor's 500 Stock Index
(S&P 500) and the Hambrecht & Quist Technology Index. Please note, the S&P
500 is a broad market index that represents stocks from a variety of
industries, not just the technology sector. The Hambrecht & Quist Technology
Index is composed of approximately 200 communications, health care, and
computer hardware and software stocks, and more closely represents the
securities held by the fund.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell stocks. Unlike an index, mutual
funds are never fully invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating
expenses such as Franklin DynaTech Fund's had been applied to the indices,
their performance would have been lower. Please remember that an index is
simply a measure of performance, and one cannot invest in it directly.
Franklin DynaTech Fund - Class I
Periods ended 9/30/98
Since
Inception
1-Year 5-Year 10-Year (1/1/68)
Cumulative Total Return1 +3.06% +114.50% +339.60% +1554.00%
Average Annual Total Return2 -2.87% +15.11% +15.28% +9.34%
Value of $10,000 Investment3 $9,713 $20,212 $40,459 $155,792
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
One-Year Total Return4 +2.94% +32.10% +12.84% +35.63% +3.06%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and has been restated to reflect
the current, maximum 5.75% initial sales charge; thus actual returns may
differ. Prior to August 3, 1998, fund shares were offered at a lower initial
sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and have been restated to reflect the
current, maximum 5.75% initial sales charge; thus actual returns may differ.
Prior to August 3, 1998, fund shares were offered at a lower initial sales
charge.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the dates indicated and does not include the
sales charge.
Effective May 1, 1994 the fund implemented a Rule 12b-1 plan, which affects
subsequent performance. All total return calculations assume reinvestment of
dividends and capital gains at net asset value. Since markets can go down as
well as up, investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares.
Franklin DynaTech Fund - Class I paid distributions derived from long-term
capital gains of 97 cents per share in December 1997. The fund hereby
designates such distributions as long-term capital gain dividends per section
852 (b)(3) of the Internal Revenue Code.
Class II
Franklin DynaTech Fund - Class II produced a +2.03% cumulative total return
for the one-year period ended September 30, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions and does not include sales charges. We have always maintained a
long-term perspective when managing the fund, and we encourage shareholders
to view their investments in a similar manner. As you can see from the table
on page 11, the fund's Class II shares delivered a +40.66% cumulative total
return since the shares became available on September 16, 1996.
The fund's share price, as measured by net asset value, decreased 77 cents,
from $18.30 on September 30, 1997, to $17.53 on September 30, 1998. During
the reporting period, shareholders received per-share distributions of 11.82
cents ($0.1182) in dividend income and 97 cents ($0.97) in long-term capital
gains. Distributions will vary depending on income earned by the fund and any
profits realized from the sale of securities in the fund's portfolio. Past
distributions are not predictive of future trends.
The graph on page 11 compares the performance of the fund's Class II shares
with that of the Standard & Poor's 500 Stock Index (S&P 500) and the
Hambrecht & Quist Technology Index. Please note, the S&P 500 is a broad
market index that represents stocks from a variety of industries, not just
the technology sector. The Hambrecht & Quist Technology Index is composed of
approximately 200 communications, health care, and computer hardware and
software stocks, and more closely represents the securities held by the fund.
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell stocks. Unlike an index, mutual
funds are never fully invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the sales
charges, all fund expenses and account fees. If operating expenses such as
Franklin DynaTech Fund's had been applied to the indices, their performance
would have been lower. Please remember that an index is simply a measure of
performance, and one cannot invest in it directly.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin DynaTech Fund - Class II
Periods ended 9/30/98
Since
Inception
1-Year (9/16/96)
Cumulative Total Return1 +2.03% +40.66%
Average Annual Total Return2 +0.09% +17.64%
Value of $10,000 Investment3 $10,009 $13,923
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the 1.0% initial
sales charge and the 1.0% contingent deferred sales charge, as applicable.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include sales charges.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
Franklin DynaTech Fund - Class II paid distributions derived from long-term
capital gains of 97 cents per share in December 1997. The fund hereby designates
such distributions as long-term capital gain dividends per section 852 (b)(3) of
the Internal Revenue Code.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 68
of this report.
FRANKLIN GROWTH FUND
Franklin
Growth Fund
In 1998, Franklin Growth Fund celebrated its 50th anniversary. For half a
century, the fund has offered investors a strong record of returns and
consistent portfolio management. Franklin Growth Fund's managers still follow
the disciplined investment approach established for the fund since its
inception on March 31, 1948.
Your Fund's Goal: Franklin Growth Fund seeks capital appreciation by
investing primarily in common stocks or convertible securities believed to
offer favorable possibilities for capital appreciation.
Asian woes and a General Motors strike precipitated an economic slowdown in
second quarter 1998, following on the heels of first quarter 1998's hearty
economic growth. In the first half of 1998, the gross domestic product's
annualized growth rate was 3.7%, but quarterly results were uneven. The
second quarter increase was only 1.8%. However, we believe the second half of
1998 will be better than the second quarter, with the year averaging out to a
5% gain. Inflation was mild and expected to be no more than 2% for the year.
Earnings flattened in this more restrained environment, but we still look for
a 2% improvement year-over-year. Interest rates declined during the reporting
period, with the bellwether 30-year Treasury bond yield going from 6.41% on
September 30, 1997, to 4.98% on September 30, 1998.
Stock market performance during the fund's fiscal year can be divided into
two distinct periods: the frenzied rally leading up to mid-July and the
precipitous sell-off that took place afterwards. This decline lasted through
early September and sent averages down 18%-22% for the calendar year. The
market was a market of stocks rather than a stock market, and there were
sharp performance differences among industries and companies. The average
price/earning ratios remained historically high: As of the end of the
reporting period, the Dow Jones Industrial Average (DJIA) was at 20 times
earnings, the Standard & Poor's (S&P) 500 was at 24.4 times, and the S&P
Industrials were at 27.9 times. Investors zeroed in on those companies with
positive, near-term results and deserted those companies having or expected
to have diminished near-term earnings. The net result is that the averages do
not tell the story, as a few stocks were too high, going higher; but many
were too low, going lower. Many stocks ended the 12-month reporting period
down 40%-50% and more. Bad news -- from Asia, Russia and the White House --
exerted the heaviest influence on market performance during that time.
The final two months of the year under review met with a substantial sell-off
and many stocks lost 30% to 40% of their value. We expect the Industrials to
reach another new low, but entertain the possibility that the selling may not
be as urgent in the upcoming months as it was in July/August. Compared with
the last time we wrote to you, we recently saw some values and buying
opportunities, since stocks do not all bottom at the same time, nor top at
the same moment.
When a bull market is in full force, good and bad news are treated similarly:
with buy orders. As of the end of the reporting period, the market was still
punishing stock disappointments, and companies that did not meet earnings
forecasts received harsh treatment. However, the reaction to small
disappointments was less severe than one year ago. This is because the stock,
quite likely, was already down somewhat and an increasing number of investors
perceived value that had not been there for quite some time.
How did Franklin Growth Fund perform in these choppy markets? In the March
30, semiannual report we mentioned our concern with the stock market's high
valuations at that time and reacted by keeping the fund relatively liquid. As
it turned out, our prudence was rewarded, and as of September 30, Franklin
Growth Fund - Class I shares posted a +8.22% cumulative total return for the
1998 fiscal year, compared with a 4.4% rise for the DJIA. At the end of the
reporting period, we purchased some stocks, which we believed represented
good value, lowering our cash reserves somewhat to 32.2% of total net assets.
The fund's sector allocation did not change significantly over the reporting
period, and health technology continued as the largest industry category.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Among the top 10 holdings, Schering-Plough Corp. and Pfizer Inc. continued in
the number one and number two positions, respectively. We had five newcomers:
Time Warner Inc., American Home Products Corp., Eli Lilly & Co.,
Bristol-Myers Squibb Co. and Johnson & Johnson Inc. The top 10 represented
23% of the fund, and six of the companies were in the health technology
sector.
Looking ahead, we will remain cautious and alert to take advantage of
opportunities for you as they avail themselves. We seek to adjust to all
types of economic environments, and we are confident that our long-term,
value-oriented approach should position the fund to perform well into the
future.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
Sincerely,
V. Jerry Palmieri
Portfolio Manager
Franklin Growth Fund
PERFORMANCE SUMMARY
Class I
Franklin Growth Fund - Class I produced a +8.22% cumulative total return for
the 12-month period ended September 30, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions and does not include the sales charge. We have always
maintained a long-term perspective when managing the fund, and we encourage
shareholders to view their investments in a similar manner. As you can see
from the table on page 17, the fund's Class I shares delivered a +275.00%
cumulative total return for the 10-year period ended September 30, 1998.
The fund's share price, as measured by net asset value, increased $1.49, from
$27.09 on September 30, 1997, to $28.58 on September 30, 1998. During the
12-month reporting period, shareholders received per-share distributions
consisting of dividend income totaling 46.6 cents ($0.466), 20.23 cents
($0.2023) in long-term capital gains and 3.27 cents ($0.0327) in short-term
capital gains. Distributions will vary based on the fund's income and any
profits realized from the sale of securities in the fund's portfolio. Past
distributions are not predictive of future trends.
The graph on page 16 compares the performance of the fund's Class I shares
over the past 10 years with the performance of the unmanaged Standard &
Poor's 500 Stock Index (S&P 500). The S&P 500 is a broad market index that
represents stocks from a variety of industries.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Keep in mind an unmanaged index has inherent performance differentials in
comparison with any fund. An index doesn't pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike an index, mutual funds are
never fully invested because they must have cash on hand to redeem shares. In
addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such
as Franklin Growth Fund's had been applied to the index, the index's
performance would have been lower. Please remember that an index is simply a
measure of performance and one cannot invest in it directly.
Franklin Growth Fund - Class I
Periods ended 9/30/98
Since
Inception
1-Year 5-Year 10-Year (3/31/48)
Cumulative Total Return1 +8.22% +120.87% +275.00% +21,520.62%
Average Annual Total Return2 +2.01% +15.79% +13.45% +11.10%
Value of $10,000 Investment3 $10,201 $20,816 $35,337 $2,037,053
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
One-Year Total Return4 +7.71% +31.11% +19.70% +20.84% +8.22%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and has been restated to reflect
the current, maximum 5.75% initial sales charge; thus actual returns may
differ. Prior to August 3, 1998, fund shares were offered at a lower initial
sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the current, maximum 5.75%
initial sales charge; thus actual total returns may differ. Prior to August
3, 1998, fund shares were offered at a lower initial sales charge.
4. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and does not include the sales
charge.
Effective May 1, 1994, the fund implemented a Rule 12b-1 plan, which affects
subsequent performance. All total return calculations assume reinvestment of
dividends and capital gains at net asset value. Since markets can go down as
well as up, investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares.
Franklin Growth Fund - Class I paid distributions derived from long-term
capital gains of 20.23 cents per share in December 1997. The fund hereby
designates such distributions as capital gain dividends per Section 852
(b)(3) of the Internal Revenue Code.
Class II
Franklin Growth Fund - Class II produced a +7.39% cumulative total return for
the one-year period ended September 30, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions and does not include sales charges. We have always maintained a
long-term perspective when managing the fund, and we encourage shareholders
to view their investments in a similar manner. As you can see from the table
on page 19, the fund's Class II shares delivered a +75.39% cumulative total
return since the shares became available on May 1, 1995.
The fund's share price, as measured by net asset value, increased $1.41, from
$26.70 on September 30, 1997, to $28.11 on September 30, 1998. During the
one-year reporting period, shareholders received per-share distributions
consisting of dividend income totaling 30.31 cents ($0.3031), 20.23 cents
($0.2023) in long-term capital gains and 3.27 cents ($0.0327) in short-term
capital gains. Distributions will vary based on the fund's income and any
profits realized from the sale of securities in the fund's portfolio. Past
distributions are not predictive of future trends.
The graph on page 19 compares the performance of the fund's Class II shares
with that of the unmanaged Standard & Poor's 500 Stock Index (S&P 500). The
S&P 500 is a broad market index that represents stocks from a variety of
industries.
Keep in mind an unmanaged index has inherent performance differentials in
comparison with any fund. An index doesn't pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike an index, mutual funds are
never fully invested because they need cash on hand to redeem shares. In
addition, the performance shown for the fund includes the sales charges, all
fund expenses and account fees. If operating expenses such as Franklin Growth
Fund's had been applied to the index, the index's performance would have been
lower. Please remember that an index is simply a measure of performance and
one cannot invest in it directly.
GRAPHIC MATERIAL 8 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Growth Fund - Class II
Periods Ended 9/30/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 +7.39% +52.88% +75.39%
Average Annual Total Return2 +5.32% +14.81% +17.53%
Value of $10,000 Investment3 $10,532 $11,481 $17,363
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the 1.0% initial
sales charge and the 1.0% contingent deferred sales charge, as applicable.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include sales charges.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
Franklin Growth Fund - Class II paid distributions derived from long-term
capital gains of 20.23 cents per share in December 1997. The fund hereby
designates such distributions as capital gain dividends per Section 852
(b)(3) of the Internal Revenue Code.
Advisor Class
Franklin Growth Fund - Advisor Class produced a +8.47% cumulative total
return for the one-year period ended September 30, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment
of all distributions.
The fund's share price, as measured by net asset value, increased $1.50, from
$27.13 on September 30, 1997, to $28.63 on September 30, 1998. During the
one-year reporting period, shareholders received per-share distributions
consisting of dividend income totaling 52.30 cents ($0.5230), 20.23 cents
($0.2023) in long-term capital gains and 3.27 cents ($0.0327) in short-term
capital gains. Distributions will vary based on the fund's income and any
profits realized from the sale of securities in the fund's portfolio. Past
distributions are not predictive of future trends.
The graph on page 22 compares the performance of the fund's Advisor Class
shares over the past 10 years with the performance of the unmanaged Standard
& Poor's 500 Stock Index (S&P 500). The S&P 500 is a broad market index that
represents stocks from a variety of industries.
Keep in mind an unmanaged index has inherent performance differentials in
comparison with any fund. An index doesn't pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike an index, mutual funds are
never fully invested because they need cash on hand to redeem shares. In
addition, the performance shown for the fund includes all fund expenses and
account fees. If operating expenses such as Franklin Growth Fund's had been
applied to the index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 9 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Growth Fund - Advisor Class
Periods Ended 9/30/98
Since
Inception
1-Year* 5-Year* 10-Year* (3/31/48)*
Cumulative Total Return1 +8.47% +121.71% +276.42% +21,603.00%
Average Annual Total Return1 +8.47% +17.26% +14.17% +11.24%
Value of $10,000 Investment2 $10,847 $22,171 $37,642 $2,170,300
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
One-Year Total Return*,3 +7.71% +31.11% +19.70% +20.91% +8.47%
1. Cumulative total return represents the change in value of an investment
over the periods indicated. Average annual total return represents the
average annual change in value of an investment over the periods indicated.
2. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated.
3. One-year total return represents the change in value of an investment over
the periods ended on the specified dates.
*On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the fund's Class I performance, excluding the effect of the Class I sales
charge, but including the effect of Class I expenses, including Rule 12b-1 fees;
and (b) for periods after January 1, 1997, figures reflect actual Advisor Class
performance including the deduction of all fees and expenses applicable only to
that class. Since January 2, 1997 (commencement of sales), the cumulative total
return of Advisor Class shares was 26.63%.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions. You may have a gain or
loss when you sell your shares.
Franklin Growth Fund - Advisor Class paid distributions derived from
long-term capital gains of 20.23 cents per share in December 1997. The fund
hereby designates such distributions as capital gain dividends per Section
852 (b)(3) of the Internal Revenue Code.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 73
of this report.
FRANKLIN INCOME FUND
Franklin
Income Fund
In 1998, Franklin Income Fund celebrated its 50th anniversary. For half a
century, the fund has offered investors a strong record of returns and
consistent portfolio management. Franklin Income Fund's managers still follow
the disciplined investment approach established for the fund since its
inception on August 31, 1948.
Your Fund's Goal: Franklin Income Fund seeks to maximize income while
maintaining prospects for capital appreciation through a diversified
portfolio of securities.
The U.S. stock market performed strongly for most of the reporting period,
only to give back much of its gains in July and August. This decline
resulted, in part, from concerns about slowing economic growth, corporate
profit warnings and international economic turmoil. Investors reacted to
stock market volatility by seeking the safety of U.S. Treasury bonds and
driving the yield on the 30-Year Treasury bond to an all time low of 4.98% on
September 30, 1998. Prospects for a U.S. government budget surplus and
reports of low inflation also helped the Treasury bond market.
Although the 12-month period presented us with several investment
opportunities, the portfolio sector weightings did not change significantly.
The fund's overall bond weighting remained steady at 53% of total net assets
despite changes in the fund's bond mix. The stock weighting increased
slightly from 40% to 42%, due in large part to appreciation of our utility
stock holdings. The fund's cash position declined from 5.2% to 3.9%.
The fund's bond holdings consist of corporate, foreign and U.S. Treasury
bonds. Corporate bonds, representing our largest fixed-income weighting,
declined to 24% of total net assets, largely resulting from calls or tenders
at premium prices from issuers seeking to retire debt. Several of these calls
and tenders resulted from the acquisition of issuing companies by companies
with stronger credit profiles. Corporate bonds benefiting from merger and
acquisitions activity included issues from Calmar Inc., Americold Corp.,
Ralphs and Food 4 Less, Inc. Our corporate bond sector performed well over
most of the period, but faced a challenging environment toward the end of our
fiscal year, as concerns over slowing economic growth were exacerbated by an
imbalance in the supply and demand for corporate bonds. Although we remained
selective with respect to our investments in corporate bonds, we were able to
find several attractive purchases, including new positions in Evenflo Co.
(Consumer Non-Durables), Conproca SASF (Energy Minerals), Nextel
Communications, Inc. (Telecommunications) and Venetian Casino/LV Sands
(Consumer Services).
We added to the fund's U.S. Treasury holdings early in the period, as we
believed that Treasury bonds represented an attractive investment due to the
current environment of subdued inflation and prospects for a U.S. government
budget surplus. Treasury bonds subsequently benefited from these positive
conditions as well as from concerns over international economic turmoil and
the potential for slowing domestic growth. As a consequence, U.S. government
securities represented 16% of total net assets on September 30, 1998, up from
11.4% a year earlier.
Foreign bonds did not fare as well as their domestic counterparts during the
reporting period. The Asian crises, combined with economic uncertainty in
other international markets such as Russia and Latin America, weakened many
countries' stock and bond markets. Seeking to take advantage of weakness in
the period, we focused on dollar-denominated bonds of countries we believed
would work with the International Monetary Fund (IMF) and G7 countries on
continued economic reform to achieve financial stability. Consequently, we
added to our Brazilian Brady bonds and initiated positions in Korean and
Russian dollar-denominated government bonds.
The fund's equity sectors delivered mixed performances with utility stocks
outperforming the S&P 500, while most other sectors experienced weakness.
Utility stocks performed well, due in part to their defensive
characteristics, attractive valuations and lower interest rates. Such stocks
also benefited when CalEnergy, an independent power producer, made an
acquisition bid for MidAmerican Energy. We subsequently realized gains on our
MidAmerican position, which we sold as the shares appeared fully valued. The
entry of nontraditional buyers into the utility market is a developing trend
that we expect to continue. We believe utility stocks still offer attractive
yields and value relative to the broader stock market, as well as improving
growth opportunities from companies that are successfully adapting to a
deregulated environment.
The fund's gold, energy and real estate stock sectors experienced declines
during the period as a result of supply/demand concerns. Gold bullion
suffered a steep decline in price amid uncertainty related to central bank
reserve selling. We added to several positions on weakness, including Free
State Consolidated Gold Mines Ltd., Anglogold Ltd., and Western Deep Level
Ltd. Falling energy stocks, related to declining oil prices, also offered
what we believed were attractive long-term values, particularly in light of
recent OPEC cuts in oil production. Consequently, we established positions in
Energy Ventures Inc. and Lomak Financing Trust convertible preferred stocks.
In the real estate sector, we initiated four real estate investment trust
(REIT) convertible security positions, in Glenborough Realty Trust Inc.,
Innkeeper USA Trust, Meristar Hospitality Corp. and Reckson Associates Realty
Corp., representing a diverse mix of property types with favorable income
yields. We believe REITs offer steady cash flow and dividend growth, as well
as attractive valuations relative to their underlying properties and the
stock market, in general. Finally, we sold or trimmed several stock positions
with gains that had appreciated during the year and no longer fit our
valuation criteria.
GRAPHIC MATERIAL 10 OMITTED - SEE APPENDIX AT END OF DOCUMENT
We remain selective with respect to new investments amid increased stock and
bond market volatility. However, we will continue to be opportunistic and
utilize fundamental research in our search for investment opportunities
across markets. As always, we remain committed to our value-oriented
approach, seeking income and growth from a diversified mix of stocks, bonds
and cash.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
Sincerely,
Charles B. Johnson
Matt Avery
Portfolio Management Team
Franklin Income Fund
PERFORMANCE SUMMARY
Class I
Franklin Income Fund - Class I produced a +2.23% cumulative total return for
the one-year period ended September 30, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions and does not include the sales charge. We have always
maintained a long-term perspective when managing the fund, and we encourage
shareholders to view their investments in a similar manner. As you can see
from the table on page 29, the fund's Class I shares delivered a +193.14%
cumulative total return for the 10-year period ended September 30, 1998.
The fund's share price, as measured by net asset value, decreased 15 cents,
from $2.49 on September 30, 1997, to $2.34 on September 30, 1998. During the
one-year reporting period, shareholders received per-share distributions
consisting of dividend income totaling 18 cents ($0.18) and 2.8 cents
($0.028) in long-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the
fund's portfolio. Past distributions are not predictive of future trends.
Based on the maximum offering price of $2.44 on September 30, 1998, and an
annualization of September's monthly dividend of 1.5 cents ($0.015) per
share, the fund's distribution rate was 7.38%.
The graph on page 28 compares the performance of the fund's Class I shares
over the past 10 years with the performance of the unmanaged Standard &
Poor's 500 Stock Index (S&P 500) and the Lehman Brothers Government/Corporate
Bond Index. It also compares the fund's performance with the average
performance of 22 other income funds, as measured by Lipper Analytical
Services, Inc.
Keep in mind an unmanaged index has inherent performance differentials in
comparison with any fund. An index doesn't pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike an index, mutual funds are
never fully invested because they need cash on hand to redeem shares. In
addition, the performance shown for the fund includes the maximum initial
sales charge, all fund expenses and account fees. If operating expenses such
as Franklin Income Fund's had been applied to the indices, their performance
would have been lower. Please remember that an index is simply a measure of
performance and one cannot invest in it directly.
GRAPHIC MATERIAL 11 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Income Fund - Class I
Periods ended 9/30/98
Since
Inception
1-Year 5-Year 10-Year (8/31/48)
Cumulative Total Return1 +2.23% +47.59% +193.14% +21,226.59%
Average Annual Total Return2 -2.10% +7.15% +10.89% +11.21%
Value of $10,000 Investment3 $9,790 $14,127 $28,115 $2,043,800
Distribution Rate4 7.38%
30-Day Standardized Yield5 7.31%
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
One-Year Total Return6 -1.35% +14.00% +9.43% +17.31% +2.23%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current, maximum
4.25% initial sales charge. 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 would differ.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the current, maximum 4.25%
initial sales charge. 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 would differ.
4. Distribution rate is based on an annualization of September's 1.5 cent per
share monthly dividend and the maximum offering price of $2.44 on September
30, 1998.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
6. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and does not include the sales
charge.
Effective May 1, 1994, the fund eliminated the sales charge on reinvested
dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. All total return calculations assume reinvestment of dividends
and capital gains at net asset value. Since markets can go down as well as
up, investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares.
Franklin Income Fund - Class I paid distributions derived from long-term
capital gains of 2.8 cents per share in December 1997. The fund hereby
designates such distributions as capital gain dividends per Section 852
(b)(3) of the Internal Revenue Code.
Class II
Franklin Income Fund - Class II produced a +1.70% cumulative total return for
the one-year period ended September 30, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions and does not include sales charges. We have always maintained a
long-term perspective when managing the fund, and we encourage shareholders
to view their investments in a similar manner. As you can see from the table
on page 33, the fund's Class II shares delivered a +40.48% cumulative total
return since the shares became available on May 1, 1995.
The fund's share price, as measured by net asset value, decreased 15 cents,
from $2.49 on September 30, 1997, to $2.34 on September 30, 1998. During the
one-year reporting period, shareholders received per-share distributions
consisting of dividend income totaling 16.74 cents ($0.1674) and 2.8 cents
($0.028) in long-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the
fund's portfolio. Past distributions are not predictive of future trends.
Based on the maximum offering price of $2.36 on September 30, 1998, and an
annualization of September's monthly dividend of 1.39 cents ($0.0139), plus a
12b-1 differential adjustment of 0.03 cents ($0.0003) per share, the fund's
distribution rate was 7.08%.
The graph on page 32 compares the performance of the fund's Class II shares
since inception, with the performance of the unmanaged Standard & Poor's 500
Stock Index (S&P 500) and the Lehman Brothers Government/Corporate Bond
Index. It also compares the fund's performance with the average performance
of 22 other income funds, as measured by Lipper Analytical Services, Inc.
Keep in mind an unmanaged index has inherent performance differentials in
comparison with any fund. An index doesn't pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike an index, mutual funds are
never fully invested because they must have cash on hand to redeem shares, In
addition, the performance shown for the fund includes the sales charges, all
fund expenses and account fees. If operating expenses such as Franklin Income
Fund's had been applied to the indices, their performance would have been
lower. Please remember that an index is simply a measure of performance and
one cannot invest in it directly.
GRAPHIC MATERIAL 12 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Income Fund - Class II
Periods ended 9/30/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 +1.70% +29.22% +40.48%
Average Annual Total Return2 -0.44% +8.61% +10.16%
Value of $10,000 Investment3 $9,956 $12,811 $13,919
Distribution Rate4 7.08%
30-Day Standardized Yield5 7.10%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the 1.0% initial
sales charge and the 1.0% contingent deferred sales charge, as applicable.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include sales charges.
4. Distribution rate is based on an annualization of September's 1.39 cent
per share monthly dividend, plus a 12b-1 differential adjustment of 0.03
cents, and the maximum offering price of $2.36 on September 30, 1998.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Since markets can go down as well as up, investment
return and principal value will fluctuate with market conditions, and you may
have a gain or loss when you sell your shares.
Franklin Income Fund - Class II paid distributions derived from long-term
capital gains of 2.8 cents per share in December 1997. The fund hereby
designates such distributions as capital gain dividends per Section 852
(b)(3) of the Internal Revenue Code.
Advisor Class
Franklin Income Fund - Advisor Class produced a +2.82% cumulative total
return for the one-year period ended September 30, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment
of all distributions.
The fund's share price, as measured by net asset value, decreased 14 cents,
from $2.48 on September 30, 1997, to $2.34 on September 30, 1998. During the
one-year reporting period, shareholders received per-share distributions
consisting of dividend income totaling 18.37 cents ($0.1837) and 2.8 cents
($0.028) in long-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the
fund's portfolio. Past distributions are not predictive of future trends.
Based on the net asset value price of $2.34 on September 30, 1998, and an
annualization of September's monthly dividend of 1.53 cents ($0.0153) per
share, the fund's distribution rate was 7.85%.
The graph on page 36 compares the performance of the fund's Advisor Class
shares over the past 10 years with the performance of the unmanaged Standard
& Poor's 500 Stock Index (S&P 500) and the Lehman Brothers
Government/Corporate Bond Index. It also compares the fund's performance with
the average performance of 22 other income funds, as measured by Lipper
Analytical Services, Inc.
Keep in mind an unmanaged index has inherent performance differentials in
comparison with any fund. An index doesn't pay management fees to cover
salaries of securities analysts or portfolio managers, or pay commissions or
market spreads to buy and sell securities. Unlike an index, mutual funds are
never fully invested because they need cash on hand to redeem shares. In
addition, the performance shown for the fund includes all fund expenses and
account fees. If operating expenses such as Franklin Income Fund's had been
applied to the indices, their performance would have been lower. Please
remember that an index is simply a measure of performance and one cannot
invest in it directly.
GRAPHIC MATERIAL 13 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Income Fund - Advisor Class
Periods ended 9/30/98
Since
Inception
1-Year* 5-Year* 10-Year* (8/31/48)*
Cumulative Total Return1 +2.82% +48.03% +194.01% +21,289.82%
Average Annual Total Return1 +2.82% +8.16% +11.39% +11.31%
Value of $10,000 Investment2 $10,282 $14,803 $29,401 $2,138,982
Distribution Rate3 7.85%
30-Day Standardized Yield4 7.78%
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
One-Year Total Return5 -1.35% +14.00% +9.43% +16.99% +2.82%
1. Cumulative total return represents the change in value of an investment
over the periods indicated. Average annual total return represents the
average annual change in value of an investment over the periods indicated.
2. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated.
3. Distribution rate is based on an annualization of September's 1.53 cent
per share monthly dividend and the net asset value price of $2.34 on
September 30, 1998.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
5. One-year total return represents the change in value of an investment over
the periods ended on the specified dates.
*On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures
reflect the fund's Class I performance, excluding the effect of the Class I
sales charge, but including the effect of Class I expenses, including Rule
12b-1 fees; and (b) for periods after January 1, 1997, figures reflect actual
Advisor Class performance, including the deduction of all fees and expenses
applicable only to that class. Since January 2, 1997 (commencement of sales),
the cumulative total return of Advisor Class shares was 8.59%.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions. You may have a gain or
loss when you sell your shares.
