SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you the Franklin Custodian Funds, Inc. annual report
for the period ended September 30, 1999.
What a difference a year makes. At the end of the 12 months under review, the
U.S. economy was growing at a brisk pace, with little fear of going into a
recession. In Asia, many countries were returning to economic growth, after a
rough two years, while European economies began to recover, following a
surprising downturn at the end of 1998 that lasted through the first eight
months of 1999.
This is far different from one year earlier when Russia's default on its loan
payments accompanied by a large hedge fund's near bankruptcy had investors
fearing an imminent global depression. Many banks stopped lending, creating a
credit crunch that hampered the economic recovery of many emerging markets.
Investors pulled out of most equity and even fixed-income markets and purchased
U.S. Treasury bonds, pushing the 30-year Treasury bond yield to an all-time low.
The resurgent global economy was a boon for many natural resource, cyclical and
international companies and their stock prices, as many investors believed these
companies' earnings would soon improve. For companies making up the Standard &
Poor's (R) 500(S&P 500(R)) Index, earnings were up more than 15% in the
second quarter of 1999 and are estimated to rise more than 20% in the third and
fourth quarters of the year. Surging oil prices contributed to an especially
strong year for oil and oil-service firms, many of which experienced dramatic
stock price increases. Cyclical companies, whose fortunes are tightly connected
to economic cycles, should show stronger profits as the world lifts out of its
economic doldrums. Likewise, companies with large international exposures should
benefit from renewed consumer and business spending in Asia and Europe.
CONTENTS
Shareholder Letter ........................................................ 1
Fund Reports
Franklin DynaTech Fund .................................................... 4
Franklin Growth Fund ...................................................... 9
Franklin Income Fund ...................................................... 16
Franklin U.S. Government Securities Fund .................................. 24
Franklin Utilities Fund ................................................... 32
Financial Highlights & Statement of Investments ........................... 40
Financial Statements ...................................................... 67
Notes to Financial Statements ............................................. 72
Independent Auditors' Report .............................................. 79
INDEXES' PERFORMANCES
Nine-month period ended September 30, 1999
This line chart shows the performances for S&P 500, Valueline Arithmetic, Dow
Jones Industrial Average (DJIA) and NASDAQ 100 indexes for the nine-month period
ended 9/30/99.
Date DJIA NASDAQ 100 Valueline S&P 500
---- ---- ---------- --------- -------
Arithmetic
----------
12/31/98 9181.43 1836.01 927.84 1229.23
01/04/99 9184.27 1854.39 930.00 1228.10
01/05/99 9311.19 1903.00 936.62 1244.78
01/06/99 9544.97 1963.95 951.64 1272.34
01/07/99 9537.76 1966.35 948.12 1269.73
01/08/99 9643.32 1973.66 953.04 1275.09
01/11/99 9619.89 2000.18 949.72 1263.88
01/12/99 9474.68 1939.75 936.63 1239.51
01/13/99 9349.56 1948.71 930.24 1234.40
01/14/99 9120.93 1906.12 917.42 1212.19
01/15/99 9340.55 1981.62 934.37 1243.26
01/19/99 9355.22 2033.71 937.13 1252.00
01/20/99 9335.91 2033.71 936.31 1256.62
01/21/99 9264.08 1961.76 925.97 1235.16
01/22/99 9120.67 1964.21 922.40 1225.19
01/25/99 9203.32 1997.16 923.25 1233.98
01/26/99 9324.58 2062.20 925.06 1252.31
01/27/99 9200.23 2030.36 915.63 1243.17
01/28/99 9281.33 2104.59 918.97 1265.37
01/29/99 9358.83 2127.19 923.68 1279.64
02/01/99 9345.70 2130.93 923.41 1273.00
02/02/99 9274.12 2078.69 915.74 1261.99
02/03/99 9366.81 2119.94 922.19 1272.07
02/04/99 9304.50 2027.66 913.15 1248.49
02/05/99 9304.24 1988.69 907.35 1239.40
02/08/99 9291.11 2034.36 908.84 1243.77
02/09/99 9133.03 1935.33 895.21 1216.14
02/10/99 9177.31 1944.18 890.04 1223.55
02/11/99 9363.46 2044.68 899.99 1254.04
02/12/99 9274.89 1958.60 886.05 1230.13
02/16/99 9297.03 1954.49 886.84 1241.87
02/17/99 9195.47 1891.37 874.79 1224.03
02/18/99 9298.63 1906.09 880.79 1237.28
02/19/99 9339.95 1931.77 881.58 1239.19
02/22/99 9552.68 1996.18 894.74 1272.14
02/23/99 9544.42 2028.23 893.06 1271.18
02/24/99 9399.67 1989.14 885.36 1253.41
02/25/99 9366.34 1974.39 879.60 1245.02
02/26/99 9306.58 1925.28 877.40 1238.33
03/01/99 9324.78 1937.70 878.99 1236.16
03/02/99 9297.61 1888.66 877.64 1225.50
03/03/99 9275.88 1899.81 875.49 1227.70
03/04/99 9467.40 1933.03 882.91 1246.64
03/05/99 9736.08 1969.87 892.18 1275.47
03/08/99 9727.61 2034.05 893.79 1282.73
03/09/99 9693.76 2028.57 889.91 1279.84
03/10/99 9772.84 2038.51 895.72 1286.84
03/11/99 9897.44 2043.76 899.85 1297.68
03/12/99 9876.35 2008.96 898.32 1294.59
03/15/99 9958.77 2060.34 900.45 1307.26
03/16/99 9930.47 2073.31 899.08 1306.36
03/17/99 9879.41 2064.50 898.53 1297.82
03/18/99 9997.62 2102.77 902.79 1316.55
03/19/99 9903.55 2053.69 894.61 1299.29
03/22/99 9890.51 2027.14 890.74 1297.01
03/23/99 9671.83 1961.31 872.43 1262.14
03/24/99 9666.84 2013.55 878.31 1268.59
03/25/99 9836.39 2083.35 892.08 1289.99
03/26/99 9822.24 2067.30 891.20 1282.80
03/29/99 10006.78 2144.66 902.66 1310.17
03/30/99 9913.26 2125.69 896.45 1300.75
03/31/99 9786.16 2106.39 893.20 1286.37
04/01/99 9832.51 2146.13 895.72 1293.72
04/05/99 10007.33 2219.64 903.41 1321.12
04/06/99 9963.49 2218.83 896.79 1317.89
04/07/99 10085.31 2192.29 894.17 1326.89
04/08/99 10197.70 2224.75 899.41 1343.98
04/09/99 10173.84 2232.47 907.14 1348.35
04/12/99 10339.51 2219.21 914.74 1358.63
04/13/99 10395.01 2175.20 916.56 1349.82
04/14/99 10411.66 2103.63 926.70 1328.44
04/15/99 10462.72 2135.81 937.49 1322.85
04/16/99 10493.89 2086.46 950.44 1319.00
04/19/99 10440.53 1967.84 952.21 1289.48
04/20/99 10448.55 2030.28 950.30 1306.17
04/21/99 10581.42 2105.82 964.10 1336.12
04/22/99 10727.18 2183.49 970.19 1358.83
04/23/99 10689.67 2210.44 972.97 1356.85
04/26/99 10718.59 2260.66 973.33 1360.04
04/27/99 10831.71 2207.03 978.94 1362.80
04/28/99 10845.45 2150.44 986.13 1350.91
04/29/99 10878.38 2119.29 989.53 1342.83
04/30/99 10789.04 2136.39 985.62 1335.18
05/03/99 11014.69 2137.95 1000.01 1354.63
05/04/99 10886.11 2097.55 997.37 1332.00
05/05/99 10955.41 2155.77 1000.92 1347.31
05/06/99 10946.82 2078.63 999.05 1332.05
05/07/99 11031.59 2117.73 1004.43 1345.00
05/10/99 11007.25 2134.75 1009.19 1340.30
05/11/99 11026.15 2175.85 1016.99 1355.61
05/12/99 11000.37 2217.68 1018.87 1364.00
05/13/99 11107.19 2179.08 1025.82 1367.56
05/14/99 10913.32 2125.15 1009.98 1337.80
05/17/99 10853.47 2175.74 1006.55 1339.49
05/18/99 10836.95 2159.26 1005.21 1333.32
05/19/99 10887.39 2186.20 1013.44 1344.23
05/20/99 10866.74 2139.95 1018.24 1338.83
05/21/99 10829.28 2114.40 1020.72 1330.29
05/24/99 10654.67 2060.59 1008.70 1306.65
05/25/99 10531.09 1999.04 999.55 1284.40
05/26/99 10702.16 2053.04 1002.17 1304.76
05/27/99 10466.93 2050.09 994.04 1281.41
05/28/99 10559.74 2089.70 1003.76 1301.84
06/01/99 10596.26 2025.79 1004.42 1294.26
06/02/99 10577.89 2074.54 1005.07 1294.81
06/03/99 10663.69 2030.40 1007.78 1299.54
06/04/99 10799.84 2109.41 1017.76 1327.75
06/07/99 10909.38 2152.69 1026.26 1334.52
06/08/99 10765.64 2086.75 1017.67 1317.33
06/09/99 10690.29 2135.48 1019.06 1318.64
06/10/99 10621.27 2097.79 1013.58 1302.82
06/11/99 10490.51 2062.29 1009.82 1293.64
06/14/99 10563.33 2028.92 1007.43 1294.00
06/15/99 10594.99 2058.17 1011.13 1301.16
06/16/99 10784.95 2167.49 1021.78 1330.41
06/17/99 10841.63 2190.83 1026.22 1339.90
06/18/99 10855.56 2205.46 1027.75 1342.84
06/21/99 10815.98 2268.66 1032.63 1349.00
06/22/99 10721.63 2209.89 1028.54 1335.88
06/23/99 10666.86 2239.33 1028.53 1333.06
06/24/99 10534.83 2184.87 1018.46 1315.78
06/25/99 10552.56 2185.76 1018.72 1315.31
06/28/99 10655.15 2243.94 1029.07 1331.35
06/29/99 10815.35 2280.06 1039.66 1351.45
06/30/99 10970.80 2296.77 1047.35 1372.71
07/01/99 11066.42 2322.32 1053.03 1380.96
07/02/99 11139.24 2347.88 1057.53 1391.22
07/06/99 11135.12 2330.73 1057.26 1388.12
07/07/99 11187.36 2340.67 1052.94 1395.86
07/08/99 11126.89 2374.58 1052.81 1394.42
07/09/99 11193.70 2393.02 1059.15 1403.28
07/12/99 11200.98 2384.24 1058.69 1399.10
07/13/99 11175.02 2373.66 1055.29 1393.56
07/14/99 11148.10 2417.05 1059.40 1398.17
07/15/99 11186.41 2429.27 1066.61 1409.62
07/16/99 11209.84 2459.48 1067.57 1418.78
07/19/99 11187.68 2424.62 1061.16 1407.65
07/20/99 10996.13 2329.32 1046.23 1377.10
07/21/99 11002.78 2363.63 1050.20 1379.29
07/22/99 10969.22 2281.92 1043.67 1360.97
07/23/99 10910.96 2302.02 1039.06 1356.94
07/26/99 10863.16 2233.51 1030.53 1347.76
07/27/99 10979.04 2308.78 1038.25 1362.84
07/28/99 10972.07 2333.78 1037.25 1365.40
07/29/99 10791.29 2263.06 1025.20 1341.03
07/30/99 10655.15 2270.93 1026.63 1328.72
08/02/99 10645.96 2264.81 1023.95 1328.05
08/03/99 10677.31 2239.18 1015.16 1322.18
08/04/99 10674.77 2204.33 1004.35 1305.33
08/05/99 10793.82 2232.23 1004.05 1313.71
08/06/99 10714.03 2212.15 998.28 1300.29
08/09/99 10707.70 2187.61 996.67 1297.80
08/10/99 10655.15 2163.77 985.33 1281.43
08/11/99 10787.80 2241.80 996.15 1301.93
08/12/99 10789.39 2214.33 995.95 1298.16
08/13/99 10973.65 2307.06 1007.31 1327.68
08/16/99 11046.79 2313.08 1007.15 1330.77
08/17/99 11117.08 2337.37 1012.98 1344.16
08/18/99 10991.38 2317.39 1008.07 1332.84
08/19/99 10963.84 2278.79 1008.05 1323.59
08/20/99 11100.61 2315.07 1012.76 1336.61
08/23/99 11299.76 2385.87 1020.37 1360.22
08/24/99 11283.30 2404.82 1016.44 1363.50
08/25/99 11326.04 2460.92 1017.75 1381.79
08/26/99 11198.45 2417.30 1010.26 1362.01
08/27/99 11090.17 2402.57 1003.43 1348.27
08/30/99 10914.13 2366.88 990.90 1324.02
08/31/99 10829.28 2396.87 988.74 1320.41
09/01/99 10937.88 2404.94 996.25 1331.07
09/02/99 10843.21 2392.60 988.08 1319.11
09/03/99 11078.45 2506.69 1005.72 1357.24
09/07/99 11034.13 2491.82 1004.96 1350.45
09/08/99 11036.34 2454.67 999.43 1344.15
09/09/99 11079.40 2505.50 1003.19 1347.66
09/10/99 11028.43 2534.61 1007.70 1351.66
09/13/99 11030.33 2483.10 1004.25 1344.13
09/14/99 10910.33 2522.46 998.43 1336.29
09/15/99 10801.42 2463.09 993.14 1317.97
09/16/99 10737.46 2466.88 983.42 1318.48
09/17/99 10803.63 2536.91 989.72 1335.42
09/20/99 10823.90 2545.41 985.65 1335.53
09/21/99 10598.47 2473.74 970.72 1307.58
09/22/99 10524.07 2513.94 969.30 1310.51
09/23/99 10318.59 2403.07 953.50 1280.41
09/24/99 10279.33 2399.58 948.52 1277.36
09/27/99 10303.39 2426.51 957.51 1283.31
09/28/99 10275.53 2428.11 950.36 1282.20
09/29/99 10213.48 2398.78 953.83 1268.37
09/30/99 10336.95 2407.90 961.64 1282.71
[/TABLE]
- --------------------------------------------------------------------------------
% change (+12.6%) (+31.1%) (+3.6%) (+4.4%)
The popular averages had another solid year. However, broader market measures
such as the S&P 500 and Valueline Arithmetic painted a different picture.
On top of this, the technology sector advanced, powered by corporate investment
in the Internet and semiconductor stocks, which had their own cyclical turn for
the better. The world's economic problems had little impact on earnings for many
of these companies and their earnings growth continued at a heady pace.
Although the world's economic and financial systems were much more sound at the
end of the year under review than at the beginning, the global rebound also
created some undesired consequences. Rising oil prices due to greater demand
have helped put upward pressure on inflation, which in turn drove interest rates
to 21-month highs. Japan's stronger economy bolstered the yen's value versus the
U.S. dollar, increasing fears that more expensive imported goods might boost
inflation in the U.S. Moreover, higher interest rates led to lackluster
performances for most U.S. equities, despite strong corporate earnings, and one
of the worst years on record for many fixed-income securities.
Popular U.S. equity market indexes gave the impression of another year of strong
performance; however, they were misleading indicators of what really went on in
the markets. Outside of the indexes, most stocks were actually down on the year.
On the New York Stock Exchange, more than 70% of stocks have lost ground from
January 1, 1999, through September 24. Even on the NASDAQ, with an abundance of
high growth technology companies and exciting Internet names, approximately half
of all stocks lost value during the first three quarters of 1999.
Generally, rising interest rates are not a positive event for bonds and utility
stocks. In fact, for many of these securities, 1999 so far has been the worst
year since 1994. However, even in a down market, some securities did well.
Mutual funds invested in Government National Mortgage Association, or GNMA,
securities had a strong showing, as rising interest rates reduced most
homeowners' desires to refinance their mortgages.
In an environment such as this, it is more important than ever to enlist the
help of professionals when investing. Making the right decisions in such markets
as these can be difficult and the number of options can be overwhelming. We
encourage you to discuss your financial goals with your investment professional.
He or she can address concerns about the market, and help you diversify your
investments and stay focused on the long term.
As always, we appreciate your continued participation in Franklin Custodian
Funds, Inc. and look forward to serving your future investment needs.
Sincerely,
/s/ C B Johnson
Charles B. Johnson
President
Franklin Custodian Funds, Inc.
FUND CATEGORY
[PYRAMID GRAPH]
FRANKLIN DYNATECH FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin DynaTech Fund seeks capital appreciation by investing
primarily in companies emphasizing technological development.