Franklin Income Fund - Advisor Class paid distributions derived from
long-term capital gains of 2.8 cents per share in December 1997. The fund
hereby designates such distributions as capital gain dividends per Section
852 (b)(3) of the Internal Revenue Code.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 81
of this report.
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
Your Fund's Goal: Franklin U.S. Government Securities Fund seeks high,
current income from a portfolio of U.S. government securities.
Strong economic growth and low inflation characterized the United States
economy during the 12-month reporting period. Robust consumer demand was the
primary driver for the U.S. gross domestic product's 3.6% annualized growth
rate, from the end of the second quarter of 1997, through second quarter
1998. An extremely strong labor market, as seen in September's 4.6%
unemployment rate, which hovered near a 30-year low, supported high levels of
consumer confidence during the reporting period.1 A booming housing market,
resulting from low unemployment as well as falling interest rates, further
contributed to economic growth during the reporting period.
1. Source: Bloomberg.
The presence of tight labor markets pushing up wage and benefit costs did not
translate into consumer price inflation. Commodity prices fell as the Asian
contagion stifled global demand. At the same time, productivity gains in the
U.S. allowed businesses to absorb rising labor costs without passing them on
to consumers. The unique combination of these two factors helped keep
inflation extremely low during the reporting period, as demonstrated by the
Consumer Price Index (CPI) increase of only 1.5% from September 30, 1997, to
September 30, 1998.2
2. Source: Standard & Poor's Micropal (U.S. Bureau of Labor Statistics).
Inflation's inability to ignite was one factor precipitating the U.S.
interest-rate decline over the past year. 30-year Treasury interest rates
fell 143 basis points during the reporting period, from 6.41% to 4.98%.1 The
federal budget deficit reduction and U.S. Treasury securities' increased
popularity among investors also spurred falling interest rates.
GRAPHIC MATERIAL 14 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 15 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Disruptions in the Asian economies sent shockwaves throughout global
financial markets, spurring investors' flight to quality into "safe haven"
U.S. Treasury securities. This surge in popularity, occurring during a period
of reduced supply, drove up the prices of Treasuries, causing their yields to
fall during the reporting period. At the same time, increased tax receipts,
prompted by a strong U.S. economy and the federal government's higher degree
of fiscal responsibility, reduced the need for Treasury borrowing, thereby
lowering the supply of Treasury securities on the market.
The flight to quality also led to the U.S. dollar's appreciation relative to
many currencies. As a consequence, U.S. products became more expensive and
less competitive with their foreign counterparts. In addition, the Asian
crisis exerted a drag on U.S. economic growth in early 1998, dampening
exports and manufacturing activity. Although bad news for the American trade
deficit, the influx of cheaper foreign goods reaching American shores should
keep inflation at bay. Anticipating that U.S. economic growth will slow under
the weight of the global financial crisis, the Federal Reserve Board lowered
the Federal Funds target rate a quarter of a percentage point to 5.25% on
September 29.3
3. Source: Bloomberg.
What is a GNMA?
Government National Mortgage Association (GNMA) obligations are
mortgage-backed securities representing part ownership of a pool of mortgage
loans. The GNMAs purchased by the fund carry a guarantee backed by the full
faith and credit of the U.S. government as to the timely payment of interest
and principal. Since 1983, the assets of Franklin U.S. Government Securities
Fund have been invested solely in GNMAs.
During the past 12 months, we added lower-coupon GNMA mortgage pass-through
securities to the portfolio in response to the lower interest-rate
environment. Lower-coupon issues have less prepayment risk than higher-coupon
securities, yet still provide income advantages relative to other government
issues. Prepayment risk is the risk that the borrower will take advantage of
lower interest rates to refinance his home loan, repaying the original
mortgage holder ahead of time; thereby causing the mortgage holder to lose
this source of income. In such an environment the returned principal can only
be reinvested at the current, lower rates.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
Sincerely,
Jack Lemein
Roger A. Bayston
T. Anthony Coffey
Portfolio Management Team
Franklin U.S. Government Securities Fund
PERFORMANCE SUMMARY
Class I
Franklin U.S. Government Securities Fund - Class I share price, as measured
by net asset value, increased 10 cents, from $6.89 on September 30, 1997, to
$6.99 on September 30, 1998. During the one-year reporting period,
shareholders received income distributions totaling 45.8 cents ($0.458) per
share. Distributions will vary based on the earnings of the fund's portfolio,
and past distributions are not predictive of future trends.
Based on an annualization of September's monthly per-share dividend of 3.7
cents ($0.037) and the maximum offering price of $7.30 on September 30, 1998,
your fund's distribution rate was 6.08%.
The graph on page 42 compares the performance of the fund's Class I shares
over the past 10 years with that of the Lehman Brothers Intermediate U.S.
Government Bond Index. As the graph illustrates, the fund's performance has
closely followed that of the Lehman Brothers index, while surpassing the rate
of inflation as measured by the Consumer Price Index (CPI).
GRAPHIC MATERIAL 16 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell stocks. Unlike an index, mutual
funds are never fully invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating
expenses such as Franklin U.S. Government Securities Fund's had been applied
to the index, its performance would have been lower. Please remember that an
index is simply a measure of performance, and one cannot invest in it
directly.
Franklin U.S. Government Securities Fund - Class I
Periods ended 9/30/98
Since
Inception
1-Year 5-Year 10-Year (2/1/77)
Cumulative Total Return1 +8.41% +38.83% +126.20% +702.27%
Average Annual Total Return2 +3.75% +5.86% +8.03% +7.46%
Distribution Rate3 6.08%
30-Day Standardized Yield4 5.98%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current, maximum
4.25% initial sales charge. Prior to July 1, 1994, shares were offered at a
lower initial sales charge with dividends reinvested at the offering price.
Thus actual total returns would differ.
3. Distribution rate is based on an annualization of September's 3.7 cent per
share monthly dividend and the maximum offering price of $7.30 on September
30, 1998.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
Effective May 1, 1994, the fund eliminated the sales charge on reinvested
dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. All total return calculations assume reinvestment of dividends
and capital gains at net asset value. Since markets can go down as well as
up, investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares.
Class II
Franklin U.S. Government Securities Fund - Class II share price, as measured
by net asset value, increased 10 cents, from $6.87 on September 30, 1997, to
$6.97 on September 30, 1998. During the one-year reporting period,
shareholders received income distributions totaling 42.05 cents ($0.4205) per
share. Distributions will vary based on the earnings of the fund's portfolio,
and past distributions are not predictive of future trends.
Based on an annualization of September's monthly per-share dividend of 3.38
cents ($0.0338), plus a 12b-1 differential adjustment of 0.02 cents
($0.0002), and the maximum offering price of $7.04 on September 30, 1998,
your fund's distribution rate was 5.76%.
The graph on page 45 compares the performance of the fund's Class II shares
with that of the Lehman Brothers Intermediate U.S. Government Bond Index. As
the graph illustrates, the fund's performance has closely followed that of
the Lehman Brothers index, while surpassing the rate of inflation as measured
by the Consumer Price Index (CPI).
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell stocks. Unlike an index, mutual
funds are never fully invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the sales
charges, all fund expenses and account fees. If operating expenses such as
Franklin U.S. Government Securities Fund's had been applied to the index, its
performance would have been lower. Please remember that an index is simply a
measure of performance, and one cannot invest in it directly.
GRAPHIC MATERIAL 17 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin U.S. Government Securities Fund - Class II
Periods ended 9/30/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 +7.85% +23.44% +30.41%
Average Annual Total Return2 +5.77% +6.91% +7.75%
Distribution Rate3 5.76%
30-Day Standardized Yield4 5.64%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the 1.0% initial
sales charge and the 1.0% contingent deferred sales charge, as applicable.
3. Distribution rate is based on an annualization of September's 3.38 cent
per share monthly dividend, plus a 12b-1 differential adjustment of 0.02
cents, and the maximum offering price of $7.04 on September 30, 1998.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Since markets can go down as well as up, investment
return and principal value will fluctuate with market conditions, and you may
have a gain or loss when you sell your shares.
Advisor Class
Franklin U.S. Government Securities Fund - Advisor Class share price, as
measured by net asset value, increased 10 cents, from $6.90 on September 30,
1997, to $7.00 on September 30, 1998. During the one-year reporting period,
shareholders received income distributions totaling 46.48 cents ($0.4648) per
share. Distributions will vary based on the earnings of the fund's portfolio,
and past distributions are not predictive of future trends.
Based on an annualization of September's monthly per-share dividend of 3.76
cents ($0.0376) and the net asset value price of $7.00 on September 30, 1998,
your fund's distribution rate was 6.45%.
The graph on page 48 compares the performance of the fund's Advisor Class
shares over the past 10 years with that of the Lehman Brothers Intermediate
U.S. Government Bond Index. As the graph illustrates, the fund's performance
has closely followed that of the Lehman Brothers index, while surpassing the
rate of inflation as measured by the Consumer Price Index (CPI).
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell stocks. Unlike an index, mutual
funds are never fully invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes all fund
expenses and account fees. If operating expenses such as Franklin U.S.
Government Securities Fund's had been applied to the index, its performance
would have been lower. Please remember that an index is simply a measure of
performance, and one cannot invest in it directly.
GRAPHIC MATERIAL 18 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin U.S. Government Securities Fund - Advisor Class
Periods ended 9/30/98
Since
Inception
1-Year* 5-Year* 10-Year* (2/1/77)*
Cumulative Total Return1 +8.51% +39.24% +126.86% +704.62%
Average Annual Total Return1 +8.51% +6.84% +8.54% +7.64%
Distribution Rate3 6.45%
30-Day Standardized Yield4 6.35%
*On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures
reflect the fund's Class I performance, excluding the effect of the Class I
sales charge, but including the effect of Class I expenses, including
Rule12b-1 fees; and (b) for periods after January 1, 1997, figures reflect
actual Advisor Class performance including the deduction of all fees and
expenses applicable only to that class. Since January 2, 1997 (commencement
of sales), the cumulative total return of Advisor Class shares was 16.85%.
1. Cumulative total return represents the change in value of an investment
over the periods indicated. Average annual total return represents the
average annual change in value of an investment over the periods indicated.
2. Distribution rate is based on an annualization of September's 3.76 cent
per share monthly dividend and the net asset value price of $7.00 on
September 30, 1998.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Since markets can go down as well as up, investment
return and principal value will fluctuate with market conditions, and you may
have a gain or loss when you sell your shares.
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 85
of this report.
FRANKLIN UTILITIES FUND
Franklin
Utilities Fund
In 1998, Franklin Utilities Fund celebrated its 50th anniversary. For half a
century, the fund has offered investors a strong record of returns and
consistent portfolio management. Franklin Utilities Fund's managers still
follow the disciplined investment approach established for the fund since its
inception on September 30, 1948.
Your Fund's Goal: Franklin Utilities Fund seeks both capital appreciation and
current income from a portfolio of public utility industry securities.
For the year under review, Franklin Utilities Fund outperformed its
comparison index, the S&P 500, with a +21.71% cumulative total return for
Class I shares versus 9.05% for the S&P 500. The improving industry
fundamentals, as well as the investor shift towards defensive investments
fueled this superior performance.
The utility industry's performance started to top that of the S&P 500 in the
fourth quarter of 1997, as investors sought a safe haven from the Asian
currency crisis' volatility. With their high yields, predictable cash flow
and earnings growth, the electric utilities group appeared very attractive
relative to the broader market. World markets became volatile as the currency
problem spread to the rest of the emerging markets and U.S. political turmoil
surfaced. Analysts made downward revisions in their S&P 500 earnings and
world gross domestic product (GDP) earnings forecasts, making the improving
earnings estimates for the electric industry look even better.
The electric utility industry became cash-flow positive for the first time in
1996, reducing its need for issuing new debt and equity. According to the
Edison Electric Institute, the industry payout ratio (the dividend per
share/earnings per share) is down to a healthy 71.3%, pre-tax interest
coverage (the number of times interest charges were earned by the corporation
on a pretax basis) is at a 26-year high, and the equity ratio (the equity
percentage of total capitalization) is at its highest level ever recorded.*
With cash flow more than covering construction expenditures, electric utility
management has an opportunity to implement very shareholder-friendly
strategies. This will be the key to ensuring positive long-term earnings
growth for the industry. The excess funds will likely be used to strengthen
balance sheet and income statements through debt and interest expense
reduction, to pursue profitable diversification efforts globally in the
energy related field, and to buy back common shares in companies with strong
balance sheets. Asset sales should further enhance the cash positions of many
of these companies.
*Edison Electric Institute, 1996. Annual Report of the Investor-Owned
Electric Utility Industry, latest edition.
Not only did the industry boast healthy earnings and cash flow projections,
but regulatory clarity improved as well. The deregulation of the industry's
generation segment, as set in motion by the National Energy Policy Act,
continued to progress. So far, all states have made provisions for utilities
to recover a substantial portion of their prior investments in generation
plants, as those investments were made in good faith under the old regulatory
scheme. States such as California, New Hampshire, Maine, Pennsylvania,
Montana, Rhode Island, Massachusetts, Michigan, Oklahoma and Illinois have
enacted legislation or commission orders directing restructuring, which
benefited our holdings in Montana Power Co., Sempra Energy, Edison
International and PG&E Corp.
Historically, those companies with a "first mover advantage" achieve a
competitive edge in deregulating industries. In the electric industry, this
has given management the financial and creative impetus to develop
profitable, new, related services. Examples of such services are
telecommunications, energy outsourcing, energy marketing, distributed
generation, home security, engineering and construction, heating and
air-conditioning, and international electric and gas distribution. Enron
Corp., AES Trust, CMS Energy Trust, FPL Group, Inc., GPU, Inc., Conectiv
Inc., Montana Power Co., Duke Energy Corp., Florida Progress Corp., Western
Resources, Inc., Pinnacle West Capital Corp. and Edison International are
existing portfolio holdings with such creative management strategies.
GRAPHIC MATERIAL 19 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 20 OMITTED - SEE APPENDIX AT END OF DOCUMENT
As a result of declining interest rates, four of the portfolio's different
bond issues were called during the reporting period. This brought bonds as
percentage of total net assets down to 13.1%. We primarily reinvested the
proceeds in convertible securities including Texas Utilities Co. and MediaOne
Group, Inc., bringing convertible securities up to 7.3% of total net assets.
Common stock remained relatively stable at 75% of total net assets.
We are continuing our fifty-year strategy of buying high-quality utility
companies with predictable earnings per share and advantageous market
positioning. With attractive valuations relative to the broad market
industries and a continually improving regulatory outlook, we believe this
sector offers a compelling investment opportunity.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected
to affect our strategies and the fund's portfolio composition. Although
historical performance is no guarantee of future results, these insights may
help you understand our investment and management philosophy.
Sincerely,
Sally Edwards Haff
Portfolio Manager
Franklin Utilities Fund
PERFORMANCE SUMMARY
Class I
Franklin Utilities Fund - Class I produced a +21.71% cumulative total return
for the one-year period ended September 30, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions and does not include the sales charge. We have always
maintained a long-term perspective when managing the fund, and we encourage
shareholders to view their investments in a similar manner. As you can see
from the table on page 55, the fund's Class I shares delivered a +201.95%
cumulative total return for the 10-year period ended September 30, 1998.
The fund's share price, as measured by net asset value, increased $1.32, from
$10.04 on September 30, 1997, to $11.36 on September 30, 1998. During the
one-year reporting period, shareholders received per-share distributions
consisting of dividend income totaling 52.4 cents ($0.524) and 26.24 cents
($0.2624) in long-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the
fund's portfolio. Past distributions are not predictive of future trends.
Based on the maximum offering price of $11.86 on September 30, 1998, and an
annualization of September's quarterly dividend of 13.1 cents ($0.131) per
share, the fund's distribution rate was 4.42%.
The graph on page 54 compares the performance of the fund's Class I shares
over the past 10 years with that of the Standard & Poor's 500 Stock Index
(S&P 500).
GRAPHIC MATERIAL 21 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell stocks. Unlike an index, mutual
funds are never fully invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating
expenses such as Franklin Utilities Fund's had been applied to the index, its
performance would have been lower. Please remember that an index is simply a
measure of performance, and one cannot invest in it directly.
Franklin Utilities Fund - Class I
Periods ended 9/30/98
Since
Inception
1-Year 5-Year 10-Year (9/30/48)
Cumulative Total Return1 +21.71% +49.60% +201.95% +14,232.69%
Average Annual Total Return2 +16.49% +7.45% +11.20% +10.34%
Value of $10,000 Investment3 $11,649 $14,322 $28,916 $1,369,850
Distribution Rate4 4.42%
30-Day Standardized Yield5 4.34%
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
One-Year Total Return6 -17.85% +24.19% +5.94% +13.72% +21.71%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current, maximum
4.25% initial sales charge. 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 would differ.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the sales charge.
4. Distribution rate is based on an annualization of September's 13.1 cent
per share quarterly dividend and the maximum offering price of $11.86 on
September 30, 1998.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
6. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and does not include the sales
charge.
Effective May 1, 1994, the fund eliminated the sales charge on reinvested
dividends and implemented a Rule 12b-1 plan, which affects subsequent
performance. All calculations assume reinvestment of dividends and capital
gains at net asset value. Since markets can go down as well as up, investment
return and principal value will fluctuate with market conditions, and you may
have a gain or loss when you sell your shares.
Franklin Utilities Fund - Class I paid distributions derived from long-term
capital gains of 26.24 cents per share in December 1997. The fund hereby
designates such distributions as capital gain dividends per Section 852
(b)(3) of the Internal Revenue Code.
Class II
Franklin Utilities Fund - Class II produced a +21.24% cumulative total return
for the one-year period ended September 30, 1998. Cumulative total return
measures the change in value of an investment, assuming reinvestment of all
distributions and does not include sales charges. We have always maintained a
long-term perspective when managing the fund, and we encourage shareholders
to view their investments in a similar manner. As you can see from the table
on page 57, the fund's Class II shares delivered a +63.27% cumulative total
return since the shares became available on May 1, 1995.
The fund's share price, as measured by net asset value, increased $1.33, from
$10.02 on September 30, 1997, to $11.35 on September 30, 1998. During the
one-year reporting period, shareholders received per-share distributions
consisting of dividend income totaling 46.96 cents ($0.4696) and 26.24 cents
($0.2624) in long-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the
fund's portfolio. Past distributions are not predictive of future trends.
Based on the maximum offering price of $11.46 on September 30, 1998, and an
annualization of September's quarterly dividend of 12.65 cents ($0.1265),
plus a 12b-1 differential adjustment of 0.07 cents ($0.0007) per share, the
fund's distribution rate was 4.42%.
The graph on page 57 compares the performance of the fund's Class II shares
with that of the Standard & Poor's 500 Stock Index (S&P 500).
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell stocks. Unlike an index, mutual
funds are never fully invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the sales
charges, all fund expenses and account fees. If operating expenses such as
Franklin Utilities Fund's had been applied to the index, its performance
would have been lower. Please remember that an index is simply a measure of
performance, and one cannot invest in it directly.
GRAPHIC MATERIAL 22 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Utilities Fund - Class II
Periods ended 9/30/98
Since
Inception
1-Year 3-Year (5/1/95)
Cumulative Total Return1 +21.24% +44.47% +63.27%
Average Annual Total Return2 +19.05% +12.66% +15.09%
Value of $10,000 Investment3 $11,905 $14,300 $16,163
Distribution Rate4 4.42%
30-Day Standardized Yield5 3.98%
1. Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
2. Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the 1.0% initial
sales charge and the 1.0% contingent deferred sales charge, as applicable.
3. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include sales charges.
4. Distribution rate is based on an annualization of September's 12.65 cent per
share quarterly dividend, plus a 12b-1 differential adjustment of 0.07 cents and
the maximum offering price of $11.46 on September 30, 1998.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
All calculations assume reinvestment of dividends and capital gains at net
asset value. Since markets can go down as well as up, investment return and
principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
Franklin Utilities Fund - Class II paid distributions derived from long-term
capital gains of 26.24 cents per share in December 1997. The fund hereby
designates such distributions as capital gain dividends per Section 852
(b)(3) of the Internal Revenue Code.
Advisor Class
Franklin Utilities Fund - Advisor Class produced a +22.20% cumulative total
return for the one-year period ended September 30, 1998. Cumulative total
return measures the change in value of an investment, assuming reinvestment
of all distributions.
The fund's share price, as measured by net asset value, increased $1.35, from
$10.04 on September 30, 1997, to $11.39 on September 30, 1998. During the
one-year reporting period, shareholders received per-share distributions
consisting of dividend income totaling 53.87 cents ($0.5387) and 26.24 cents
($0.2624) in long-term capital gains. Distributions will vary based on the
fund's income and any profits realized from the sale of securities in the
fund's portfolio. Past distributions are not predictive of future trends.
Based on the fund's net asset value price of $11.39 on September 30, 1998,
and an annualization of September's quarterly dividend of 13.48 cents
($0.1348) per share, the fund's distribution rate was 4.73%.
The graph on page 60 compares the performance of the fund's Advisor Class
shares over the past 10 years with that of the Standard & Poor's 500 Stock
Index (S&P 500).
Keep in mind that an unmanaged market index has inherent performance
differentials in comparison with any fund. An index doesn't pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell stocks. Unlike an index, mutual
funds are never fully invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes all fund
expenses and account fees. If operating expenses such as Franklin Utilities
Fund's had been applied to the index, its performance would have been lower.
Please remember that an index is simply a measure of performance, and one
cannot invest in it directly.
GRAPHIC MATERIAL 23 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Utilities Fund - Advisor Class
Periods ended 9/30/98
Since
Inception
1-Year* 5-Year* 10-Year* (9/30/48)*
Cumulative Total Return1 +22.20% +50.35% +203.47% +14,304.87%
Average Annual Total Return1 +22.20% +8.50% +11.74% +10.45%
Value of $10,000 Investment2 $12,220 $15,035 $30,347 $1,440,487
Distribution Rate3 4.73%
30-Day Standardized Yield4 4.63%
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
One-Year Total Return5 -17.85% +24.19% +5.94% +13.83% +22.20%
*On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures
reflect the fund's Class I performance, excluding the effect of the Class I
sales charge, but including the effect of Class I expenses, including Rule
12b-1 fees; and (b) for periods after January 1, 1997, figures reflect actual
Advisor Class performance including the deduction of all fees and expenses
applicable only to that class. Since January 2, 1997 (commencement of sales),
the cumulative total return of Advisor Class shares was 18.23%.
1. Cumulative total return represents the change in value of an investment
over the periods indicated. Average annual total return represents the
average annual change in value of an investment over the periods indicated.
2. These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated.
3. Distribution rate is based on an annualization of September's 13.48 cent
per share quarterly dividend and the net asset value price of $11.39 on
September 30, 1998.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended September 30, 1998.
5. One-year total return represents the change in value of an investment over
the periods ended on the specified dates.
All total return calculations assume reinvestment of dividends and capital
gains at net asset value. Since markets can go down as well as up, investment
return and principal value will fluctuate with market conditions and you may
have a gain or loss when you sell your shares.
Franklin Utilities Fund - Advisor Class paid distributions derived from
long-term capital gains of 26.24 cents per share in December 1997. The fund
hereby designates such distributions as capital gain dividends per Section
852 (b)(3) of the Internal Revenue Code.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
Franklin DynaTech Fund
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
CLASS I 1998 1997 1996++ 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................. $18.48 $14.03 $12.78 $ 9.85 $10.29
--------------------------------------------------
Income from investment operations:
Net investment income .............................................. .27 .10 .06 .12 .07
Net realized and unrealized gains .................................. .23 4.81 1.54 2.99 .21
--------------------------------------------------
Total from investment operations .................................... .50 4.91 1.60 3.11 .28
--------------------------------------------------
Less distributions from:
Net investment income .............................................. (.17) (.06) (.12) (.05) (.12)
Net realized gains ................................................. (.97) (.40) (.23) (.13) (.60)
---------------------------------------------------
Total distributions ................................................. (1.14) (.46) (.35) (.18) (.72)
---------------------------------------------------
Net asset value, end of year ........................................ $17.84 $18.48 $14.03 $12.78 $ 9.85
===================================================
Total return+ ....................................................... 3.06% 35.63% 12.84% 32.10% 2.89%
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $215,864 $188,102 $104,508 $92,987 $67,413
Ratios to average net assets:
Expenses ........................................................... 1.02% 1.04% 1.05% 1.01% 1.00%
Net investment income .............................................. 1.55% .75% .43% 1.11% .69%
Portfolio turnover rate ............................................. 10.84% 5.59% 11.94% 9.83% 9.73%
Class II
<S> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $18.30 $14.03 $13.57
--------------------------------
Income from investment operations:
Net investment income .............................................. .15 .07 --
Net realized and unrealized gains .................................. .17 4.66 .46
--------------------------------
Total from investment operations .................................... .32 4.73 .46
--------------------------------
Less distributions from:
Net investment income .............................................. (.12) (.06) --
Net realized gains ................................................. (.97) (.40) --
---------------------------------
Total distributions ................................................. (1.09) (.46) --
---------------------------------
Net asset value, end of year ....................................... $17.53 $18.30 $14.03
=================================
Total return+ ....................................................... 2.03% 34.32% 3.39%
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $12,358 $3,386 $--
Ratios to average net assets:
Expenses ........................................................... 1.79% 1.82% 1.85%*
Net investment income (loss) ....................................... .81% .25% (.14%)*
Portfolio turnover rate ............................................. 10.84% 5.59% 11.94%
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
++For the period September 16, 1996 (effective date) to September 30, 1996 for
Class II.
*Annualized
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments, September 30, 1998
DynaTech Fund SHARES VALUE
<S> <C> <C>
a Common Stocks 53.8%
Air Freight/Delivery Services .2%
Air Express International Corp. .................................................... 15,000 $ 240,000
C.H. Robinson Worldwide, Inc. ...................................................... 10,000 201,250
-------------
441,250
-------------
Biotechnology .7%
a Amgen, Inc. ........................................................................ 20,000 1,511,250
a Noven Pharmaceuticals, Inc. ........................................................ 20,400 91,800
-------------
1,603,050
-------------
Broadcasting 1.5%
a Liberty Media Group, Class A ....................................................... 55,968 2,053,326
Time Warner, Inc. .................................................................. 15,000 1,313,438
-------------
3,366,764
-------------
Cellular Telephone .5%
a AirTouch Communications, Inc. ...................................................... 20,000 1,140,000
-------------
Computer Software 9.5%
a Electronic Arts, Inc. .............................................................. 10,000 438,750
a i2 Technologies, Inc. .............................................................. 20,000 283,750
a Intuit, Inc. ....................................................................... 25,000 1,164,063
a Microsoft Corp. .................................................................... 180,000 19,811,250
-------------
21,697,813
-------------
EDP Peripherals .7%
Symbol Technologies, Inc. .......................................................... 30,000 1,539,375
-------------
EDP Services 1.9%
a Computer Sciences Corp. ........................................................... 20,000 1,090,000
a Equant NV (Netherlands) ............................................................ 15,000 690,000
First Data Corp. ................................................................... 50,000 1,175,000
a International Network Services ..................................................... 35,000 1,452,500
-------------
4,407,500
-------------
Electronic Data Processing 4.8%
Compaq Computer Corp. .............................................................. 180,000 5,692,500
Hewlett-Packard Co. ................................................................ 100,000 5,293,750
-------------
10,986,250
-------------
Electronic Production Equipment .3%
a Applied Materials, Inc. ............................................................ 30,000 757,500
Environmental Services .5%
Browning-Ferris Industries, Inc. ................................................... 20,000 605,000
a Casella Waste Systems, Inc. ........................................................ 15,000 510,000
-------------
1,115,000
-------------
Finance Companies .1%
Associates First Capital Corp. ..................................................... 3,600 234,900
-------------
Financial Publishing/Services .4%
a ChoicePoint, Inc. .................................................................. 2,000 96,250
Equifax, Inc. ...................................................................... 20,000 713,750
-------------
810,000
-------------
Hospital/Nursing Management .2%
Columbia/HCA Healthcare Corp. ...................................................... 22,500 451,406
-------------
Internet Services
a RealNetworks, Inc. ................................................................. 1,800 62,438
-------------
Investment Bankers/Brokers/Services .1%
a E*TRADE Group, Inc. ................................................................ 10,000 $ 186,875
-------------
Major Pharmaceuticals 5.6%
Merck & Co., Inc. .................................................................. 15,000 1,943,438
Schering-Plough Corp. .............................................................. 40,000 4,142,500
Warner-Lambert Co. ................................................................. 90,000 6,795,000
-------------
12,880,938
-------------
Major U.S. Telecommunications .4%
AT&T Corp. ......................................................................... 15,000 876,563
-------------
Managed Health Care .9%
a PacifiCare Health Systems, Inc., Class B ........................................... 15,000 1,117,500
United Healthcare Corp. ............................................................ 30,000 1,050,000
-------------
2,167,500
-------------
Medical Electronics .9%
Medtronic, Inc. .................................................................... 20,000 1,157,500
a Uniphase Corp. ..................................................................... 20,000 820,000
-------------
1,977,500
-------------
Medical Specialties .4%
a Boston Scientific Corp. ............................................................ 15,000 770,625
Mentor Corp. ....................................................................... 5,000 56,875
-------------
827,500
-------------
Newspapers .2%
News Corp., Ltd., Sponsored ADR (Australia) ........................................ 20,000 512,500
-------------
Oilfield Services/Equipment .7%
Schlumberger, Ltd. ................................................................. 30,000 1,509,375
-------------
Other Specialty Stores .6%
a Toys R Us, Inc. .................................................................... 78,000 1,262,625
-------------
Other Telephone/Communications 1.1%
a Loral Space & Communication, Ltd. .................................................. 30,000 442,500
a MCI WorldCom, Inc. ................................................................. 40,000 1,955,000
-------------
2,397,500
-------------
Package Goods/Cosmetics .4%
Estee Lauder Cos., Class A ......................................................... 20,000 1,025,000
-------------
Precision Instruments .4%
a Waters Corp. ....................................................................... 13,800 924,600
-------------
Semiconductors 11.0%
a ARM Holdings Plc., Sponsored ADR (United Kingdom) .................................. 600 27,000
a Broadcom Corp., Class A ............................................................ 800 56,800
Intel Corp. ........................................................................ 280,000 24,010,000
Linear Technology Corp. ............................................................ 15,000 750,000
a Xilinx, Inc. ....................................................................... 10,000 350,000
-------------
25,193,800
-------------
Services To The Health Industry 1.2%
HBO & Co. .......................................................................... 60,000 1,732,500
IMS Health, Inc. ................................................................... 15,000 929,063
-------------
2,661,563
-------------
Specialty Chemicals .6%
Sigma-Aldrich Corp. ................................................................ 50,000 1,443,750
-------------
Telecommunications Equipment 7.5%
a 3Com Corp. ......................................................................... 20,000 $ 601,250
a Cisco Systems, Inc. ................................................................ 135,000 8,344,688
Lucent Technologies, Inc. .......................................................... 21,204 1,464,401
Motorola, Inc. ..................................................................... 140,000 5,976,250
a Tellabs, Inc. ...................................................................... 20,000 796,250
-------------
17,182,839
-------------
Unregulated Power Generation .5%
a AES Corp. .......................................................................... 30,000 1,111,872
-------------
Total Common Stocks (Cost $35,857,627) ............................................. 122,755,546
-------------
PRINCIPAL
AMOUNT
d Repurchase Agreement 46.2%
Joint Repurchase Agreement, 5.275%, 10/01/98
(Maturity Value $105,494,295) (Cost $105,478,839) ..................................... $105,478,839 105,478,839
BankAmerica Securities, Inc. (Maturity Value $10,629,605)
Barclays Capital Group, Inc. (Maturity Value $9,827,850)
BT Alex Brown, Inc. (Maturity Value $10,629,605)
Chase Securities, Inc. (Maturity Value $10,629,605)
CIBC Wood Gundy Securities Corp. (Maturity Value $10,629,605)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $10,629,605)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $10,629,605)
Greenwich Capital Markets, Inc. (Maturity Value $10,629,605)
Paribas Corp. (Maturity Value $10,629,605)
Warburg Dillion Read, L.L.C. (Maturity Value $10,629,605)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $141,336,466) 100.0% ....................................... 228,234,385
-------------
Other Assets, less Liabilities ..................................................... (11,564)
-------------
Net Assets 100.0%................................................................... $228,222,821
=============
</TABLE>
aNon-income producing.
dSee note 1(c) regarding joint repurchase agreement.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
Franklin Growth Fund
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
CLASS I 1998 1997 1996 1995++ 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $27.09 $22.82 $19.38 $14.96 $14.25
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .49 .36 .22 .17 .19
Net realized and unrealized gains .................................. 1.71 4.34 3.53 4.43 .90
-----------------------------------------------------
Total from investment operations .................................... 2.20 4.70 3.75 4.60 1.09
-----------------------------------------------------
Less distributions from:
Net investment income .............................................. (.47) (.23) (.16) (.14) (.30)
Net realized gains ................................................. (.24) (.20) (.15) (.04) (.08)
------------------------------------------------------
Total distributions ................................................. (.71) (.43) (.31) (.18) (.38)
------------------------------------------------------
Net asset value, end of year ........................................ $28.58 $27.09 $22.82 $19.38 $14.96
=====================================================
Total return+ ....................................................... 8.22% 20.84% 19.60% 31.11% 7.63%
Ratios/supplemental data
Net assets, end of year (000's) .................................... . $1,635,780$1,435,561$1,020,486 $712,866 $516,620
Ratios to average net assets:
Expenses ........................................................... .88% .89% .87% .90% .77%
Net investment income .............................................. 1.78% 1.60% 1.16% 1.08% 1.23%
Portfolio turnover rate ............................................. .58% 1.77% 2.03% 1.39% 6.52%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $26.70 $22.60 $19.33 $16.88
-------------------------------------------
Income from investment operations:
Net investment income .............................................. .29 .20 .12 .02
Net realized and unrealized gains .................................. 1.66 4.25 3.46 2.43
-------------------------------------------
Total from investment operations .................................... 1.95 4.45 3.58 2.45
-------------------------------------------
Less distributions from:
Net investment income .............................................. (.30) (.15) (.16) --
Net realized gains ................................................. (.24) (.20) (.15) --
-------------------------------------------
Total distributions ................................................. (.54) (.35) (.31) --
-------------------------------------------
Net asset value, end of year ........................................ $28.11 $26.70 $22.60 $19.33
===========================================
Total return+ ....................................................... 7.39% 19.91% 18.73% 14.72%
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $189,572 $117,218 $43,417 $4,161
Ratios to average net assets:
Expenses ........................................................... 1.65% 1.66% 1.63% 1.79%*
Net investment income .............................................. 1.02% .85% .40% .37%*
Portfolio turnover rate ............................................. .58% 1.77% 2.03% 1.39%
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
++For the period May 1, 1995 (effective date) to September 30, 1995 for Class
II.
*Annualized
<TABLE>
<CAPTION>
Franklin Growth Fund (cont.)
Year Ended
September 30,
---------------------
Advisor Class 1998 1997++
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................................................. $27.13 $23.24
---------------------
Income from investment operations:
Net investment income ............................................................................. .57 .25
Net realized and unrealized gains ................................................................. 1.69 3.64
---------------------
Total from investment operations ................................................................... 2.26 3.89
---------------------
Less distributions from:
Net investment income ............................................................................. (.52) --
Net realized gains ................................................................................ (.24) --
---------------------
Total distributions ................................................................................ (.76) --
---------------------
Net asset value, end of year ....................................................................... $28.63 $27.13
=====================
Total return+ ...................................................................................... 8.47% 16.74%
Ratios/supplemental data
Net assets, end of year (000's) .................................................................... $41,871 $25,823
Ratios to average net assets:
Expenses .......................................................................................... .65% .66%*
Net investment income ............................................................................. 2.01% 1.93%*
Portfolio turnover rate ............................................................................ .58% 1.77%
</TABLE>
+Total return is not annualized.
++For the period January 2, 1997 (effective date) to September 30, 1997.
*Annualized
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments, September 30, 1998
SHARES/
Growth Fund WARRANTS VALUE
<S> <C> <C>
a,c,gCommon Stocks and Warrants 69.7%
Commercial Services 2.0%
a ACNielsen Corp. .................................................................... 81,333 $ 1,809,659
Dun & Bradstreet Corp. ............................................................. 244,000 6,588,000
Equifax, Inc. ...................................................................... 400,000 14,275,000
a,c,gFRM Nexus, Inc. .................................................................. 172,650 129,488
Kelly Services, Inc., Class A ...................................................... 300,000 9,412,500
Nielsen Media Research ............................................................. 81,333 833,663
a Programming & Systems, Inc. ........................................................ 345,300 6,906
R.H. Donnelley Corp. ............................................................... 48,800 603,900
Wallace Computer Services, Inc. .................................................... 200,000 3,587,500
-------------
37,246,616
-------------
Consumer Durables 1.8%
Eastman Kodak Co. .................................................................. 200,000 15,462,500
Genuine Parts Co. .................................................................. 135,000 4,058,438
Mattel, Inc. ....................................................................... 300,000 8,400,000
Polaroid Corp. ..................................................................... 200,000 4,912,500
-------------
32,833,438
-------------
Consumer Non-Durables 2.7%
American Greetings Corp., Class A .................................................. 300,000 11,868,750
Hershey Foods Corp. ................................................................ 258,200 17,670,563
International Flavors & Fragrances, Inc. ........................................... 400,000 13,200,000
Nature's Sunshine Products, Inc. ................................................... 33,000 528,000
V.F. Corp. ......................................................................... 200,000 7,425,000
-------------
50,692,313
-------------
Consumer Services 3.6%
Disney (Walt) Co. .................................................................. 914,796 23,155,774
a Intervisual Books, Inc. ............................................................ 100,000 107,810
a King World Productions, Inc. ....................................................... 20,000 522,500
Time Warner, Inc. .................................................................. 450,000 39,403,125
a USA Networks, Inc. ................................................................. 200,000 3,887,500
-------------
67,076,709
-------------
Electronic Technology 14.5%
AMP, Inc. .......................................................................... 400,000 14,300,000
a Apple Computer, Inc. ............................................................... 100,000 3,812,500
Boeing Co. ......................................................................... 500,000 17,156,250
a Cabletron Systems, Inc. ............................................................ 500,000 5,625,000
a Cisco Systems, Inc. ................................................................ 337,500 20,861,719
Compaq Computer Corp. .............................................................. 150,000 4,743,750
a Computer Sciences Corp. ............................................................ 900,000 49,050,000
Cordant Technologies, Inc. ......................................................... 240,000 10,155,000
a Dell Computer Corp. ................................................................ 20,000 1,315,000
a Dionex Corp. ....................................................................... 200,000 4,650,000
Hewlett-Packard Co. ................................................................ 400,000 21,175,000
Intel Corp. ........................................................................ 100,000 8,575,000
International Business Machines Corp. .............................................. 280,000 35,840,000
Lockheed Martin Corp. .............................................................. 162,600 16,392,113
Molex, Inc. ........................................................................ 117,187 3,398,423
Molex, Inc., Class A ............................................................... 117,187 3,178,697
Raytheon Co., Class B .............................................................. 500,000 26,968,750
Rockwell International Corp. ....................................................... 100,000 3,612,500
a Sun Microsystems, Inc. ............................................................. 100,000 4,981,250
United Technologies Corp. .......................................................... 200,000 15,287,500
-------------
271,078,452
-------------
Energy Minerals 1.6%
Atlantic Richfield Co. ............................................................. 180,000 12,768,750
Murphy Oil Corp. ................................................................... 40,000 1,550,000
Energy Minerals (cont.)
Royal Dutch Petroleum Co., New York Shares (Netherlands) ........................... 280,000 $ 13,335,000
Union Pacific Resources Group, Inc. ................................................ 101,633 1,251,356
-------------
28,905,106
-------------
Finance .1%
a ChoicePoint, Inc. .................................................................. 40,000 1,925,000
-------------
Health Technology 22.2%
Abbott Laboratories ................................................................ 400,000 17,375,000
Allergan, Inc. ..................................................................... 200,000 11,675,000
a Allergan Specialty Therapeutics, Inc., Class A ..................................... 10,000 97,500
a Alza Corp. ......................................................................... 100,000 4,337,500
a Alza Corp., wts., 12/31/99 ......................................................... 8,000 3,000
American Home Products Corp. ....................................................... 600,000 31,425,000
a Amgen, Inc. ........................................................................ 200,000 15,112,500
Baxter International, Inc. ......................................................... 250,000 14,875,000
Bristol-Myers Squibb Co. ........................................................... 320,000 33,240,000
a Crescendo Pharmaceuticals Corp. .................................................... 5,000 65,938
a Genentech, Inc. .................................................................... 200,000 14,375,000
a Immunex Corp. ...................................................................... 20,000 1,107,500
Johnson & Johnson .................................................................. 400,000 31,300,000
Lilly (Eli) & Co. .................................................................. 400,000 31,325,000
Mallinckrodt, Inc. ................................................................. 116,000 2,356,250
Merck & Co., Inc. .................................................................. 200,000 25,912,500
a Perrigo Co. ........................................................................ 200,000 1,825,000
Pfizer, Inc. ....................................................................... 640,000 67,800,000
a Respironics, Inc. .................................................................. 98,000 1,102,500
Schering-Plough Corp. .............................................................. 900,000 93,206,250
U.S. Surgical Corp. ................................................................ 400,000 16,696,469
-------------
415,212,907
-------------
Industrial Services 1.7%
Browning-Ferris Industries, Inc. ................................................... 165,000 4,991,250
Schlumberger, Ltd. ................................................................. 400,000 20,125,000
Waste Management, Inc. ............................................................. 152,250 7,317,516
-------------
32,433,766
-------------
Non-Energy Minerals
Deltic Timber Corp. ................................................................ 11,428 205,704
-------------
Process Industries 5.1%
Air Products & Chemicals, Inc. ..................................................... 400,000 11,900,000
Avery Dennison Corp. ............................................................... 220,000 9,611,250
BetzDearborn, Inc. ................................................................. 300,000 20,737,500
Eastman Chemical Co. ............................................................... 25,000 1,260,938
a Imation Corp. ...................................................................... 37,200 688,200
a Ionics, Inc. ....................................................................... 400,000 10,600,000
Millipore Corp. .................................................................... 400,000 7,625,000
National Service Industries, Inc. .................................................. 100,000 3,187,500
NCH Corp. .......................................................................... 200,000 12,275,000
Pall Corp. ......................................................................... 500,000 11,093,750
Sigma-Aldrich Corp. ................................................................ 200,000 5,775,000
-------------
94,754,138
-------------
Producer Manufacturing 3.8%
Caterpillar, Inc. .................................................................. 200,000 8,912,500
Deere & Co. ........................................................................ 200,000 6,050,000
Emerson Electric Co. ............................................................... 100,000 6,225,000
Meritor Automotive, Inc. ........................................................... 16,666 251,032
Minnesota Mining & Manufacturing Co. ............................................... 400,000 29,475,000
a Osmonics, Inc. ..................................................................... 292,500 3,034,688
Producer Manufacturing (cont.)
Raychem Corp. ...................................................................... 400,000 $ 9,750,000
Teleflex, Inc. ..................................................................... 200,000 7,000,000
-------------
70,698,220
-------------
Retail Trade .4%
Tiffany & Co. ...................................................................... 170,000 5,333,751
Weis Markets, Inc. ................................................................. 58,218 2,008,521
-------------
7,342,272
-------------
Technology Services 2.8%
Allegiance Corp. ................................................................... 100,000 2,975,000
Automatic Data Processing, Inc. .................................................... 400,000 29,900,000
IMS Health, Inc. ................................................................... 244,000 15,112,750
a MedPartners, Inc. .................................................................. 75,625 245,781
a Microsoft Corp. .................................................................... 40,000 4,402,500
-------------
52,636,031
-------------
Transportation 6.3%
a AMR Corp. .......................................................................... 620,000 34,371,250
British Airways Plc., Sponsored ADR (United Kingdom) ............................... 100,000 6,150,000
Canadian Pacific, Ltd. (Canada) .................................................... 121,500 2,513,530
a Continental Airlines, Inc., Class B ................................................ 67,500 2,548,124
Delta Air Lines, Inc. .............................................................. 292,900 28,484,524
KLM Royal Dutch Airlines (Netherlands) ............................................. 99,000 2,450,250
a Northwest Airlines Corp. ........................................................... 200,000 5,012,500
a UAL Corp. .......................................................................... 368,100 23,857,480
Union Pacific Corp. ................................................................ 300,000 12,787,500
-------------
118,175,158
-------------
Utilities 1.1%
Coastal Corp. ...................................................................... 600,000 20,250,000
-------------
Total Common Stocks and Warrants (Cost $570,528,823) ............................... 1,301,465,830
-------------
PRINCIPAL
AMOUNT
d Repurchase Agreement 32.2%
Joint Repurchase Agreement, 5.275%, 10/01/98
(Maturity Value $601,790,166) (Cost $601,702,000) ...................................... $601,702,000 601,702,000
BankAmerica Securities, Inc. (Maturity Value $60,636,377)
Barclays Capital Group, Inc. (Maturity Value $56,062,773)
BT Alex Brown, Inc. (Maturity Value $60,636,377)
Chase Securities, Inc. (Maturity Value $60,636,377)
CIBC Wood Gundy Securities Corp. (Maturity Value $60,636,377)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $60,636,377)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $60,636,377)
Greenwich Capital Markets, Inc. (Maturity Value $60,636,377)
Paribas Corp. (Maturity Value $60,636,377)
Warburg Dillion Read, L.L.C. (Maturity Value $60,636,377)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $1,172,230,823) 101.9% ..................................... 1,903,167,830
-------------
Other Assets, less Liabilities (1.9%) .............................................. (35,944,317)
-------------
Net Assets 100.0% .................................................................. $1,867,223,513
=============
</TABLE>
aNon-income producing.
cSee Note 7 regarding restricted securities.
dSee Note 1(c) regarding joint repurchase agreement.
gThe Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% of more of the
outstanding voting securities. Investments in non-controlled "affiliated
companies" at September 30, 1998 were $129,488.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
Franklin Income Fund
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
CLASS I 1998 1997 1996 1995++ 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $2.49 $2.30 $2.30 $2.22 $2.46
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .17 .18 .19 .18 .17
Net realized and unrealized gains (losses) ......................... (.11) .20 .02 .11 (.20)
------------------------------------------------------
Total from investment operations .................................... .06 .38 .21 .29 (.03)
------------------------------------------------------
Less distributions from:
Net investment income .............................................. (.18) (.18) (.18) (.18) (.18)
Net realized gains ................................................. (.03) (.01) (.03) (.03) (.03)
------------------------------------------------------
Total distributions ................................................. (.21) (.19) (.21) (.21) (.21)
------------------------------------------------------
Net asset value, end of year ........................................ $2.34 $2.49 $2.30 $2.30 $2.22
======================================================
Total return+ ....................................................... 2.23% 17.31% 9.43% 14.00% (1.52%)
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $7,704,983$7,738,746 $6,780,153$5,885,788$4,891,505
Ratios to average net assets:
Expenses ........................................................... .72% .72% .70% .71% .64%
Net investment income .............................................. 6.83% 7.45% 8.27% 8.26% 7.37%
Portfolio turnover rate ............................................. 22.01% 16.15% 25.29% 58.64% 23.37%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $2.49 $2.30 $2.30 $2.18
-------------------------------------------
Income from investment operations:
Net investment income .............................................. .16 .16 .17 .08
Net realized and unrealized gains (losses) ......................... (.11) .21 .03 .11
-------------------------------------------
Total from investment operations .................................... .05 .37 .20 .19
-------------------------------------------
Less distributions from:
Net investment income .............................................. (.17) (.17) (.17) (.07)
Net realized gains ................................................. (.03) (.01) (.03) --
-------------------------------------------
Total distributions ................................................. (.20) (.18) (.20) (.07)
-------------------------------------------
Net asset value, end of year ........................................ $2.34 $2.49 $2.30 $2.30
-------------------------------------------
Total return+ ....................................................... 1.70% 16.72% 8.86% 8.96%
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $1,014,634 $695,355 $343,314 $65,822
Ratios to average net assets:
Expenses ........................................................... 1.22% 1.22% 1.21% 1.23%*
Net investment income .............................................. 6.35% 6.96% 7.84% 7.89%*
Portfolio turnover rate ............................................. 22.01% 16.15% 25.29% 58.64%
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
++For the period May 1, 1995 (effective date) to September 30, 1995 for Class
II.
*Annualized
<TABLE>
<CAPTION>
Franklin Income Fund (cont.)
Year Ended
September 30,
------------------
Advisor Class 1998 1997++
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................................................. $2.48 $2.34
------------------
Income from investment operations:
Net investment income ............................................................................. .17 .14
Net realized and unrealized gains (losses) ........................................................ (.10) .14
------------------
Total from investment operations ................................................................... .07 .28
------------------
Less distributions from:
Net investment income ............................................................................. (.18) (.14)
Net realized gains ................................................................................ (.03) --
------------------
Total distributions ................................................................................ (.21) (.14)
------------------
Net asset value, end of year ....................................................................... $2.34 $2.48
==================
Total return+ ...................................................................................... 2.82% 12.31%
Ratios/supplemental data
Net assets, end of year (000's) .................................................................... $21,851 $13,318
Ratios to average net assets:
Expenses .......................................................................................... .57% .57%*
Net investment income ............................................................................. 7.02% 7.58%*
Portfolio turnover rate ............................................................................ 22.01% 16.15%
</TABLE>
+Total return is not annualized.
++For the period January 2, 1997 (effective date) to September 30, 1997.
*Annualized
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments, September 30, 1998
Income Fund SHARES VALUE
<S> <C> <C>
a,c,gCommon Stocks 32.0%
Consumer Durables .3%
General Motors Corp. ............................................................... 550,000 $30,078,125
--------------
Consumer Non-Durables 1.9%
Phillip Morris Cos., Inc. .......................................................... 3,300,000 152,006,250
RJR Nabisco Holdings Corp. ......................................................... 600,000 15,112,500
--------------
167,118,750
--------------
Electronic Technology .1%
a Anacomp, Inc. ...................................................................... 600,000 7,875,000
--------------
Energy Minerals 1.7%
Athabasca Oil Sands Trust (Canada) ................................................. 2,700,000 30,870,790
BP Prudhoe Bay Royalty Trust ....................................................... 500,000 4,656,250
Canadian Oil Sands Trust Units (Canada) ............................................ 2,400,000 31,843,795
McDermott International, Inc. ...................................................... 1,400,000 37,712,500
Pioneer Natural Resources Co. ...................................................... 1,200,015 16,875,211
a Santa Fe Energy Resources, Inc. .................................................... 1,122,805 10,596,472
Snyder Oil Corp. ................................................................... 60,000 956,250
Ultramar Diamond Shamrock Corp. .................................................... 625,000 14,218,750
--------------
147,730,018
--------------
Non-Energy Minerals 1.2%
Anglo American Platinum Corp., Ltd., ADR (South Africa) ............................ 943,691 13,802,330
Anglogold, Ltd., ADR (South Africa) ................................................ 2,320,000 62,350,000
DeBeers Consolidated Mines, Ltd., ADR (South Africa) ............................... 400,000 5,025,000
Freeport-McMoRan Copper & Gold, Inc., Class A ...................................... 705,000 8,239,688
Impala Platinum Holdings, Ltd., ADR (South Africa) ................................. 1,184,200 14,601,068
Samancor, Ltd., Unsponsored ADR (South Africa) ..................................... 300,000 1,632,660
--------------
105,650,746
--------------
Process Industries .3%
a,c,gBibb Co. ......................................................................... 2,097,122 25,951,885
--------------
Real Estate .1%
Meditrust Cos. ..................................................................... 720,960 12,301,380
--------------
Telecommunications .5%
US West, Inc. ...................................................................... 800,000 41,950,000
--------------
Utilities 25.6%
American Electric Power Co., Inc. .................................................. 2,200,000 107,387,500
Central & South West Corp. ......................................................... 3,800,000 108,537,500
Cinergy Corp. ...................................................................... 2,400,000 91,800,000
Conectiv, Inc. ..................................................................... 2,800,000 63,875,000
Dominion Resources, Inc. ........................................................... 2,500,000 111,562,500
Edison International ............................................................... 3,100,000 79,631,250
Energy East Corp. .................................................................. 1,000,000 51,000,000
Entergy Corp. ...................................................................... 3,700,000 113,775,000
FirstEnergy Corp. .................................................................. 2,100,000 65,231,250
Florida Progress Corp. ............................................................. 2,722,800 117,931,275
FPL Group, Inc. .................................................................... 1,400,000 97,562,500
GPU, Inc. .......................................................................... 1,700,000 72,250,000
Hawaiian Electric Industries, Inc. ................................................. 610,000 25,162,500
Houston Industries, Inc. ........................................................... 1,900,000 59,137,500
MarketSpan Corp. ................................................................... 1,584,000 45,441,000
Nevada Power Co. ................................................................... 825,000 22,171,875
New Century Energies, Inc. ......................................................... 1,805,000 87,880,938
New England Electric System ........................................................ 1,900,000 78,850,000
Northern States Power Co. .......................................................... 2,020,000 56,686,250
PacifiCorp ......................................................................... 525,000 10,073,438
PECO Energy Co. .................................................................... 3,000,000 109,687,500
PG&E Corp. ......................................................................... 3,200,000 102,200,000
Utilities (cont.)