- --------------------------------------------------------------------------------
During the year under review, the markets rallied in anticipation of better
economic conditions, aided by the Federal Reserve Board's (the Fed's) interest
rate cuts in the fall of 1998. Throughout the first nine months of 1999,
economic conditions did improve, so much so that the Fed had to reverse course
and tighten monetary policy by raising rates. The markets became concerned that
these interest rate increases would slow economic conditions over the subsequent
six to eight months, putting pressure on corporate profits. Therefore, although
the Standard & Poor's 500 (S&P 500) Index reached a new high on July 16, 1999,
the year-to-date return at the end of the reporting period was much lower than
its historical January-September average return, approximately 7.22% compared
with an average of 17.07%.
Within this environment, Franklin DynaTech Fund - Class A shares produced a
+31.15% cumulative total return for the 12 months ended September 30, 1999. The
fund's benchmarks, the S&P 500 and Hambrecht & Quist (H&Q) Technology Index,
posted cumulative total returns of 27.81% and 92.62%, respectively, for the same
period.(1)
Technology was once again the market's best performing sector. On September 30,
1999, your fund held more than 80% of investments in technology companies or
companies that benefit from technological products or services. We actively
invested during the period, as we sought to take advantage of the tremendous
growth opportunities that technology and the Internet provided. We purchased
several new initial public offerings (IPOs) -- a company's first public stock
sale. The fund purchased
1. Cumulative total return measures the change in value of an investment,
assuming reinvestment of all distributions and does not include the sales
charge. The indexes are unmanaged and include reinvested dividends. One cannot
invest directly in an index.
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 41 of
this report.
IPOs of Allaire Corp., a Web application and server software company; China.Com
Corp., an Internet portal site serving the Greater China region; Liberate
Technologies Inc., a company focused on developing an operating system for
consumer Internet appliances; RoweCom Inc., a provider of e-commerce purchasing
solutions for corporations; VerticalNet Inc., which operates trade community Web
sites on the Internet; and Vignette Corp., a developer of "Internet relationship
management" software used by customers to personalize and custom tailor Web
pages.
In addition, we took positions in companies we felt were solid and fast-growing,
and would increase our exposure to technology. In the Internet area, we made
investments in Inktomi Corp., a company considered by many analysts to be the
backbone of the Internet, and one of the fund's top ten positions. We also
initiated positions in America Online Inc., a leading Internet service provider
with over 19 million subscribers; Check Point Software Technologies Ltd., a
leading producer of firewall software used to secure and protect computer
networks from external attackers; and eBay Inc., the Internet's leading
consumer-to-consumer auction Web site.
Over the period, we purchased several technology companies with strong
performance histories. These include Sun Microsystems Inc., a leading
manufacturer of Unix-based computing systems and software; International
Business Machines Corp. (IBM), the world's largest producer of computer hardware
and software; and NCR Corp., which offers a broad range of information
technology products as well as services and consulting for its customers. In the
telecommunications sector, we purchased Nextel Communications Inc., a national
wireless provider; General Instrument Corp., a leading provider of cable network
infrastructure equipment and cable-TV set-top boxes; and General Motors Corp. -
Hughes Electronics, a worldwide provider of satellite-based video, data and
telephony services.
As you can see, we were very busy putting the fund's cash reserves to work this
year; however, as new money entered the fund at a fast rate, our cash reserves
remained substantial, at 51.9% of total net assets on September 30, 1999.
PORTFOLIO BREAKDOWN
Franklin DynaTech Fund
9/30/99
% OF TOTAL
SECTOR NET ASSETS
- --------------------------------------------------------------------------------
Semiconductors 8.1%
Computer Software 7.4%
Electronic Data Processing 4.0%
Telecommunications Equipment 3.5%
Major Pharmaceuticals 3.3%
Computer Communications 3.2%
Internet Services 2.7%
Biotechnology 1.8%
EDP Services 1.6%
Other Telecommunications 1.3%
Broadcasting 1.1%
Consumer Electronics/Appliances 1.0%
Diversified Electronic Products 1.0%
Major U.S. Telecommunications 0.9%
Cellular Telephone 0.8%
Medical Electronics 0.6%
Air Freight/Delivery Services 0.5%
Electronic Production Equipment 0.5%
Other Industries 4.8%
Cash and Other Assets 51.9%
TOP 10 HOLDINGS
Franklin DynaTech Fund
9/30/99
% OF TOTAL
COMPANY NET ASSETS
- --------------------------------------------------------------------------------
Intel Corp. 7.26%
Microsoft Corp. 5.69%
Motorola Inc. 2.15%
Cisco Systems Inc. 1.62%
Hewlett-Packard Co. 1.58%
Warner-Lambert Co. 1.04%
Genentech Inc. 1.04%
JDS Uniphase Corp. 0.99%
MCI WorldCom Inc. 0.75%
Compaq Computer Corp. 0.72%
Going forward, we are optimistic about the future of the Internet, Internet
companies and technology companies in general. Yet, we remain cautious in the
short term due to investor concerns related to Y2K. Our ample cash position can
provide us with a buffer against potential Y2K-related market volatility as well
as the resources needed to purchase strong companies when appropriate.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1999. 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,
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
/s/ Lisa Costa
Lisa Costa
Portfolio Management Team
Franklin DynaTech Fund
PERFORMANCE SUMMARY AS OF 9/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION
CLASS A CHANGE 9/30/99 9/30/98
- --------------------------------------------------------------------------------
Net Asset Value $5.27 $23.11 $17.84
DISTRIBUTIONS (10/1/98 - 9/30/99)
------------------------------------
Dividend Income $0.2433
CLASS C CHANGE 9/30/99 9/30/98
- --------------------------------------------------------------------------------
Net Asset Value $5.11 $22.64 $17.53
DISTRIBUTIONS (10/1/98 - 9/30/99)
- --------------------------------------------------------------------------------
Dividend Income $0.1564
PERFORMANCE
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (1/1/68)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) +31.15% +173.27% +341.82% +2,069.01%
Average Annual Total Return(2) +23.60% +20.83% +15.33% +9.97%
Value of $10,000 Investment(3) $12,360 $25,758 $41,618 $204,301
9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
- --------------------------------------------------------------------------------
One-Year Total Return(4) +32.10% +12.84% +35.63% +3.06% +31.15%
INCEPTION
CLASS C 1-YEAR 3-YEAR (9/16/96)
- --------------------------------------------------------------------------------
Cumulative Total Return(1) +30.20% +78.43% +83.13%
Average Annual Total Return(2) +27.88% +20.89% +21.63%
Value of $10,000 Investment(3) $12,788 $17,667 $18,128
9/30/97 9/30/98 9/30/99
- --------------------------------------------------------------------------------
One-Year Total Return(4) +34.32% +2.03% +30.20%
Past performance is not predictive of future results.
FRANKLIN DYNATECH FUND
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund implemented a Rule
12b-1 plan,which affects subsequent performance.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% contingent deferred sales charge for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
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 current, applicable,
maximum sales charge(s)for that class.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the current, applicable, maximum
sales charge(s)for that class.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
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
AVERAGE ANNUAL TOTAL RETURN
9/30/99
CLASS A
- --------------------------------------------------------------------------------
1-Year +23.60%
5-Year +20.83%
10-Year +15.33%
Since Inception (1/1/68) +9.97%
AVERAGE ANNUAL TOTAL RETURN
9/30/99
CLASS C
- --------------------------------------------------------------------------------
1-Year +27.88%
3-Year +20.89%
Since Inception (9/16/96) +21.63%
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index.
CLASS A (10/1/89 - 9/30/99)
This graph compares the performance of Franklin DynaTech Fund - Class A, 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 10/1/89-9/30/99.
<TABLE>
<CAPTION>
Date Franklin S&P 500* H&Q Technology S&P 500 HamQuist
---- DynaTech Fund- -------- Index* $T Tech
Class A --------------
--------------
<S> <C> <C> <C> <C> <C>
10/01/1989 $ 9,425 $10,000 $10,000
10/31/1989 $ 9,190 $9,768 $9,714 -2.32% -2.86%
11/30/1989 $ 9,357 $9,967 $9,671 2.04% -0.45%
12/31/1989 $ 9,490 $10,206 $9,680 2.40% 0.09%
01/31/1990 $ 9,206 $9,522 $9,208 -6.71% -4.88%
02/28/1990 $ 9,300 $9,644 $9,557 1.29% 3.80%
03/31/1990 $ 9,700 $9,900 $9,984 2.65% 4.46%
04/30/1990 $ 9,666 $9,654 $9,608 -2.49% -3.77%
05/31/1990 $10,819 $10,595 $10,991 9.75% 14.39%
06/30/1990 $10,934 $10,524 $10,809 -0.67% -1.65%
07/31/1990 $10,683 $10,490 $9,889 -0.32% -8.51%
08/31/1990 $ 9,680 $9,542 $8,533 -9.04% -13.71%
09/30/1990 $ 9,178 $9,077 $7,616 -4.87% -10.74%
10/31/1990 $ 9,090 $9,038 $7,270 -0.43% -4.54%
11/30/1990 $ 9,551 $9,622 $7,972 6.46% 9.65%
12/31/1990 $ 9,792 $9,890 $8,600 2.79% 7.87%
01/31/1991 $10,777 $10,322 $9,941 4.36% 15.60%
02/28/1991 $11,492 $11,060 $10,784 7.15% 8.48%
03/31/1991 $11,561 $11,327 $11,235 2.42% 4.18%
04/30/1991 $11,610 $11,354 $11,257 0.24% 0.19%
05/31/1991 $12,241 $11,844 $11,708 4.31% 4.01%
06/30/1991 $11,450 $11,301 $10,587 -4.58% -9.58%
07/31/1991 $12,026 $11,828 $11,128 4.66% 5.11%
08/31/1991 $12,408 $12,108 $11,438 2.37% 2.79%
09/30/1991 $12,054 $11,906 $10,904 -1.67% -4.67%
10/31/1991 $12,214 $12,066 $11,393 1.34% 4.49%
11/30/1991 $11,971 $11,579 $10,977 -4.03% -3.66%
12/31/1991 $13,263 $12,904 $12,500 11.44% 13.88%
01/31/1992 $13,572 $12,664 $13,477 -1.86% 7.82%
02/29/1992 $13,650 $12,827 $14,212 1.29% 5.45%
03/31/1992 $13,116 $12,577 $13,210 -1.95% -7.05%
04/30/1992 $13,108 $12,947 $12,913 2.94% -2.25%
05/31/1992 $13,017 $13,011 $12,815 0.49% -0.76%
06/30/1992 $12,834 $12,817 $11,922 -1.49% -6.97%
07/31/1992 $13,200 $13,341 $12,542 4.09% 5.20%
08/31/1992 $12,877 $13,067 $11,981 -2.05% -4.47%
09/30/1992 $12,947 $13,220 $12,517 1.17% 4.47%
10/31/1992 $13,045 $13,265 $13,237 0.34% 5.76%
11/30/1992 $13,467 $13,716 $14,177 3.40% 7.10%
12/31/1992 $13,820 $13,885 $14,835 1.23% 4.64%
01/31/1993 $14,021 $14,002 $16,072 0.84% 8.33%
02/28/1993 $13,863 $14,192 $15,523 1.36% -3.42%
03/31/1993 $14,136 $14,491 $15,763 2.11% 1.55%
04/30/1993 $13,848 $14,141 $14,828 -2.42% -5.93%
05/31/1993 $14,539 $14,518 $16,375 2.67% 10.43%
06/30/1993 $14,352 $14,560 $16,165 0.29% -1.28%
07/31/1993 $14,064 $14,502 $15,237 -0.40% -5.74%
08/31/1993 $14,626 $15,052 $16,211 3.79% 6.39%
09/30/1993 $14,813 $14,936 $16,508 -0.77% 1.83%
10/31/1993 $14,871 $15,245 $16,791 2.07% 1.71%
11/30/1993 $14,655 $15,100 $17,038 -0.95% 1.47%
12/31/1993 $14,846 $15,283 $17,419 1.21% 2.24%
01/31/1994 $15,218 $15,803 $18,494 3.40% 6.17%
02/28/1994 $15,171 $15,374 $19,105 -2.71% 3.30%
03/31/1994 $14,753 $14,704 $18,061 -4.36% -5.47%
04/30/1994 $14,521 $14,892 $17,596 1.28% -2.57%
05/31/1994 $14,722 $15,136 $17,647 1.64% 0.29%
06/30/1994 $14,180 $14,766 $16,522 -2.45% -6.38%
07/31/1994 $14,629 $15,250 $17,139 3.28% 3.73%
08/31/1994 $15,512 $15,875 $18,902 4.10% 10.29%
09/30/1994 $15,249 $15,488 $18,841 -2.44% -0.32%
10/31/1994 $15,883 $15,836 $20,567 2.25% 9.16%
11/30/1994 $15,589 $15,260 $20,391 -3.64% -0.86%
12/31/1994 $15,620 $15,486 $20,924 1.48% 2.61%
01/31/1995 $15,762 $15,887 $20,618 2.59% -1.46%
02/28/1995 $16,187 $16,506 $22,405 3.90% 8.67%
03/31/1995 $16,550 $16,993 $23,431 2.95% 4.58%
04/30/1995 $17,227 $17,493 $25,186 2.94% 7.49%
05/31/1995 $17,732 $18,193 $26,088 4.00% 3.58%
06/30/1995 $19,119 $18,615 $29,229 2.32% 12.04%
07/31/1995 $19,986 $19,233 $31,897 3.32% 9.13%
08/31/1995 $19,765 $19,281 $32,263 0.25% 1.15%
09/30/1995 $20,143 $20,094 $33,033 4.22% 2.39%
10/31/1995 $20,537 $20,022 $33,497 -0.36% 1.40%
11/30/1995 $20,254 $20,901 $33,085 4.39% -1.23%
12/31/1995 $19,701 $21,304 $31,286 1.93% -5.44%
01/31/1996 $19,717 $22,029 $31,749 3.40% 1.48%
02/29/1996 $20,414 $22,234 $33,339 0.93% 5.01%
03/31/1996 $20,009 $22,447 $31,889 0.96% -4.35%
04/30/1996 $21,645 $22,777 $36,296 1.47% 13.82%
05/31/1996 $22,423 $23,365 $36,843 2.58% 1.51%
06/30/1996 $21,710 $23,453 $34,159 0.38% -7.29%
07/31/1996 $20,414 $22,417 $30,649 -4.42% -10.28%
08/31/1996 $21,159 $22,890 $32,504 2.11% 6.05%
09/30/1996 $22,731 $24,179 $36,262 5.63% 11.56%
10/31/1996 $23,152 $24,846 $35,743 2.76% -1.43%
11/30/1996 $25,371 $26,724 $39,957 7.56% 11.79%
12/31/1996 $25,374 $26,195 $38,884 -1.98% -2.69%
01/31/1997 $27,259 $27,832 $43,048 6.25% 10.71%
02/28/1997 $25,724 $28,049 $39,533 0.78% -8.17%
03/31/1997 $25,073 $26,897 $37,063 -4.11% -6.25%
04/30/1997 $26,191 $28,502 $38,435 5.97% 3.70%
05/31/1997 $27,659 $30,238 $44,220 6.09% 15.05%
06/30/1997 $27,909 $31,593 $44,611 4.48% 0.89%
07/31/1997 $30,628 $34,107 $51,788 7.96% 16.09%
08/31/1997 $30,078 $32,197 $51,936 -5.60% 0.29%
09/30/1997 $30,829 $33,962 $54,065 5.48% 4.10%
10/31/1997 $29,311 $32,828 $48,290 -3.34% -10.68%
11/30/1997 $29,628 $34,347 $47,787 4.63% -1.04%
12/31/1997 $29,084 $34,938 $45,587 1.72% -4.60%
01/31/1998 $30,081 $35,326 $48,511 1.11% 6.41%
02/28/1998 $31,417 $37,873 $54,280 7.21% 11.89%
03/31/1998 $31,560 $39,812 $55,198 5.12% 1.69%
04/30/1998 $32,165 $40,214 $57,346 1.01% 3.89%
05/31/1998 $31,025 $39,523 $53,163 -1.72% -7.30%
06/30/1998 $32,539 $41,127 $56,511 4.06% 6.30%
07/31/1998 $32,699 $40,687 $55,797 -1.07% -1.26%
08/31/1998 $29,707 $34,804 $43,882 -14.46% -21.35%
09/30/1998 $31,773 $37,035 $50,234 6.41% 14.47%
10/31/1998 $32,646 $40,046 $54,470 8.13% 8.43%
11/30/1998 $34,659 $42,472 $60,945 6.06% 11.89%
12/31/1998 $37,036 $44,919 $70,908 5.76% 16.35%
01/31/1999 $39,921 $46,796 $80,609 4.18% 13.68%
02/28/1999 $38,082 $45,341 $71,676 -3.11% -11.08%
03/31/1999 $39,326 $47,155 $77,225 4.00% 7.74%
04/30/1999 $39,434 $48,980 $80,139 3.87% 3.77%
05/31/1999 $38,785 $47,824 $81,240 -2.36% 1.37%
06/30/1999 $40,768 $50,478 $91,462 5.55% 12.58%
07/31/1999 $40,732 $48,903 $90,213 -3.12% -1.37%
08/31/1999 $41,868 $48,658 $94,603 -0.50% 4.87%
09/30/1999 $41,618 $47,325 $96,758 -2.74% 2.28%
</TABLE>
*Source: Standard and Poor's Micropal.