Potomac Electric Power Co. ......................................................... 2,100,000 $ 55,650,000
Public Service Enterprise Group, Inc. .............................................. 2,350,000 92,384,375
SCANA Corp. ........................................................................ 800,000 26,850,000
Sempra Energy ...................................................................... 3,100,000 80,793,750
Southern Co. ....................................................................... 2,700,000 79,481,250
Texas Utilities Co. ................................................................ 2,737,250 127,453,203
Western Resources, Inc. ............................................................ 2,200,000 91,025,000
--------------
2,231,472,354
--------------
Miscellaneous .3%
Miscellaneous ...................................................................... 27,001,257
--------------
Total Common Stocks (Cost $2,101,594,958) .......................................... 2,797,129,515
--------------
Preferred Stocks 10.3%
Consumer Services 1.2%
CSC Holdings, Inc., 8.50% cvt. pfd., Series I ...................................... 700,000 46,200,000
Host Marriott Financial Trust, 6.75% cvt. pfd., 144A ............................... 1,100,000 43,381,250
MediaOne Group, Inc., 6.25%, 8/15/01, cvt. pfd. .................................... 250,000 13,968,750
--------------
103,550,000
--------------
Energy Minerals 2.5%
Chesapeake Energy Corp., 7.00% cvt. pfd., 144A ..................................... 800,000 13,000,000
Devon Financing Trust, $3.25 cvt. pfd., 144A ....................................... 570,000 34,271,250
Enron Corp., 6.25% cvt. pfd. ....................................................... 2,350,000 40,831,250
EVI, Inc., 5.00% cvt. pfd., 144A ................................................... 1,200,000 40,350,000
Lomak Financing Trust, 5.75% cvt. pfd., 144A ....................................... 1,200,000 33,000,000
Nuevo Energy Co., 5.75% cvt. pfd., Series A ........................................ 1,450,000 52,200,000
Patina Oil & Gas Corp., 7.125% cvt. pfd. ........................................... 158,100 3,399,150
--------------
217,051,650
--------------
Non-Energy Minerals 1.2%
Amax Gold, Inc., $3.75 cvt. pfd., Series B ......................................... 650,000 27,787,500
Armco, Inc., $3.625 cum. cvt. pfd., Series A ....................................... 114,200 5,824,200
Armco, Inc., $4.50 cvt. pfd., Class B .............................................. 300,000 13,275,000
Battle Mountain Gold Co., $3.25 cvt. pfd. .......................................... 295,000 12,961,563
Coeur D'Alene Mines Corp., 7.00% cvt. pfd. ......................................... 560,000 5,880,000
Cyprus Minerals, $4.00 cvt. pfd., Series A ......................................... 230,000 9,487,500
Freeport-McMoRan Copper & Gold, Inc., cum. variable pfd., Series Gold .............. 400,000 7,700,000
Hecla Mining Co., $3.50 cvt. pfd., Series B ........................................ 375,000 15,750,000
--------------
98,665,763
--------------
Process Industries .3%
Asia Pulp & Paper Co., Ltd., pfd., 12.00%, 12/29/49 (Indonesia) .................... 60,000,000 28,500,000
--------------
Real Estate 3.0%
Archstone Communities Trust, $1.75 cvt. pfd., Series A ............................. 1,040,000 28,600,000
Felcor Lodging Trust, Inc., $1.95 cvt. pfd., Series A .............................. 1,900,000 40,850,000
Glenborough Realty Trust, Inc., 7.75% cvt. pfd., Series A .......................... 2,800,000 57,050,000
Innkeeper USA Trust, 8.625% cvt. pfd., 144A ........................................ 2,000,000 42,248,000
Prologis Trust, 7.00% cvt. pfd., Series B .......................................... 800,000 23,000,000
Reckson Associates Realty Corp., 7.625% cvt. pfd., Series A ........................ 1,750,000 38,281,250
Vornado Realty Trust, 6.50% cvt. pfd., Series A .................................... 700,000 34,650,000
--------------
264,679,250
--------------
Telecommunications .8%
Nortel Inversora, SA, 10.00% cvt. pfd. MEDS (Argentina) ............................ 1,200,000 62,550,000
Nortel Inversora, SA, ADR, variable cvt. pfd., Series B (Argentina) ................ 524,000 11,331,500
--------------
73,881,500
--------------
Transportation .3%
Union Pacific Capital Trust, 6.25% cvt. pfd. ....................................... 600,000 $27,300,000
--------------
Utilities 1.0%
c CMS Energy Trust I, 7.75% cvt. pfd. ................................................ 1,600,000 87,200,000
--------------
Total Preferred Stocks (Cost $1,023,351,185) ....................................... 900,828,163
--------------
PRINCIPAL
AMOUNT*
Bonds 17.1%
Consumer Durables .2%
E&S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 .................$ 32,000,000 19,360,000
--------------
Consumer Non-Durables 3.4%
Compania Alimentos Fargo SA, senior notes, 144A, 13.25%, 8/01/08 (Argentina) ....... 30,000,000 17,700,000
Del Monte Corp., senior sub. notes, Series B, 12.25%, 4/15/07 ...................... 46,000,000 49,680,000
Doane Products Co., senior notes, 10.625%, 3/01/06 ................................. 21,000,000 24,745,140
Evenflo Co., senior notes, 144A, 11.75%, 8/15/06 ................................... 28,000,000 27,160,000
Hartmarx Corp., senior sub. notes, 144A, 10.875%, 1/15/02 .......................... 35,000,000 35,875,000
International Home Foods, senior sub. notes, 10.375%, 11/01/06 ..................... 30,000,000 31,950,000
Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 .................. 38,500,000 39,270,000
RJR Nabisco, Inc., notes, 9.25%, 8/15/13 ........................................... 35,000,000 36,850,730
Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 8/15/03 ................ 20,000,000 10,000,000
Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 8/15/01 ........... 20,000,000 16,700,000
The William Carter Co., senior sub. notes, Series A, 10.375%, 12/01/06 ............. 6,000,000 6,300,000
--------------
296,230,870
--------------
Consumer Services 3.4%
AMF Bowling Worldwide, Inc., Series B, 10.875%, 3/15/06 ............................ 17,000,000 14,875,000
Aztar Corp., senior sub. notes, 11.00%, 10/01/02 ................................... 60,000,000 60,450,000
Benedek Broadcasting, senior notes, 11.875%, 3/01/05 ............................... 12,250,000 13,199,375
Continental Cablevision, Inc., senior sub. deb., 9.50%, 8/01/13 .................... 30,000,000 36,222,240
CSC Holdings, Inc., senior sub. deb., 9.875%, 4/01/23 .............................. 40,000,000 43,600,000
Eldorado Resorts, L.L.C., senior sub. notes, 10.50%, 8/15/06 ....................... 8,000,000 8,360,000
Hard Rock Hotel, Inc., senior sub. notes, 144A, 9.25%, 4/01/05 ..................... 4,500,000 4,469,063
Harveys Casino Resorts, senior sub. notes, 10.625%, 6/01/06 ........................ 11,000,000 11,715,000
Helicon Group, senior notes, Series B, 11.00%, 11/01/03 ............................ 35,000,000 36,575,000
Rio Hotel & Casino, Inc., senior sub. notes, 10.625%, 7/15/05 ...................... 35,000,000 37,975,000
Venetian Casino/LV Sands, mortgage notes, 144A, 12.25%, 11/15/04 ................... 35,000,000 31,500,000
--------------
298,940,678
--------------
Electronic Technology 1.3%
Anacomp, Inc., senior sub. notes, Series B, 10.875%, 4/01/04 ....................... 60,000,000 60,000,000
Maxtor Corp., cvt. sub. deb., 5.75%, 3/01/12 ....................................... 8,000,000 4,040,000
Samsung Electronics America, Inc., company guaranteed notes, 144A, 9.75%, 5/01/03 .. 60,000,000 47,100,000
--------------
111,140,000
--------------
Energy Minerals 1.9%
Bellwether Exploration Co., senior sub. notes, 10.875%, 4/01/07 .................... 12,000,000 11,580,000
Conproca SA, S.F., secured senior notes, 12.00%, 6/16/10 (Mexico) .................. 81,000,000 69,255,000
Denbury Management, Inc., unsecured senior sub. notes, 9.00%, 3/01/08 .............. 41,000,000 34,235,000
Gerrity Oil & Gas Corp., senior sub. notes, 11.75%, 7/15/04 ........................ 40,000,000 40,200,000
Mesa Operating Co., unsecured senior sub. notes, 10.625%, 7/01/06 .................. 5,000,000 5,625,000
Plains Resources, Inc., senior sub. notes, 10.25%, 3/15/06 ......................... 8,000,000 8,120,000
--------------
169,015,000
--------------
Finance .6%
IBJ Preferred Capital Co., L.L.C., 144A, 8.79%, 12/29/49 ........................... 34,000,000 24,820,000
Tjiwi Kimia Finance Mauritius, senior unsecured notes, 10.00%, 8/01/04 (Indonesia) . 66,500,000 28,096,250
--------------
52,916,250
--------------
Health Technology .7%
Dade International, Inc., senior sub. notes, 11.125%, 5/01/06 ......................$ 22,000,000 $ 23,760,000
ICN Pharmaceuticals, Inc., senior notes, Series B, 9.25%, 8/15/05 .................. 37,000,000 37,000,000
--------------
60,760,000
--------------
Industrial Services .2%
First Wave Marine, Inc., senior notes, 11.00%, 2/01/08 ............................. 9,000,000 8,640,000
Great Lakes Dredge & Dock Corp., senior sub. notes, 144A, 11.25%, 8/15/08 .......... 10,000,000 9,800,000
--------------
18,440,000
--------------
Non-Energy Minerals .7%
Armco Steel, Inc., senior notes, 9.375%, 11/01/00 .................................. 5,000,000 5,025,000
Republic Engineered Steels, Inc., first mortgage, 9.875%, 12/15/01 ................. 50,000,000 48,750,000
UCC Investors, senior notes, 10.50%, 5/01/02 ....................................... 8,900,000 9,300,500
--------------
63,075,500
--------------
Process Industries 2.7%
Applied Extrusion Technology, senior notes, Series B, 11.50%, 4/01/02 .............. 29,000,000 29,290,000
Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 ............... 50,000,000 51,750,000
Four M Corp., senior notes, Series B, 12.00%, 6/01/06 .............................. 30,000,000 27,750,000
Packaging Resources, Inc., senior notes, 11.625%, 5/01/03 .......................... 42,000,000 39,270,000
Printpack, Inc., senior sub. notes, Series B, 10.625%, 8/15/06 ..................... 20,000,000 20,000,000
RBX Corp., senior sub. notes, Series B, 11.25%, 10/15/05 ........................... 60,000,000 12,300,000
Riverwood International, senior sub. notes, 10.875%, 4/01/08 ....................... 60,000,000 49,950,000
U.S. Can Corp., unsecured senior sub. notes, Series B, 10.125%, 10/15/06 ........... 6,000,000 6,090,000
--------------
236,400,000
--------------
Producer Manufacturing 1.3%
American Standard, Inc., S.F., senior sub. deb., 9.25%, 12/01/16 ................... 4,272,000 4,378,800
Collins & Aikman Corp., senior sub. notes, 11.50%, 4/15/06 ......................... 35,000,000 36,750,000
a,bHarvard Industries, Inc., senior notes, 11.125%, 8/01/05 ........................... 50,000,000 8,500,000
Nortek, Inc., senior sub. notes, 9.875%, 3/01/04 ................................... 18,500,000 18,546,250
Outsourcing Services Group, senior sub. notes, 144A, 10.875%, 3/01/06 .............. 22,000,000 21,230,000
Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 .......................... 14,500,000 14,862,500
Trench Electric & Trench, Inc., senior sub. deb., 144A, 10.25%, 12/15/07 ........... 10,000,000 9,725,000
--------------
113,992,550
--------------
Telecommunications .3%
Paging Network, senior sub. notes, 10.125%, 8/01/07 ................................ 25,000,000 25,062,500
--------------
Utilities .3%
Midland CoGeneration Venture, deb., Series C-91, 10.33%, 7/23/02 ................... 5,074,883 5,420,493
Midland Funding Corp. I, deb., Series C-94, 10.33%, 7/23/02 ........................ 9,836,186 10,506,050
Texas-New Mexico Power Co., secured deb., 10.75%, 9/15/03 .......................... 6,000,000 6,539,478
--------------
22,466,021
--------------
Miscellaneous .1%
Miscellaneous ...................................................................... 9,716,010
--------------
Total Bonds (Cost $1,662,636,459) .................................................. 1,497,515,379
--------------
Convertible Bonds 4.0%
Consumer Durables .4%
Acclaim Entertainment, Inc., cvt. sub. notes, 10.00%, 3/01/02 ...................... 24,250,000 33,343,750
--------------
Consumer Non-Durables
Chock Full O'Nuts Corp., S.F., cvt. sub. deb., 8.00%, 9/15/06 ...................... 3,446,000 3,441,693
--------------
Electronic Technology .1%
Trans-Lux Corp., cvt. sub. notes, 7.50%, 12/01/06 .................................. 8,000,000 7,000,000
--------------
Energy Minerals 1.0%
Oryx Energy Co., cvt. sub. deb., 7.50%, 5/15/14 .................................... 45,000,000 42,075,000
Swift Energy Co., cvt. sub. notes, 6.25%, 11/15/06 ................................. 50,000,000 40,375,000
--------------
82,450,000
--------------
Finance .2%
APP Finance VI Mauritius, zero coupon, cvt. bond, 11/18/12 (Singapore) .............$150,000,000 $ 15,375,000
--------------
Health Care .2%
Continucare Corp., cvt. sub. notes, 144A, 8.00%, 10/31/02 .......................... 9,500,000 5,272,500
Medical Care International, Inc., cvt. sub. deb., 144A, 6.75%, 10/01/06 ............ 15,000,000 12,900,000
--------------
18,172,500
--------------
Industrial Services .2%
Air & Water Technology Corp., cvt. sub. deb., 8.00%, 5/15/15 ....................... 21,000,000 16,668,750
--------------
Non-Energy Minerals .6%
Ashanti Capital, Ltd., cvt. notes, 5.50%, 3/15/03 (Ghana) .......................... 50,000,000 36,750,000
Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 6/10/02 (United Kingdom) .. 900,000 594,000
Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 1/31/04 ......................... 20,000,000 13,650,000
--------------
50,994,000
--------------
Process Industries .1%
FMC Corp., Eurobonds, cvt. senior sub. deb., 6.75%, 1/16/05 ........................ 13,020,000 12,303,900
--------------
Producer Manufacturing .2%
Exide Corp., cvt. sub. notes, 144A, 2.90%, 12/15/05 ................................ 36,000,000 18,360,000
--------------
Real Estate .9%
Macerich Co., cvt. sub. notes, 144A, 7.25%, 12/15/02 ............................... 55,000,000 51,700,000
Meristar Hospitality Corp., cvt. sub. notes, 4.75%, 10/15/04 ....................... 27,000,000 18,360,000
Rouse Co., cvt. sub. deb., 5.75%, 7/23/02 .......................................... 9,000,000 9,382,500
--------------
79,442,500
--------------
Retail Trade .1%
Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 ............................... 9,000,000 7,413,750
--------------
Total Convertible Bonds (Cost $390,247,145) ........................................ 344,965,843
--------------
Foreign Government Bonds 12.4%
ESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) .......................... 775,187,500 ZAR 90,201,239
Republic of Argentina, L-GP, step coupon, 5.75%, 3/31/23 (Argentina) ............... 520,000,000 351,000,000
Republic of Brazil, EI-L, floating rate deb., 6.625%, 4/15/06 (Brazil) ............. 227,950,000 130,643,844
Republic of Brazil, IDU, variable rate deb., 6.75%, 1/01/01 (Brazil) ............... 37,053,750 31,310,418
Republic of Brazil, PAR Z-L, variable rate collateralized
deb., 5.50%, 4/15/24 (Brazil)....................................................... 280,000,000 165,900,000
Republic of Korea, 8.875%, 4/15/08 (South Korea) ................................... 250,000,000 212,187,500
Republic of South Africa, 12.00%, 2/28/05 (South Africa) ........................... 335,000,000 ZAR 45,350,340
Russian Federation, 11.75%, 6/10/03 (Russia) ....................................... 125,000,000 28,125,000
Russian Federation, 10.00%, 6/26/07 (Russia) ....................................... 125,000,000 27,812,500
--------------
Total Foreign Government Bonds (Cost $1,360,181,504) ............................... 1,082,530,841
--------------
U.S. Government Securities 15.5%
FHLMC, 5.75%, 4/15/08 .............................................................. 325,000,000 343,613,075
U.S. Treasury Bonds, 6.25% - 7.125%, 2/15/23 - 8/15/98 ............................. 756,000,000 895,387,878
U.S. Treasury Notes, 6.375%, 8/15/02 ............................................... 110,000,000 117,768,860
--------------
Total U.S. Government Securities (Cost $1,164,183,330) ............................. 1,356,769,813
--------------
Zero Coupon/Step-Up Bonds 3.3%
AMF Bowling Worldwide, Inc., senior disc. notes, zero coupon to 3/15/01,
12.25% thereafter, 3/15/06 ............................................................ 26,294,000 16,170,810
FICO Strips, 3/07/01 ............................................................... 10,850,000 9,700,150
FICO Strips, 4/06/01 ............................................................... 12,520,000 11,150,800
FICO Strips, 5/02/01 ............................................................... 5,211,000 4,625,043
FICO Strips, 5/11/01 ............................................................... 1,116,000 989,362
FICO Strips, 5/30/01 ............................................................... 5,253,000 4,645,753
FNMA Strips, 2/01/01 ............................................................... 7,348,000 6,605,667
GTC Trust Certificates - Israel, Series 1D, 5/15/01 ................................ 8,100,000 7,205,987
GTC Trust Certificates - Israel, Series 2F, 5/15/01 ................................ 27,226,000 24,221,012
International Wireless Communications, senior disc. notes, 8/15/01 ................. 13,500,000 1,215,000
Loral Space & Communications, Ltd., senior disc. notes,
zero coupon to 1/15/02, 12.50% thereafter, 1/15/07 ................................ 5,500,000 3,657,500
Marcus Cable Co., senior disc. notes, zero coupon to 6/15/00,
14.25% thereafter, 12/15/05 ....................................................... 75,000,000 70,125,000
Mesa Operating Co., unsecured senior sub. notes,
zero coupon to 7/01/01, 11.625% thereafter, 7/01/06 ...............................$ 15,000,000 $ 11,775,000
Nextel Communications, Inc., senior disc. notes, 144A,
zero coupon to 4/15/03, 12.125% thereafter, 4/15/08 ............................... 50,000,000 23,000,000
Nextel Communications, Inc., senior disc. notes,
zero coupon to 2/15/03, 9.95% thereafter, 2/15/08 .................................. 86,500,000 51,251,250
Revlon Worldwide Corp., senior disc. notes, Series B, 3/15/01 ...................... 50,000,000 38,500,000
--------------
Total Zero Coupon/Step-up Bonds (Cost $299,631,355) ................................ 284,838,334
--------------
Total Long Term Investments (Cost $8,001,825,936) .................................. 8,264,577,888
--------------
d Repurchase Agreement 3.9%
Joint Repurchase Agreement, 5.275%, 10/01/98,
(Maturity Value $347,565,668) (Cost $347,514,747) ................................. 347,514,747 347,514,747
BankAmerica Securities, Inc. (Maturity Value $35,020,716)
Barclays Capital Group, Inc. (Maturity Value $32,379,224)
BT Alex Brown, Inc. (Maturity Value $35,020,716)
Chase Securities, Inc. (Maturity Value $35,020,716)
CIBC Wood Gundy Securities Corp. (Maturity Value $35,020,716)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $35,020,716)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $35,020,716)
Greenwich Capital Markets, Inc. (Maturity Value $35,020,716)
Paribas Corp. (Maturity Value $35,020,716)
Warburg Dillion Read, L.L.C. (Maturity Value $35,020,716)
Collateralized by U.S. Treasury Bills and Notes
Total Investments (Cost $8,349,340,683) 98.5% ..................................... 8,612,092,635
--------------
Other Assets, less Liabilities 1.5% ................................................ 129,375,011
--------------
Net Assets 100.0% .................................................................. $8,741,467,646
==============
</TABLE>
CURRENCY ABBREVIATIONS:
ZAR - South African Rand
PORTFOLIO ABBREVIATIONS:
FHLMC - Federal Home Loan Mortgage Corporation
FICO - Financing Corporation
FNMA - Federal National Mortgage Association
GTC - Government Trust Certificate
MEDS - Mandatorially Exchangeable Debt Security
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
bSee Note 6 regarding defaulted securities.
cSee Note 7 regarding restricted securities.
dSee Note 1(c) regarding joint repurchase agreement.
gThe Investment Company Act of 1940 defines "affiliated companies" as
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in non-controlled "affiliated
companies" at September 30, 1998 were $25,951,885.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
Franklin U.S. Government Securities Fund
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
CLASS I 1998 1997 1996 1995++ 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $6.89 $6.72 $6.87 $6.51 $7.20
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .46 .48 .49 .50 .50
Net realized and unrealized gains (losses) ......................... .10 .17 (.15) .35 (.68)
------------------------------------------------------
Total from investment operations .................................... .56 .65 .34 .85 (.18)
------------------------------------------------------
Less distributions from net investment income ....................... (.46) (.48) (.49) (.49) (.51)
------------------------------------------------------
Net asset value, end of year ........................................ $6.99 $6.89 $6.72 $6.87 $6.51
=====================================================
Total return+ ....................................................... 8.41% 10.08% 5.15% 13.56% (2.75%)
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $9,049,829$9,350,751$10,129,483$11,101,605$11,668,747
Ratios to average net assets:
Expenses ........................................................... .65% .64% .61% .61% .55%
Net investment income .............................................. 6.67% 7.01% 7.18% 7.50% 7.37%
Portfolio turnover rate** ........................................... 25.98% 1.74% 8.01% 5.48% 18.28%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $6.87 $6.70 $6.85 $6.67
-------------------------------------------
Income from investment operations:
Net investment income .............................................. .42 .44 .45 .21
Net realized and unrealized gains (losses) ......................... .10 .17 (.15) .16
-------------------------------------------
Total from investment operations .................................... .52 .61 .30 .37
-------------------------------------------
Less distributions from net investment income ....................... (.42) (.44) (.45) (.19)
--------------------------------------------
Net asset value, end of year ........................................ $6.97 $6.87 $6.70 $6.85
===========================================
Total return+ ....................................................... 7.85% 9.48% 4.55% 5.66%
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $271,665 $120,818 $57,657 $11,695
Ratios to average net assets:
Expenses ........................................................... 1.21% 1.20% 1.17% 1.18%*
Net investment income .............................................. 6.10% 6.44% 6.80% 6.48%*
Portfolio turnover rate** ........................................... 25.98% 1.74% 8.01% 5.48%
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
++For the period May 1, 1995 (effective date) to September 30, 1995 for Class
II.
*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.
<TABLE>
<CAPTION>
Franklin U.S. Government Securities Fund (cont.)
Year Ended
September 30,
----------------
Advisor Class 1998 1997++
----------------
<S> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................................................. $6.90 $6.76
-----------------
Income from investment operations:
Net investment income ............................................................................. .47 .38
Net realized and unrealized gains ................................................................. .10 .12
-----------------
Total from investment operations ................................................................... .57 .50
-----------------
Less distributions from net investment income ...................................................... (.47) (.36)
-----------------
Net asset value, end of year ....................................................................... $7.00 $6.90
=================
Total return+ ...................................................................................... 8.51% 7.68%
Ratios/supplemental data
Net assets, end of year (000's) .................................................................... $36,308 $14,469
Ratios to average net assets:
Expenses .......................................................................................... .56% .56%*
Net investment income ............................................................................. 6.75% 7.01%*
Portfolio turnover rate** .......................................................................... 25.98% 1.74%
</TABLE>
+Total return is not annualized.
++For the period January 2, 1997 (effective date) to September 30, 1997.
*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.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments, September 30, 1998
PRINCIPAL
U.S. Government Securities Fund AMOUNT VALUE
<S> <C> <C>
a Government National Mortgage Association (GNMA) 97.6%
e GNMA I, SF, 6.00%, 9/15/23 - 10/1/28 ............................................... $ 334,290,483 $ 335,575,181
GNMA II, 6.00%, 3/20/28 - 9/20/28 .................................................. 244,171,341 243,708,255
GNMA I, SF, 6.50%, 3/15/03 - 9/15/28 ............................................... 1,666,250,103 1,709,147,028
GNMA II, 6.50%, 6/20/24 - 7/20/28 .................................................. 418,457,580 426,680,409
GNMA I, SF, 6.75%, 3/15/26 - 5/15/26 ............................................... 3,370,646 3,447,559
GNMA PL, 6.75%, 1/15/34 ........................................................... 35,940,225 36,832,608
GNMA I, SF, 7.00%, 4/15/16 - 5/15/28 ............................................... 2,085,039,878 2,159,372,227
GNMA PL, 7.00%, 9/15/35 .......................................................... 8,926,733 9,245,292
GNMA I, SF, 7.25%, 10/15/25 - 1/15/26 .............................................. 7,783,002 7,973,609
GNMA PL, 7.375%, 4/15/29 ........................................................... 34,920,275 35,936,665
GNMA I, SF, 7.50%, 6/15/05 - 6/15/28 ............................................... 1,294,585,891 1,346,849,451
GNMA II, 7.50%, 10/20/22 - 12/20/26 ................................................ 155,149,788 160,764,999
GNMA PL, 7.75%, 10/15/12 ........................................................... 5,365,116 5,603,188
GNMA I, SF, 8.00%, 10/15/07 - 5/15/26 .............................................. 920,027,604 967,512,443
GNMA II, 8.00%, 8/20/16 - 10/20/26 ................................................. 62,408,744 65,071,093
GNMA PL, 8.00%, 7/15/23 - 5/15/32 .................................................. 37,873,852 39,758,554
GNMA I, GPM, 8.25%, 3/15/17 - 11/15/17 ............................................. 5,700,078 6,036,352
GNMA PL, 8.25%, 2/15/28 ............................................................ 12,856,397 13,781,884
GNMA I, SF, 8.50%, 5/15/16 - 11/15/24 .............................................. 205,149,493 218,814,432
GNMA II, 8.50%, 4/20/16 - 6/20/25 .................................................. 39,573,954 41,799,834
GNMA II, GPM, 8.75%, 3/20/17 - 7/20/17 ............................................. 934,569 1,000,806
GNMA I, SF, 9.00%, 10/15/04 - 7/15/23 .............................................. 250,115,526 268,966,682
GNMA II, 9.00%, 5/20/16 - 11/20/21 ................................................ 13,174,791 14,121,607
GNMA I, GPM, 9.25%, 5/15/16 - 1/15/17 .............................................. 4,171,292 4,527,947
GNMA I, SF, 9.50%, 5/15/09 - 2/15/23 ............................................... 136,356,775 147,859,387
GNMA II, 9.50%, 9/20/15 - 4/20/25 .................................................. 11,396,216 12,256,628
GNMA I, GPM, 10.00%, 11/15/09 - 11/15/13 ........................................... 4,587,140 5,018,799
GNMA I, SF, 10.00%, 4/15/12 - 4/15/25 .............................................. 161,374,393 177,891,986
GNMA II, 10.00%, 8/20/13 - 3/20/21 ................................................. 18,321,487 19,965,070
GNMA I, GPM, 10.25%, 2/15/16 - 2/15/21 ............................................ 1,930,806 2,145,785
GNMA I, SF, 10.50%, 7/15/99 - 10/15/21 ............................................. 116,632,619 129,715,935
GNMA II, 10.50%, 9/20/13 - 3/20/21 ................................................. 31,248,184 34,046,998
GNMA I, GPM, 11.00%, 12/15/09 - 3/15/11 ............................................ 8,043,709 8,941,489
GNMA I, SF, 11.00%, 1/15/01 - 5/15/21 .............................................. 98,106,023 110,099,663
GNMA II, 11.00%, 7/20/13 - 1/20/21 ................................................. 8,333,172 9,189,778
GNMA I, GPM, 11.25%, 6/15/13 - 1/15/16 ............................................. 3,957,517 4,425,194
GNMA I, GPM, 11.50%, 3/15/10 - 6/15/13 ............................................. 1,209,753 1,356,332
GNMA I, SF, 11.50%, 2/15/13 - 12/15/17 ............................................. 20,987,817 23,717,596
GNMA II, GPM, 11.50%, 7/20/13 - 1/20/14 ............................................ 132,359 147,824
GNMA II, 11.50%, 8/20/13 - 4/20/18 ................................................. 1,514,942 1,679,579
GNMA I, GPM, 11.75%, 7/15/13 - 12/15/15 ............................................ 843,909 963,889
GNMA I, GPM, 12.00%, 10/15/10 - 3/15/13 ........................................... 428,234 483,309
GNMA I, SF, 12.00%, 5/15/11 - 8/15/19 .............................................. 95,964,085 109,630,665
GNMA II, 12.00%, 9/20/13 - 2/20/16 ................................................. 4,544,858 5,092,518
GNMA I, GPM, 12.50%, 4/15/10 - 10/15/12 ............................................ 794,251 916,443
GNMA I, SF, 12.50%, 1/15/10 - 8/15/18 .............................................. 86,694,633 101,130,754
GNMA II, 12.50%, 9/20/13 - 11/20/15 ................................................ 3,927,183 4,506,359
GNMA I, GPM, 12.75%, 11/15/13 - 6/15/15 ............................................ 48,602 57,024
GNMA I, SF, 13.00%, 7/15/10 - 1/15/16 ............................................. 82,470,363 96,947,621
GNMA II, 13.00%, 10/20/13 - 9/20/15 ................................................ 2,610,316 3,020,403
---------------
Total Government National Mortgage Association (GNMA) (Cost $8,816,358,738) ........ 9,133,735,133
---------------
U.S. Government Securities 1.2%
U.S. Treasury Bonds, 6.00%, 2/15/26 (Cost $96,343,750) ............................. 100,000,000 111,937,600
---------------
Total Long Term Investments (Cost $8,912,702,488) .................................. 9,245,672,733
---------------
a Short Term Investments 2.1%.........................................................
f U.S. Treasury Bills, 0.00%, 10/8/98 - 3/4/99 ....................................... $ 142,655,000 $ 141,215,578
U.S. Treasury Notes, 6.375%, 1/15/99 ............................................... 29,000,000 29,163,154
U.S. Treasury Notes, 7.125%, 10/15/98 .............................................. 30,000,000 30,046,890
---------------
Total Short Term Investments (Cost $200,333,324)................................... 200,425,622
---------------
Total Investments (Cost $9,113,035,812) 100.9% ..................................... 9,446,098,355
---------------
Other Assets, less Liabilities (.9)% .............................................. (88,296,162)
---------------
Net Assets 100.0% .................................................................. $9,357,802,193
===============
</TABLE>
eSufficient collateral has been segregated for securities issued on a
when-issued or delayed delivery basis.
fSecurities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
Franklin Utilities Fund
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
CLASS I 1998 1997 1996 1995++ 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $10.04 $ 9.73 $9.75 $8.33 $10.78
-----------------------------------------------------
Income from investment operations:
Net investment income .............................................. .52 .53 .54 .53 .55
Net realized and unrealized gains (losses) ......................... 1.58 .73 .03 1.42 (2.44)
------------------------------------------------------
Total from investment operations .................................... 2.10 1.26 .57 1.95 (1.89)
------------------------------------------------------
Less distributions from:
Net investment income .............................................. (.52) (.52) (.52) (.52) (.52)
Net realized gains ................................................. (.26) (.43) (.07) (.01) (.04)
------------------------------------------------------
Total distributions ................................................. (.78) (.95) (.59) (.53) (.56)
------------------------------------------------------
Net asset value, end of year ........................................ $11.36 $10.04 $9.73 $9.75 $ 8.33
======================================================
Total return+ ....................................................... 21.71% 13.72% 5.94% 24.19% (17.94%)
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $2,054,546$1,953,273$2,400,561$2,765,976$2,572,508
Ratios to average net assets:
Expenses ........................................................... .76% .75% .71% .73% .64%
Net investment income .............................................. 4.73% 5.26% 5.24% 5.88% 5.76%
Portfolio turnover rate ............................................. 11.77% 7.24% 17.05% 5.55% 6.34%
Class II
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .................................. $10.02 $ 9.72 $9.75 $8.89
-------------------------------------------
Income from investment operations:
Net investment income .............................................. .46 .45 .46 .23
Net realized and unrealized gains .................................. 1.60 .76 .06 .88
-------------------------------------------
Total from investment operations .................................... 2.06 1.21 .52 1.11
-------------------------------------------
Less distributions from:
Net investment income .............................................. (.47) (.48) (.48) (.25)
Net realized gains ................................................. (.26) (.43) (.07) --
-------------------------------------------
Total distributions ................................................. (.73) (.91) (.55) (.25)
-------------------------------------------
Net asset value, end of year ........................................ $11.35 $10.02 $9.72 $9.75
===========================================
Total return+ ....................................................... 21.24% 13.06% 5.39% 13.01%
Ratios/supplemental data
Net assets, end of year (000's) ..................................... $40,628 $21,906 $19,655 $8,369
Ratios to average net assets:
Expenses ........................................................... 1.28% 1.27% 1.23% 1.21%*
Net investment income .............................................. 4.19% 4.78% 4.86% 5.15%*
Portfolio turnover rate ............................................. 11.77% 7.24% 17.05% 5.55%
</TABLE>
+Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
++For the period May 1, 1995 (effective date) to September 30, 1995 for Class
II.
*Annualized
<TABLE>
<CAPTION>
Franklin Utilities Fund (cont.)
Year Ended
September 30,
---------------------
ADVISOR CLASS 1998 1997++
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year ................................................................. $10.04 $ 9.55
---------------------
Income from investment operations:
Net investment income ............................................................................. .58 .36
Net realized and unrealized gains ................................................................. 1.57 .53
---------------------
Total from investment operations ................................................................... 2.15 .89
---------------------
Less distributions from:
Net investment income ............................................................................. (.54) (.40)
Net realized gains ................................................................................ (.26) --
---------------------
Total distributions ................................................................................ (.80) (.40)
---------------------
Net asset value, end of year ....................................................................... $11.39 $10.04
=====================
Total return+ ...................................................................................... 22.20% 9.61%
Ratios/supplemental data
Net assets, end of year (000's) .................................................................... $13,651 $8,719
Ratios to average net assets:
Expenses .......................................................................................... .63% .62%*
Net investment income ............................................................................. 4.93% 5.33%*
Portfolio turnover rate ............................................................................ 11.77% 7.24%
</TABLE>
+Total return is not annualized.