CLASS C (9/16/96 - 9/30/99)
This graph compares the performance of Franklin DynaTech Fund - Class C, 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 9/16/96-9/30/99.
<TABLE>
<CAPTION>
Date Franklin S&P 500* H&Q Technology S&P 500 HamQuist
---- DynaTech Fund- -------- Index* $T Tech
Class C ------
---------
<S> <C> <C> <C> <C> <C>
09/16/1996 $ 9,899 $10,000 $10,000
09/30/1996 $10,159 $10,263 $10,540 2.63% 5.40%
10/31/1996 $10,333 $10,546 $10,389 2.76% -1.43%
11/30/1996 $11,318 $11,344 $11,614 7.56% 11.79%
12/31/1996 $11,312 $11,119 $11,302 -1.98% -2.69%
01/31/1997 $12,155 $11,814 $12,513 6.25% 10.71%
02/28/1997 $11,461 $11,906 $11,491 0.78% -8.17%
03/31/1997 $11,163 $11,417 $10,773 -4.11% -6.25%
04/30/1997 $11,648 $12,098 $11,172 5.97% 3.70%
05/31/1997 $12,289 $12,835 $12,853 6.09% 15.05%
06/30/1997 $12,386 $13,410 $12,967 4.48% 0.89%
07/31/1997 $13,587 $14,478 $15,053 7.96% 16.09%
08/31/1997 $13,326 $13,667 $15,096 -5.60% 0.29%
09/30/1997 $13,646 $14,416 $15,715 5.48% 4.10%
10/31/1997 $12,968 $13,934 $14,036 -3.34% -10.68%
11/30/1997 $13,095 $14,579 $13,890 4.63% -1.04%
12/31/1997 $12,843 $14,830 $13,251 1.72% -4.60%
01/31/1998 $13,256 $14,995 $14,100 1.11% 6.41%
02/28/1998 $13,836 $16,076 $15,777 7.21% 11.89%
03/31/1998 $13,892 $16,899 $16,044 5.12% 1.69%
04/30/1998 $14,154 $17,070 $16,668 1.01% 3.89%
05/31/1998 $13,638 $16,776 $15,452 -1.72% -7.30%
06/30/1998 $14,297 $17,457 $16,426 4.06% 6.30%
07/31/1998 $14,352 $17,270 $16,218 -1.07% -1.26%
08/31/1998 $13,034 $14,773 $12,755 -14.46% -21.35%
09/30/1998 $13,923 $15,720 $14,601 6.41% 14.47%
10/31/1998 $14,297 $16,998 $15,832 8.13% 8.43%
11/30/1998 $15,170 $18,028 $17,715 6.06% 11.89%
12/31/1998 $16,198 $19,067 $20,610 5.76% 16.35%
01/31/1999 $17,447 $19,864 $23,430 4.18% 13.68%
02/28/1999 $16,638 $19,246 $20,834 -3.11% -11.08%
03/31/1999 $17,167 $20,016 $22,447 4.00% 7.74%
04/30/1999 $17,207 $20,790 $23,293 3.87% 3.77%
05/31/1999 $16,919 $20,300 $23,613 -2.36% 1.37%
06/30/1999 $17,767 $21,426 $26,585 5.55% 12.58%
07/31/1999 $17,743 $20,758 $26,221 -3.12% -1.37%
08/31/1999 $18,224 $20,654 $27,498 -0.50% 4.87%
09/30/1999 $18,128 $20,088 $28,124 -2.74% 2.28%
</TABLE>
*Source: Standard and Poor's Micropal.
(*) Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
FRANKLIN GROWTH FUND
FUND CATEGORY
[PYRAMID GRAPH]
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
During the year under review, the U.S. economy continued to grow, extending an
expansion that began in April 1991 and is now the longest in the nation's
history. In the first and second quarters of 1999, gross domestic product
expanded at 4.3% and 1.6% annualized rates, respectively, and is projected to
rise 3%-3.25% for the year. The economy benefited greatly from the three Federal
Reserve Board (the Fed) interest rate cuts in the fall of 1998, which improved
liquidity for the capital markets. Unemployment remained at near-record low
levels in the U.S. and consumer spending remained robust. Surprisingly,
inflation showed only sporadic signs of returning, despite the vigorous economic
activity.
World events played a large role in the U.S. economy's performance during the
period. Early in the year under review, trade with Asia limited inflationary
tendencies in the U.S., as weaker Asian currencies relative to the dollar meant
that imports from the region cost less in U.S.-dollar terms. However, in second
quarter 1999, Asian economies and those elsewhere in the world began to emerge
from their recessions, putting upward pressure on commodity prices and
increasing fears that inflation might return in the U.S. This was especially
true for oil prices, which increased more than 127% from their lows in the
period, to end at $25.51 on September 30, 1999. In response to this, the Fed
twice raised the federal funds target rate a quarter-percentage point during the
reporting period, to 5.25%, in an effort to subdue any possibilities of
escalating inflation.
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 47 of
this report.
PORTFOLIO BREAKDOWN
Franklin Growth Fund
9/30/99
<TABLE>
<CAPTION>
% OF TOTAL
SECTOR NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Health Technology 15.8%
Electronic Technology 14.1%
Transportation 8.3%
Producer Manufacturing 6.3%
Technology Services 4.2%
Process Industries 4.1%
Consumer Services 3.6%
Retail Trade 3.4%
Consumer Non-Durables 1.9%
Commercial Services 1.5%
Energy Minerals 1.4%
Consumer Durables 1.3%
Industrial Services 1.1%
Utilities 1.0%
Health Services 0.6%
Finance 0.1%
Cash and Other Assets 31.3%
</TABLE>
At first glance, the U.S. stock markets appeared to have had another strong year
of performance. However, underneath the surface the story was completely
different. During the period, investors focused their attention on a select few,
large-cap, growth stocks, pushing up the price of such stocks to what we believe
were extremely high levels. Indexes such as the Dow Jones (R) Industrial
Average reflected these stocks' performance, but concealed the overall market
weakness. In fact, during the period market breadth worsened significantly, as
the number of declining stocks far outnumbered rising stocks. In this
environment, Franklin Growth Fund's Class A shares posted a cumulative total
return of +18.63% from September 30, 1998, to September 30, 1999, compared with
27.81% for the Standard & Poor's 500 (S&P 500) Index.(1)
During the period, no single market sector was particularly strong, as one might
expect given the market environment. However, the fund had a number of
outstanding individual stock performances. The fund's five largest gainers in
the period were Tiffany and Co., 284%; Sun Microsystems Inc., 273%; Nielsen
Media Research, 262%; Immunex Corp., 213%; and Cisco Systems Inc., 121%.
There were two major changes to the fund's top ten holdings. New to the list
this year was Tiffany, the fund's largest position, at 3.31% of total net assets
on September 30, 1999. Tiffany, a retailer of fine jewelry, benefited from the
strong U.S. economy and high consumer confidence, as Americans seemed more
comfortable spending on luxury items. In addition, the company successfully
introduced new products and more effectively marketed its products to a wider
range of potential customers. Tyco International, a new holding during the year
under review, was the fund's third-largest position, making up 2.94% of the
fund's total net assets at the end of the reporting period. Tyco is a
conglomerate with a leadership position in the medical device, security,
electrical connectors, undersea fiber-optic cable and flow control industries.
In our opinion, the company has strong growth prospects for the next few years.
1. Cumulative total return measures the change in value of an investment,
assuming reinvestment of all distributions and does not include the sales
charge. The unmanaged index includes reinvested dividends, and one cannot invest
directly in an index.
There were no major changes in the fund's sector allocation during the one-year
review period. We remain optimistic about the airline and pharmaceutical
industries, despite disappointing performances during the review period.
Airlines suffered due to the oil price increases and concerns that fewer people
would fly if the economy slowed down. However, we believe the economy will stay
relatively strong and oil prices will not go much higher. Likewise,
pharmaceutical company stock prices endured a trying period, as investors
worried about a new Medicare reimbursement plan and problems with companies
losing their product patents. Yet, the future looks bright for pharmaceuticals
due to a rapidly aging U.S. population and the potential for new blockbuster
drug releases.
Looking forward, we are positive on the long-term outlook for the economy, stock
market and Franklin Growth Fund. We are more cautious concerning the short term,
given the uncertainty about rising interest rates and record-high stock
valuations. With approximately 30% of the fund's total net assets in cash or
short-term investments, we are in a strong position to weather potential
Y2K-related market volatility and capitalize on opportunities as they arise.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1999. 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,
/s/ V. J. Palmieri
V. Jerry Palmieri
Portfolio Manager
Franklin Growth Fund
TOP 10 HOLDINGS
Franklin Growth Fund
9/30/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Tiffany & Co. 3.31%
Retail Trade
Schering-Plough Corp. 3.10%
Health Technology
Tyco International Ltd. 2.94%
Producer Manufacturing
Pfizer Inc. 2.72%
Health Technology
International Business Machines Corp. 2.68%
Electronic Technology
Computer Sciences Co. 2.50%
Technology Services
Time Warner Inc. 2.16%
Consumer Services
AMR Corp. 1.94%
Transportation
Delta Air Lines Inc. 1.91%
Transportation
Cisco Systems Inc. 1.83%
Electronic Technology
FRANKLIN GROWTH FUND
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August
3, 1998, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund implemented a Rule
12b-1 plan, which affects subsequent performance.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
PERFORMANCE SUMMARY AS OF 9/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$4.63 $33.21 $28.58
DISTRIBUTIONS (10/1/98 - 9/30/99)
-----------------------------------
Dividend Income $0.4397
Long-Term Capital Gain $0.1668
Short-Term Capital Gain $0.0418
TOTAL $0.6483
</TABLE>
<TABLE>
<CAPTION>
CLASS B CHANGE 9/30/99 1/1/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$1.57 $33.03 $31.45
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$4.47 $32.58 $28.11
DISTRIBUTIONS (10/1/98 - 9/30/99)
-----------------------------------
Dividend Income $0.2693
Long-Term Capital Gain $0.1668
Short-Term Capital Gain $0.0418
TOTAL $0.4779
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS CHANGE 9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value +$4.64 $33.27 $28.63
DISTRIBUTIONS (10/1/98 - 9/30/99)
-----------------------------------
Dividend Income $0.5083
Long-Term Capital Gain $0.1668
Short-Term Capital Gain $0.0418
TOTAL $0.7169
</TABLE>
Franklin Growth Fund paid distributions derived from long-term capital gains of
16.68 cents ($0.1668) per share in December 1998. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852(b)(3).
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (3/31/48)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +18.63% +143.26% +249.90% +25,514.84%
Average Annual Total Return(2) +11.82% +18.06% +12.67% +11.24%
Value of $10,000 Investment(3) $11,182 $22,931 $32,978 $2,417,176
</TABLE>
<TABLE>
<CAPTION>
9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) +31.11% +19.60% +20.84% +8.22% +18.63%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- --------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +5.02%
Aggregate Total Return(2) +1.02%
Value of $10,000 Investment(3) $10,102
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +17.71% +51.44% +106.45%
Average Annual Total Return(2) +15.56% +14.45% +17.56%
Value of $10,000 Investment(3) $11,556 $14,992 $20,439
</TABLE>
<TABLE>
<CAPTION>
9/30/96 9/30/97 9/30/98 9/30/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-Year Total Return(4) +18.73% +19.91% +7.39% +17.71%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(5) 1-YEAR 5-YEAR 10-YEAR (3/31/48)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +18.89% +146.73% +254.89% +25,880.27%
Average Annual Total Return(2) +18.89% +19.80% +13.50% +11.40%
Value of $10,000 Investment(3) $11,889 $24,673 $35,489 $2,598,027
</TABLE>
<TABLE>
<CAPTION>
9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) +31.11% +19.60% +20.91% +8.47% +18.89%
</TABLE>
Past performance is not predictive of future results.
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 current, applicable,
maximum sales charge(s)for that class. Since Class B shares have existed for
less than one year, the figures for that class represent aggregate total return
from inception, including the maximum 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, applicable, maximum
sales charge(s)for that class.
4. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
5. 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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; 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 and
average annual total returns of Advisor Class shares were +50.56% and +16.06%
respectively.
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
AVERAGE ANNUAL TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
CLASS A
- --------------------------------------------------------------------------------
<S> <C>
1-Year +11.82%
5-Year +18.06%
10-Year +12.67%
Since Inception (3/31/48) +11.24%
</TABLE>
AGGREGATE TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
CLASS B
- --------------------------------------------------------------------------------
<S> <C>
Since Inception (1/1/99) +1.02%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged index differs
from the fund in composition, does not pay management fees or expenses and
includes reinvested dividends. One cannot invest directly in an index.
CLASS A (10/1/89 - 9/30/99)
This graph compares the performance of Franklin Growth Fund - Class A, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500
from 10/1/89-9/30/99.