++For the period January 2, 1997 (effective date) to September 30, 1997.
*Annualized
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments, September 30, 1998
Utilities Fund SHARES VALUE
<S> <C> <C>
c Common Stocks 75.1%
AGL Resources, Inc. ................................................................ 350,000 $ 6,781,250
Allegheny Energy, Inc. ............................................................. 1,400,000 44,187,500
American Electric Power Co., Inc. .................................................. 900,000 43,931,250
Central & South West Corp. ......................................................... 1,429,100 40,818,669
Cinergy Corp. ...................................................................... 2,059,800 78,787,350
Conectiv, Inc. ..................................................................... 2,359,800 53,832,938
Dominion Resources, Inc. ........................................................... 1,858,950 82,955,644
Duke Energy Corp. .................................................................. 950,000 62,878,125
Edison International ............................................................... 1,120,800 28,790,550
Entergy Corp. ...................................................................... 1,306,200 40,165,650
Florida Progress Corp. ............................................................. 1,800,000 77,962,500
FPL Group, Inc. .................................................................... 1,330,000 92,684,375
GPU, Inc. .......................................................................... 937,000 39,822,500
Hawaiian Electric Industries, Inc. ................................................. 688,000 28,380,000
Montana Power Co. .................................................................. 475,300 21,239,969
Nevada Power Co. ................................................................... 661,700 17,783,188
New Century Energies, Inc. ......................................................... 1,748,445 85,127,416
New Jersey Resources Corp. ......................................................... 245,500 8,745,938
NIPSCO Industries, Inc. ............................................................ 1,820,600 59,852,225
Northern States Power Co. .......................................................... 794,400 22,292,850
PacifiCorp ......................................................................... 2,928,500 56,190,594
PG&E Corp. ......................................................................... 2,300,000 73,456,250
Pinnacle West Capital Corp. ........................................................ 518,485 23,234,609
Puget Sound Energy, Inc. ........................................................... 1,100,000 30,525,000
SBC Communications, Inc. ........................................................... 264,200 11,740,388
SCANA Corp. ........................................................................ 1,950,000 65,446,875
Sempra Energy ...................................................................... 3,115,211 81,190,187
Sierra Pacific Resources ........................................................... 350,000 13,584,375
SIGCORP, Inc. ...................................................................... 787,665 25,451,425
Southern Co. ....................................................................... 3,129,300 92,118,769
TECO Energy, Inc. .................................................................. 2,300,000 65,693,750
Telecom Corp. of New Zealand, Ltd., ADR (New Zealand) .............................. 469,000 6,390,125
Texas Utilities Co. ................................................................ 762,750 35,515,547
Western Resources, Inc. ............................................................ 1,627,800 67,350,220
----------------
Total Common Stocks (Cost $1,152,300,178) .......................................... 1,584,908,001
----------------
Preferred Stocks 7.3%
AES Trust I, Series A, 5.375%, 3/31/27, cvt. pfd. ................................. 400,000 22,750,000
AES Trust II, Series B, 5.50%, 9/30/12, cvt. pfd. .................................. 416,600 17,497,200
c CMS Energy Trust I, 7.75%, cvt. pfd. ............................................... 705,000 38,422,500
MediaOne Group, Inc., 6.25%, 8/15/01, cvt.pfd. ..................................... 328,200 18,338,175
MCN Financing III, 8.00%, 5/16/00, cvt. pfd. ....................................... 81,600 2,881,500
Nortel Inversora, SA, 10.00%, cvt. pfd. MEDS (Argentina) ........................... 650,000 33,881,250
Texas Utilities Co., 9.25%, 8/16/01, cvt. pfd. ..................................... 347,600 19,552,500
----------------
Total Preferred Stocks (Cost $144,282,498) ........................................ 153,323,125
----------------
PRINCIPAL
AMOUNT
Bonds 12.8%
Arizona Public Service Co., 10.25%, 5/15/20 ...................................... $10,500,000 11,694,491
Arizona Public Service Co., 9.00%, 12/15/21 ........................................ 14,500,000 16,487,385
CalEnergy Co., 8.48%, 9/15/28 ...................................................... 25,000,000 26,227,750
Commonwealth Edison Co., 8.875%, 10/01/21 .......................................... 2,000,000 2,107,032
Commonwealth Edison Co., 8.50%, 7/15/22 ............................................ 5,000,000 5,591,200
Commonwealth Edison Co., 8.375%, 9/15/22 ........................................... 10,000,000 11,062,810
Consolidated Edison Inc., 7.10%, 2/01/28 ........................................... 15,000,000 15,809,550
Duquesne Light Co., 8.375%, 5/15/24 ................................................ 5,000,000 5,261,635
Enron Corp., 7.00%, 8/15/23 ........................................................ $19,000,000 $ 19,004,959
Illinois Power Co., 8.00%, 2/15/23 ................................................. 10,000,000 10,534,770
Midland Funding Corp. I, deb., Series C-94, 10.33%, 7/23/02 ........................ 9,562,959 10,214,215
Niagara Mohawk Power Corp., Series D, 7.25%, 10/01/02 .............................. 4,000,000 4,004,000
Niagara Mohawk Power Corp., Series G, 7.75%, 10/01/08 .............................. 4,600,000 4,899,000
Niagara Mohawk Power Corp., Series H, zero coupon to 7/01/03,
8.50% thereafter, 7/01/10 ......................................................... 6,000,000 4,350,000
Niagara Mohawk Power Corp., 9.50%, 3/01/21 ......................................... 7,500,000 7,970,138
Niagara Mohawk Power Corp., 8.75%, 4/01/22 ......................................... 5,000,000 5,585,040
Northwest Pipeline Corp., 7.125%, 12/01/25 ......................................... 3,000,000 3,107,895
Ohio Edison Co., 8.75%, 6/15/22 .................................................... 8,000,000 8,478,168
Pacific Bell, 7.75%, 9/15/32 ....................................................... 10,000,000 10,887,680
Pacific Bell, 7.50%, 2/01/33 ....................................................... 10,000,000 10,726,680
Panhandle Eastern Co., 7.20%, 8/15/24 .............................................. 20,000,000 20,857,300
Philadelphia Electric Co., 8.75%, 4/01/22 .......................................... 15,000,000 15,883,020
Texas Utilities Co., 8.75%, 11/01/23 ............................................... 10,000,000 11,341,810
Texas Utilities Co., 8.50%, 8/01/24 ................................................ 10,000,000 11,078,990
US West Communications Group, 6.875%, 9/15/33 ...................................... 16,000,000 16,545,600
----------------
Total Bonds (Cost $250,290,511) .................................................... 269,711,118
----------------
Convertible Bonds .3%
Itron, Inc., cvt., 144A, 6.75%, 3/31/04 (Cost $10,000,000) ......................... 10,000,000 6,775,000
----------------
Total Long Term Investments (Cost $1,556,873,187)................................... 2,014,717,244
----------------
d Repurchase Agreement 3.8%
Joint Repurchase Agreement, 5.275%, 10/01/98
(Maturity Value $79,484,167) (Cost $79,472,522) ................................. 79,472,522 79,472,522
BankAmerica Securities, Inc. (Maturity Value $8,008,825)
Barclays Capital Group, Inc. (Maturity Value $7,404,742)
BT Alex Brown, Inc. (Maturity Value $8,008,825)
Chase Securities, Inc. (Maturity Value $8,008,825)
CIBC Wood Gundy Securities Corp. (Maturity Value $8,008,825)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $8,008,825)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $8,008,825)
Greenwich Capital Markets, Inc. (Maturity Value $8,008,825)
Paribas Corp. (Maturity Value $8,008,825)
Warburg Dillion Read, L.L.C. (Maturity Value $8,008,825)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $1,636,345,709) 99.3%..................................... 2,094,189,776
----------------
Other Assets, less Liabilities .7% ................................................ 14,635,241
----------------
Net Assets 100.0% ................................................................. $2,108,825,007
================
</TABLE>
PORTFOLIO ABBREVIATIONS:
MEDS - Mandatorially Exchangeable Debt Security
cSee Note 7 regarding restricted securities.
dSee Note 1(c) regarding joint repurchase agreement.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements
Statements of Assets and Liabilities
September 30, 1998
U.S. GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost ..................................... $ 35,857,627 $ 570,528,823 $8,001,825,936 $9,113,035,812 $1,556,873,187
-------------------------------------------------------------------------------
Value .................................... 122,755,546 1,301,465,830 8,264,577,888 9,446,098,355 2,014,717,244
Repurchase agreements, at value and cost .. 105,478,839 601,702,000 347,514,747 -- 79,472,522
Cash ...................................... -- -- -- 11,978 --
Receivables:
Investment securities sold ............... 338,789 -- 13,909,918 90,243,750 8,390,148
Capital shares sold ...................... 733,247 3,299,049 16,411,715 15,501,355 1,326,104
Dividends and interest ................... 63,807 1,187,943 145,275,423 56,805,774 9,921,570
-------------------------------------------------------------------------------
Total assets ......................... 229,370,228 1,907,654,822 8,787,689,691 9,608,661,212 2,113,827,588
-------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .......... -- 23,770,646 21,012,651 218,338,802 --
Capital shares redeemed .................. 678,004 7,180,577 11,762,809 10,423,246 1,691,576
Affiliates ............................... 243,629 1,927,652 7,093,494 6,027,265 1,572,341
Shareholders ............................. 213,338 7,513,132 4,969,920 15,841,876 1,654,974
Payable upon return of
securities loaned (Note 8) ................ -- -- 1,021,240 -- --
Other liabilities ......................... 12,436 39,302 361,931 227,830 83,690
-------------------------------------------------------------------------------
Total liabilities .................... 1,147,407 40,431,309 46,222,045 250,859,019 5,002,581
-------------------------------------------------------------------------------
Net assets, at value ................ $228,222,821 $1,867,223,513 $8,741,467,646 $9,357,802,193 $2,108,825,007
===============================================================================
Net assets consist of:
Undistributed net investment income ....... $ 2,410,194 $ 23,371,146 $ 42,789,225 $ 10,045,069 $ 7,661,465
Net unrealized appreciation ............... 86,897,919 730,937,007 262,859,873 333,062,543 457,844,057
Accumulated net realized gain (loss) ...... (655,988) 2,302,133 44,327,902 (336,267,945) 63,531,899
Capital shares ............................ 139,570,696 1,110,613,227 8,391,490,646 9,350,962,526 1,579,787,586
-------------------------------------------------------------------------------
Net assets, at value ................. $228,222,821 $1,867,223,513 $8,741,467,646 $9,357,802,193 $2,108,825,007
===============================================================================
U.S. GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class I:
Net assets, at value ...................... $215,864,399 $1,635,780,277 $7,704,982,640 $9,049,828,862 $2,054,545,763
===============================================================================
Shares outstanding ........................ 12,102,717 57,238,717 3,296,719,226 1,294,456,415 180,802,369
===============================================================================
Net asset value per share* ................ $17.84 $28.58 $2.34 $6.99 $11.36
===============================================================================
Maximum offering price per share
(net asset value per
share / 94.25%, 94.25%, 95.75%,
95.75%, and 95.75%, respectively) ......... $18.93 $30.32 $2.44 $7.30 $11.86
===============================================================================
Class II:
Net assets, at value ...................... $ 12,358,422 $ 189,571,836 $1,014,634,271 $ 271,665,108 $ 40,628,212
===============================================================================
Shares outstanding ........................ 705,122 6,744,216 432,798,046 38,976,870 3,580,865
===============================================================================
Net asset value per share* ................ $17.53 $28.11 $2.34 $6.97 $11.35
===============================================================================
Maximum offering price per share
(net asset value per share / 99.00%) ...... $17.71 $28.39 $2.36 $7.04 $11.46
===============================================================================
Advisor Class:
Net assets, at value ...................... -- $ 41,871,400 $ 21,850,735 $ 36,308,223 $ 13,651,032
===============================================================================
Shares outstanding ........................ -- 1,462,610 9,354,529 5,187,786 1,198,416
===============================================================================
Net asset value and maximum
offering price per share .................. -- $28.63 $2.34 $7.00 $11.39
===============================================================================
*Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
Statements of Operations
for the year ended September 30, 1998
U.S. GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends ................................. $ 416,554 $ 14,181,283 $194,904,119 $-- $ 90,436,284
Interest .................................. 4,922,360 33,365,990 474,569,797 681,838,730 23,211,736
-------------------------------------------------------------------------------
Total investment income .............. 5,338,914 47,547,273 669,473,916 681,838,730 113,648,020
-------------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .................. 1,166,790 8,291,109 40,167,205 42,190,481 9,617,382
Distribution fees (Note 3)
Class I .................................. 457,594 3,699,800 11,817,554 8,400,421 2,715,888
Class II ................................. 75,211 1,566,194 5,848,895 1,135,512 193,531
Transfer agent fees (Note 3) .............. 335,274 2,519,799 7,012,988 6,851,626 2,525,216
Custodian fees ............................ 2,945 25,222 622,660 103,409 30,970
Reports to shareholders ................... 97,903 621,281 1,934,228 1,943,922 703,966
Registration and filing fees .............. 26,008 91,767 240,817 157,667 50,792
Professional fees (Note 3) ................ 4,559 40,300 327,072 234,786 41,320
Directors' fees and expenses .............. 1,561 10,682 51,717 54,695 12,382
Other ..................................... 5,065 37,470 172,697 205,815 46,523
-------------------------------------------------------------------------------
Total expenses ....................... 2,172,910 16,903,624 68,195,833 61,278,334 15,937,970
-------------------------------------------------------------------------------
Net investment income ............... 3,166,004 30,643,649 601,278,083 620,560,396 97,710,050
-------------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .............................. 2,646,405 2,337,429 64,405,639 (19,483,269) 64,441,884
Foreign currency transactions ............ -- -- (2,491,205) -- --
-------------------------------------------------------------------------------
Net realized gain (loss) ............. 2,646,405 2,337,429 61,914,434 (19,483,269) 64,441,884
Net unrealized appreciation (depreciation) on:
Investments .............................. 55,304 98,696,494 (499,480,131) 153,127,093 243,719,485
Translation of assets and
liabilities denominated in
foreign currencies ........................ -- -- 198,261 -- --
-------------------------------------------------------------------------------
Net unrealized
appreciation (depreciation) ............... 55,304 98,696,494 (499,281,870) 153,127,093 243,719,485
-------------------------------------------------------------------------------
Net realized and
unrealized gains (losses) ................. 2,701,709 101,033,923 (437,367,436) 133,643,824 308,161,369
-------------------------------------------------------------------------------
Net increase in net assets
resulting from operations................. $5,867,713 $131,677,572 $163,910,647 $754,204,220 $405,871,419
================================================================================
Statements of Changes in Net Assets
for the years ended September 30, 1998 and 1997
DYNATECH FUND GROWTH FUND INCOME FUND
------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income $ 3,166,004 $ 1,043,236 $ 30,643,649 $ 20,531,240 $ 601,278,083 $ 574,909,657
Net realized gain from in-
vestments and foreign
currency transactions.. 2,646,405 6,949,626 2,337,429 14,065,272 61,914,434 133,917,032
Net unrealized apprecia-
tion (depreciation) on
investments and trans-
lation of assets and
liabilities denominated
in foreign currencies.. 55,304 33,474,575 98,696,494 215,960,743 (499,281,870) 524,014,976
------------------------------------------------------------------------------------------------
Net increase in net
assets resulting
from operations ........ 5,867,713 41,467,437 131,677,572 250,557,255 163,910,647 1,232,841,665
Distributions to
shareholders from:
Net investment income:
Class I ............ (1,752,624) (415,339) (25,162,491) (10,432,896) (580,116,095) (545,342,618)
Class II ........... (30,919) (177) (1,440,530) (420,404) (59,901,819) (35,350,218)
Advisor Class ...... -- -- (559,926) -- (1,149,906) (498,714)
-------------------------------------------------------------------------------------------------
Net realized gains:
Class I ............ (9,999,974) (3,013,708) (12,689,864) (9,283,568) (87,786,345) (29,741,890)
Class II ........... (253,737) (1,254) (1,116,441) (554,318) (8,459,296) (1,712,633)
Advisor Class ...... -- -- (251,592) -- (152,675) --
------------------------------------------------------------------------------------------------
Total distributions to
shareholders ........... (12,037,254) (3,430,478) (41,220,844) (20,691,186) (737,566,136) (612,646,073)
Capital share transactions
(Note 2)
Class I ............. 33,897,043 45,863,685 118,026,556 202,804,236 476,200,885 382,416,473
Class II ............ 9,007,974 3,078,539 65,767,634 58,785,996 381,864,680 308,632,125
Advisor Class ....... -- -- 14,371,083 23,241,991 9,638,333 12,707,793
Total capital share
transactions ........... 42,905,017 48,942,224 198,165,273 284,832,223 867,703,898 703,756,391
Net increase in
net assets............. 36,735,476 86,979,183 288,622,001 514,698,292 294,048,409 1,323,951,983
Net assets:
Beginning of year...... $191,487,345 $104,508,162 $1,578,601,512 $1,063,903,220 $8,447,419,237 $7,123,467,254
------------------------------------------------------------------------------------------------
End of year ............ $228,222,821 $191,487,345 $1,867,223,513 $1,578,601,512 $8,741,467,646 $8,447,419,237
================================================================================================
Undistributed net invest-
ment income included in
net assets
End of year ........... $ 2,410,194 $ 1,031,642 $ 23,371,146 $ 19,890,444 $ 42,789,225 $ 69,436,365
================================================================================================
U.S. GOVERNMENT
SECURITIES FUND UTILITIES FUND
------------------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ......................... $ 620,560,396 $ 689,860,208 $ 97,710,050 $ 114,866,322
Net realized gain (loss) from investments ..... (19,483,269) (29,505,613) 64,441,884 49,829,022
Net unrealized appreciation on investments .... 153,127,093 285,289,807 243,719,485 112,850,805
------------------------------------------------------------------------
Net increase in net assets
resulting from operations ...................... 754,204,220 945,644,402 405,871,419 277,546,149
Distributions to shareholders from:
Net investment income:
Class I ...................................... (605,836,717) (694,284,790) (97,138,958) (113,914,994)
Class II ..................................... (10,286,891) (5,467,178) (1,326,251) (1,067,340)
Advisor Class ................................ (1,427,760) (363,656) (572,152) (277,630)
Net realized gains:
Class I ...................................... -- -- (49,822,909) (100,515,956)
Class II ..................................... -- -- (578,595) (903,261)
Advisor Class ................................ -- -- (244,503) --
------------------------------------------------------------------------
Total distributions to shareholders ............ (617,551,368) (700,115,624) (149,683,368) (216,679,181)
Capital share transactions (Note 2)
Class I ....................................... (433,557,135) (1,021,750,769) (150,106,983) (507,188,024)
Class II ...................................... 147,302,002 60,845,500 15,244,227 1,602,454
Advisor Class ................................. 21,365,919 14,274,791 3,601,051 8,401,319
------------------------------------------------------------------------
Total capital share transactions ............... (264,889,214) (946,630,478) (131,261,705) (497,184,251)
Net increase (decrease) in net assets ..... (128,236,362) (701,101,700) 124,926,346 (436,317,283)
Net assets:
Beginning of year.............................. 9,486,038,555 10,187,140,255 1,983,898,661 2,420,215,944
------------------------------------------------------------------------
End of year .................................... $9,357,802,193 $ 9,486,038,555 $2,108,825,007 $1,983,898,661
========================================================================
Undistributed net investment
income included in net assets
End of year .................................... $ 10,045,069 $ 7,036,041 $ 7,661,465 $ 8,991,193
========================================================================
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Custodian Funds, Inc. (the Company) is registered under the Investment
Company Act of 1940 as an open-end, diversified investment company, consisting
of five series (the Funds). The Funds and their investment objectives are:
CAPITAL GROWTH GROWTH AND INCOME CURRENT INCOME
- ----------------------------------------------------------------------------
DynaTech Fund Income Fund U.S. Government Securities Fund
Growth Fund Utilities Fund
The following summarizes the Funds' significant accounting policies.
a. Security Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Directors.
b. Foreign Currency Translation:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gains or losses from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. Repurchase Agreement:
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.
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 Fund to the seller, collateralized by securities which are
delivered to the Fund's custodian. The market value, including accrued interest,
of the initial collateralization is required to be at least 102% of the dollar
amount invested by the Funds, with the value of the underlying securities marked
to market daily to maintain coverage of at least 100%. At September 30, 1998,
all outstanding repurchase agreements had been entered into on that date.
d. Income Taxes:
No provision has been made for income taxes because each Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
e. Security Transactions, Investment Income, Expenses, and Distributions:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
e. Security Transactions, Investment Income, Expenses, and Distributions:
(cont.) Common expenses incurred by the Company are allocated among the Funds
based on the ratio of net assets of each Fund to the combined net assets. Other
expenses are charged to each Fund on a specific identification basis.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
f. Accounting Estimates:
The preparation of 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.
2. CAPITAL STOCK
Effective January 2, 1997, the Funds, except the DynaTech Fund, offered Advisor
Class shares to qualified investors. Each class of shares have the same rights
except for their initial sales load, distribution fees, voting rights on matters
affecting a single class and the exchange privilege of each class.
At September 30, 1998, there were 19 billion shares authorized ($0.01 par
value), allocated to the Funds as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class I ......................... 250,000,000 250,000,000 4,600,000,000 2,500,000,000 400,000,000
Class II ........................ 250,000,000 250,000,000 3,600,000,000 2,500,000,000 400,000,000
Advisor Class ................... -- 1,000,000,000 1,000,000,000 1,000,000,000 1,000,000,000
Transactions in the Funds' shares were as follows:
DYNATECH FUND GROWTH FUND INCOME FUND
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class I Shares:
1998
Shares sold ................ 6,750,544 $118,551,094 16,876,245 $478,773,933 630,074,991 $1,551,286,174
Shares issued in
connection with tax-free
merger (Note 10) ........... -- -- -- -- 83,468,440 205,332,362
Shares issued in
reinvestment of
distributions .............. 600,645 10,126,853 1,274,095 34,617,093 164,917,373 405,797,953
Shares redeemed ............ (5,425,966) (94,780,904) (13,907,716) (395,364,470) (688,362,366) (1,686,215,604)
----------------------------------------------------------------------------------------------
Net increase ............... 1,925,223 $ 33,897,043 4,242,624 $118,026,556 190,098,438 $ 476,200,885
=============================================================================================
1997
Shares sold ................ 7,207,685 $118,420,191 19,647,652 $486,355,148 538,060,045 $1,275,083,285
Shares issued in reinvestment
of distributions ........... 199,095 3,046,165 742,458 17,759,635 145,251,547 342,526,929
Shares redeemed ............ (4,675,913) (75,602,671) (12,109,484) (301,310,547) (520,661,763) (1,235,193,741)
----------------------------------------------------------------------------------------------
Net increase ............... 2,730,867 $ 45,863,685 8,280,626 $202,804,236 162,649,829 $ 382,416,473
=============================================================================================
2. CAPITAL STOCK (cont.)
DYNATECH FUND GROWTH FUND INCOME FUND
----------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class II Shares:
1998
Shares sold ................ 664,798 $ 11,517,361 3,446,754 $ 96,492,539 195,225,220 $ 482,543,161
Shares issued in reinvestment
of distributions ........... 16,410 274,674 88,123 2,369,656 18,087,826 44,486,191
Shares redeemed ............ (161,064) (2,784,061) (1,181,670) (33,094,561) (59,466,410) (145,164,672)
---------------------------------------------------------------------------------------------
Net increase ............... 520,144 $ 9,007,974 2,353,207 $ 65,767,634 153,846,636 $ 381,864,680
=============================================================================================
1997
Shares sold ................ 275,202 $ 4,648,946 3,570,458 $ 86,687,120 151,188,247 $ 359,348,533
Shares issued in reinvestment
of distributions ........... 94 1,430 38,528 914,269 9,605,212 22,720,777
Shares redeemed ............ (90,332) (1,571,837) (1,139,059) (28,815,393) (30,837,863) (73,437,185)
---------------------------------------------------------------------------------------------
Net increase ............... 184,964 $ 3,078,539 2,469,927 $ 58,785,996 129,955,596 $ 308,632,125
=============================================================================================
Advisor Class Shares:
1998
Shares sold ................ -- -- 742,913 $ 21,088,014 4,656,243 $ 11,256,541
Shares issued in reinvestment
of distributions ........... -- -- 29,525 801,892 488,818 1,197,290
Shares redeemed ............ -- -- (261,759) (7,518,823) (1,156,742) (2,815,498)
---------------------------------------------------------------------------------------------
Net increase ............... -- -- 510,679 $ 14,371,083 3,988,319 $ 9,638,333
=============================================================================================
1997+
Shares sold ................ -- -- 1,309,960 $ 32,540,802 5,630,896 $ 13,341,229
Shares issued in reinvestment
of distributions ........... -- -- -- -- 198,471 470,649
Shares redeemed ............ -- -- (358,029) (9,298,811) (463,157) (1,104,085)
---------------------------------------------------------------------------------------------
Net increase ............... -- -- 951,931 $ 23,241,991 5,366,210 $ 12,707,793
=============================================================================================
U.S. GOVERNMENT
SECURITIES FUND UTILITIES FUND
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I Shares:
1998
Shares sold ...................................... 166,821,011 $1,151,492,514 20,202,105 $216,397,168
Shares issued in reinvestment of distributions ... 42,846,891 294,856,000 10,580,531 112,600,891
Shares redeemed .................................. (272,493,464) (1,879,905,649) (44,515,255) (479,105,042)
-----------------------------------------------------------------------
Net decrease ..................................... (62,825,562) $ (433,557,135) (13,732,619) $(150,106,983)
=======================================================================
1997
Shares sold ...................................... 78,194,660 $ 530,758,896 12,100,694 $117,393,777
Shares issued in reinvestment of distributions ... 47,930,052 324,058,840 17,222,762 165,255,047
Shares redeemed .................................. (276,583,345) (1,876,568,505) (81,440,706) (789,836,848)
-----------------------------------------------------------------------
Net decrease ..................................... (150,458,633) $(1,021,750,769) (52,117,250) $(507,188,024)
=======================================================================
+For the period January 2, 1997
(effective date) to September 30, 1997.
2. CAPITAL STOCK (cont.)
U.S. GOVERNMENT
SECURITIES FUND UTILITIES FUND
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class II Shares:
1998
Shares sold ........................................ 28,331,456 $ 195,095,336 2,055,247 $ 22,366,990
Shares issued in reinvestment of distributions ..... 1,020,467 7,008,019 139,963 1,492,613
Shares redeemed .................................... (7,961,919) (54,801,353) (799,899) (8,615,376)
------------------------------------------------------------------
Net increase ....................................... 21,390,004 $ 147,302,002 1,395,311 $ 15,244,227
==================================================================
1997
Shares sold ........................................ 11,765,224 $ 79,728,970 853,797 $ 8,267,730
Shares issued in reinvestment of distributions ..... 527,102 3,558,535 164,131 1,574,635
Shares redeemed .................................... (3,311,245) (22,442,005) (854,260) (8,239,911)
------------------------------------------------------------------
Net increase ....................................... 8,981,081 $ 60,845,500 163,668 $ 1,602,454
==================================================================
Advisor Class Shares:
1998
Shares sold ........................................ 6,196,861 $ 42,832,286 1,530,293 $ 16,618,957
Shares issued in reinvestment of distributions ..... 176,791 1,217,749 61,776 659,656
Shares redeemed .................................... (3,283,856) (22,684,116) (1,262,420) (13,677,562)
------------------------------------------------------------------
Net increase ....................................... 3,089,796 $ 21,365,919 329,649 $ 3,601,051
==================================================================
1997+
Shares sold ........................................ 2,433,391 $ 16,553,387 1,303,704 $ 12,598,164
Shares issued in reinvestment of distributions ..... 40,139 272,353 23,787 228,226
Shares redeemed .................................... (375,540) (2,550,949) (458,724) (4,425,071)
------------------------------------------------------------------
Net increase ....................................... 2,097,990 $ 14,274,791 868,767 $ 8,401,319
==================================================================
</TABLE>
+For the period January 2, 1997 (effective date) to
September 30, 1997.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and directors of the Funds are also officers or directors of
Franklin Advisers, Inc. (Advisers), Franklin Investment Advisory Services, LLC
(Investment Advisory), Franklin/Templeton Distributors, Inc. (Distributors),
Franklin Templeton Services, Inc. (FT Services) and Franklin/Templeton Investor
Services, Inc. (Investor Services), investment manager of all Funds except the
Growth Fund, the Growth Fund's investment manager, principal underwriter,
administrative manager and transfer agent, respectively.
The Funds, except the Growth Fund, pay an investment management fee to Advisers
and the Growth Fund pays an investment management fee to Investment Advisory
based on the average net assets of the Funds as follows:
Annualized Fee Rate Month End Net Assets
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% Over $250 million, up to and including $10 billion
.440% Over $10 billion, up to and including $12.5 billion
Fees are further reduced on net assets over $12.5 billion.
Under an agreement with Advisers and Investment Advisory, FT Services provides
administrative services to the Funds. The fee is paid by Advisers and Investment
Advisory based on average daily net assets, and is not an additional expense of
the Funds.
The Income, Utilities and U.S. Government Securities Funds reimburse
Distributors up to .15% and .65% per year of their average daily net assets of
Class I and Class II, respectively and the Growth and DynaTech Funds reimburse
Distributors up to .25% and 1.00% per year of the average daily net assets of
Class I and Class II, respectively, for costs incurred in marketing the Funds'
shares.
3. TRANSACTIONS WITH AFFILIATES (cont.)
Distributors paid net commissions on sales of the Funds shares, and received
contingent deferred sales charges for the period as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions paid........................... $32,069 $759,659 $3,304,382 $1,679,699 $225,326
Contingent deferred sales charges.............. $ 6,857 $ 83,796 $ 403,597 $ 111,036 $ 12,642
</TABLE>
The Funds paid transfer agent fees of $19,244,903, of which $17,338,429 were
paid to Investor Services.
During the year ended September 30, 1998, legal fees of $111,457 were paid to a
law firm in which a director of the Funds is a partner.
4. INCOME TAXES
At September 30, 1998, the U.S. Government Securities Fund had tax basis capital
losses of $318,019,444 which may be carried over to offset future capital gains.
Such losses expire as follows:
U.S. GOVERNMENT
SECURITIES FUND
---------------
Capital loss carryovers expiring in: 1999 67,082,683
2002 ......... 111,364,839
2003 ......... 3,698,366
2004 ......... 57,539,178
2005 ......... 50,054,906
2006 ......... 28,279,472
---------------
$318,019,444
===============
At September 30, 1998, the DynaTech Fund and the U.S. Government Securities Fund
have deferred capital losses occurring subsequent to October 31, 1997 of
$655,988 and $18,248,501, respectively. For tax purposes, such losses will be
reflected in the year ending September 30, 1999.
On September 30, 1998, the U.S. Government Securities Fund had expired capital
loss carryovers of $74,910,973, which were reclassified to paid-in-capital.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions.
Net realized capital gains (losses) differ for financial statement and tax
purposes primarily due to differing treatments of wash sales and foreign
currency transactions.
At September 30, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes was as follows:
<TABLE>
<CAPTION>
U.S. GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investments at cost ................. $141,336,466 $1,172,230,823 $8,349,350,373 $9,113,035,812 $1,636,348,109
======================================================================================
Unrealized appreciation ............. 88,843,880 743,393,739 1,162,577,718 335,521,942 473,269,614
Unrealized depreciation ............. (1,945,961) (12,456,732) (899,835,456) (2,459,399) (15,427,957)
--------------------------------------------------------------------------------------
Net unrealized appreciation ......... $ 86,897,919 $ 730,937,007 $ 262,742,262 $ 333,062,543 $ 457,841,657
======================================================================================
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended September 30, 1998 were as follows:
U.S. GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ........................... $14,045,052 $141,697,412 $2,473,167,822 $2,458,781,060 $237,895,277
Sales ............................... $12,799,622 $ 6,830,056 $1,840,726,922 $2,382,263,936 $464,580,597
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
The Income Fund has 32.5% of its portfolio invested in lower rated and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At September 30, 1998, the
Income Fund held defaulted securities with a value aggregating $8,500,000,
representing .1% of the Fund's net assets. For information as to specific
securities, see the accompanying Statement of Investments.
For financial reporting purposes, the Funds discontinue accruing income on
defaulted bonds and provide estimates for losses on interest receivable.
The Utilities Fund has investments in excess of 10% of its total net assets in
the utilities industry. The Income Fund has investments in excess of 10% of its
total net assets in various foreign government agencies. Such concentration may
subject the Funds more significantly to economic changes occurring within those
industries or sectors.
7. RESTRICTED SECURITIES
The Funds, except for the U.S. Government Securities Fund, may purchase
securities through a private offering that generally cannot be resold to the
public without prior registration under the Securities Act of 1933. The costs of
registering such securities are paid by the issuer. Restricted securities held
at September 30, 1998 are as follows:
<TABLE>
<CAPTION>
SHARES ISSUER ACQUISITION DATE COST VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME FUND
2,097,122 Bibb Co........................................................ 9/27/96 $29,681,742 $ 25,951,885
1,600,000 CMS Energy Trust I, 7.75% cvt. pfd. ........................... 6/18/97 80,000,000 87,200,000
----------------
Total Restricted Securities Held in the Income Fund (1.29% of Net Assets) $113,151,885
================
GROWTH FUND
172,650 FRM Nexus, Inc. (0.01% of Net Assets).......................... 8/01/89 421,013 $ 129,488
================
UTILITIES FUND
705,000 CMS Energy Trust I, 7.75%, cvt. pfd. (1.82% of Net Assets)..... 6/18/97 35,250,000 $ 38,422,500
================
</TABLE>
8. LENDING OF PORTFOLIO SECURITIES
The Income Fund loans securities to certain brokers for which it receives cash
collateral against the loaned securities in an amount equal to at least 102% of
the market value of the loaned securities. Net interest income from the
investment of the cash collateral received was $238,182 for the year ended
September 30, 1998. The value of the loaned securities was $967,463 at September
30, 1998.
9. OTHER CONSIDERATIONS
Advisers, as the Income Fund's manager, may serve as a member of various credit
committees, representing credit interests in certain corporate restructuring
negotiations. Currently, the manager serves on the credit committee for Harvard
Industries. As a result of this involvement, Advisers may be in possession of
certain material non-public information. The Funds' manager has not nor does it
intend to sell any of its holdings in this security while in possession of this
information.
10. MERGER WITH FRANKLIN PRINCIPAL MATURITY TRUST
On June 26, 1998, the Income Fund acquired the net assets of Franklin Principal
Maturity Trust pursuant to a plan of reorganization approved by the Franklin
Principal Maturity Trust's shareholders. The merger was accomplished by a
tax-free exchange of 83,468,440 Class I shares of the Fund (valued at $2.46) for
the net assets of the Franklin Principal Maturity Trust which aggregated
$205,332,362, including $18,842,088 of unrealized appreciation. The merger was
accounted for as a pooling-of-interests without restatement for financial
reporting purposes. The combined net assets of the Fund immediately after the
merger were $8,233,583,178.
FRANKLIN CUSTODIAN FUNDS, INC.
Independent Auditors' Report
To the Board of Directors and Shareholders of
Franklin Custodian Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the funds constituting the
Franklin Custodian Funds (hereafter referred to as the "Funds") at September 30,
1998, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
October 30, 1998
FRANKLIN CUSTODIAN FUNDS, INC.
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Funds hereby
designate the following amounts as capital gain dividends for the fiscal year
ended September 30, 1998:
Capital Gains
DynaTech Fund $ 3,231,321
Growth Fund 2,337,429
Income Fund 48,736,499
Utilities Fund 64,441,884
Under Section 854(b)(2) of the Internal Revenue Code, the Funds hereby designate
the following percentage amounts of the ordinary income dividends as income
qualifying for the dividends received deduction for the fiscal year ended
September 30, 1998:
DynaTech Fund Growth Fund Income Fund Utilities Fund
23.34% 46.92% 25.92% 88.24%
Franklin Custodian Funds, Inc.
Annual Report
September 30, 1998.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM 304
(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows the portfolio breakdown based on the percentage of total
long-term investments on 9/30/98 for the Franklin DynaTech Fund.
Semiconductors 11.04%
Computer Software 9.51%
Telecommunications 9.46%
Electronic Data Processing 7.42%
Major Pharmaceuticals 5.64%
Health Care Services 2.31%
Media & Broadcasting 1.70%
Medical Electronics
& Specialties 1.23%
Retail 1.20%
Biotechnology 0.70%
Oilfield Services/Equipment 0.66%
Specialty Chemicals 0.63%
Environmental Services 0.49%
Unregulated Power Generation 0.49%
Precision Instruments 0.41%
Financial Publishing/Services 0.35%
Electronic Production
Equipment 0.33%
Finance Companies 0.10%
Investment Bankers/
Brokers/Services 0.08%
Internet Services 0.03%
Cash & Other Net Assets 46.21%
GRAPHIC MATERIAL (2)
This chart shows the top 10 holdings based on the percentage of total net assets
on 9/30/98 for the Franklin DynaTech Fund.
Intel Corp. 10.52%
Microsoft Corp. 8.68%
Cisco Systems Inc. 3.66%
Warner-Lambert Co. 2.98%
Motorola, Inc. 2.62%
Compaq Computer Corp. 2.49%
Hewlett-Packard Co. 2.32%
Schering-Plough Corp. 1.82%
Liberty Media Group 0.90%
MCI WorldCom, Inc. 0.86%
GRAPHIC MATERIAL (3)
This graph compares the performance of Franklin DynaTech Fund - Class I, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500
and the Hambrecht & Quist Technology Index from 10/1/88-9/30/98.
DATE FRANKLIN DYNATECH S&P 500 H&Q TECHNOLOGY S&P 500 HAMQUIST
FUND - CLASS I - INDEX $T TECH
10/1/88 $9,424 $10,000 $10,000
10/31/88 $9,295 $10,278 $9,705 2.78% -2.95%
11/30/88 $8,983 $10,131 $9,314 -1.43% -4.03%
12/31/88 $9,536 $10,308 $9,980 1.75% 7.15%
1/31/89 $10,250 $11,063 $10,693 7.32% 7.15%
2/28/89 $10,040 $10,787 $10,373 -2.49% -3.00%
3/31/89 $10,080 $11,039 $10,014 2.33% -3.46%
4/30/89 $10,717 $11,612 $10,732 5.19% 7.17%
5/31/89 $11,434 $12,082 $11,423 4.05% 6.44%
6/30/89 $11,184 $12,013 $10,544 -0.57% -7.69%
7/31/89 $11,926 $13,098 $10,988 9.03% 4.21%
8/31/89 $12,063 $13,355 $11,185 1.96% 1.79%
9/30/89 $12,288 $13,300 $11,054 -0.41% -1.17%
10/31/89 $11,982 $12,991 $10,738 -2.32% -2.86%
11/30/89 $12,200 $13,256 $10,690 2.04% -0.45%
12/31/89 $12,373 $13,574 $10,699 2.40% 0.09%
1/31/90 $12,002 $12,664 $10,177 -6.71% -4.88%
2/28/90 $12,126 $12,827 $10,564 1.29% 3.80%
3/31/90 $12,647 $13,167 $11,035 2.65% 4.46%
4/30/90 $12,603 $12,839 $10,619 -2.49% -3.77%
5/31/90 $14,105 $14,091 $12,147 9.75% 14.39%
6/30/90 $14,256 $13,996 $11,947 -0.67% -1.65%
7/31/90 $13,929 $13,952 $10,930 -0.32% -8.51%
8/31/90 $12,621 $12,690 $9,432 -9.04% -13.71%
9/30/90 $11,967 $12,072 $8,419 -4.87% -10.74%
10/31/90 $11,852 $12,020 $8,036 -0.43% -4.54%
11/30/90 $12,453 $12,797 $8,812 6.46% 9.65%
12/31/90 $12,766 $13,154 $9,505 2.79% 7.87%
1/31/91 $14,051 $13,728 $10,988 4.36% 15.60%
2/28/91 $14,983 $14,709 $11,920 7.15% 8.48%
3/31/91 $15,074 $15,065 $12,418 2.42% 4.18%
4/30/91 $15,137 $15,101 $12,442 0.24% 0.19%
5/31/91 $15,960 $15,752 $12,941 4.31% 4.01%
6/30/91 $14,929 $15,031 $11,701 -4.58% -9.58%
7/31/91 $15,680 $15,731 $12,299 4.66% 5.11%
8/31/91 $16,177 $16,104 $12,642 2.37% 2.79%
9/30/91 $15,716 $15,835 $12,052 -1.67% -4.67%
10/31/91 $15,924 $16,047 $12,593 1.34% 4.49%
11/30/91 $15,607 $15,400 $12,132 -4.03% -3.66%
12/31/91 $17,292 $17,162 $13,816 11.44% 13.88%
1/31/92 $17,696 $16,843 $14,896 -1.86% 7.82%
2/29/92 $17,796 $17,060 $15,708 1.29% 5.45%
3/31/92 $17,100 $16,728 $14,601 -1.95% -7.05%
4/30/92 $17,091 $17,219 $14,272 2.94% -2.25%
5/31/92 $16,972 $17,304 $14,164 0.49% -0.76%
6/30/92 $16,733 $17,046 $13,176 -1.49% -6.97%
7/31/92 $17,210 $17,743 $13,862 4.09% 5.20%
8/31/92 $16,788 $17,379 $13,242 -2.05% -4.47%
9/30/92 $16,880 $17,583 $13,834 1.17% 4.47%
10/31/92 $17,008 $17,642 $14,631 0.34% 5.76%
11/30/92 $17,558 $18,242 $15,670 3.40% 7.10%
12/31/92 $18,018 $18,467 $16,397 1.23% 4.64%
1/31/93 $18,281 $18,622 $17,762 0.84% 8.33%
2/28/93 $18,074 $18,875 $17,155 1.36% -3.42%
3/31/93 $18,431 $19,273 $17,421 2.11% 1.55%
4/30/93 $18,056 $18,807 $16,388 -2.42% -5.93%
5/31/93 $18,957 $19,309 $18,097 2.67% 10.43%
6/30/93 $18,713 $19,365 $17,865 0.29% -1.28%
7/31/93 $18,337 $19,288 $16,840 -0.40% -5.74%
8/31/93 $19,069 $20,019 $17,916 3.79% 6.39%
9/30/93 $19,313 $19,864 $18,244 -0.77% 1.83%
10/31/93 $19,388 $20,276 $18,556 2.07% 1.71%
11/30/93 $19,107 $20,083 $18,829 -0.95% 1.47%
12/31/93 $19,356 $20,326 $19,250 1.21% 2.24%
1/31/94 $19,841 $21,017 $20,438 3.40% 6.17%
2/28/94 $19,780 $20,448 $21,113 -2.71% 3.30%
3/31/94 $19,235 $19,556 $19,958 -4.36% -5.47%
4/30/94 $18,933 $19,806 $19,445 1.28% -2.57%
5/31/94 $19,195 $20,131 $19,501 1.64% 0.29%
6/30/94 $18,488 $19,638 $18,257 -2.45% -6.38%
7/31/94 $19,074 $20,282 $18,938 3.28% 3.73%
8/31/94 $20,224 $21,114 $20,887 4.10% 10.29%
9/30/94 $19,881 $20,599 $20,820 -2.44% -0.32%
10/31/94 $20,709 $21,062 $22,727 2.25% 9.16%
11/30/94 $20,325 $20,295 $22,532 -3.64% -0.86%
12/31/94 $20,365 $20,596 $23,120 1.48% 2.61%
1/31/95 $20,550 $21,129 $22,782 2.59% -1.46%
2/28/95 $21,105 $21,953 $24,757 3.90% 8.67%
3/31/95 $21,577 $22,601 $25,891 2.95% 4.58%
4/30/95 $22,461 $23,265 $27,830 2.94% 7.49%
5/31/95 $23,119 $24,196 $28,827 4.00% 3.58%
6/30/95 $24,927 $24,757 $32,298 2.32% 12.04%
7/31/95 $26,057 $25,579 $35,246 3.32% 9.13%
8/31/95 $25,770 $25,643 $35,652 0.25% 1.15%
9/30/95 $26,263 $26,725 $36,504 4.22% 2.39%
10/31/95 $26,777 $26,629 $37,015 -0.36% 1.40%
11/30/95 $26,407 $27,798 $36,560 4.39% -1.23%
12/31/95 $25,686 $28,335 $34,571 1.93% -5.44%
1/31/96 $25,707 $29,298 $35,082 3.40% 1.48%
2/29/96 $26,615 $29,570 $36,840 0.93% 5.01%
3/31/96 $26,087 $29,854 $35,237 0.96% -4.35%
4/30/96 $28,221 $30,293 $40,107 1.47% 13.82%
5/31/96 $29,235 $31,075 $40,713 2.58% 1.51%
6/30/96 $28,305 $31,193 $37,745 0.38% -7.29%
7/31/96 $26,615 $29,814 $33,865 -4.42% -10.28%
8/31/96 $27,587 $30,443 $35,914 2.11% 6.05%
9/30/96 $29,636 $32,157 $40,065 5.63% 11.56%
10/31/96 $30,185 $33,045 $39,492 2.76% -1.43%
11/30/96 $33,079 $35,543 $44,148 7.56% 11.79%
12/31/96 $33,082 $34,839 $42,961 -1.98% -2.69%
1/31/97 $35,540 $37,016 $47,562 6.25% 10.71%
2/28/97 $33,539 $37,305 $43,676 0.78% -8.17%
3/31/97 $32,691 $35,772 $40,946 -4.11% -6.25%
4/30/97 $34,148 $37,908 $42,461 5.97% 3.70%
5/31/97 $36,062 $40,216 $48,852 6.09% 15.05%
6/30/97 $36,388 $42,018 $49,286 4.48% 0.89%
7/31/97 $39,933 $45,362 $57,217 7.96% 16.09%
8/31/97 $39,216 $42,822 $57,383 -5.60% 0.29%
9/30/97 $40,194 $45,169 $59,735 5.48% 4.10%
10/31/97 $38,215 $43,660 $53,356 -3.34% -10.68%
11/30/97 $38,628 $45,682 $52,801 4.63% -1.04%
12/31/97 $37,920 $46,467 $50,372 1.72% -4.60%
1/31/98 $39,220 $46,983 $53,601 1.11% 6.41%
2/28/98 $40,962 $50,371 $59,974 7.21% 11.89%
3/31/98 $41,147 $52,950 $60,987 5.12% 1.69%
4/30/98 $41,937 $53,484 $63,360 1.01% 3.89%
5/31/98 $40,451 $52,564 $58,735 -1.72% -7.30%
6/30/98 $42,425 $54,699 $62,435 4.06% 6.30%
7/31/98 $42,633 $54,113 $61,648 -1.07% -1.26%
8/31/98 $38,732 $46,288 $48,486 -14.46% -21.35%
9/30/98 $41,459 $49,256 $55,502 6.41% 14.47%
GRAPHIC MATERIAL (4)
This graph compares the performance of Franklin DynaTech Fund - Class II, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500
and the Hambrecht & Quist Technology Index from 9/16/96-9/30/98.
DATE FRANKLIN DYNATECH S&P 500 H&Q TECHNOLOGY S&P 500 HAMQUIST
FUND - CLASS II - INDEX $T TECH
9/16/96 $9,899 $10,000 $10,000
9/30/96 $10,159 $10,263 $10,540 2.63% 5.40%
10/31/96 $10,333 $10,546 $10,389 2.76% -1.43%
11/30/96 $11,318 $11,344 $11,614 7.56% 11.79%
12/31/96 $11,312 $11,119 $11,302 -1.98% -2.69%
1/31/97 $12,155 $11,814 $12,512 6.25% 10.71%
2/28/97 $11,461 $11,906 $11,490 0.78% -8.17%
3/31/97 $11,163 $11,417 $10,772 -4.11% -6.25%
4/30/97 $11,648 $12,098 $11,170 5.97% 3.70%
5/31/97 $12,289 $12,835 $12,852 6.09% 15.05%
6/30/97 $12,386 $13,410 $12,966 4.48% 0.89%
7/31/97 $13,587 $14,478 $15,052 7.96% 16.09%
8/31/97 $13,326 $13,667 $15,096 -5.60% 0.29%
9/30/97 $13,646 $14,416 $15,715 5.48% 4.10%
10/31/97 $12,968 $13,934 $14,036 -3.34% -10.68%
11/30/97 $13,095 $14,579 $13,890 4.63% -1.04%
12/31/97 $12,843 $14,830 $13,251 1.72% -4.60%
1/31/98 $13,256 $14,995 $14,101 1.11% 6.41%
2/28/98 $13,836 $16,076 $15,777 7.21% 11.89%
3/31/98 $13,892 $16,899 $16,044 5.12% 1.69%
4/30/98 $14,154 $17,070 $16,668 1.01% 3.89%
5/31/98 $13,638 $16,776 $15,451 -1.72% -7.30%
6/30/98 $14,297 $17,457 $16,425 4.06% 6.30%
7/31/98 $14,352 $17,270 $16,218 -1.07% -1.26%
8/31/98 $13,034 $14,773 $12,755 -14.46% -21.35%
9/30/98 $13,923 $15,720 $14,601 6.41% 14.47%
GRAPHIC MATERIAL (5)
This chart shows the portfolio breakdown by sector based on the percentage of
total net assets on 9/30/98 for Franklin Growth Fund.
Health Technology 22.24%
Electronic Technology 14.52%
Transportation 6.33%
Process Industries 5.07%
Producer Manufacturing 3.79%
Consumer Services 3.59%
Technology Services 2.82%
Consumer Non-Durables 2.71%
Commercial Services 1.99%
Consumer Durables 1.76%
Industrial Services 1.74%
Energy Minerals 1.55%
Utilities 1.08%
Retail Trade 0.39%
Finance 0.10%
Non-Energy Minerals 0.01%
Cash & Other Net Assets 30.30%
GRAPHIC MATERIAL (6)
This chart shows the top 10 holdings and industry based on the percentage of
total net assets on 9/30/98 for the Franklin Growth Fund.
SCHERING-PLOUGH CORP.
HEALTH TECHNOLOGY 4.99%
PFIZER, INC.
HEALTH TECHNOLOGY 3.63%
COMPUTER SCIENCES CORP.
ELECTRONIC TECHNOLOGY 2.63%
TIME WARNER, INC.
CONSUMER SERVICES 2.11%
INTERNATIONAL
BUSINESS MACHINES CORP.
ELECTRONIC TECHNOLOGY 1.92%
AMR CORP.
TRANSPORTATION 1.84%
BRISTOL-MYERS SQUIBB CO.
HEALTH TECHNOLOGY 1.78%
AMERICAN HOME
PRODUCTS CORP.
HEALTH TECHNOLOGY 1.68%
LILLY (ELI) & CO.
HEALTH TECHNOLOGY 1.68%
JOHNSON & JOHNSON
HEALTH TECHNOLOGY 1.68%
GRAPHIC MATERIAL (7)
This graph compares the performance of Franklin Growth Fund - Class I, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500
from 10/1/88-9/30/98.
DATE FRANKLIN GROWTH S&P 500 S&P 500 $T
FUND - CLASS I
10/1/88 $9,423 $10,000
10/31/88 $9,526 $10,278 2.78%
11/30/88 $9,443 $10,131 -1.43%
12/31/88 $9,623 $10,308 1.75%
1/31/89 $10,249 $11,063 7.32%
2/28/89 $10,014 $10,787 -2.49%
3/31/89 $10,109 $11,039 2.33%
4/30/89 $10,634 $11,612 5.19%
5/31/89 $10,864 $12,082 4.05%
6/30/89 $10,749 $12,013 -0.57%
7/31/89 $11,615 $13,098 9.03%
8/31/89 $12,045 $13,355 1.96%
9/30/89 $11,980 $13,300 -0.41%
10/31/89 $11,565 $12,991 -2.32%
11/30/89 $11,705 $13,256 2.04%
12/31/89 $11,913 $13,574 2.40%
1/31/90 $11,374 $12,664 -6.71%
2/28/90 $11,534 $12,827 1.29%
3/31/90 $11,908 $13,167 2.65%
4/30/90 $11,835 $12,839 -2.49%
5/31/90 $12,706 $14,091 9.75%
6/30/90 $12,701 $13,996 -0.67%
7/31/90 $12,602 $13,952 -0.32%
8/31/90 $11,493 $12,690 -9.04%
9/30/90 $11,083 $12,072 -4.87%
10/31/90 $11,083 $12,020 -0.43%
11/30/90 $11,736 $12,797 6.46%
12/31/90 $12,160 $13,154 2.79%
1/31/91 $12,871 $13,728 4.36%
2/28/91 $13,757 $14,709 7.15%
3/31/91 $13,873 $15,065 2.42%
4/30/91 $13,953 $15,101 0.24%
5/31/91 $14,462 $15,752 4.31%
6/30/91 $13,842 $15,031 -4.58%
7/31/91 $14,324 $15,731 4.66%
8/31/91 $14,515 $16,104 2.37%
9/30/91 $14,271 $15,835 -1.67%
10/31/91 $14,579 $16,047 1.34%
11/30/91 $14,091 $15,400 -4.03%
12/31/91 $15,408 $17,162 11.44%
1/31/92 $15,259 $16,843 -1.86%
2/29/92 $15,523 $17,060 1.29%
3/31/92 $15,137 $16,728 -1.95%
4/30/92 $15,204 $17,219 2.94%
5/31/92 $15,115 $17,304 0.49%
6/30/92 $14,807 $17,046 -1.49%
7/31/92 $15,171 $17,743 4.09%
8/31/92 $14,840 $17,379 -2.05%
9/30/92 $15,104 $17,583 1.17%
10/31/92 $15,292 $17,642 0.34%
11/30/92 $15,656 $18,242 3.40%
12/31/92 $15,864 $18,467 1.23%
1/31/93 $15,696 $18,622 0.84%
2/28/93 $15,482 $18,875 1.36%
3/31/93 $15,718 $19,273 2.11%
4/30/93 $15,763 $18,807 -2.42%
5/31/93 $16,156 $19,309 2.67%
6/30/93 $15,819 $19,365 0.29%
7/31/93 $15,628 $19,288 -0.40%
8/31/93 $16,167 $20,019 3.79%
9/30/93 $15,999 $19,864 -0.77%
10/31/93 $16,493 $20,276 2.07%
11/30/93 $16,526 $20,083 -0.95%
12/31/93 $16,991 $20,326 1.21%
1/31/94 $17,233 $21,017 3.40%
2/28/94 $16,714 $20,448 -2.71%
3/31/94 $15,885 $19,556 -4.36%
4/30/94 $16,219 $19,806 1.28%
5/31/94 $16,496 $20,131 1.64%
6/30/94 $16,369 $19,638 -2.45%
7/31/94 $16,830 $20,282 3.28%
8/31/94 $17,694 $21,114 4.10%
9/30/94 $17,233 $20,599 -2.44%
10/31/94 $17,590 $21,062 2.25%
11/30/94 $17,129 $20,295 -3.64%
12/31/94 $17,487 $20,596 1.48%
1/31/95 $17,755 $21,129 2.59%
2/28/95 $18,478 $21,953 3.90%
3/31/95 $19,131 $22,601 2.95%
4/30/95 $19,679 $23,265 2.94%
5/31/95 $20,110 $24,196 4.00%
6/30/95 $20,891 $24,757 2.32%
7/31/95 $21,929 $25,579 3.32%
8/31/95 $21,894 $25,643 0.25%
9/30/95 $22,593 $26,725 4.22%
10/31/95 $22,721 $26,629 -0.36%
11/30/95 $24,004 $27,798 4.39%
12/31/95 $24,203 $28,335 1.93%
1/31/96 $24,901 $29,298 3.40%
2/29/96 $25,434 $29,570 0.93%
3/31/96 $25,529 $29,854 0.96%
4/30/96 $26,050 $30,293 1.47%
5/31/96 $26,547 $31,075 2.58%
6/30/96 $26,358 $31,193 0.38%
7/31/96 $24,996 $29,814 -4.42%
8/31/96 $25,695 $30,443 2.11%
9/30/96 $27,044 $32,157 5.63%
10/31/96 $27,116 $33,045 2.76%
11/30/96 $28,821 $35,543 7.56%
12/31/96 $28,241 $34,839 -1.98%
1/31/97 $28,952 $37,016 6.25%
2/28/97 $29,012 $37,305 0.78%
3/31/97 $28,289 $35,772 -4.11%
4/30/97 $29,301 $37,908 5.97%
5/31/97 $30,916 $40,216 6.09%
6/30/97 $31,495 $42,018 4.48%
7/31/97 $32,749 $45,362 7.96%
8/31/97 $31,652 $42,822 -5.60%
9/30/97 $32,652 $45,169 5.48%
10/31/97 $32,375 $43,660 -3.34%
11/30/97 $33,110 $45,682 4.63%
12/31/97 $33,495 $46,467 1.72%
1/31/98 $33,841 $46,983 1.11%
2/28/98 $35,263 $50,371 7.21%
3/31/98 $36,029 $52,950 5.12%
4/30/98 $36,511 $53,484 1.01%
5/31/98 $35,992 $52,564 -1.72%
6/30/98 $36,672 $54,699 4.06%
7/31/98 $36,536 $54,113 -1.07%
8/31/98 $33,457 $46,288 -14.46%
9/30/98 $35,337 $49,256 6.41%
GRAPHIC MATERIAL (8)
This graph compares the performance of Franklin Growth Fund - Class II, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500
from 5/1/95-9/30/98.