Date Franklin S&P 500* S&P 500
---- Growth Fund - $T
Class A
10/01/1989 $ 9,425 $10,000
10/31/1989 $ 9,098 $ 9,768 -2.32%
11/30/1989 $ 9,209 $ 9,967 2.04%
12/31/1989 $ 9,372 $10,206 2.40%
01/31/1990 $ 8,948 $ 9,522 -6.71%
02/28/1990 $ 9,074 $ 9,644 1.29%
03/31/1990 $ 9,368 $ 9,900 2.65%
04/30/1990 $ 9,311 $ 9,654 -2.49%
05/31/1990 $ 9,996 $10,595 9.75%
06/30/1990 $ 9,992 $10,524 -0.67%
07/31/1990 $ 9,914 $10,490 -0.32%
08/31/1990 $ 9,042 $ 9,542 -9.04%
09/30/1990 $ 8,719 $ 9,077 -4.87%
10/31/1990 $ 8,719 $ 9,038 -0.43%
11/30/1990 $ 9,233 $ 9,622 6.46%
12/31/1990 $ 9,566 $ 9,890 2.79%
01/31/1991 $10,125 $10,322 4.36%
02/28/1991 $10,822 $11,060 7.15%
03/31/1991 $10,914 $11,327 2.42%
04/30/1991 $10,977 $11,354 0.24%
05/31/1991 $11,378 $11,844 4.31%
06/30/1991 $10,889 $11,301 -4.58%
07/31/1991 $11,269 $11,828 4.66%
08/31/1991 $11,419 $12,108 2.37%
09/30/1991 $11,227 $11,906 -1.67%
10/31/1991 $11,469 $12,066 1.34%
11/30/1991 $11,085 $11,579 -4.03%
12/31/1991 $12,121 $12,904 11.44%
01/31/1992 $12,004 $12,664 -1.86%
02/29/1992 $12,212 $12,827 1.29%
03/31/1992 $11,909 $12,577 -1.95%
04/30/1992 $11,961 $12,947 2.94%
05/31/1992 $11,891 $13,011 0.49%
06/30/1992 $11,648 $12,817 -1.49%
07/31/1992 $11,935 $13,341 4.09%
08/31/1992 $11,674 $13,067 -2.05%
09/30/1992 $11,883 $13,220 1.17%
10/31/1992 $12,030 $13,265 0.34%
11/30/1992 $12,316 $13,716 3.40%
12/31/1992 $12,480 $13,885 1.23%
01/31/1993 $12,348 $14,002 0.84%
02/28/1993 $12,180 $14,192 1.36%
03/31/1993 $12,365 $14,491 2.11%
04/30/1993 $12,401 $14,141 -2.42%
05/31/1993 $12,710 $14,518 2.67%
06/30/1993 $12,445 $14,560 0.29%
07/31/1993 $12,295 $14,502 -0.40%
08/31/1993 $12,719 $15,052 3.79%
09/30/1993 $12,586 $14,936 -0.77%
10/31/1993 $12,975 $15,245 2.07%
11/30/1993 $13,001 $15,100 -0.95%
12/31/1993 $13,367 $15,283 1.21%
01/31/1994 $13,557 $15,803 3.40%
02/28/1994 $13,149 $15,374 -2.71%
03/31/1994 $12,497 $14,704 -4.36%
04/30/1994 $12,759 $14,892 1.28%
05/31/1994 $12,977 $15,136 1.64%
06/30/1994 $12,877 $14,766 -2.45%
07/31/1994 $13,240 $15,250 3.28%
08/31/1994 $13,919 $15,875 4.10%
09/30/1994 $13,557 $15,488 -2.44%
10/31/1994 $13,838 $15,836 2.25%
11/30/1994 $13,475 $15,260 -3.64%
12/31/1994 $13,757 $15,486 1.48%
01/31/1995 $13,968 $15,887 2.59%
02/28/1995 $14,536 $16,506 3.90%
03/31/1995 $15,050 $16,993 2.95%
04/30/1995 $15,481 $17,493 2.94%
05/31/1995 $15,820 $18,193 4.00%
06/30/1995 $16,435 $18,615 2.32%
07/31/1995 $17,251 $19,233 3.32%
08/31/1995 $17,224 $19,281 0.25%
09/30/1995 $17,774 $20,094 4.22%
10/31/1995 $17,875 $20,022 -0.36%
11/30/1995 $18,884 $20,901 4.39%
12/31/1995 $19,040 $21,304 1.93%
01/31/1996 $19,590 $22,029 3.40%
02/29/1996 $20,009 $22,234 0.93%
03/31/1996 $20,083 $22,447 0.96%
04/30/1996 $20,493 $22,777 1.47%
05/31/1996 $20,885 $23,365 2.58%
06/30/1996 $20,736 $23,453 0.38%
07/31/1996 $19,664 $22,417 -4.42%
08/31/1996 $20,214 $22,890 2.11%
09/30/1996 $21,276 $24,179 5.63%
10/31/1996 $21,332 $24,846 2.76%
11/30/1996 $22,673 $26,724 7.56%
12/31/1996 $22,217 $26,195 -1.98%
01/31/1997 $22,776 $27,832 6.25%
02/28/1997 $22,824 $28,049 0.78%
03/31/1997 $22,255 $26,897 -4.11%
04/30/1997 $23,051 $28,502 5.97%
05/31/1997 $24,322 $30,238 6.09%
06/30/1997 $24,777 $31,593 4.48%
07/31/1997 $25,763 $34,107 7.96%
08/31/1997 $24,900 $32,197 -5.60%
09/30/1997 $25,687 $33,962 5.48%
10/31/1997 $25,469 $32,828 -3.34%
11/30/1997 $26,048 $34,347 4.63%
12/31/1997 $26,350 $34,938 1.72%
01/31/1998 $26,622 $35,326 1.11%
02/28/1998 $27,741 $37,873 7.21%
03/31/1998 $28,344 $39,812 5.12%
04/30/1998 $28,723 $40,214 1.01%
05/31/1998 $28,315 $39,523 -1.72%
06/30/1998 $28,850 $41,127 4.06%
07/31/1998 $28,743 $40,687 -1.07%
08/31/1998 $26,321 $34,804 -14.46%
09/30/1998 $27,799 $37,035 6.41%
10/31/1998 $29,511 $40,046 8.13%
11/30/1998 $30,572 $42,472 6.06%
12/31/1998 $31,231 $44,919 5.76%
01/31/1999 $31,777 $46,796 4.18%
02/28/1999 $31,439 $45,341 -3.11%
03/31/1999 $32,293 $47,155 4.00%
04/30/1999 $33,346 $48,980 3.87%
05/31/1999 $32,939 $47,824 -2.36%
06/30/1999 $34,319 $50,478 5.55%
07/31/1999 $33,763 $48,903 -3.12%
08/31/1999 $33,902 $48,658 -0.50%
09/30/1999 $32,978 $47,325 -2.74%
*Source: Standard and Poor's Micropal.
CLASS B (1/1/99 - 9/30/99)
This graph compares the performance of Franklin Growth Fund - Class B, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500
from 1/1/99-9/30/99.
Date Franklin S&P 500* S&P 500
Growth Fund - $T
Class B
01/01/1999 $10,000 $10,000
01/30/1999 $10,172 $10,418 4.18%
02/28/1999 $10,057 $10,094 -3.11%
03/31/1999 $10,324 $10,498 4.00%
04/30/1999 $10,655 $10,904 3.87%
05/31/1999 $10,515 $10,647 -2.36%
06/30/1999 $10,951 $11,238 5.55%
07/31/1999 $10,766 $10,887 -3.12%
08/31/1999 $10,804 $10,833 -0.50%
09/30/1999 $10,102 $10,536 -2.74%
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
CLASS C (5/1/95 - 9/30/99)
This graph compares the performance of Franklin Growth Fund - Class C, as
tracked by the growth in value of a $10,000 investment, to that of the S&P 500
from 5/1/95-9/30/99.
Date Franklin S&P 500* S&P 500
---- Growth Fund - $T
Class A
05/01/1995 $ 9,900 $10,000
05/31/1995 $10,135 $10,400 4.00%
06/30/1995 $10,517 $10,641 2.32%
07/31/1995 $11,040 $10,995 3.32%
08/31/1995 $11,011 $11,022 0.25%
09/30/1995 $11,357 $11,487 4.22%
10/31/1995 $11,410 $11,446 -0.36%
11/30/1995 $12,051 $11,948 4.39%
12/31/1995 $12,142 $12,179 1.93%
01/31/1996 $12,482 $12,593 3.40%
02/29/1996 $12,744 $12,710 0.93%
03/31/1996 $12,786 $12,832 0.96%
04/30/1996 $13,037 $13,021 1.47%
05/31/1996 $13,281 $13,357 2.58%
06/30/1996 $13,180 $13,407 0.38%
07/31/1996 $12,488 $12,815 -4.42%
08/31/1996 $12,828 $13,085 2.11%
09/30/1996 $13,496 $13,822 5.63%
10/31/1996 $13,526 $14,203 2.76%
11/30/1996 $14,367 $15,277 7.56%
12/31/1996 $14,068 $14,975 -1.98%
01/31/1997 $14,407 $15,911 6.25%
02/28/1997 $14,431 $16,035 0.78%
03/31/1997 $14,061 $15,376 -4.11%
04/30/1997 $14,558 $16,294 5.97%
05/31/1997 $15,351 $17,286 6.09%
06/30/1997 $15,624 $18,060 4.48%
07/31/1997 $16,242 $19,498 7.96%
08/31/1997 $15,678 $18,406 -5.60%
09/30/1997 $16,169 $19,415 5.48%
10/31/1997 $16,024 $18,766 -3.34%
11/30/1997 $16,375 $19,635 4.63%
12/31/1997 $16,554 $19,973 1.72%
01/31/1998 $16,715 $20,195 1.11%
02/28/1998 $17,407 $21,651 7.21%
03/31/1998 $17,771 $22,759 5.12%
04/30/1998 $18,000 $22,989 1.01%
05/31/1998 $17,734 $22,594 -1.72%
06/30/1998 $18,055 $23,511 4.06%
07/31/1998 $17,975 $23,259 -1.07%
08/31/1998 $16,455 $19,896 -14.46%
09/30/1998 $17,363 $21,171 6.41%
10/31/1998 $18,426 $22,893 8.13%
11/30/1998 $19,068 $24,280 6.06%
12/31/1998 $19,473 $25,678 5.76%
01/31/1999 $19,799 $26,752 4.18%
02/28/1999 $19,573 $25,920 -3.11%
03/31/1999 $20,087 $26,956 4.00%
04/30/1999 $20,734 $28,000 3.87%
05/31/1999 $20,470 $27,339 -2.36%
06/30/1999 $21,317 $28,856 5.55%
07/31/1999 $20,953 $27,956 -3.12%
08/31/1999 $21,028 $27,816 -0.50%
09/30/1999 $20,439 $27,054 -2.74%
*Source: Standard and Poor's Micropal.
ADVISOR CLASS(**) (10/1/89 - 9/30/99)
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 10/1/89-9/30/99.
<TABLE>
<CAPTION>
Date Franklin Growth S&P 500* S&P 500
---- Fund - Advisor -------- $T
Class**
<S> <C> <C> <C>
10/01/1989 $10,000 $10,000
10/31/1989 $ 9,653 $ 9,768 -2.32%
11/30/1989 $ 9,770 $ 9,967 2.04%
12/31/1989 $ 9,944 $10,206 2.40%
01/31/1990 $ 9,494 $ 9,522 -6.71%
02/28/1990 $ 9,628 $ 9,644 1.29%
03/31/1990 $ 9,939 $ 9,900 2.65%
04/30/1990 $ 9,879 $ 9,654 -2.49%
05/31/1990 $10,606 $10,595 9.75%
06/30/1990 $10,601 $10,524 -0.67%
07/31/1990 $10,519 $10,490 -0.32%
08/31/1990 $ 9,593 $ 9,542 -9.04%
09/30/1990 $ 9,251 $ 9,077 -4.87%
10/31/1990 $ 9,251 $ 9,038 -0.43%
11/30/1990 $9,796 $ 9,622 6.46%
12/31/1990 $10,150 $ 9,890 2.79%
01/31/1991 $10,743 $10,322 4.36%
02/28/1991 $11,483 $11,060 7.15%
03/31/1991 $11,580 $11,327 2.42%
04/30/1991 $11,647 $11,354 0.24%
05/31/1991 $12,072 $11,844 4.31%
06/30/1991 $11,554 $11,301 -4.58%
07/31/1991 $11,957 $11,828 4.66%
08/31/1991 $12,116 $12,108 2.37%
09/30/1991 $11,912 $11,906 -1.67%
10/31/1991 $12,169 $12,066 1.34%
11/30/1991 $11,762 $11,579 -4.03%
12/31/1991 $12,861 $12,904 11.44%
01/31/1992 $12,737 $12,664 -1.86%
02/29/1992 $12,957 $12,827 1.29%
03/31/1992 $12,635 $12,577 -1.95%
04/30/1992 $12,691 $12,947 2.94%
05/31/1992 $12,617 $13,011 0.49%
06/30/1992 $12,359 $12,817 -1.49%
07/31/1992 $12,663 $13,341 4.09%
08/31/1992 $12,387 $13,067 -2.05%
09/30/1992 $12,608 $13,220 1.17%
10/31/1992 $12,764 $13,265 0.34%
11/30/1992 $13,068 $13,716 3.40%
12/31/1992 $13,242 $13,885 1.23%
01/31/1993 $13,101 $14,002 0.84%
02/28/1993 $12,923 $14,192 1.36%
03/31/1993 $13,120 $14,491 2.11%
04/30/1993 $13,157 $14,141 -2.42%
05/31/1993 $13,485 $14,518 2.67%
06/30/1993 $13,204 $14,560 0.29%
07/31/1993 $13,045 $14,502 -0.40%
08/31/1993 $13,495 $15,052 3.79%
09/30/1993 $13,354 $14,936 -0.77%
10/31/1993 $13,767 $15,245 2.07%
11/30/1993 $13,795 $15,100 -0.95%
12/31/1993 $14,182 $15,283 1.21%
01/31/1994 $14,384 $15,803 3.40%
02/28/1994 $13,952 $15,374 -2.71%
03/31/1994 $13,259 $14,704 -4.36%
04/30/1994 $13,538 $14,892 1.28%
05/31/1994 $13,769 $15,136 1.64%
06/30/1994 $13,663 $14,766 -2.45%
07/31/1994 $14,048 $15,250 3.28%
08/31/1994 $14,769 $15,875 4.10%
09/30/1994 $14,384 $15,488 -2.44%
10/31/1994 $14,682 $15,836 2.25%
11/30/1994 $14,298 $15,260 -3.64%
12/31/1994 $14,596 $15,486 1.48%
01/31/1995 $14,820 $15,887 2.59%
02/28/1995 $15,424 $16,506 3.90%
03/31/1995 $15,968 $16,993 2.95%
04/30/1995 $16,426 $17,493 2.94%
05/31/1995 $16,786 $18,193 4.00%
06/30/1995 $17,438 $18,615 2.32%
07/31/1995 $18,304 $19,233 3.32%
08/31/1995 $18,275 $19,281 0.25%
09/30/1995 $18,859 $20,094 4.22%
10/31/1995 $18,966 $20,022 -0.36%
11/30/1995 $20,036 $20,901 4.39%
12/31/1995 $20,202 $21,304 1.93%
01/31/1996 $20,785 $22,029 3.40%
02/29/1996 $21,230 $22,234 0.93%
03/31/1996 $21,309 $22,447 0.96%
04/30/1996 $21,744 $22,777 1.47%
05/31/1996 $22,159 $23,365 2.58%
06/30/1996 $22,001 $23,453 0.38%
07/31/1996 $20,864 $22,417 -4.42%
08/31/1996 $21,447 $22,890 2.11%
09/30/1996 $22,574 $24,179 5.63%
10/31/1996 $22,634 $24,846 2.76%
11/30/1996 $24,057 $26,724 7.56%
12/31/1996 $23,573 $26,195 -1.98%
01/31/1997 $24,166 $27,832 6.25%
02/28/1997 $24,227 $28,049 0.78%
03/31/1997 $23,633 $26,897 -4.11%
04/30/1997 $24,478 $28,502 5.97%
05/31/1997 $25,826 $30,238 6.09%
06/30/1997 $26,309 $31,593 4.48%
07/31/1997 $27,366 $34,107 7.96%
08/31/1997 $26,450 $32,197 -5.60%
09/30/1997 $27,295 $33,962 5.48%
10/31/1997 $27,064 $32,828 -3.34%
11/30/1997 $27,698 $34,347 4.63%
12/31/1997 $28,016 $34,938 1.72%
01/31/1998 $28,316 $35,326 1.11%
02/28/1998 $29,505 $37,873 7.21%
03/31/1998 $30,156 $39,812 5.12%
04/30/1998 $30,560 $40,214 1.01%
05/31/1998 $30,136 $39,523 -1.72%
06/30/1998 $30,704 $41,127 4.06%
07/31/1998 $30,601 $40,687 -1.07%
08/31/1998 $28,026 $34,804 -14.46%
09/30/1998 $29,608 $37,035 6.41%
10/31/1998 $31,439 $40,046 8.13%
11/30/1998 $32,576 $42,472 6.06%
12/31/1998 $33,287 $44,919 5.76%
01/31/1999 $33,880 $46,796 4.18%
02/28/1999 $33,520 $45,341 -3.11%
03/31/1999 $34,430 $47,155 4.00%
04/30/1999 $35,552 $48,980 3.87%
05/31/1999 $35,139 $47,824 -2.36%
06/30/1999 $36,620 $50,478 5.55%
07/31/1999 $36,028 $48,903 -3.12%
08/31/1999 $36,186 $48,658 -0.50%
09/30/1999 $35,489 $47,325 -2.74%
</TABLE>
(*) Source: Standard and Poor's Micropal.
(**) 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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b)for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class.
Past performance is not predictive of future results.
AVERAGE ANNUAL TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
CLASS C
- --------------------------------------------------------------------------------
<S> <C>
1-Year +15.56%
3-Year +14.45%
Since Inception (5/1/95) +17.56%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
ADVISOR CLASS(**)
- --------------------------------------------------------------------------------
<S> <C>
1-Year +18.89%
5-Year +19.80%
10-Year +13.50%
Since Inception (3/31/48) +11.40%
</TABLE>
FRANKLIN INCOME FUND
- --------------------------------------------------------------------------------
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 rebounded significantly during the year under review due
to robust domestic economic growth and low inflation combined with increased
stability in international markets. Economic strength and recovering
international markets, however, weighed on the bond market and drove up the
30-year Treasury bond yield to 6.06% at the end of the reporting period. The
fund's bond and stock sectors provided mixed results over the period in this
environment of vigorous economic growth, benign inflation and rising interest
rates.
Corporate bonds performed well despite the rise in interest rates. During the
12-month period, several positions were called or tendered, requiring us to sell
them. We sold them above par value and were able to reinvest the proceeds in
corporate bonds with attractive valuations and income yields. We put the money
to work in the cable and telecommunications sector as we believed the sector
offered opportunities for strong growth and solid total returns. New purchases
included issues from Charter Communications Holdings LLC, Crown Castle
International Corp., Level 3 Communications Inc., Microcell Telecommunications
Inc., NEXTLINK Communications Inc. and United Pan-Europe Communications NV.
After strong performances during most of 1998, Treasury bonds reversed course as
rates trended higher during the past 12 months. Treasury bonds reacted
negatively to reports of continued strong economic growth and the Federal
Reserve Board's rate increases in June and August. Although we believe the lack
of inflationary pressures will likely keep interest rates from rising
significantly, we trimmed our U.S. government holdings to provide capital for
other, more attractive investments.
You will find a complete listing of the fund's portfolio holding, including
dollar value and number of shares or principal amount, beginning on page 53 of
this report.
[PYRAMID GRAPH]
The fund's foreign bonds posted solid performances during the reporting period
as developing countries made progress on economic and political reforms, and
investor concerns related to international economic turmoil subsided. The South
Korean government, for example, took steps to reform the country's banking
system and corporate governance structure. We added to the fund's South Korean
government bond position on weakness last October. Subsequently, the bonds were
upgraded to investment grade and appreciated above par value. Brazil, Russia and
South Africa also made progress on reforms, and recent performance reflected the
positive developments. However, we trimmed the fund's positions in South Korea,
South Africa and Russia on strength and initiated a position in Turkey
dollar-denominated Eurobonds, which we believed offered an attractive yield and
total return potential.
The fund's equity sectors delivered mixed results during the period under
review, with the fund's largest equity sector, utility stocks, performing poorly
due to the rise in interest rates. We believe relative valuations and yields for
utility stocks appear very attractive at recent levels and the sector should
benefit from consolidation and industry deregulation.
The fund's other significant equity sectors provided mixed results during the
past year. Energy stocks rebounded in March as a result of announced OPEC
production cuts and the subsequent oil price increases. We added to the fund's
energy sector throughout the period, including new convertible positions in
Parker Drilling Co., Key Energy Services Inc., Newfield Financial Trust and
Kerr-McGee Corp. (convertible into Devon Energy Corp.). Although energy stocks
appreciated significantly due principally to higher oil prices, we believe the
sector has more upside potential.
PORTFOLIO BREAKDOWN
Franklin Income Fund
9/30/99
% OF TOTAL
SECTOR NET ASSETS
- ------ ----------
Corporate Bonds 28.2%
Utility Stocks 24.1%
Foreign Government Bonds 15.3%
U.S.Government Bonds
& Notes 12.9%
Oil & Gas Stocks 4.9%
Real Estate Stocks 4.1%
Gold & Other Metal Stocks 3.0%
Consumer Goods Stocks 2.0%
Telecommunication
Service Stocks 1.5%
Other Stocks 1.6%
Cash and Other Assets 2.4%
In the real estate sector, we sought to take advantage of attractive valuations
and industry conditions by adding to the fund's existing real estate positions,
including Meristar Hospitality Corp. and Glenborough Realty Trust, and
initiating a position in Apartment Investment and Management Co. convertible
preferred stock. These companies represent a diverse mix of property types with
attractive dividend yields and valuations.
Finally, the gold sector staged a surprising rally late in September after a
lackluster performance for most of the year. The Bank of England and several
other European Central Banks touched off strength in the sector by specifying
guidelines for their previously announced sale of gold reserves. The price of
gold bullion climbed more than 20% in one week, and the fund's gold stock shares
appreciated significantly, benefiting the fund.
Given the stock market volatility and ongoing economic uncertainty during the
period under review, we will be selective with respect to new investments. We
remain committed to our value-oriented approach and will continue to utilize
fundamental research as we seek to take advantage of opportunities across the
many markets in which the fund invests.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1999. 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.
Dividend Distributions
Franklin Income Fund
10/1/98 - 9/30/99
<TABLE>
<CAPTION>
Dividend per Share
------------------------------------------------------------------------------------
Month Class A Class B(*) Class C Advisor
- ----- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
October 1.5 cents -- 1.40 cents 1.53 cents
November 1.5 cents -- 1.40 cents 1.53 cents
December 1.5 cents -- 1.40 cents 1.53 cents
January 1.5 cents 1.50 cents 1.40 cents 1.53 cents
February 1.5 cents 1.40 cents 1.40 cents 1.53 cents
March 1.5 cents 1.42 cents 1.40 cents 1.53 cents
April 1.5 cents 1.42 cents 1.40 cents 1.53 cents
May 1.5 cents 1.42 cents 1.40 cents 1.53 cents
June 1.5 cents 1.40 cents 1.41 cents 1.53 cents
July 1.5 cents 1.40 cents 1.41 cents 1.53 cents
August 1.5 cents 1.40 cents 1.41 cents 1.53 cents
September 1.5 cents 1.41 cents 1.41 cents 1.53 cents
- -----------------------------------------------------------------------------------------------------------------------------------
Total 18.0 cents 12.77 cents 16.84 cents 18.36 cents
</TABLE>
(*) January 1, 1999, the fund began offering Class B shares to investors.
See the prospectus for details.
Sincerely,
/s/ Charles B. Johnson
- -------------------------------
Charles B. Johnson
/s/ Matt Avery
- -------------------------------
Matt Avery
Portfolio Management Team
Franklin Income Fund
Franklin Income Fund
Class A (formerly Class I):
Subject to the current,maximum 4.25% initial sales charge.Prior to July
1, 1994,fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1,1994,the fund implemented a Rule 12b-1
plan,which affects subsequent performance.
Class B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years.These shares have higher
annual fees and expenses than Class A shares.
Class C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
Advisor Class:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
PERFORMANCE SUMMARY AS OF 9/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
Price and Distribution Information
<TABLE>
<CAPTION>
Class A Change 9/30/99 9/30/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.10 $2.24 $2.34
</TABLE>
<TABLE>
<CAPTION>
Distributions (10/1/98 - 9/30/99)
---------------------------------
<S> <C>
Dividend Income $0.18
</TABLE>
<TABLE>
<CAPTION>
Class B Change 9/30/99 1/1/99
- ------- ------ ------- ------
<S> <C> <C> <C>
Net Asset Value -$0.12 $2.24 $2.36
</TABLE>
<TABLE>
<CAPTION>
Distributions (1/1/99 - 9/30/99)
--------------------------------
<S> <C>
Dividend Income $0.1277
</TABLE>
<TABLE>
<CAPTION>
Class C Change 9/30/99 9/30/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.10 $2.24 $2.34
</TABLE>
<TABLE>
<CAPTION>
Distributions (10/1/98 - 9/30/99)
---------------------------------
<S> <C>
Dividend Income $0.1684
</TABLE>
<TABLE>
<CAPTION>
Advisor Class Change 9/30/99 9/30/98
- ------------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.11 $2.23 $2.34
</TABLE>
<TABLE>
<CAPTION>
Distributions (10/1/98 - 9/30/99)
---------------------------------
<S> <C>
Dividend Income $0.1836
</TABLE>
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
Inception
Class A 1-Year 5-Year 10-Year (8/31/48)
- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +4.02% +55.62% +173.13% +22,100.70%
Average Annual Total Return(2) -0.25% +8.29% +10.11% +11.06%
Value of $10,000 Investment(3) $ 9,975 $ 14,891 $ 26,195 $ 2,127,568
</TABLE>
<TABLE>
<S> <C>
Distribution Rate(4) 7.69%
30-Day Standardized Yield(5) 7.91%
</TABLE>
<TABLE>
<CAPTION>
9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(6) +14.00% +9.43% +17.31% +2.23% +4.02%
</TABLE>
<TABLE>
Inception
Class B (1/1/99)
- ------- --------
<S> <C>
Cumulative Total Return(1) +0.34%
Aggregate Total Return(2) -3.46%
Value of $10,000 Investment(3) $ 9,654
<S> <C>
Distribution Rate(4) 7.55%
30-Day Standardized Yield(5) 7.77%
</TABLE>
<TABLE>
<CAPTION>
Inception
Class C 1-Year 3-Year (5/1/95)
-------- -------- --------
<S> <C> <C> <C>
Cumulative Total Return(1) +3.46% +22.82% +45.00%
Average Annual Total Return(2) +1.64% +6.78% +8.55%
Value of $10,000 Investment(3) $ 10,164 $ 12,176 $ 14,369
Distribution Rate(4) 7.49%
30-Day Standardized Yield(5) 7.71%
</TABLE>
<TABLE>
<CAPTION>
9/30/96 9/30/97 9/30/98 9/30/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
One-Year Total Return(6) +8.86% +16.72% +1.70% +3.46%
</TABLE>
<TABLE>
<CAPTION>
Inception
Advisor Class(7) 1-Year 5-Year 10-Year (8/31/48)
- ---------------- ------ ------ ------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +3.71% +56.96% +175.47% +22,291.36%
Average Annual Total Return(2) +3.71% +9.44% +10.66% +11.17%
Value of $10,000 Investment(3) $ 10,371 $ 15,696 $ 27,547 $ 2,239,136
</TABLE>
<TABLE>
<S> <C>
Distribution Rate(4) 8.23%
30-Day Standardized Yield(5) 8.45%
</TABLE>
<TABLE>
<CAPTION>
9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(6) +14.00% +9.43% +16.98% +2.82% +3.71%
</TABLE>
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 current, applicable,
maximum sales charge(s) for that class. Since Class B shares have existed for
less than one year, the figures for that class represent aggregate total return
from inception, including the maximum 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, applicable, maximum
sales charge(s)for that class.
4. Distribution rate is based on an annualization of the respective class's
September monthly dividend and the maximum offering price (net asset value price
for Class B and Advisor Class) per share on September 30, 1999.
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, 1999.
6. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
7. 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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; 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 and average
annual total returns of Advisor Class shares were +19.76% and +6.78%
respectively.
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.
Past performance is not predictive of future results.
Franklin Income Fund
Average Annual Total Return
9/30/99
<TABLE>
<CAPTION>
Class A
- ----------------------------------
<S> <C>
1-Year -0.25%
5-Year +8.29%
10-Year +10.11%
Since Inception (8/31/48) +11.06%
</TABLE>
<TABLE>
<CAPTION>
Aggregate Total Return
9/30/99
Class B
- ------------------------------------
<S> <C>
Since Inception (1/1/99) -3.46%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index.
Class A (10/1/89 - 9/30/99)
This graph compares the performance of Franklin Income Fund - Class A 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
10/1/89-9/30/99.
<TABLE>
<CAPTION>
Date Franklin Income S&P 500* LB Gov't./ Lipper S&P 500 LB Lipper
Fund - Class A Corp Bond Income Gov't./Corp. Income
Index* Avg.** Avg.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/01/1989 $ 9,591 $10,000 $10,000 $10,000
10/31/1989 $ 9,409 $ 9,768 $10,253 $ 9,900 -2.32% 2.53% -1.00%
11/30/1989 $ 9,564 $ 9,967 $10,345 $10,043 2.04% 0.90% 1.44%
12/31/1989 $ 9,753 $10,206 $10,361 $10,163 2.40% 0.15% 1.20%
01/31/1990 $ 9,564 $ 9,522 $10,219 $ 9,819 -6.71% -1.37% -3.39%
02/28/1990 $ 9,489 $ 9,644 $10,241 $ 9,862 1.29% 0.22% 0.44%
03/31/1990 $ 9,538 $ 9,900 $10,242 $ 9,923 2.65% 0.01% 0.62%
04/30/1990 $ 9,393 $ 9,654 $10,148 $ 9,685 -2.49% -0.92% -2.40%
05/31/1990 $ 9,763 $10,595 $10,442 $10,145 9.75% 2.90% 4.75%
06/30/1990 $ 9,862 $10,524 $10,611 $10,211 -0.67% 1.61% 0.65%
07/31/1990 $10,062 $10,490 $10,742 $10,224 -0.32% 1.24% 0.13%
08/31/1990 $ 9,529 $ 9,542 $10,586 $ 9,697 -9.04% -1.45% -5.15%
09/30/1990 $ 9,016 $ 9,077 $10,674 $ 9,479 -4.87% 0.83% -2.25%
10/31/1990 $ 8,555 $ 9,038 $10,815 $ 9,460 -0.43% 1.32% -0.20%
11/30/1990 $ 8,844 $ 9,622 $11,051 $ 9,839 6.46% 2.18% 4.00%
12/31/1990 $ 8,897 $ 9,890 $11,218 $10,027 2.79% 1.51% 1.91%
01/31/1991 $ 9,109 $10,322 $11,343 $10,253 4.36% 1.12% 2.26%
02/28/1991 $10,052 $11,060 $11,441 $10,766 7.15% 0.86% 5.00%
03/31/1991 $10,380 $11,327 $11,520 $10,962 2.42% 0.69% 1.82%
04/30/1991 $10,762 $11,354 $11,652 $11,069 0.24% 1.15% 0.98%
05/31/1991 $11,015 $11,844 $11,706 $11,290 4.31% 0.46% 1.99%
06/30/1991 $11,015 $11,301 $11,693 $11,033 -4.58% -0.11% -2.27%