DATE FRANKLIN GROWTH S&P 500 S&P 500 $T
FUND - CLASS II
5/1/95 $9,900 $10,000
5/31/95 $10,135 $10,400 4.00%
6/30/95 $10,517 $10,641 2.32%
7/31/95 $11,040 $10,995 3.32%
8/31/95 $11,011 $11,022 0.25%
9/30/95 $11,357 $11,487 4.22%
10/31/95 $11,410 $11,446 -0.36%
11/30/95 $12,051 $11,948 4.39%
12/31/95 $12,142 $12,179 1.93%
1/31/96 $12,482 $12,593 3.40%
2/29/96 $12,744 $12,710 0.93%
3/31/96 $12,786 $12,832 0.96%
4/30/96 $13,037 $13,021 1.47%
5/31/96 $13,281 $13,357 2.58%
6/30/96 $13,180 $13,407 0.38%
7/31/96 $12,488 $12,815 -4.42%
8/31/96 $12,828 $13,085 2.11%
9/30/96 $13,496 $13,822 5.63%
10/31/96 $13,526 $14,203 2.76%
11/30/96 $14,367 $15,277 7.56%
12/31/96 $14,068 $14,975 -1.98%
1/31/97 $14,407 $15,911 6.25%
2/28/97 $14,431 $16,035 0.78%
3/31/97 $14,061 $15,376 -4.11%
4/30/97 $14,558 $16,294 5.97%
5/31/97 $15,351 $17,286 6.09%
6/30/97 $15,624 $18,060 4.48%
7/31/97 $16,242 $19,498 7.96%
8/31/97 $15,678 $18,406 -5.60%
9/30/97 $16,169 $19,415 5.48%
10/31/97 $16,024 $18,766 -3.34%
11/30/97 $16,375 $19,635 4.63%
12/31/97 $16,554 $19,973 1.72%
1/31/98 $16,715 $20,195 1.11%
2/28/98 $17,407 $21,651 7.21%
3/31/98 $17,771 $22,759 5.12%
4/30/98 $18,000 $22,989 1.01%
5/31/98 $17,734 $22,594 -1.72%
6/30/98 $18,055 $23,511 4.06%
7/31/98 $17,975 $23,259 -1.07%
8/31/98 $16,455 $19,896 -14.46%
9/30/98 $17,363 $21,171 6.41%
GRAPHIC MATERIAL (9)
This graph compares the performance of Franklin Growth Fund - Advisor Class,
tracking the growth in value of a $10,000 investment, to that of the S&P 500
from 10/1/88-9/30/98.
DATE FRANKLIN GROWTH S&P 500 S&P 500
FUND - ADVISOR $T
CLASS
10/1/88 $10,000 $10,000
10/31/88 $10,109 $10,278 2.78%
11/30/88 $10,021 $10,131 -1.43%
12/31/88 $10,212 $10,308 1.75%
1/31/89 $10,876 $11,063 7.32%
2/28/89 $10,626 $10,787 -2.49%
3/31/89 $10,727 $11,039 2.33%
4/30/89 $11,285 $11,612 5.19%
5/31/89 $11,529 $12,082 4.05%
6/30/89 $11,407 $12,013 -0.57%
7/31/89 $12,326 $13,098 9.03%
8/31/89 $12,783 $13,355 1.96%
9/30/89 $12,713 $13,300 -0.41%
10/31/89 $12,273 $12,991 -2.32%
11/30/89 $12,421 $13,256 2.04%
12/31/89 $12,642 $13,574 2.40%
1/31/90 $12,070 $12,664 -6.71%
2/28/90 $12,240 $12,827 1.29%
3/31/90 $12,636 $13,167 2.65%
4/30/90 $12,559 $12,839 -2.49%
5/31/90 $13,483 $14,091 9.75%
6/30/90 $13,478 $13,996 -0.67%
7/31/90 $13,373 $13,952 -0.32%
8/31/90 $12,196 $12,690 -9.04%
9/30/90 $11,762 $12,072 -4.87%
10/31/90 $11,762 $12,020 -0.43%
11/30/90 $12,455 $12,797 6.46%
12/31/90 $12,904 $13,154 2.79%
1/31/91 $13,658 $13,728 4.36%
2/28/91 $14,599 $14,709 7.15%
3/31/91 $14,723 $15,065 2.42%
4/30/91 $14,807 $15,101 0.24%
5/31/91 $15,347 $15,752 4.31%
6/30/91 $14,689 $15,031 -4.58%
7/31/91 $15,201 $15,731 4.66%
8/31/91 $15,404 $16,104 2.37%
9/30/91 $15,145 $15,835 -1.67%
10/31/91 $15,471 $16,047 1.34%
11/30/91 $14,953 $15,400 -4.03%
12/31/91 $16,351 $17,162 11.44%
1/31/92 $16,193 $16,843 -1.86%
2/29/92 $16,473 $17,060 1.29%
3/31/92 $16,064 $16,728 -1.95%
4/30/92 $16,134 $17,219 2.94%
5/31/92 $16,040 $17,304 0.49%
6/30/92 $15,713 $17,046 -1.49%
7/31/92 $16,099 $17,743 4.09%
8/31/92 $15,748 $17,379 -2.05%
9/30/92 $16,029 $17,583 1.17%
10/31/92 $16,228 $17,642 0.34%
11/30/92 $16,614 $18,242 3.40%
12/31/92 $16,835 $18,467 1.23%
1/31/93 $16,656 $18,622 0.84%
2/28/93 $16,430 $18,875 1.36%
3/31/93 $16,680 $19,273 2.11%
4/30/93 $16,728 $18,807 -2.42%
5/31/93 $17,145 $19,309 2.67%
6/30/93 $16,787 $19,365 0.29%
7/31/93 $16,585 $19,288 -0.40%
8/31/93 $17,157 $20,019 3.79%
9/30/93 $16,978 $19,864 -0.77%
10/31/93 $17,502 $20,276 2.07%
11/30/93 $17,538 $20,083 -0.95%
12/31/93 $18,031 $20,326 1.21%
1/31/94 $18,287 $21,017 3.40%
2/28/94 $17,737 $20,448 -2.71%
3/31/94 $16,857 $19,556 -4.36%
4/30/94 $17,212 $19,806 1.28%
5/31/94 $17,505 $20,131 1.64%
6/30/94 $17,371 $19,638 -2.45%
7/31/94 $17,860 $20,282 3.28%
8/31/94 $18,776 $21,114 4.10%
9/30/94 $18,287 $20,599 -2.44%
10/31/94 $18,666 $21,062 2.25%
11/30/94 $18,177 $20,295 -3.64%
12/31/94 $18,557 $20,596 1.48%
1/31/95 $18,842 $21,129 2.59%
2/28/95 $19,609 $21,953 3.90%
3/31/95 $20,302 $22,601 2.95%
4/30/95 $20,883 $23,265 2.94%
5/31/95 $21,341 $24,196 4.00%
6/30/95 $22,170 $24,757 2.32%
7/31/95 $23,271 $25,579 3.32%
8/31/95 $23,234 $25,643 0.25%
9/30/95 $23,976 $26,725 4.22%
10/31/95 $24,112 $26,629 -0.36%
11/30/95 $25,473 $27,798 4.39%
12/31/95 $25,684 $28,335 1.93%
1/31/96 $26,425 $29,298 3.40%
2/29/96 $26,991 $29,570 0.93%
3/31/96 $27,091 $29,854 0.96%
4/30/96 $27,644 $30,293 1.47%
5/31/96 $28,172 $31,075 2.58%
6/30/96 $27,971 $31,193 0.38%
7/31/96 $26,526 $29,814 -4.42%
8/31/96 $27,267 $30,443 2.11%
9/30/96 $28,700 $32,157 5.63%
10/31/96 $28,775 $33,045 2.76%
11/30/96 $30,585 $35,543 7.56%
12/31/96 $29,969 $34,839 -1.98%
1/31/97 $30,724 $37,016 6.25%
2/28/97 $30,800 $37,305 0.78%
3/31/97 $30,046 $35,772 -4.11%
4/30/97 $31,120 $37,908 5.97%
5/31/97 $32,834 $40,216 6.09%
6/30/97 $33,448 $42,018 4.48%
7/31/97 $34,791 $45,362 7.96%
8/31/97 $33,627 $42,822 -5.60%
9/30/97 $34,702 $45,169 5.48%
10/31/97 $34,408 $43,660 -3.34%
11/30/97 $35,213 $45,682 4.63%
12/31/97 $35,618 $46,467 1.72%
1/31/98 $35,999 $46,983 1.11%
2/28/98 $37,511 $50,371 7.21%
3/31/98 $38,339 $52,950 5.12%
4/30/98 $38,852 $53,484 1.01%
5/31/98 $38,313 $52,564 -1.72%
6/30/98 $39,036 $54,699 4.06%
7/31/98 $38,905 $54,113 -1.07%
8/31/98 $35,631 $46,288 -14.46%
9/30/98 $37,642 $49,256 6.41%
GRAPHIC MATERIAL (10)
This chart shows the portfolio breakdown by sector based on the percentage of
total net assets on 9/30/98 for the Franklin Income Fund.
Utility Stocks 27%
Corporate Bonds 24%
U.S. Government Securities 16%
Foreign Government Securities 12%
Oil & Gas Stocks 4%
Real Estate Stocks 3%
Consumer Products Stocks 2%
Gold Stocks 3%
Telecommunications Stocks 1%
Other Stocks 3%
Cash & Other Assets 5%
GRAPHIC MATERIAL (11)
This graph compares the performance of Franklin Income Fund - Class I, tracking
the growth in value of a $10,000 investment, to that of the Lehman Brothers
Government/Corporate Bond Index and the Lipper Income Average from
10/1/88-9/30/98.
<TABLE>
<CAPTION>
FRANKLIN INCOME LB LIPPER S&P 500 LB LIPPER
DATE FUND - CLASS I S&P 500 GOV'T./CORP. INCOME AVG. GOV'T./CORP. INCOME AVG.
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/1/88 $9,591 $10,000 $10,000 $10,000
12/31/88 $9,664 $10,309 $10,096 $10,119 3.09% 0.96% 1.19%
3/31/89 $9,969 $11,040 $10,206 $10,456 7.09% 1.09% 3.33%
6/30/89 $10,534 $12,015 $11,027 $11,032 8.83% 8.04% 5.51%
9/30/89 $10,707 $13,302 $11,130 $11,472 10.71% 0.94% 3.99%
12/31/89 $10,888 $13,576 $11,532 $11,628 2.06% 3.61% 1.36%
3/31/90 $10,648 $13,167 $11,401 $11,442 -3.01% -1.14% -1.60%
6/30/90 $11,010 $13,995 $11,811 $11,788 6.29% 3.60% 3.02%
9/30/90 $10,066 $12,072 $11,882 $11,149 -13.74% 0.60% -5.42%
12/31/90 $9,932 $13,154 $12,488 $11,644 8.96% 5.10% 4.44%
3/31/91 $11,588 $15,065 $12,824 $12,653 14.53% 2.69% 8.67%
6/30/91 $12,297 $15,030 $13,017 $12,879 -0.23% 1.51% 1.78%
9/30/91 $13,410 $15,835 $13,766 $13,765 5.35% 5.75% 6.88%
12/31/91 $14,020 $17,162 $14,500 $14,523 8.38% 5.33% 5.51%
3/31/92 $14,958 $16,727 $14,282 $14,676 -2.53% -1.50% 1.05%
6/30/92 $15,714 $17,045 $14,862 $15,110 1.90% 4.06% 2.96%
9/30/92 $15,990 $17,582 $15,587 $15,645 3.15% 4.88% 3.54%
12/31/92 $16,157 $18,466 $15,598 $15,948 5.03% 0.07% 1.94%
3/31/93 $17,449 $19,273 $16,325 $16,765 4.37% 4.66% 5.12%
6/30/93 $18,243 $19,368 $16,816 $17,141 0.49% 3.01% 2.24%
9/30/93 $19,050 $19,868 $17,375 $17,696 2.58% 3.32% 3.24%
12/31/93 $19,636 $20,328 $17,324 $17,880 2.32% -0.29% 1.04%
3/31/94 $18,622 $19,558 $16,779 $17,331 -3.79% -3.15% -3.07%
6/30/94 $18,333 $19,640 $16,571 $17,255 0.42% -1.24% -0.44%
9/30/94 $18,792 $20,601 $16,653 $17,607 4.89% 0.50% 2.04%
12/31/94 $18,384 $20,596 $16,715 $17,366 -0.02% 0.37% -1.37%
3/31/95 $19,140 $22,603 $17,547 $18,333 9.74% 4.98% 5.57%
6/30/95 $20,543 $24,761 $18,685 $19,435 9.55% 6.48% 6.01%
9/30/95 $21,423 $26,730 $19,041 $20,350 7.95% 1.91% 4.71%
12/31/95 $22,299 $28,339 $19,929 $21,264 6.02% 4.66% 4.49%
3/31/96 $22,438 $29,861 $19,462 $21,672 5.37% -2.34% 1.92%
6/30/96 $23,085 $31,201 $19,554 $22,066 4.49% 0.47% 1.82%
9/30/96 $23,443 $32,165 $19,900 $22,499 3.09% 1.77% 1.96%
12/31/96 $24,628 $34,848 $20,509 $23,561 8.34% 3.06% 4.72%
3/31/97 $24,675 $35,782 $20,333 $23,549 2.68% -0.86% -0.05%
6/30/97 $26,130 $42,029 $21,073 $25,400 17.46% 3.64% 7.86%
9/30/97 $27,502 $45,177 $21,810 $26,929 7.49% 3.50% 6.02%
12/31/97 $28,778 $46,474 $22,510 $27,395 2.87% 3.21% 1.73%
3/31/98 $29,763 $52,957 $22,852 $28,872 13.95% 1.52% 5.39%
6/30/98 $29,120 $54,705 $23,451 $28,987 3.30% 2.62% 0.40%
9/30/98 $28,115 $49,256 $24,612 $27,674 -9.95% 4.95% -4.53%
</TABLE>
GRAPHIC MATERIAL (12)
This graph compares the performance of Franklin Income Fund - Class II, tracking
the growth in value of a $10,000 investment, to that of the Lehman Brothers
Government/Corporate Bond Index and the Lipper Income Average from
5/1/95-9/30/98.
<TABLE>
<CAPTION>
DATE FRANKLIN INCOME LIPPER LB LIPPER
FUND - CLASS II S&P 500 LB GOV'T./CORP. INCOME AVG. S&P 500 GOV'T./CORP. INCOME AVG.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5/1/95 $9,909 $10,000 $10,000 $10,000
6/30/95 $10,338 $10,641 $10,502 $10,403 6.41% 5.02% 4.03%
9/30/95 $10,771 $11,487 $10,703 $10,893 7.95% 1.91% 4.71%
12/31/95 $11,197 $12,178 $11,201 $11,382 6.02% 4.66% 4.49%
3/31/96 $11,301 $12,832 $10,939 $11,601 5.37% -2.34% 1.92%
6/30/96 $11,561 $13,409 $10,991 $11,812 4.49% 0.47% 1.82%
9/30/96 $11,725 $13,823 $11,185 $12,043 3.09% 1.77% 1.96%
12/31/96 $12,302 $14,976 $11,527 $12,612 8.34% 3.06% 4.72%
3/31/97 $12,362 $15,377 $11,428 $12,605 2.68% -0.86% -0.05%
6/30/97 $13,071 $18,062 $11,844 $13,596 17.46% 3.64% 7.86%
9/30/97 $13,686 $19,415 $12,259 $14,415 7.49% 3.50% 6.02%
12/31/97 $14,302 $19,972 $12,652 $14,664 2.87% 3.21% 1.73%
3/31/98 $14,771 $22,758 $12,845 $15,454 13.95% 1.52% 5.39%
6/30/98 $14,494 $23,509 $13,181 $15,516 3.30% 2.62% 0.40%
9/30/98 $13,919 $21,171 $13,834 $14,813 -9.95% 4.95% -4.53%
</TABLE>
GRAPHIC MATERIAL (13)
This graph compares the performance of Franklin Income Fund - Advisor Class,
tracking the growth in value of a $10,000 investment, to that of the Lehman
Brothers Government/Corporate Bond Index and the Lipper Income Average from
10/1/88-9/30/98.
<TABLE>
<CAPTION>
FRANKLIN INCOME FUND- LIPPER LB LIPPER
DATE ADVISOR CLASS S&P 500 LB GOV'T./CORP. INCOME AVG. S&P 500 GOV'T./CORP. INCOME AVG.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/1/88 $10,000 $10,000 $10,000 $10,000
12/31/88 $10,076 $10,309 $10,096 $10,119 3.09% 0.96% 1.19%
3/31/89 $10,394 $11,040 $10,206 $10,456 7.09% 1.09% 3.33%
6/30/89 $10,983 $12,015 $11,027 $11,032 8.83% 8.04% 5.51%
9/30/89 $11,164 $13,302 $11,130 $11,472 10.71% 0.94% 3.99%
12/31/89 $11,352 $13,576 $11,532 $11,628 2.06% 3.61% 1.36%
3/31/90 $11,102 $13,167 $11,401 $11,442 -3.01% -1.14% -1.60%
6/30/90 $11,480 $13,995 $11,811 $11,788 6.29% 3.60% 3.02%
9/30/90 $10,495 $12,072 $11,882 $11,149 -13.74% 0.60% -5.42%
12/31/90 $10,356 $13,154 $12,488 $11,644 8.96% 5.10% 4.44%
3/31/91 $12,082 $15,065 $12,824 $12,653 14.53% 2.69% 8.67%
6/30/91 $12,821 $15,030 $13,017 $12,879 -0.23% 1.51% 1.78%
9/30/91 $13,982 $15,835 $13,766 $13,765 5.35% 5.75% 6.88%
12/31/91 $14,618 $17,162 $14,500 $14,523 8.38% 5.33% 5.51%
3/31/92 $15,596 $16,727 $14,282 $14,676 -2.53% -1.50% 1.05%
6/30/92 $16,384 $17,045 $14,862 $15,110 1.90% 4.06% 2.96%
9/30/92 $16,672 $17,582 $15,587 $15,645 3.15% 4.88% 3.54%
12/31/92 $16,846 $18,466 $15,598 $15,948 5.03% 0.07% 1.94%
3/31/93 $18,194 $19,273 $16,325 $16,765 4.37% 4.66% 5.12%
6/30/93 $19,021 $19,368 $16,816 $17,141 0.49% 3.01% 2.24%
9/30/93 $19,862 $19,868 $17,375 $17,696 2.58% 3.32% 3.24%
12/31/93 $20,474 $20,328 $17,324 $17,880 2.32% -0.29% 1.04%
3/31/94 $19,416 $19,558 $16,779 $17,331 -3.79% -3.15% -3.07%
6/30/94 $19,115 $19,640 $16,571 $17,255 0.42% -1.24% -0.44%
9/30/94 $19,593 $20,601 $16,653 $17,607 4.89% 0.50% 2.04%
12/31/94 $19,168 $20,596 $16,715 $17,366 -0.02% 0.37% -1.37%
3/31/95 $19,956 $22,603 $17,547 $18,333 9.74% 4.98% 5.57%
6/30/95 $21,419 $24,761 $18,685 $19,435 9.55% 6.48% 6.01%
9/30/95 $22,337 $26,730 $19,041 $20,350 7.95% 1.91% 4.71%
12/31/95 $23,250 $28,339 $19,929 $21,264 6.02% 4.66% 4.49%
3/31/96 $23,395 $29,861 $19,462 $21,672 5.37% -2.34% 1.92%
6/30/96 $24,070 $31,201 $19,554 $22,066 4.49% 0.47% 1.82%
9/30/96 $24,443 $32,165 $19,900 $22,499 3.09% 1.77% 1.96%
12/31/96 $25,679 $34,848 $20,509 $23,561 8.34% 3.06% 4.72%
3/31/97 $25,736 $35,782 $20,333 $23,549 2.68% -0.86% -0.05%
6/30/97 $27,267 $42,029 $21,073 $25,400 17.46% 3.64% 7.86%
9/30/97 $28,595 $45,177 $21,810 $26,929 7.49% 3.50% 6.02%
12/31/97 $30,055 $46,474 $22,510 $27,395 2.87% 3.21% 1.73%
3/31/98 $30,977 $52,957 $22,852 $28,872 13.95% 1.52% 5.39%
6/30/98 $30,440 $54,705 $23,451 $28,987 3.30% 2.62% 0.40%
9/30/98 $29,401 $49,256 $24,612 $27,674 -9.95% 4.95% -4.53%
</TABLE>
GRAPHIC MATERIAL (14)
This point graph compares the average annual total return measured against risk
from 10/93 to 9/98 for Franklin U.S. Government Securities Fund - Class I vs.
comparable investments.
- -------------------------------------------------------------------------
Risk Return
- -------------------------------------------------------------------------
One-Year CD 0.22% 5.27%
P&R 30-Year Treasury 10.59% 10.05%
P&R 10-Year Treasury 7.02% 8.05%
Franklin U.S. Government Securities Fund - Class I 3.41% 6.78%
- -------------------------------------------------------------------------
GRAPHIC MATERIAL (15)
This horizontal bar chart compares the yield for Franklin U.S. Government
Securities Fund - Class I vs. comparable investments on 9/30/98.
Average Money Market Fund 4.98%
One-year CD 5.07%
Average Ginnie Mae Fund 5.52%
Franklin U.S. Government Securities Fund - 5.98%
Class I
GRAPHIC MATERIAL (16)
This graph compares the performance of Franklin U.S. Government Securities Fund
- - Class I, tracking the growth in value of a $10,000 investment, to that of the
Lehman Brothers Intermediate U.S. Government Bond Index from 10/1/88-9/30/98.
<TABLE>
<CAPTION>
FRANKLIN U.S. GOVERNMENT LEHMAN BROTHERS INTERMEDIATE
SECURITIES FUND - CLASS I GOVERNMENT BOND INDEX CPI
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/1/88 $9,575 $10,000 $10,000
10/31/88 $9,738 1.38% $10,138 0.33% $10,033
11/30/88 $9,652 -0.86% $10,051 0.08% $10,041
12/31/88 $9,593 0.10% $10,061 0.17% $10,058
1/31/89 $9,718 1.00% $10,161 0.50% $10,108
2/28/89 $9,700 -0.44% $10,117 0.41% $10,150
3/31/89 $9,697 0.47% $10,164 0.58% $10,209
4/30/89 $9,869 2.02% $10,370 0.65% $10,275
5/31/89 $10,101 1.93% $10,570 0.57% $10,334
6/30/89 $10,349 2.55% $10,839 0.24% $10,358
7/31/89 $10,480 2.03% $11,059 0.24% $10,383
8/31/89 $10,432 -1.35% $10,910 0.16% $10,400
9/30/89 $10,474 0.48% $10,962 0.32% $10,433
10/31/89 $10,639 2.10% $11,193 0.48% $10,483
11/30/89 $10,760 0.99% $11,303 0.24% $10,508
12/31/89 $10,850 0.29% $11,336 0.16% $10,525
1/31/90 $10,800 -0.62% $11,266 1.03% $10,634
2/28/90 $10,860 0.37% $11,308 0.47% $10,684
3/31/90 $10,889 0.12% $11,321 0.55% $10,742
4/30/90 $10,869 -0.33% $11,284 0.16% $10,760
5/31/90 $11,126 2.14% $11,525 0.23% $10,784
6/30/90 $11,250 1.32% $11,677 0.54% $10,843
7/31/90 $11,458 1.40% $11,841 0.38% $10,884
8/31/90 $11,434 -0.36% $11,798 0.92% $10,984
9/30/90 $11,511 0.89% $11,903 0.84% $11,076
10/31/90 $11,640 1.39% $12,069 0.60% $11,143
11/30/90 $11,854 1.51% $12,251 0.22% $11,167
12/31/90 $12,019 1.38% $12,420 0.00% $11,167
1/31/91 $12,185 1.03% $12,548 0.60% $11,234
2/28/91 $12,247 0.61% $12,624 0.15% $11,251
3/31/91 $12,346 0.55% $12,694 0.15% $11,268
4/30/91 $12,459 1.03% $12,825 0.15% $11,285
5/31/91 $12,574 0.56% $12,896 0.30% $11,319
6/30/91 $12,635 0.08% $12,907 0.29% $11,351
7/31/91 $12,824 1.08% $13,046 0.15% $11,368
8/31/91 $12,977 1.90% $13,294 0.29% $11,401
9/30/91 $13,169 1.70% $13,520 0.44% $11,452
10/31/91 $13,344 1.14% $13,674 0.15% $11,469
11/30/91 $13,420 1.17% $13,834 0.29% $11,502
12/31/91 $13,667 2.43% $14,170 0.07% $11,510
1/31/92 $13,574 -0.96% $14,034 0.15% $11,527
2/29/92 $13,672 0.31% $14,078 0.36% $11,569
3/31/92 $13,635 -0.40% $14,022 0.51% $11,628
4/30/92 $13,734 0.90% $14,148 0.14% $11,644
5/31/92 $13,943 1.49% $14,359 0.14% $11,660
6/30/92 $14,114 1.44% $14,565 0.36% $11,702
7/31/92 $14,246 1.92% $14,845 0.21% $11,727
8/31/92 $14,439 1.02% $14,996 0.28% $11,760
9/30/92 $14,553 1.38% $15,203 0.28% $11,793
10/31/92 $14,446 -1.20% $15,021 0.35% $11,834
11/30/92 $14,500 -0.41% $14,959 0.14% $11,851
12/31/92 $14,678 1.29% $15,152 -0.07% $11,842
1/31/93 $14,877 1.86% $15,434 0.49% $11,900
2/28/93 $15,037 1.47% $15,661 0.35% $11,942
3/31/93 $15,113 0.37% $15,719 0.35% $11,984
4/30/93 $15,191 0.78% $15,842 0.28% $12,017
5/31/93 $15,269 -0.27% $15,799 0.14% $12,034
6/30/93 $15,432 1.45% $16,028 0.14% $12,051
7/31/93 $15,511 0.20% $16,060 0.00% $12,051
8/31/93 $15,591 1.49% $16,299 0.28% $12,085
9/30/93 $15,600 0.41% $16,366 0.21% $12,110
10/31/93 $15,630 0.24% $16,405 0.41% $12,160
11/30/93 $15,574 -0.49% $16,325 0.07% $12,168
12/31/93 $15,693 0.41% $16,392 0.00% $12,168
1/31/94 $15,835 0.99% $16,554 0.27% $12,201
2/28/94 $15,688 -1.37% $16,327 0.34% $12,243
3/31/94 $15,247 -1.46% $16,089 0.34% $12,284
4/30/94 $15,145 -0.65% $15,984 0.14% $12,301
5/31/94 $15,154 0.07% $15,996 0.07% $12,310
6/30/94 $15,085 0.02% $15,999 0.34% $12,352
7/31/94 $15,361 1.31% $16,208 0.27% $12,385
8/31/94 $15,408 0.29% $16,255 0.40% $12,435
9/30/94 $15,197 -0.83% $16,120 0.27% $12,468
10/31/94 $15,151 0.02% $16,124 0.07% $12,477
11/30/94 $15,128 -0.44% $16,053 0.13% $12,493
12/31/94 $15,270 0.33% $16,106 0.00% $12,493
1/31/95 $15,581 1.63% $16,368 0.40% $12,543
2/28/95 $15,967 1.93% $16,684 0.40% $12,593
3/31/95 $16,039 0.55% $16,776 0.33% $12,635
4/30/95 $16,258 1.16% $16,970 0.33% $12,677
5/31/95 $16,800 2.82% $17,449 0.20% $12,702
6/30/95 $16,901 0.64% $17,561 0.20% $12,727
7/31/95 $16,928 0.05% $17,569 0.00% $12,727
8/31/95 $17,105 0.82% $17,714 0.26% $12,761
9/30/95 $17,258 0.67% $17,832 0.20% $12,786
10/31/95 $17,438 1.10% $18,028 0.33% $12,828
11/30/95 $17,618 1.22% $18,248 -0.07% $12,819
12/31/95 $17,825 0.99% $18,429 -0.07% $12,810
1/31/96 $17,930 0.84% $18,584 0.59% $12,886
2/29/96 $17,777 -1.06% $18,387 0.32% $12,927
3/31/96 $17,701 -0.46% $18,302 0.52% $12,994
4/30/96 $17,625 -0.29% $18,249 0.39% $13,045
5/31/96 $17,575 -0.05% $18,240 0.19% $13,070
6/30/96 $17,790 1.02% $18,426 0.06% $13,078
7/31/96 $17,846 0.31% $18,483 0.19% $13,103
8/31/96 $17,848 0.11% $18,504 0.19% $13,127
9/30/96 $18,147 1.29% $18,742 0.32% $13,169
10/31/96 $18,476 1.64% $19,050 0.32% $13,212
11/30/96 $18,752 1.21% $19,280 0.19% $13,237
12/31/96 $18,645 -0.54% $19,176 0.00% $13,237
1/31/97 $18,758 0.38% $19,249 0.32% $13,279
2/28/97 $18,816 0.16% $19,280 0.31% $13,320
3/31/97 $18,762 -0.57% $19,170 0.25% $13,353
4/30/97 $19,047 1.13% $19,386 0.12% $13,370
5/31/97 $19,214 0.78% $19,538 -0.06% $13,361
6/30/97 $19,439 0.86% $19,706 0.12% $13,378
7/31/97 $19,808 1.84% $20,068 0.12% $13,394
8/31/97 $19,748 -0.38% $19,992 0.19% $13,419
9/30/97 $19,977 1.09% $20,210 0.25% $13,453
10/31/97 $20,178 1.17% $20,446 0.25% $13,486
11/30/97 $20,205 0.22% $20,491 -0.06% $13,478
12/31/97 $20,408 0.81% $20,657 -0.12% $13,462
1/31/98 $20,612 1.30% $20,926 0.19% $13,488
2/28/98 $20,609 -0.11% $20,903 0.19% $13,513
3/31/98 $20,696 0.31% $20,968 0.19% $13,539
4/30/98 $20,844 0.48% $21,068 0.18% $13,563
5/31/98 $20,986 0.69% $21,214 0.18% $13,588
6/30/98 $21,069 0.67% $21,356 0.12% $13,604
7/31/98 $21,182 0.38% $21,437 0.12% $13,620
8/31/98 $21,388 1.89% $21,842 0.12% $13,637
9/30/98 $21,658 2.33% $22,351 0.12% $13,653
Total Return 116.58% 123.51% 36.53%
</TABLE>
<TABLE>
<CAPTION>
GRAPHIC MATERIAL (17)
This graph compares the performance of Franklin U.S. Government Securities Fund
- - Class II, tracking the growth in value of a $10,000 investment, to that of the
Lehman Brothers Intermediate U.S. Government Bond Index from 5/1/95-9/30/98.