07/31/1991 $11,464 $11,828 $11,839 $11,416 4.66% 1.25% 3.47%
08/31/1991 $11,781 $12,108 $12,112 $11,708 2.37% 2.30% 2.56%
09/30/1991 $12,012 $11,906 $12,365 $11,837 -1.67% 2.09% 1.10%
10/31/1991 $12,359 $12,066 $12,475 $12,032 1.34% 0.89% 1.65%
11/30/1991 $12,380 $11,579 $12,599 $11,866 -4.03% 1.00% -1.38%
12/31/1991 $12,558 $12,904 $13,024 $12,546 11.44% 3.37% 5.73%
01/31/1992 $12,975 $12,664 $12,831 $12,519 -1.86% -1.48% -0.22%
02/29/1992 $13,338 $12,827 $12,899 $12,690 1.29% 0.53% 1.37%
03/31/1992 $13,399 $12,577 $12,828 $12,546 -1.95% -0.55% -1.14%
04/30/1992 $13,642 $12,947 $12,905 $12,765 2.94% 0.60% 1.75%
05/31/1992 $13,951 $13,011 $13,156 $12,967 0.49% 1.94% 1.58%
06/30/1992 $14,075 $12,817 $13,348 $12,906 -1.49% 1.46% -0.47%
07/31/1992 $14,387 $13,341 $13,690 $13,329 4.09% 2.56% 3.28%
08/31/1992 $14,387 $13,067 $13,811 $13,243 -2.05% 0.89% -0.65%
09/30/1992 $14,323 $13,220 $14,001 $13,352 1.17% 1.37% 0.83%
10/31/1992 $14,196 $13,265 $13,786 $13,271 0.34% -1.53% -0.61%
11/30/1992 $14,276 $13,716 $13,774 $13,487 3.40% -0.09% 1.63%
12/31/1992 $14,472 $13,885 $14,011 $13,706 1.23% 1.72% 1.62%
01/31/1993 $14,931 $14,002 $14,316 $13,939 0.84% 2.18% 1.70%
02/28/1993 $15,296 $14,192 $14,614 $14,219 1.36% 2.08% 2.01%
03/31/1993 $15,630 $14,491 $14,664 $14,547 2.11% 0.34% 2.31%
04/30/1993 $15,799 $14,141 $14,777 $14,515 -2.42% 0.77% -0.22%
05/31/1993 $16,035 $14,518 $14,769 $14,716 2.67% -0.05% 1.38%
06/30/1993 $16,341 $14,560 $15,105 $14,879 0.29% 2.27% 1.11%
07/31/1993 $16,717 $14,502 $15,201 $14,985 -0.40% 0.64% 0.71%
08/31/1993 $16,890 $15,052 $15,551 $15,371 3.79% 2.30% 2.58%
09/30/1993 $17,064 $14,936 $15,605 $15,414 -0.77% 0.35% 0.28%
10/31/1993 $17,377 $15,245 $15,669 $15,513 2.07% 0.41% 0.64%
11/30/1993 $17,203 $15,100 $15,492 $15,302 -0.95% -1.13% -1.36%
12/31/1993 $17,589 $15,283 $15,560 $15,495 1.21% 0.44% 1.26%
01/31/1994 $17,769 $15,803 $15,794 $15,836 3.40% 1.50% 2.20%
02/28/1994 $17,371 $15,374 $15,449 $15,457 -2.71% -2.18% -2.39%
03/31/1994 $16,680 $14,704 $15,071 $14,922 -4.36% -2.45% -3.46%
04/30/1994 $16,644 $14,892 $14,946 $14,970 1.28% -0.83% 0.32%
05/31/1994 $16,534 $15,136 $14,919 $15,038 1.64% -0.18% 0.45%
06/30/1994 $16,422 $14,766 $14,885 $14,860 -2.45% -0.23% -1.18%
07/31/1994 $16,683 $15,250 $15,182 $15,165 3.28% 2.00% 2.05%
08/31/1994 $16,946 $15,875 $15,188 $15,461 4.10% 0.04% 1.95%
09/30/1994 $16,833 $15,488 $14,959 $15,241 -2.44% -1.51% -1.42%
10/31/1994 $16,872 $15,836 $14,943 $15,276 2.25% -0.11% 0.23%
11/30/1994 $16,680 $15,260 $14,916 $14,902 -3.64% -0.18% -2.45%
12/31/1994 $16,468 $15,486 $15,014 $14,949 1.48% 0.66% 0.32%
01/31/1995 $16,666 $15,887 $15,302 $15,199 2.59% 1.92% 1.67%
02/28/1995 $16,944 $16,506 $15,657 $15,597 3.90% 2.32% 2.62%
03/31/1995 $17,145 $16,993 $15,762 $15,870 2.95% 0.67% 1.75%
04/30/1995 $17,588 $17,493 $15,983 $16,173 2.94% 1.40% 1.91%
05/31/1995 $18,197 $18,193 $16,653 $16,696 4.00% 4.19% 3.23%
06/30/1995 $18,401 $18,615 $16,786 $16,888 2.32% 0.80% 1.15%
07/31/1995 $18,607 $19,233 $16,720 $17,195 3.32% -0.39% 1.82%
08/31/1995 $18,814 $19,281 $16,934 $17,352 0.25% 1.28% 0.91%
09/30/1995 $19,189 $20,094 $17,107 $17,739 4.22% 1.02% 2.23%
10/31/1995 $19,231 $20,022 $17,359 $17,607 -0.36% 1.47% -0.74%
11/30/1995 $19,527 $20,901 $17,645 $18,174 4.39% 1.65% 3.22%
12/31/1995 $19,974 $21,304 $17,904 $18,503 1.93% 1.47% 1.81%
01/31/1996 $20,536 $22,029 $18,016 $18,846 3.40% 0.62% 1.85%
02/29/1996 $20,143 $22,234 $17,634 $18,815 0.93% -2.12% -0.16%
03/31/1996 $20,099 $22,447 $17,485 $18,909 0.96% -0.84% 0.50%
04/30/1996 $20,053 $22,777 $17,365 $18,998 1.47% -0.69% 0.47%
05/31/1996 $20,276 $23,365 $17,335 $19,167 2.58% -0.17% 0.89%
06/30/1996 $20,679 $23,453 $17,566 $19,263 0.38% 1.33% 0.50%
07/31/1996 $20,363 $22,417 $17,606 $18,803 -4.42% 0.23% -2.39%
08/31/1996 $20,680 $22,890 $17,562 $19,126 2.11% -0.25% 1.72%
09/30/1996 $20,999 $24,179 $17,875 $19,631 5.63% 1.78% 2.64%
10/31/1996 $21,413 $24,846 $18,291 $19,983 2.76% 2.33% 1.79%
11/30/1996 $21,921 $26,724 $18,628 $20,666 7.56% 1.84% 3.42%
12/31/1996 $22,061 $26,195 $18,421 $20,561 -1.98% -1.11% -0.51%
01/31/1997 $22,390 $27,832 $18,443 $20,929 6.25% 0.12% 1.79%
02/28/1997 $22,627 $28,049 $18,482 $21,042 0.78% 0.21% 0.54%
03/31/1997 $22,102 $26,897 $18,262 $20,612 -4.11% -1.19% -2.04%
04/30/1997 $22,246 $28,502 $18,529 $20,917 5.97% 1.46% 1.48%
05/31/1997 $22,969 $30,238 $18,701 $21,654 6.09% 0.93% 3.52%
06/30/1997 $23,406 $31,593 $18,925 $22,202 4.48% 1.20% 2.53%
07/31/1997 $24,041 $34,107 $19,504 $23,123 7.96% 3.06% 4.15%
08/31/1997 $23,894 $32,197 $19,286 $22,746 -5.60% -1.12% -1.63%
09/30/1997 $24,635 $33,962 $19,589 $23,524 5.48% 1.57% 3.42%
10/31/1997 $24,286 $32,828 $19,902 $23,263 -3.34% 1.60% -1.11%
11/30/1997 $25,036 $34,347 $20,008 $23,575 4.63% 0.53% 1.34%
12/31/1997 $25,778 $34,938 $20,218 $23,945 1.72% 1.05% 1.57%
01/31/1998 $25,521 $35,326 $20,503 $24,029 1.11% 1.41% 0.35%
02/28/1998 $25,882 $37,873 $20,462 $24,684 7.21% -0.20% 2.73%
03/31/1998 $26,660 $39,812 $20,525 $25,242 5.12% 0.31% 2.26%
04/30/1998 $26,295 $40,214 $20,628 $25,311 1.01% 0.50% 0.27%
05/31/1998 $26,032 $39,523 $20,849 $25,161 -1.72% 1.07% -0.59%
06/30/1998 $26,084 $41,127 $21,061 $25,345 4.06% 1.02% 0.73%
07/31/1998 $25,606 $40,687 $21,078 $25,081 -1.07% 0.08% -1.04%
08/31/1998 $23,948 $34,804 $21,489 $23,506 -14.46% 1.95% -6.28%
09/30/1998 $25,184 $37,035 $22,104 $24,202 6.41% 2.86% 2.96%
10/31/1998 $25,239 $40,046 $21,947 $24,688 8.13% -0.71% 2.01%
11/30/1998 $26,056 $42,472 $22,079 $25,313 6.06% 0.60% 2.53%
12/31/1998 $26,023 $44,919 $22,134 $25,789 5.76% 0.25% 1.88%
01/31/1999 $25,634 $46,796 $22,291 $25,931 4.18% 0.71% 0.55%
02/28/1999 $24,909 $45,341 $21,760 $25,430 -3.11% -2.38% -1.93%
03/31/1999 $25,303 $47,155 $21,869 $25,858 4.00% 0.50% 1.68%
04/30/1999 $26,604 $48,980 $21,924 $26,708 3.87% 0.25% 3.29%
05/31/1999 $26,774 $47,824 $21,698 $26,489 -2.36% -1.03% -0.82%
06/30/1999 $26,718 $50,478 $21,631 $26,865 5.55% -0.31% 1.42%
07/31/1999 $26,429 $48,903 $21,570 $26,546 -3.12% -0.28% -1.19%
08/31/1999 $26,487 $48,658 $21,553 $26,286 -0.50% -0.08% -0.98%
09/30/1999 $26,195 $47,325 $21,747 $26,094 -2.74% 0.90% -0.73%
</TABLE>
*Source: Standard and Poor's Micropal.
**Lipper performance does not include sales charges and results may have been
different if such charges had been considered.
Class B (1/1/99 - 9/30/99)
This graph compares the performance of Franklin Income Fund - Class B, 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
1/1/99-9/30/99.
<TABLE>
<CAPTION>
Date Franklin Income S&P LB Gov't./ Lipper S&P LB Lipper
Fund - Class B 500* Corp. Bond Income 500 Gov't./Corp. Income
Index* Avg.** Avg.
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000 $10,000
01/31/1999 $ 9,851 $10,418 $10,071 $10,055 4.18% 0.71% 0.55%
02/28/1999 $ 9,568 $10,094 $ 9,831 $ 9,861 -3.11% -2.38% -1.93%
03/31/1999 $ 9,715 $10,498 $ 9,880 $10,027 4.00% 0.50% 1.68%
04/30/1999 $10,212 $10,904 $ 9,905 $10,356 3.87% 0.25% 3.29%
05/31/1999 $10,229 $10,647 $ 9,803 $10,272 -2.36% -1.03% -0.82%
06/30/1999 $10,247 $11,238 $ 9,773 $10,417 5.55% -0.31% 1.42%
07/31/1999 $10,132 $10,887 $ 9,745 $10,293 -3.12% -0.28% -1.19%
08/31/1999 $10,150 $10,833 $ 9,738 $10,193 -0.50% -0.08% -0.98%
09/30/1999 $ 9,654 $10,536 $ 9,825 $10,118 -2.74% 0.90% -0.73%
</TABLE>
*Source: Standard and Poor's Micropal.
**Lipper performance does not include sales charges and results may have been
different if such charges had been considered.
Past performance is not predictive of future results.
Class C (5/1/95 - 9/30/99)
This graph compares the performance of Franklin Income Fund - Class C, 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
5/1/95-9/30/99.
<TABLE>
<CAPTION>
Date Franklin S&P LB Gov't./ Lipper S&P 500 LB Lipper
Income Fund - 500* Corp. Bond Income Gov't/Corp. Incom
Class C Index* Avg.** Avg.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
05/01/1995 $ 9,909 $10,000 $10,000 $10,000
05/31/1995 $10,228 $10,400 $10,419 $10,323 4.00% 4.19% 3.23%
06/30/1995 $10,338 $10,641 $10,502 $10,442 2.32% 0.80% 1.15%
07/31/1995 $10,449 $10,995 $10,461 $10,632 3.32% -0.39% 1.82%
08/31/1995 $10,561 $11,022 $10,595 $10,729 0.25% 1.28% 0.91%
09/30/1995 $10,771 $11,487 $10,703 $10,968 4.22% 1.02% 2.23%
10/31/1995 $10,790 $11,446 $10,861 $10,887 -0.36% 1.47% -0.74%
11/30/1995 $10,951 $11,948 $11,040 $11,237 4.39% 1.65% 3.22%
12/31/1995 $11,197 $12,179 $11,202 $11,441 1.93% 1.47% 1.81%
01/31/1996 $11,507 $12,593 $11,272 $11,652 3.40% 0.62% 1.85%
02/29/1996 $11,331 $12,710 $11,033 $11,634 0.93% -2.12% -0.16%
03/31/1996 $11,301 $12,832 $10,940 $11,692 0.96% -0.84% 0.50%
04/30/1996 $11,222 $13,021 $10,865 $11,747 1.47% -0.69% 0.47%
05/31/1996 $11,341 $13,357 $10,846 $11,851 2.58% -0.17% 0.89%
06/30/1996 $11,562 $13,407 $10,990 $11,910 0.38% 1.33% 0.50%
07/31/1996 $11,380 $12,815 $11,016 $11,626 -4.42% 0.23% -2.39%
08/31/1996 $11,552 $13,085 $10,988 $11,826 2.11% -0.25% 1.72%
09/30/1996 $11,725 $13,822 $11,184 $12,138 5.63% 1.78% 2.64%
10/31/1996 $11,951 $14,203 $11,444 $12,355 2.76% 2.33% 1.79%
11/30/1996 $12,281 $15,277 $11,655 $12,778 7.56% 1.84% 3.42%
12/31/1996 $12,302 $14,975 $11,525 $12,713 -1.98% -1.11% -0.51%
01/31/1997 $12,480 $15,911 $11,539 $12,940 6.25% 0.12% 1.79%
02/28/1997 $12,660 $16,035 $11,563 $13,010 0.78% 0.21% 0.54%
03/31/1997 $12,363 $15,376 $11,426 $12,745 -4.11% -1.19% -2.04%
04/30/1997 $12,384 $16,294 $11,593 $12,933 5.97% 1.46% 1.48%
05/31/1997 $12,780 $17,286 $11,701 $13,389 6.09% 0.93% 3.52%
06/30/1997 $13,071 $18,060 $11,841 $13,727 4.48% 1.20% 2.53%
07/31/1997 $13,419 $19,498 $12,203 $14,297 7.96% 3.06% 4.15%
08/31/1997 $13,332 $18,406 $12,067 $14,064 -5.60% -1.12% -1.63%
09/30/1997 $13,686 $19,415 $12,256 $14,545 5.48% 1.57% 3.42%
10/31/1997 $13,542 $18,766 $12,452 $14,383 -3.34% 1.60% -1.11%
11/30/1997 $13,897 $19,635 $12,518 $14,576 4.63% 0.53% 1.34%
12/31/1997 $14,302 $19,973 $12,650 $14,805 1.72% 1.05% 1.57%
01/31/1998 $14,153 $20,195 $12,828 $14,857 1.11% 1.41% 0.35%
02/28/1998 $14,347 $21,651 $12,802 $15,262 7.21% -0.20% 2.73%
03/31/1998 $14,772 $22,759 $12,842 $15,607 5.12% 0.31% 2.26%
04/30/1998 $14,622 $22,989 $12,906 $15,649 1.01% 0.50% 0.27%
05/31/1998 $14,413 $22,594 $13,044 $15,557 -1.72% 1.07% -0.59%
06/30/1998 $14,494 $23,511 $13,177 $15,671 4.06% 1.02% 0.73%
07/31/1998 $14,223 $23,259 $13,188 $15,508 -1.07% 0.08% -1.04%
08/31/1998 $13,300 $19,896 $13,445 $14,534 -14.46% 1.95% -6.28%
09/30/1998 $13,919 $21,171 $13,830 $14,964 6.41% 2.86% 2.96%
10/31/1998 $14,003 $22,893 $13,731 $15,265 8.13% -0.71% 2.01%
11/30/1998 $14,448 $24,280 $13,814 $15,651 6.06% 0.60% 2.53%
12/31/1998 $14,363 $25,678 $13,848 $15,945 5.76% 0.25% 1.88%
01/31/1999 $14,204 $26,752 $13,947 $16,033 4.18% 0.71% 0.55%
02/28/1999 $13,797 $25,920 $13,615 $15,724 -3.11% -2.38% -1.93%
03/31/1999 $14,008 $26,956 $13,683 $15,988 4.00% 0.50% 1.68%
04/30/1999 $14,719 $28,000 $13,717 $16,514 3.87% 0.25% 3.29%
05/31/1999 $14,744 $27,339 $13,576 $16,378 -2.36% -1.03% -0.82%
06/30/1999 $14,770 $28,856 $13,534 $16,611 5.55% -0.31% 1.42%
07/31/1999 $14,605 $27,956 $13,496 $16,413 -3.12% -0.28% -1.19%
08/31/1999 $14,568 $27,816 $13,485 $16,252 -0.50% -0.08% -0.98%
09/30/1999 $14,369 $27,054 $13,606 $16,134 -2.74% 0.90% -0.73%
</TABLE>
*Source: Standard and Poor's Micropal.
**Lipper performance does not include sales charges and results may have been
different if such charges had been considered.
Advisor Class(***) (10/1/89 - 9/30/99)
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
10/1/89-9/30/99.
<TABLE>
<CAPTION>
Date Franklin S&P LB Gov't./ Lipper S&P 500 LB Lipper
Income Fund - 500* Corp. Bond Income Gov't./Corp. Income
Advisor Index* Avg.** Avg.
Class***
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10/01/1989 $10,000 $10,000 $10,000 $10,000
10/31/1989 $9,810 $9,768 $10,253 $9,900 -2.32% 2.53% -1.00%
11/30/1989 $9,972 $9,967 $10,345 $10,043 2.04% 0.90% 1.44%
12/31/1989 $10,169 $10,206 $10,361 $10,163 2.40% 0.15% 1.20%
01/31/1990 $9,972 $9,522 $10,219 $9,819 -6.71% -1.37% -3.39%
02/28/1990 $9,894 $9,644 $10,241 $9,862 1.29% 0.22% 0.44%
03/31/1990 $9,945 $9,900 $10,242 $9,923 2.65% 0.01% 0.62%
04/30/1990 $9,793 $9,654 $10,148 $9,685 -2.49% -0.92% -2.40%
05/31/1990 $10,179 $10,595 $10,442 $10,145 9.75% 2.90% 4.75%
06/30/1990 $10,283 $10,524 $10,611 $10,211 -0.67% 1.61% 0.65%
07/31/1990 $10,491 $10,490 $10,742 $10,224 -0.32% 1.24% 0.13%
08/31/1990 $9,935 $9,542 $10,586 $9,697 -9.04% -1.45% -5.15%
09/30/1990 $9,401 $9,077 $10,674 $9,479 -4.87% 0.83% -2.25%
10/31/1990 $8,920 $9,038 $10,815 $9,460 -0.43% 1.32% -0.20%
11/30/1990 $9,221 $9,622 $11,051 $9,839 6.46% 2.18% 4.00%
12/31/1990 $9,276 $9,890 $11,218 $10,027 2.79% 1.51% 1.91%
01/31/1991 $9,497 $10,322 $11,343 $10,253 4.36% 1.12% 2.26%
02/28/1991 $10,481 $11,060 $11,441 $10,766 7.15% 0.86% 5.00%
03/31/1991 $10,823 $11,327 $11,520 $10,962 2.42% 0.69% 1.82%
04/30/1991 $11,222 $11,354 $11,652 $11,069 0.24% 1.15% 0.98%
05/31/1991 $11,484 $11,844 $11,706 $11,290 4.31% 0.46% 1.99%
06/30/1991 $11,484 $11,301 $11,693 $11,033 -4.58% -0.11% -2.27%
07/31/1991 $11,953 $11,828 $11,839 $11,416 4.66% 1.25% 3.47%
08/31/1991 $12,284 $12,108 $12,112 $11,708 2.37% 2.30% 2.56%
09/30/1991 $12,524 $11,906 $12,365 $11,837 -1.67% 2.09% 1.10%
10/31/1991 $12,886 $12,066 $12,475 $12,032 1.34% 0.89% 1.65%
11/30/1991 $12,908 $11,579 $12,599 $11,866 -4.03% 1.00% -1.38%
12/31/1991 $13,094 $12,904 $13,024 $12,546 11.44% 3.37% 5.73%
01/31/1992 $13,528 $12,664 $12,831 $12,519 -1.86% -1.48% -0.22%
02/29/1992 $13,907 $12,827 $12,899 $12,690 1.29% 0.53% 1.37%
03/31/1992 $13,970 $12,577 $12,828 $12,546 -1.95% -0.55% -1.14%
04/30/1992 $14,224 $12,947 $12,905 $12,765 2.94% 0.60% 1.75%
05/31/1992 $14,546 $13,011 $13,156 $12,967 0.49% 1.94% 1.58%
06/30/1992 $14,676 $12,817 $13,348 $12,906 -1.49% 1.46% -0.47%
07/31/1992 $15,000 $13,341 $13,690 $13,329 4.09% 2.56% 3.28%
08/31/1992 $15,000 $13,067 $13,811 $13,243 -2.05% 0.89% -0.65%
09/30/1992 $14,934 $13,220 $14,001 $13,352 1.17% 1.37% 0.83%
10/31/1992 $14,801 $13,265 $13,786 $13,271 0.34% -1.53% -0.61%
11/30/1992 $14,885 $13,716 $13,774 $13,487 3.40% -0.09% 1.63%
12/31/1992 $15,090 $13,885 $14,011 $13,706 1.23% 1.72% 1.62%
01/31/1993 $15,568 $14,002 $14,316 $13,939 0.84% 2.18% 1.70%
02/28/1993 $15,949 $14,192 $14,614 $14,219 1.36% 2.08% 2.01%
03/31/1993 $16,297 $14,491 $14,664 $14,547 2.11% 0.34% 2.31%
04/30/1993 $16,473 $14,141 $14,777 $14,515 -2.42% 0.77% -0.22%
05/31/1993 $16,719 $14,518 $14,769 $14,716 2.67% -0.05% 1.38%
06/30/1993 $17,038 $14,560 $15,105 $14,879 0.29% 2.27% 1.11%
07/31/1993 $17,430 $14,502 $15,201 $14,985 -0.40% 0.64% 0.71%
08/31/1993 $17,611 $15,052 $15,551 $15,371 3.79% 2.30% 2.58%
09/30/1993 $17,791 $14,936 $15,605 $15,414 -0.77% 0.35% 0.28%
10/31/1993 $18,119 $15,245 $15,669 $15,513 2.07% 0.41% 0.64%
11/30/1993 $17,937 $15,100 $15,492 $15,302 -0.95% -1.13% -1.36%
12/31/1993 $18,339 $15,283 $15,560 $15,495 1.21% 0.44% 1.26%
01/31/1994 $18,526 $15,803 $15,794 $15,836 3.40% 1.50% 2.20%
02/28/1994 $18,112 $15,374 $15,449 $15,457 -2.71% -2.18% -2.39%
03/31/1994 $17,392 $14,704 $15,071 $14,922 -4.36% -2.45% -3.46%
04/30/1994 $17,354 $14,892 $14,946 $14,970 1.28% -0.83% 0.32%
05/31/1994 $17,239 $15,136 $14,919 $15,038 1.64% -0.18% 0.45%
06/30/1994 $17,122 $14,766 $14,885 $14,860 -2.45% -0.23% -1.18%
07/31/1994 $17,395 $15,250 $15,182 $15,165 3.28% 2.00% 2.05%
08/31/1994 $17,669 $15,875 $15,188 $15,461 4.10% 0.04% 1.95%
09/30/1994 $17,551 $15,488 $14,959 $15,241 -2.44% -1.51% -1.42%
10/31/1994 $17,591 $15,836 $14,943 $15,276 2.25% -0.11% 0.23%
11/30/1994 $17,391 $15,260 $14,916 $14,902 -3.64% -0.18% -2.45%
12/31/1994 $17,170 $15,486 $15,014 $14,949 1.48% 0.66% 0.32%
01/31/1995 $17,377 $15,887 $15,302 $15,199 2.59% 1.92% 1.67%
02/28/1995 $17,667 $16,506 $15,657 $15,597 3.90% 2.32% 2.62%
03/31/1995 $17,876 $16,993 $15,762 $15,870 2.95% 0.67% 1.75%
04/30/1995 $18,338 $17,493 $15,983 $16,173 2.94% 1.40% 1.91%
05/31/1995 $18,973 $18,193 $16,653 $16,696 4.00% 4.19% 3.23%
06/30/1995 $19,186 $18,615 $16,786 $16,888 2.32% 0.80% 1.15%
07/31/1995 $19,400 $19,233 $16,720 $17,195 3.32% -0.39% 1.82%
08/31/1995 $19,617 $19,281 $16,934 $17,352 0.25% 1.28% 0.91%
09/30/1995 $20,008 $20,094 $17,107 $17,739 4.22% 1.02% 2.23%
10/31/1995 $20,051 $20,022 $17,359 $17,607 -0.36% 1.47% -0.74%
11/30/1995 $20,360 $20,901 $17,645 $18,174 4.39% 1.65% 3.22%
12/31/1995 $20,826 $21,304 $17,904 $18,503 1.93% 1.47% 1.81%
01/31/1996 $21,412 $22,029 $18,016 $18,846 3.40% 0.62% 1.85%
02/29/1996 $21,002 $22,234 $17,634 $18,815 0.93% -2.12% -0.16%
03/31/1996 $20,956 $22,447 $17,485 $18,909 0.96% -0.84% 0.50%
04/30/1996 $20,909 $22,777 $17,365 $18,998 1.47% -0.69% 0.47%
05/31/1996 $21,140 $23,365 $17,335 $19,167 2.58% -0.17% 0.89%
06/30/1996 $21,561 $23,453 $17,566 $19,263 0.38% 1.33% 0.50%
07/31/1996 $21,232 $22,417 $17,606 $18,803 -4.42% 0.23% -2.39%
08/31/1996 $21,562 $22,890 $17,562 $19,126 2.11% -0.25% 1.72%
09/30/1996 $21,895 $24,179 $17,875 $19,631 5.63% 1.78% 2.64%
10/31/1996 $22,326 $24,846 $18,291 $19,983 2.76% 2.33% 1.79%
11/30/1996 $22,856 $26,724 $18,628 $20,666 7.56% 1.84% 3.42%
12/31/1996 $23,002 $26,195 $18,421 $20,561 -1.98% -1.11% -0.51%
01/31/1997 $23,248 $27,832 $18,443 $20,929 6.25% 0.12% 1.79%
02/28/1997 $23,596 $28,049 $18,482 $21,042 0.78% 0.21% 0.54%
03/31/1997 $23,053 $26,897 $18,262 $20,612 -4.11% -1.19% -2.04%
04/30/1997 $23,206 $28,502 $18,529 $20,917 5.97% 1.46% 1.48%
05/31/1997 $23,864 $30,238 $18,701 $21,654 6.09% 0.93% 3.52%
06/30/1997 $24,424 $31,593 $18,925 $22,202 4.48% 1.20% 2.53%
07/31/1997 $25,090 $34,107 $19,504 $23,123 7.96% 3.06% 4.15%
08/31/1997 $24,940 $32,197 $19,286 $22,746 -5.60% -1.12% -1.63%
09/30/1997 $25,614 $33,962 $19,589 $23,524 5.48% 1.57% 3.42%
10/31/1997 $25,356 $32,828 $19,902 $23,263 -3.34% 1.60% -1.11%
11/30/1997 $26,038 $34,347 $20,008 $23,575 4.63% 0.53% 1.34%
12/31/1997 $26,922 $34,938 $20,218 $23,945 1.72% 1.05% 1.57%
01/31/1998 $26,552 $35,326 $20,503 $24,029 1.11% 1.41% 0.35%
02/28/1998 $26,932 $37,873 $20,462 $24,684 7.21% -0.20% 2.73%
03/31/1998 $27,748 $39,812 $20,525 $25,242 5.12% 0.31% 2.26%
04/30/1998 $27,479 $40,214 $20,628 $25,311 1.01% 0.50% 0.27%
05/31/1998 $27,098 $39,523 $20,849 $25,161 -1.72% 1.07% -0.59%
06/30/1998 $27,266 $41,127 $21,061 $25,345 4.06% 1.02% 0.73%
07/31/1998 $26,769 $40,687 $21,078 $25,081 -1.07% 0.08% -1.04%
08/31/1998 $25,040 $34,804 $21,489 $23,506 -14.46% 1.95% -6.28%
09/30/1998 $26,336 $37,035 $22,104 $24,202 6.41% 2.86% 2.96%
10/31/1998 $26,397 $40,046 $21,947 $24,688 8.13% -0.71% 2.01%
11/30/1998 $27,255 $42,472 $22,079 $25,313 6.06% 0.60% 2.53%
12/31/1998 $27,224 $44,919 $22,134 $25,789 5.76% 0.25% 1.88%
01/31/1999 $26,821 $46,796 $22,291 $25,931 4.18% 0.71% 0.55%
02/28/1999 $26,065 $45,341 $21,760 $25,430 -3.11% -2.38% -1.93%
03/31/1999 $26,481 $47,155 $21,869 $25,858 4.00% 0.50% 1.68%
04/30/1999 $27,847 $48,980 $21,924 $26,708 3.87% 0.25% 3.29%
05/31/1999 $27,909 $47,824 $21,698 $26,489 -2.36% -1.03% -0.82%
06/30/1999 $27,973 $50,478 $21,631 $26,865 5.55% -0.31% 1.42%
07/31/1999 $27,674 $48,903 $21,570 $26,546 -3.12% -0.28% -1.19%
08/31/1999 $27,617 $48,658 $21,553 $26,286 -0.50% -0.08% -0.98%
09/30/1999 $27,547 $47,325 $21,747 $26,094 -2.74% 0.90% -0.73%
</TABLE>
(*)Source: Standard and Poor's Micropal.
(**)Lipper performance does not include sales charges and results may have been
different if such charges had been considered.
(***)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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class.
AVERAGE ANNUAL TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
Class C
- -----------------------------------
<S> <C>
1-Year +1.64%
3-Year +6.78%
Since Inception (5/1/95) +8.55%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
ADVISOR CLASS(***)
- -------------------------------------
<S> <C>
1-Year +3.71%
5-Year +9.44%
10-Year +10.66%
Since Inception (8/31/48) +11.17%
</TABLE>
Past performance is not predictive of future results.
FUND CATEGORY
[PYRAMID GRAPH]
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.
- --------------------------------------------------------------------------------
The U.S. economy grew at a rapid pace during the year under review, stimulated
by the Federal Reserve Board's (the Fed's) interest rate cuts last fall. Turmoil
engulfed financial markets around the world in early October 1998, causing many
investors to seek out the safety and liquidity of U.S. Treasury securities. The
combination of fragile international financial markets and reduced availability
of capital in the U.S. prompted the Fed to cut the federal funds target rate
twice during the reporting period, lowering it to 4.75%, which helped restore
investor confidence and market liquidity.
FRANKLIN U.S. GOVERNMENT SECURITIES FUND -- CLASS AVS. COMPARABLE INVESTMENTS*
Risk vs. Return (10/94-9/99)
This point graph compares the average annual total return measured against risk
from 10/94 to 9/99 for Franklin U.S. Government Securities Fund - Class A vs.
comparable investments.*
<TABLE>
<CAPTION>
Risk Return
<S> <C> <C>
1-Year Treasury Bill 0.76% 5.81%
10-Year Treasury Note 6.68% 9.01%
30-Year Treasury Bond 10.00% 11.53%
Franklin U.S. Government Securities Fund - Class A 2.95% 7.57%
</TABLE>
(*)Source: Standard & Poor's Micropal (Payden & Rygel). Indexes are unmanaged.
Investors cannot invest directly in an index. Average annual total return
represents the average annual change in value of an investment over the period
indicated. These figures assume reinvestment of interest income and do not
include sales charges. Risk is measured by the annualized standard deviation of
monthly total returns. In general, the higher the standard deviation, the
greater the volatility. The fund's Class A shares' average annual total return
does not include the current, maximum 4.25% sales charge. The value of
Treasuries, if held to maturity, is fixed; principal is guaranteed and interest
is fixed. The fund's investment return and share price will fluctuate with
market conditions, and you may have a gain or loss when you sell your shares.
Past performance is not predictive of future returns.
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 61 of
this report.
Near the end of 1998, it became apparent that the economy was growing more
rapidly than generally anticipated, and yields on U.S. Treasury securities began
to rise in response. Throughout the first and second quarters of 1999, the
market came to expect that tight labor markets and strong consumer demand would
lead the Fed to increase interest rates to prevent inflationary pressures from
developing. The market was correct in this case, as the Fed raised the federal
funds target rate to 5.00% on June 30, 1999, and to 5.25% on August 24, 1999.
This sent Treasury yields temporarily higher, with the 30-year Treasury bond
yield reaching a period high of 6.28% on August 12, 1999.
The rise in interest rates, while unfavorable for holders of U.S. Treasury
securities, was positive for some mortgage pass-through securities, the
principal asset class in which the fund invests. The prevailing mortgage rates
rose with Treasury yields, reducing the incentive for homeowners to refinance
their mortgages. According to the Federal Home Loan Mortgage Corporation, the
conforming 30-year fixed mortgage rate rose from 6.60% on October 2, 1998, to
7.76% on September 24, 1999. At these higher rates, prepayments slowed and
prepayment risk, the risk to mortgage holders that mortgage buyers will
refinance their mortgages at lower rates, declined. Therefore, higher-coupon
pass-throughs performed well, as they are subject to less prepayment risk in a
rising interest-rate environment.
Government National Mortgage Association (GNMA) pass-throughs' yield spreads, or
the yield difference between GNMAs and Treasuries, became very attractive during
the reporting period. While interest rates rose, a large amount of corporate
bonds and asset-backed bonds came to market. This raised the supply of bonds
that offered yield advantages over Treasuries, negatively impacting these bonds'
prices. Since yields rise when prices fall, the yield spread between Treasuries
and mortgage-backed securities increased substantially.
The fund took advantage of these attractive yield spreads to add to its
positions of GNMA pass-throughs. These were initially in the 6% to 6.5% coupon
range, but the fund began to purchase pass-throughs in the 7% to 7.5% coupon
range as interest rates rose. GNMA pass-throughs are guaranteed by the full
faith and credit of the U.S. government, while providing income advantages
relative to other U.S. government securities.
DIVIDEND DISTRIBUTIONS
Franklin U.S.Government Securities Fund
10/1/98 - 9/30/99
DIVIDEND PER SHARE
<TABLE>
<CAPTION>
MONTH CLASS A CLASS B(*) CLASS C ADVISOR
- ----- ------- ---------- ------- -------
<S> <C> <C> <C> <C>
October 3.7 cents -- 3.38 cents 3.75 cents
November 3.7 cents -- 3.38 cents 3.75 cents
December 3.7 cents -- 3.38 cents 3.76 cents
January 3.7 cents 3.70 cents 3.38 cents 3.77 cents
February 3.7 cents 3.37 cents 3.38 cents 3.75 cents
March 3.7 cents 3.43 cents 3.39 cents 3.77 cents
April 3.7 cents 3.43 cents 3.39 cents 3.76 cents
May 3.7 cents 3.43 cents 3.39 cents 3.76 cents
June 3.7 cents 3.41 cents 3.41 cents 3.75 cents
July 3.7 cents 3.41 cents 3.41 cents 3.75 cents
August 3.5 cents 3.21 cents 3.21 cents 3.56 cents
September 3.5 cents 3.20 cents 3.20 cents 3.57 cents
---------- ----------- ----------- -----------
TOTAL 44.0 CENTS 30.59 CENTS 40.30 CENTS 44.70 CENTS
</TABLE>
(*)January 1, 1999, the fund began offering Class B shares to investors. See the
prospectus for details.
Going forward, we expect the Fed's interest-rate increases to slow the economy,
which should eventually lead to a more stable interest-rate environment.
Franklin U.S. Government Securities Fund, as an income fund, will continue to
invest primarily in GNMA pass-through securities seeking to achieve its goal of
providing high, current income while maintaining a relatively stable share
price.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1999. 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,
/s/ Jack Lemein
- -----------------------------
Jack Lemein
/s/ Roger A. Bayston
- -----------------------------
Roger A. Bayston
/s/ T. Anthony Coffey
- -----------------------------
T. Anthony Coffey
Portfolio Management Team
Franklin U.S. Government Securities Fund
Yield Comparison
9/30/99
<TABLE>
<S> <C>
Franklin U.S. Government
Securities Fund -Class A
6.10%
Ginnie Mae Funds Average(*)
5.79%
One-Year CD(*)
5.45%
Money Market Funds Average(*)
4.62%
</TABLE>
(*)Sources: Standard & Poor's Micropal; Lipper Inc. Franklin U.S. Government
Securities Fund - Class A shares' yield, calculated as required by the SEC, is
based on earnings of the fund's portfolio for the 30 days ended September 30,
1999. Money funds attempt to maintain a stable net asset value of $1.00 per
share, while shares of Franklin U.S. Government Securities Fund will fluctuate
with market conditions. CDs are insured by the FDIC for up to $100,000 and offer
a fixed rate of return. Lipper averages do not include sales charges.