FRANKLIN U.S. GOVERNMENT LEHMAN BROTHERS INTERMEDIATE
SECURITIES FUND - CLASS II GOVERNMENT BOND INDEX CPI
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5/1/95 $9,896 $10,000 $10,000
5/31/95 $10,194 2.82% $10,282 0.20% $10,020
6/30/95 $10,249 0.64% $10,348 0.20% $10,040
7/31/95 $10,260 0.05% $10,353 0.00% $10,040
8/31/95 $10,362 0.82% $10,438 0.26% $10,066
9/30/95 $10,454 0.67% $10,508 0.20% $10,086
10/31/95 $10,557 1.10% $10,623 0.33% $10,120
11/30/95 $10,661 1.22% $10,753 -0.07% $10,112
12/31/95 $10,780 0.99% $10,859 -0.07% $10,105
1/31/96 $10,853 0.84% $10,951 0.59% $10,165
2/29/96 $10,754 -1.06% $10,835 0.32% $10,198
3/31/96 $10,687 -0.46% $10,785 0.52% $10,251
4/30/96 $10,652 -0.29% $10,753 0.39% $10,291
5/31/96 $10,616 -0.05% $10,748 0.19% $10,310
6/30/96 $10,725 1.02% $10,858 0.06% $10,316
7/31/96 $10,754 0.31% $10,891 0.19% $10,336
8/31/96 $10,766 0.11% $10,903 0.19% $10,356
9/30/96 $10,930 1.29% $11,044 0.32% $10,389
10/31/96 $11,123 1.64% $11,225 0.32% $10,422
11/30/96 $11,301 1.21% $11,361 0.19% $10,442
12/31/96 $11,214 -0.54% $11,300 0.00% $10,442
1/31/97 $11,294 0.38% $11,343 0.32% $10,475
2/28/97 $11,307 0.16% $11,361 0.31% $10,508
3/31/97 $11,269 -0.57% $11,296 0.25% $10,534
4/30/97 $11,434 1.13% $11,424 0.12% $10,547
5/31/97 $11,546 0.78% $11,513 -0.06% $10,540
6/30/97 $11,675 0.86% $11,612 0.12% $10,553
7/31/97 $11,892 1.84% $11,825 0.12% $10,565
8/31/97 $11,833 -0.38% $11,780 0.19% $10,586
9/30/97 $11,966 1.09% $11,909 0.25% $10,612
10/31/97 $12,081 1.17% $12,048 0.25% $10,639
11/30/97 $12,091 0.22% $12,075 -0.06% $10,632
12/31/97 $12,208 0.81% $12,172 -0.12% $10,619
1/31/98 $12,324 1.30% $12,331 0.19% $10,640
2/28/98 $12,317 -0.11% $12,317 0.19% $10,660
3/31/98 $12,363 0.31% $12,355 0.19% $10,680
4/30/98 $12,446 0.48% $12,415 0.18% $10,699
5/31/98 $12,526 0.69% $12,500 0.18% $10,719
6/30/98 $12,569 0.67% $12,584 0.12% $10,731
7/31/98 $12,632 0.38% $12,632 0.12% $10,744
8/31/98 $12,749 1.89% $12,871 0.12% $10,757
9/30/98 $12,905 2.33% $13,171 0.12% $10,770
Total Return 29.05% 31.71% 7.70%
</TABLE>
GRAPHIC MATERIAL (18)
This graph compares the performance of Franklin U.S. Government Securities Fund
- - Advisor Class, tracking the growth in value of a $10,000 investment, to that
of the Lehman Brothers Intermediate U.S. Government Bond Index from
10/1/88-9/30/98.
<TABLE>
<CAPTION>
FRANKLIN U.S. GOVERNMENT LEHMAN BROTHERS INTERMEDIATE
SECURITIES - ADVISOR CLASS GOVERNMENT BOND INDEX CPI
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/1/88 $10,000 $10,000 $10,000
10/31/88 $10,170 1.38% $10,138 0.33% $10,033
11/30/88 $10,080 -0.86% $10,051 0.08% $10,041
12/31/88 $10,019 0.10% $10,061 0.17% $10,058
1/31/89 $10,149 1.00% $10,161 0.50% $10,108
2/28/89 $10,131 -0.44% $10,117 0.41% $10,150
3/31/89 $10,128 0.47% $10,164 0.58% $10,209
4/30/89 $10,307 2.02% $10,370 0.65% $10,275
5/31/89 $10,549 1.93% $10,570 0.57% $10,334
6/30/89 $10,808 2.55% $10,839 0.24% $10,358
7/31/89 $10,945 2.03% $11,059 0.24% $10,383
8/31/89 $10,895 -1.35% $10,910 0.16% $10,400
9/30/89 $10,939 0.48% $10,962 0.32% $10,433
10/31/89 $11,112 2.10% $11,193 0.48% $10,483
11/30/89 $11,237 0.99% $11,303 0.24% $10,508
12/31/89 $11,332 0.29% $11,336 0.16% $10,525
1/31/90 $11,279 -0.62% $11,266 1.03% $10,634
2/28/90 $11,342 0.37% $11,308 0.47% $10,684
3/31/90 $11,372 0.12% $11,321 0.55% $10,742
4/30/90 $11,352 -0.33% $11,284 0.16% $10,760
5/31/90 $11,620 2.14% $11,525 0.23% $10,784
6/30/90 $11,749 1.32% $11,677 0.54% $10,843
7/31/90 $11,966 1.40% $11,841 0.38% $10,884
8/31/90 $11,942 -0.36% $11,798 0.92% $10,984
9/30/90 $12,023 0.89% $11,903 0.84% $11,076
10/31/90 $12,157 1.39% $12,069 0.60% $11,143
11/30/90 $12,381 1.51% $12,251 0.22% $11,167
12/31/90 $12,553 1.38% $12,420 0.00% $11,167
1/31/91 $12,726 1.03% $12,548 0.60% $11,234
2/28/91 $12,791 0.61% $12,624 0.15% $11,251
3/31/91 $12,894 0.55% $12,694 0.15% $11,268
4/30/91 $13,013 1.03% $12,825 0.15% $11,285
5/31/91 $13,132 0.56% $12,896 0.30% $11,319
6/30/91 $13,196 0.08% $12,907 0.29% $11,351
7/31/91 $13,394 1.08% $13,046 0.15% $11,368
8/31/91 $13,554 1.90% $13,294 0.29% $11,401
9/30/91 $13,754 1.70% $13,520 0.44% $11,452
10/31/91 $13,936 1.14% $13,674 0.15% $11,469
11/30/91 $14,016 1.17% $13,834 0.29% $11,502
12/31/91 $14,274 2.43% $14,170 0.07% $11,510
1/31/92 $14,177 -0.96% $14,034 0.15% $11,527
2/29/92 $14,279 0.31% $14,078 0.36% $11,569
3/31/92 $14,241 -0.40% $14,022 0.51% $11,628
4/30/92 $14,344 0.90% $14,148 0.14% $11,644
5/31/92 $14,562 1.49% $14,359 0.14% $11,660
6/30/92 $14,741 1.44% $14,565 0.36% $11,702
7/31/92 $14,878 1.92% $14,845 0.21% $11,727
8/31/92 $15,080 1.02% $14,996 0.28% $11,760
9/30/92 $15,199 1.38% $15,203 0.28% $11,793
10/31/92 $15,087 -1.20% $15,021 0.35% $11,834
11/30/92 $15,144 -0.41% $14,959 0.14% $11,851
12/31/92 $15,330 1.29% $15,152 -0.07% $11,842
1/31/93 $15,538 1.86% $15,434 0.49% $11,900
2/28/93 $15,704 1.47% $15,661 0.35% $11,942
3/31/93 $15,785 0.37% $15,719 0.35% $11,984
4/30/93 $15,866 0.78% $15,842 0.28% $12,017
5/31/93 $15,947 -0.27% $15,799 0.14% $12,034
6/30/93 $16,118 1.45% $16,028 0.14% $12,051
7/31/93 $16,200 0.20% $16,060 0.00% $12,051
8/31/93 $16,284 1.49% $16,299 0.28% $12,085
9/30/93 $16,293 0.41% $16,366 0.21% $12,110
10/31/93 $16,325 0.24% $16,405 0.41% $12,160
11/30/93 $16,265 -0.49% $16,325 0.07% $12,168
12/31/93 $16,390 0.41% $16,392 0.00% $12,168
1/31/94 $16,538 0.99% $16,554 0.27% $12,201
2/28/94 $16,384 -1.37% $16,327 0.34% $12,243
3/31/94 $15,925 -1.46% $16,089 0.34% $12,284
4/30/94 $15,817 -0.65% $15,984 0.14% $12,301
5/31/94 $15,827 0.07% $15,996 0.07% $12,310
6/30/94 $15,755 0.02% $15,999 0.34% $12,352
7/31/94 $16,044 1.31% $16,208 0.27% $12,385
8/31/94 $16,092 0.29% $16,255 0.40% $12,435
9/30/94 $15,872 -0.83% $16,120 0.27% $12,468
10/31/94 $15,824 0.02% $16,124 0.07% $12,477
11/30/94 $15,800 -0.44% $16,053 0.13% $12,493
12/31/94 $15,948 0.33% $16,106 0.00% $12,493
1/31/95 $16,273 1.63% $16,368 0.40% $12,543
2/28/95 $16,676 1.93% $16,684 0.40% $12,593
3/31/95 $16,751 0.55% $16,776 0.33% $12,635
4/30/95 $16,980 1.16% $16,970 0.33% $12,677
5/31/95 $17,546 2.82% $17,449 0.20% $12,702
6/30/95 $17,651 0.64% $17,561 0.20% $12,727
7/31/95 $17,680 0.05% $17,569 0.00% $12,727
8/31/95 $17,865 0.82% $17,714 0.26% $12,761
9/30/95 $18,025 0.67% $17,832 0.20% $12,786
10/31/95 $18,212 1.10% $18,028 0.33% $12,828
11/30/95 $18,400 1.22% $18,248 -0.07% $12,819
12/31/95 $18,617 0.99% $18,429 -0.07% $12,810
1/31/96 $18,727 0.84% $18,584 0.59% $12,886
2/29/96 $18,567 -1.06% $18,387 0.32% $12,927
3/31/96 $18,488 -0.46% $18,302 0.52% $12,994
4/30/96 $18,408 -0.29% $18,249 0.39% $13,045
5/31/96 $18,356 -0.05% $18,240 0.19% $13,070
6/30/96 $18,580 1.02% $18,426 0.06% $13,078
7/31/96 $18,638 0.31% $18,483 0.19% $13,103
8/31/96 $18,641 0.11% $18,504 0.19% $13,127
9/30/96 $18,953 1.29% $18,742 0.32% $13,169
10/31/96 $19,296 1.64% $19,050 0.32% $13,212
11/30/96 $19,585 1.21% $19,280 0.19% $13,237
12/31/96 $19,473 -0.54% $19,176 0.00% $13,237
1/31/97 $19,620 0.38% $19,249 0.32% $13,279
2/28/97 $19,653 0.16% $19,280 0.31% $13,320
3/31/97 $19,599 -0.57% $19,170 0.25% $13,353
4/30/97 $19,927 1.13% $19,386 0.12% $13,370
5/31/97 $20,103 0.78% $19,538 -0.06% $13,361
6/30/97 $20,339 0.86% $19,706 0.12% $13,378
7/31/97 $20,727 1.84% $20,068 0.12% $13,394
8/31/97 $20,636 -0.38% $19,992 0.19% $13,419
9/30/97 $20,906 1.09% $20,210 0.25% $13,453
10/31/97 $21,088 1.17% $20,446 0.25% $13,486
11/30/97 $21,148 0.22% $20,491 -0.06% $13,478
12/31/97 $21,363 0.81% $20,657 -0.12% $13,462
1/31/98 $21,547 1.30% $20,926 0.19% $13,488
2/28/98 $21,577 -0.11% $20,903 0.19% $13,513
3/31/98 $21,669 0.31% $20,968 0.19% $13,539
4/30/98 $21,794 0.48% $21,068 0.18% $13,563
5/31/98 $21,976 0.69% $21,214 0.18% $13,588
6/30/98 $22,064 0.67% $21,356 0.12% $13,604
7/31/98 $22,152 0.38% $21,437 0.12% $13,620
8/31/98 $22,370 1.89% $21,842 0.12% $13,637
9/30/98 $22,686 2.33% $22,351 0.12% $13,653
Total Return 126.86% 123.51% 36.53%
</TABLE>
GRAPHIC MATERIAL (19)
This chart shows in pie format the portfolio breakdown of the Franklin Utilities
Fund based on total net assets as of 9/30/98.
Utilities Stock 75.1%
Utilities Bonds 13.1%
Convertible Securities 7.3%
Short-Term Obligations
& Other Net Assets 4.5%
GRAPHIC MATERIAL (20)
This chart shows the top 10 holdings based on the percentage of total net assets
on 9/30/98 for the Franklin Utilities Fund.
FPL Group 4.4%
Southern Co. 4.4%
New Century Energies, Inc. 4.0%
Dominion Resources 3.9%
Sempra Energy 3.9%
Cinergry Corp. 3.7%
Florida Progress Corp. 3.7%
PG&E Corp. 3.5%
Western Resources, Inc. 3.2%
TECO Energy, Inc. 3.1%
GRAPHIC MATERIAL (21)
This graph compares the performance of Franklin Utilities Fund - Class I,
tracking the growth in value of a $10,000 investment, to that of the S&P 500
Index from 10/1/88-9/30/98.
FRANKLIN UTILITIES
DATE FUND - CLASS I S&P 500 S&P 500 $T
- -------------------------------------------------------------------------------
10/1/88 $9,576 $10,000
10/31/88 $9,743 $10,278 2.78%
11/30/88 $9,641 $10,131 -1.43%
12/31/88 $9,738 $10,308 1.75%
1/31/89 $9,882 $11,063 7.32%
2/28/89 $9,699 $10,787 -2.49%
3/31/89 $9,705 $11,039 2.33%
4/30/89 $9,959 $11,612 5.19%
5/31/89 $10,439 $12,082 4.05%
6/30/89 $10,699 $12,013 -0.57%
7/31/89 $11,379 $13,098 9.03%
8/31/89 $11,162 $13,355 1.96%
9/30/89 $11,210 $13,300 -0.41%
10/31/89 $11,349 $12,991 -2.32%
11/30/89 $11,681 $13,256 2.04%
12/31/89 $12,254 $13,574 2.40%
1/31/90 $11,675 $12,664 -6.71%
2/28/90 $11,746 $12,827 1.29%
3/31/90 $11,653 $13,167 2.65%
4/30/90 $11,122 $12,839 -2.49%
5/31/90 $11,681 $14,091 9.75%
6/30/90 $11,775 $13,996 -0.67%
7/31/90 $11,877 $13,952 -0.32%
8/31/90 $11,190 $12,690 -9.04%
9/30/90 $11,138 $12,072 -4.87%
10/31/90 $11,912 $12,020 -0.43%
11/30/90 $12,135 $12,797 6.46%
12/31/90 $12,301 $13,154 2.79%
1/31/91 $12,179 $13,728 4.36%
2/28/91 $12,634 $14,709 7.15%
3/31/91 $12,815 $15,065 2.42%
4/30/91 $12,923 $15,101 0.24%
5/31/91 $12,877 $15,752 4.31%
6/30/91 $12,777 $15,031 -4.58%
7/31/91 $13,248 $15,731 4.66%
8/31/91 $13,594 $16,104 2.37%
9/30/91 $14,090 $15,835 -1.67%
10/31/91 $14,266 $16,047 1.34%
11/30/91 $14,570 $15,400 -4.03%
12/31/91 $15,275 $17,162 11.44%
1/31/92 $14,657 $16,843 -1.86%
2/29/92 $14,625 $17,060 1.29%
3/31/92 $14,559 $16,728 -1.95%
4/30/92 $14,922 $17,219 2.94%
5/31/92 $15,302 $17,304 0.49%
6/30/92 $15,500 $17,046 -1.49%
7/31/92 $16,321 $17,743 4.09%
8/31/92 $16,271 $17,379 -2.05%
9/30/92 $16,369 $17,583 1.17%
10/31/92 $16,199 $17,642 0.34%
11/30/92 $16,216 $18,242 3.40%
12/31/92 $16,662 $18,467 1.23%
1/31/93 $16,973 $18,622 0.84%
2/28/93 $17,887 $18,875 1.36%
3/31/93 $18,023 $19,273 2.11%
4/30/93 $18,023 $18,807 -2.42%
5/31/93 $18,006 $19,309 2.67%
6/30/93 $18,444 $19,365 0.29%
7/31/93 $18,833 $19,288 -0.40%
8/31/93 $19,400 $20,019 3.79%
9/30/93 $19,329 $19,864 -0.77%
10/31/93 $19,222 $20,276 2.07%
11/30/93 $18,343 $20,083 -0.95%
12/31/93 $18,582 $20,326 1.21%
1/31/94 $18,217 $21,017 3.40%
2/28/94 $17,324 $20,448 -2.71%
3/31/94 $16,733 $19,556 -4.36%
4/30/94 $16,973 $19,806 1.28%
5/31/94 $16,030 $20,131 1.64%
6/30/94 $15,504 $19,638 -2.45%
7/31/94 $16,199 $20,282 3.28%
8/31/94 $16,293 $21,114 4.10%
9/30/94 $15,879 $20,599 -2.44%
10/31/94 $16,165 $21,062 2.25%
11/30/94 $16,356 $20,295 -3.64%
12/31/94 $16,410 $20,596 1.48%
1/31/95 $17,379 $21,129 2.59%
2/28/95 $17,359 $21,953 3.90%
3/31/95 $17,109 $22,601 2.95%
4/30/95 $17,483 $23,265 2.94%
5/31/95 $18,486 $24,196 4.00%
6/30/95 $18,488 $24,757 2.32%
7/31/95 $18,428 $25,579 3.32%
8/31/95 $18,707 $25,643 0.25%
9/30/95 $19,720 $26,725 4.22%
10/31/95 $20,125 $26,629 -0.36%
11/30/95 $20,449 $27,798 4.39%
12/31/95 $21,444 $28,335 1.93%
1/31/96 $21,795 $29,298 3.40%
2/29/96 $21,238 $29,570 0.93%
3/31/96 $21,218 $29,854 0.96%
4/30/96 $20,507 $30,293 1.47%
5/31/96 $20,737 $31,075 2.58%
6/30/96 $21,842 $31,193 0.38%
7/31/96 $20,635 $29,814 -4.42%
8/31/96 $20,931 $30,443 2.11%
9/30/96 $20,892 $32,157 5.63%
10/31/96 $21,579 $33,045 2.76%
11/30/96 $21,880 $35,543 7.56%
12/31/96 $21,879 $34,839 -1.98%
1/31/97 $21,993 $37,016 6.25%
2/28/97 $22,175 $37,305 0.78%
3/31/97 $21,555 $35,772 -4.11%
4/30/97 $21,394 $37,908 5.97%
5/31/97 $22,062 $40,216 6.09%
6/30/97 $22,789 $42,018 4.48%
7/31/97 $23,326 $45,362 7.96%
8/31/97 $22,812 $42,822 -5.60%
9/30/97 $23,759 $45,169 5.48%
10/31/97 $23,877 $43,660 -3.34%
11/30/97 $25,463 $45,682 4.63%
12/31/97 $27,328 $46,467 1.72%
1/31/98 $26,272 $46,983 1.11%
2/28/98 $26,689 $50,371 7.21%
3/31/98 $28,357 $52,950 5.12%
4/30/98 $27,338 $53,484 1.01%
5/31/98 $26,990 $52,564 -1.72%
6/30/98 $27,639 $54,699 4.06%
7/31/98 $26,633 $54,113 -1.07%
8/31/98 $27,538 $46,288 -14.46%
9/30/98 $28,916 $49,256 6.41%
GRAPHIC MATERIAL (22)
This graph compares the performance of Franklin Utilities Fund - Class II,
tracking the growth in value of a $10,000 investment, to that of the S&P 500
Index from 5/1/95-9/30/98.
FRANKLIN UTILITIES
DATE FUND - CLASS II S&P 500 S&P 500 $T
- --------------------------------------------------------------------------------
5/1/95 $9,899 $10,000
5/31/95 $10,492 $10,400 4.00%
6/30/95 $10,500 $10,641 2.32%
7/31/95 $10,454 $10,995 3.32%
8/31/95 $10,613 $11,022 0.25%
9/30/95 $11,188 $11,487 4.22%
10/31/95 $11,406 $11,446 -0.36%
11/30/95 $11,578 $11,948 4.39%
12/31/95 $12,150 $12,179 1.93%
1/31/96 $12,325 $12,593 3.40%
2/29/96 $12,021 $12,710 0.93%
3/31/96 $12,005 $12,832 0.96%
4/30/96 $11,603 $13,021 1.47%
5/31/96 $11,721 $13,357 2.58%
6/30/96 $12,331 $13,407 0.38%
7/31/96 $11,648 $12,815 -4.42%
8/31/96 $11,816 $13,085 2.11%
9/30/96 $11,791 $13,822 5.63%
10/31/96 $12,167 $14,203 2.76%
11/30/96 $12,337 $15,277 7.56%
12/31/96 $12,333 $14,975 -1.98%
1/31/97 $12,397 $15,911 6.25%
2/28/97 $12,487 $16,035 0.78%
3/31/97 $12,125 $15,376 -4.11%
4/30/97 $12,034 $16,294 5.97%
5/31/97 $12,398 $17,286 6.09%
6/30/97 $12,804 $18,060 4.48%
7/31/97 $13,106 $19,498 7.96%
8/31/97 $12,804 $18,406 -5.60%
9/30/97 $13,331 $19,415 5.48%
10/31/97 $13,397 $18,766 -3.34%
11/30/97 $14,275 $19,635 4.63%
12/31/97 $15,320 $19,973 1.72%
1/31/98 $14,727 $20,195 1.11%
2/28/98 $14,948 $21,651 7.21%
3/31/98 $15,875 $22,759 5.12%
4/30/98 $15,304 $22,989 1.01%
5/31/98 $15,096 $22,594 -1.72%
6/30/98 $15,454 $23,511 4.06%
7/31/98 $14,891 $23,259 -1.07%
8/31/98 $15,383 $19,896 -14.46%
9/30/98 $16,163 $21,171 6.41%
GRAPHIC MATERIAL (23)
This graph compares the performance of Franklin Utilities Fund - Advisor Class,
tracking the growth in value of a $10,000 investment, to that of the S&P 500
Index from 10/1/88-9/30/98.
FRANKLIN UTILITIES FUND -
DATE ADVISOR CLASS S&P 500 S&P 500 $T
- --------------------------------------------------------------------------------
10/1/88 $10,000 $10,000
10/31/88 $10,174 $10,278 2.78%
11/30/88 $10,067 $10,131 -1.43%
12/31/88 $10,169 $10,308 1.75%
1/31/89 $10,319 $11,063 7.32%
2/28/89 $10,128 $10,787 -2.49%
3/31/89 $10,134 $11,039 2.33%
4/30/89 $10,399 $11,612 5.19%
5/31/89 $10,901 $12,082 4.05%
6/30/89 $11,173 $12,013 -0.57%
7/31/89 $11,883 $13,098 9.03%
8/31/89 $11,655 $13,355 1.96%
9/30/89 $11,706 $13,300 -0.41%
10/31/89 $11,851 $12,991 -2.32%
11/30/89 $12,197 $13,256 2.04%
12/31/89 $12,796 $13,574 2.40%
1/31/90 $12,192 $12,664 -6.71%
2/28/90 $12,266 $12,827 1.29%
3/31/90 $12,168 $13,167 2.65%
4/30/90 $11,614 $12,839 -2.49%
5/31/90 $12,198 $14,091 9.75%
6/30/90 $12,296 $13,996 -0.67%
7/31/90 $12,402 $13,952 -0.32%
8/31/90 $11,685 $12,690 -9.04%
9/30/90 $11,630 $12,072 -4.87%
10/31/90 $12,439 $12,020 -0.43%
11/30/90 $12,672 $12,797 6.46%
12/31/90 $12,845 $13,154 2.79%
1/31/91 $12,718 $13,728 4.36%
2/28/91 $13,193 $14,709 7.15%
3/31/91 $13,382 $15,065 2.42%
4/30/91 $13,494 $15,101 0.24%
5/31/91 $13,446 $15,752 4.31%
6/30/91 $13,342 $15,031 -4.58%
7/31/91 $13,835 $15,731 4.66%
8/31/91 $14,196 $16,104 2.37%
9/30/91 $14,714 $15,835 -1.67%
10/31/91 $14,897 $16,047 1.34%
11/30/91 $15,215 $15,400 -4.03%
12/31/91 $15,950 $17,162 11.44%
1/31/92 $15,306 $16,843 -1.86%
2/29/92 $15,272 $17,060 1.29%
3/31/92 $15,203 $16,728 -1.95%
4/30/92 $15,582 $17,219 2.94%
5/31/92 $15,979 $17,304 0.49%
6/30/92 $16,186 $17,046 -1.49%
7/31/92 $17,043 $17,743 4.09%
8/31/92 $16,990 $17,379 -2.05%
9/30/92 $17,093 $17,583 1.17%
10/31/92 $16,916 $17,642 0.34%
11/30/92 $16,933 $18,242 3.40%
12/31/92 $17,399 $18,467 1.23%
1/31/93 $17,723 $18,622 0.84%
2/28/93 $18,678 $18,875 1.36%
3/31/93 $18,820 $19,273 2.11%
4/30/93 $18,820 $18,807 -2.42%
5/31/93 $18,802 $19,309 2.67%
6/30/93 $19,259 $19,365 0.29%
7/31/93 $19,666 $19,288 -0.40%
8/31/93 $20,258 $20,019 3.79%
9/30/93 $20,184 $19,864 -0.77%
10/31/93 $20,072 $20,276 2.07%
11/30/93 $19,155 $20,083 -0.95%
12/31/93 $19,404 $20,326 1.21%
1/31/94 $19,023 $21,017 3.40%
2/28/94 $18,090 $20,448 -2.71%
3/31/94 $17,473 $19,556 -4.36%
4/30/94 $17,724 $19,806 1.28%
5/31/94 $16,739 $20,131 1.64%
6/30/94 $16,190 $19,638 -2.45%
7/31/94 $16,915 $20,282 3.28%
8/31/94 $17,013 $21,114 4.10%
9/30/94 $16,582 $20,599 -2.44%
10/31/94 $16,880 $21,062 2.25%
11/30/94 $17,079 $20,295 -3.64%
12/31/94 $17,136 $20,596 1.48%
1/31/95 $18,148 $21,129 2.59%
2/28/95 $18,127 $21,953 3.90%
3/31/95 $17,866 $22,601 2.95%
4/30/95 $18,256 $23,265 2.94%
5/31/95 $19,303 $24,196 4.00%
6/30/95 $19,306 $24,757 2.32%
7/31/95 $19,243 $25,579 3.32%
8/31/95 $19,535 $25,643 0.25%
9/30/95 $20,593 $26,725 4.22%
10/31/95 $21,015 $26,629 -0.36%
11/30/95 $21,353 $27,798 4.39%
12/31/95 $22,393 $28,335 1.93%
1/31/96 $22,759 $29,298 3.40%
2/29/96 $22,177 $29,570 0.93%
3/31/96 $22,157 $29,854 0.96%
4/30/96 $21,414 $30,293 1.47%
5/31/96 $21,655 $31,075 2.58%
6/30/96 $22,808 $31,193 0.38%
7/31/96 $21,547 $29,814 -4.42%
8/31/96 $21,857 $30,443 2.11%
9/30/96 $21,816 $32,157 5.63%
10/31/96 $22,534 $33,045 2.76%
11/30/96 $22,848 $35,543 7.56%
12/31/96 $22,847 $34,839 -1.98%
1/31/97 $22,966 $37,016 6.25%
2/28/97 $23,156 $37,305 0.78%
3/31/97 $22,516 $35,772 -4.11%
4/30/97 $22,348 $37,908 5.97%
5/31/97 $23,045 $40,216 6.09%
6/30/97 $23,812 $42,018 4.48%
7/31/97 $24,373 $45,362 7.96%
8/31/97 $23,812 $42,822 -5.60%
9/30/97 $24,834 $45,169 5.48%
10/31/97 $24,933 $43,660 -3.34%
11/30/97 $26,591 $45,682 4.63%
12/31/97 $28,575 $46,467 1.72%
1/31/98 $27,471 $46,983 1.11%
2/28/98 $27,907 $50,371 7.21%
3/31/98 $29,661 $52,950 5.12%
4/30/98 $28,621 $53,484 1.01%
5/31/98 $28,231 $52,564 -1.72%
6/30/98 $28,920 $54,699 4.06%
7/31/98 $27,868 $54,113 -1.07%
8/31/98 $28,789 $46,288 -14.46%
9/30/98 $30,347 $49,256 6.41%