Franklin U.S.Government
Securities Fund
Class A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July 1,
1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects
subsequent performance.
Class B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
Class C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
Advisor Class:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
PERFORMANCE SUMMARY AS OF 9/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
Price and Distribution Information
<TABLE>
<CAPTION>
Class A Change 9/30/99 9/30/98
------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.37 $6.62 $6.99
</TABLE>
<TABLE>
<CAPTION>
Distributions (10/1/98 - 9/30/99)
----------------------------------
<S> <C>
Dividend Income $0.44
</TABLE>
<TABLE>
<CAPTION>
Class B Change 9/30/99 1/1/99
- ------- ------ ------- ------
<S> <C> <C> <C>
Net Asset Value -$0.29 $6.62 $6.91
</TABLE>
<TABLE>
<CAPTION>
Distributions (1/1/99 - 9/30/99)
----------------------------------
<S> <C>
Dividend Income $0.3059
</TABLE>
<TABLE>
<CAPTION>
Class C Change 9/30/99 9/30/98
- ------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.37 $6.60 $6.97
</TABLE>
<TABLE>
<CAPTION>
Distributions (10/1/98 - 9/30/99)
---------------------------------
<S> <C>
Dividend Income $0.403
</TABLE>
<TABLE>
<CAPTION>
Advisor Class Change 9/30/99 9/30/98
- ------------- ------ ------- -------
<S> <C> <C> <C>
Net Asset Value -$0.37 $6.63 $7.00
</TABLE>
<TABLE>
<CAPTION>
Distributions (10/1/98 - 9/30/99)
---------------------------------
<S> <C>
Dividend Income $0.447
</TABLE>
Past performance is not predictive of future results.
Performance
<TABLE>
<CAPTION>
Inception
Class A 1-Year 5-Year 10-Year (5/31/70)
- ------- ------ ------ ------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +1.05% +44.01% +108.95% +710.70%
Average Annual Total Return(2) -3.24% +6.63% +7.18% +7.24%
</TABLE>
<TABLE>
<S> <C>
Distribution Rate(3) 6.08%
30-Day Standardized Yield(4) 6.10%
</TABLE>
<TABLE>
<CAPTION>
Inception
Class B (1/1/99)
- ------- --------
<S> <C> <C>
Cumulative Total Return(1) +0.25%
Aggregate Total Return(2) -3.58%
Distribution Rate(3) 5.80%
30-Day Standardized Yield(4) 5.84%
</TABLE>
<TABLE>
<CAPTION>
Inception
Class C 1-Year 3-Year (5/1/95)
- ------- ------ ------ ---------
<S> <C> <C> <C>
Cumulative Total Return(1) +0.50% +18.67% +31.09%
Average Annual Total Return(2) -1.43% +5.51% +6.07%
Distribution Rate(3) 5.76%
30-Day Standardized Yield(4) 5.78%
</TABLE>
<TABLE>
<CAPTION>
Inception
Advisor Class(5) 1-Year 5-Year 10-Year (5/31/70)
- ---------------- ------ ------ ------- ---------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +1.16% +45.01% +110.41% +716.36%
Average Annual Total Return(2) +1.16% +7.72% +7.72% +7.42%
</TABLE>
<TABLE>
<S> <C>
Distribution Rate(3) 6.46%
30-Day Standardized Yield(4) 6.48%
</TABLE>
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 current, applicable,
maximum sales charge(s)for that class. Since Class B shares have existed for
less than one year, the figures for that class represent aggregate total return
from inception, including the maximum sales charge.
3. Distribution rate is based on an annualization of the respective class's
September monthly dividend and the maximum offering price (net asset value price
for Class B and Advisor Class) per share on September 30, 1999.
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, 1999.
5. 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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; 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 and average
annual total returns of Advisor Class shares were +18.20% and +6.27%
respectively.
Bond prices, and thus the fund's share price, generally move in the opposite
direction from interest rates. 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.
Past performance is not predictive of future results.
Franklin U.S.Government
Securities Fund
Average Annual Total Return
9/30/99
<TABLE>
<CAPTION>
Class A
- ----------------------------------
<S> <C>
1-Year -3.24%
5-Year +6.63%
10-Year +7.18%
Since Inception (5/31/70) +7.24%
</TABLE>
Aggregate Total Return
9/30/99
<TABLE>
<CAPTION>
Class B
- -----------------------------------
<S> <C>
Since Inception (1/1/99) -3.58%
</TABLE>
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged index differs
from the fund in composition, does not pay management fees or expenses and
includes reinvested dividends. One cannot invest directly in an index.
The Consumer Price Index (CPI) is a commonly used measure of the inflation rate.
Class A (10/1/89 - 9/30/99)
This graph compares the performance of Franklin U.S. Government Securities Fund
- - Class A, tracking the growth in value of a $10,000 investment, to that of the
Lehman Brothers Intermediate U.S. Government Bond Index and CPI from
10/1/89-9/30/99.
<TABLE>
<CAPTION>
Franklin U.S. Lehman Brothers CPI*
Government Intermediate U.S.
Securities Fund - Government Bond
Class A Index*
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10/01/1989 $ 9,570 $10,000 $10,000
10/31/1989 $ 9,721 2.10% $10,210 0.48% $10,048
11/30/1989 $ 9,831 0.99% $10,311 0.24% $10,072
12/31/1989 $ 9,913 0.29% $10,341 0.16% $10,088
01/31/1990 $ 9,867 -0.62% $10,277 1.03% $10,192
02/28/1990 $ 9,922 0.37% $10,315 0.47% $10,240
03/31/1990 $ 9,949 0.12% $10,327 0.55% $10,296
04/30/1990 $ 9,931 -0.34% $10,292 0.16% $10,313
05/31/1990 $10,165 2.14% $10,512 0.23% $10,337
06/30/1990 $10,279 1.31% $10,650 0.54% $10,392
07/31/1990 $10,469 1.40% $10,799 0.38% $10,432
08/31/1990 $10,447 -0.36% $10,760 0.92% $10,528
09/30/1990 $10,518 0.89% $10,856 0.84% $10,616
10/31/1990 $10,635 1.39% $11,007 0.60% $10,680
11/30/1990 $10,831 1.51% $11,173 0.22% $10,703
12/31/1990 $10,982 1.38% $11,327 0.00% $10,703
01/31/1991 $11,133 1.03% $11,444 0.60% $10,768
02/28/1991 $11,190 0.61% $11,514 0.15% $10,784
03/31/1991 $11,280 0.55% $11,577 0.15% $10,800
04/30/1991 $11,384 1.03% $11,696 0.15% $10,816
05/31/1991 $11,488 0.56% $11,762 0.30% $10,849
06/30/1991 $11,544 0.08% $11,771 0.29% $10,880
07/31/1991 $11,717 1.08% $11,899 0.15% $10,896
08/31/1991 $11,857 1.90% $12,125 0.29% $10,928
09/30/1991 $12,032 1.70% $12,331 0.44% $10,976
10/31/1991 $12,192 1.14% $12,471 0.15% $10,993
11/30/1991 $12,262 1.17% $12,617 0.29% $11,024
12/31/1991 $12,487 2.43% $12,924 0.07% $11,032
01/31/1992 $12,403 -0.96% $12,800 0.15% $11,049
02/29/1992 $12,492 0.31% $12,839 0.36% $11,089
03/31/1992 $12,458 -0.40% $12,788 0.51% $11,145
04/30/1992 $12,549 0.90% $12,903 0.14% $11,161
05/31/1992 $12,739 1.49% $13,095 0.14% $11,176
06/30/1992 $12,896 1.44% $13,284 0.36% $11,217
07/31/1992 $13,016 1.92% $13,539 0.21% $11,240
08/31/1992 $13,192 1.02% $13,677 0.28% $11,272
09/30/1992 $13,296 1.38% $13,866 0.28% $11,303
10/31/1992 $13,199 -1.20% $13,699 0.35% $11,343
11/30/1992 $13,249 -0.41% $13,643 0.14% $11,359
12/31/1992 $13,411 1.29% $13,819 -0.07% $11,351
01/31/1993 $13,593 1.86% $14,076 0.49% $11,406
02/28/1993 $13,739 1.47% $14,283 0.35% $11,446
03/31/1993 $13,809 0.37% $14,336 0.35% $11,486
04/30/1993 $13,880 0.78% $14,448 0.28% $11,518
05/31/1993 $13,951 -0.27% $14,409 0.14% $11,534
06/30/1993 $14,100 1.45% $14,618 0.14% $11,551
07/31/1993 $14,172 0.20% $14,647 0.00% $11,551
08/31/1993 $14,245 1.49% $14,865 0.28% $11,583
09/30/1993 $14,253 0.41% $14,926 0.21% $11,607
10/31/1993 $14,281 0.24% $14,962 0.41% $11,655
11/30/1993 $14,229 -0.50% $14,887 0.07% $11,663
12/31/1993 $14,338 0.41% $14,948 0.00% $11,663
01/31/1994 $14,468 0.99% $15,096 0.27% $11,695
02/28/1994 $14,334 -1.37% $14,889 0.34% $11,734
03/31/1994 $13,931 -1.46% $14,672 0.34% $11,774
04/30/1994 $13,837 -0.65% $14,577 0.14% $11,791
05/31/1994 $13,846 0.07% $14,587 0.07% $11,799
06/30/1994 $13,783 0.02% $14,590 0.34% $11,839
07/31/1994 $14,035 1.31% $14,781 0.27% $11,871
08/31/1994 $14,078 0.29% $14,824 0.40% $11,919
09/30/1994 $13,886 -0.83% $14,701 0.27% $11,951
10/31/1994 $13,843 0.02% $14,704 0.07% $11,959
11/30/1994 $13,822 -0.45% $14,638 0.13% $11,975
12/31/1994 $13,952 0.33% $14,686 0.00% $11,975
01/31/1995 $14,236 1.63% $14,925 0.40% $12,022
02/28/1995 $14,588 1.93% $15,213 0.40% $12,071
03/31/1995 $14,655 0.55% $15,297 0.33% $12,110
04/30/1995 $14,855 1.16% $15,474 0.33% $12,150
05/31/1995 $15,350 2.82% $15,911 0.20% $12,175
06/30/1995 $15,442 0.64% $16,013 0.20% $12,199
07/31/1995 $15,467 0.05% $16,021 0.00% $12,199
08/31/1995 $15,629 0.83% $16,154 0.26% $12,231
09/30/1995 $15,769 0.67% $16,262 0.20% $12,255
10/31/1995 $15,932 1.10% $16,441 0.33% $12,296
11/30/1995 $16,097 1.22% $16,641 -0.07% $12,287
12/31/1995 $16,286 0.99% $16,806 -0.07% $12,278
01/31/1996 $16,383 0.84% $16,947 0.59% $12,351
02/29/1996 $16,243 -1.06% $16,768 0.32% $12,390
03/31/1996 $16,173 -0.46% $16,690 0.52% $12,455
04/30/1996 $16,104 -0.29% $16,642 0.39% $12,503
05/31/1996 $16,058 -0.05% $16,634 0.19% $12,527
06/30/1996 $16,254 1.02% $16,803 0.06% $12,535
07/31/1996 $16,305 0.31% $16,855 0.19% $12,559
08/31/1996 $16,307 0.11% $16,874 0.19% $12,582
09/30/1996 $16,581 1.29% $17,092 0.32% $12,623
10/31/1996 $16,881 1.64% $17,372 0.32% $12,663
11/30/1996 $17,133 1.21% $17,582 0.19% $12,687
12/31/1996 $17,035 -0.54% $17,487 0.00% $12,687
01/31/1997 $17,139 0.38% $17,554 0.32% $12,728
02/28/1997 $17,192 0.16% $17,582 0.31% $12,767
03/31/1997 $17,143 -0.57% $17,482 0.25% $12,799
04/30/1997 $17,403 1.13% $17,679 0.12% $12,814
05/31/1997 $17,555 0.78% $17,817 -0.06% $12,807
06/30/1997 $17,761 0.86% $17,970 0.12% $12,822
07/31/1997 $18,098 1.85% $18,303 0.12% $12,837
08/31/1997 $18,044 -0.38% $18,233 0.19% $12,862
09/30/1997 $18,253 1.09% $18,432 0.25% $12,894
10/31/1997 $18,436 1.17% $18,648 0.25% $12,926
11/30/1997 $18,460 0.22% $18,689 -0.06% $12,919
12/31/1997 $18,646 0.81% $18,840 -0.12% $12,903
01/31/1998 $18,833 1.30% $19,085 0.19% $12,928
02/28/1998 $18,830 -0.11% $19,064 0.19% $12,952
03/31/1998 $18,910 0.31% $19,123 0.19% $12,977
04/30/1998 $19,045 0.48% $19,215 0.18% $13,000
05/31/1998 $19,175 0.69% $19,347 0.18% $13,023
06/30/1998 $19,250 0.67% $19,477 0.12% $13,039
07/31/1998 $19,353 0.38% $19,551 0.12% $13,055
08/31/1998 $19,542 1.89% $19,920 0.12% $13,070
09/30/1998 $19,788 2.33% $20,385 0.12% $13,086
10/31/1998 $19,694 0.17% $20,419 0.24% $13,117
11/30/1998 $19,800 -0.31% $20,356 0.00% $13,117
12/31/1998 $19,878 0.39% $20,435 -0.06% $13,110
01/31/1999 $20,014 0.45% $20,527 0.24% $13,141
02/28/1999 $19,889 -1.37% $20,246 0.12% $13,157
03/31/1999 $19,997 0.66% $20,380 0.30% $13,196
04/30/1999 $20,077 0.27% $20,435 0.73% $13,293
05/31/1999 $19,920 -0.61% $20,310 0.00% $13,293
06/30/1999 $19,822 0.14% $20,339 0.00% $13,293
07/31/1999 $19,664 0.01% $20,341 0.30% $13,333
08/31/1999 $19,679 0.14% $20,369 0.24% $13,365
09/30/1999 $19,996 0.86% $20,544 0.48% $13,429
</TABLE>
*Source: Standard and Poor's Micropal.
Class B (1/1/99 - 9/30/99)
This graph compares the performance of Franklin U.S. Government Securities Fund
- - Class B, tracking the growth in value of a $10,000 investment, to that of the
Lehman Brothers Intermediate U.S. Government Bond Index from 1/1/99-9/30/99.
<TABLE>
<CAPTION>
Franklin U.S. Government Lehman Brothers CPI*
Securities Fund - Class B Intermediate U.S.
Government Bond Index*
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/01/1999 $10,000 $10,000 $10,000
01/31/1999 $10,068 0.45% $10,045 0.24% $10,024
02/28/1999 $9,986 -1.37% $9,907 0.12% $10,036
03/31/1999 $10,051 0.66% $9,973 0.30% $10,066
04/30/1999 $10,087 0.27% $10,000 0.73% $10,140
05/31/1999 $10,005 -0.61% $9,939 0.00% $10,140
06/30/1999 $9,936 0.14% $9,953 0.00% $10,140
07/31/1999 $9,868 0.01% $9,954 0.30% $10,170
08/31/1999 $9,856 0.14% $9,968 0.24% $10,194
09/30/1999 $9,642 0.86% $10,053 0.48% $10,243
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
Class C (5/1/95 - 9/30/99)
This graph compares the performance of Franklin U.S. Government Securities Fund
- - Class C, tracking the growth in value of a $10,000 investment, to that of the
Lehman Brothers Intermediate U.S. Government Bond Index and CPI from
5/1/95-9/30/99.
<TABLE>
<CAPTION>
Franklin U.S. Government Lehman Brothers CPI*
Securities Fund - Class C Intermediate U.S.
Government Bond Index*
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
05/01/1995 $ 9,896 $10,000 $10,000
05/31/1995 $10,194 2.82% $10,282 0.20% $10,020
06/30/1995 $10,249 0.64% $10,348 0.20% $10,040
07/31/1995 $10,260 0.05% $10,353 0.00% $10,040
08/31/1995 $10,362 0.83% $10,439 0.26% $10,066
09/30/1995 $10,454 0.67% $10,509 0.20% $10,086
10/31/1995 $10,557 1.10% $10,624 0.33% $10,120
11/30/1995 $10,661 1.22% $10,754 -0.07% $10,112
12/31/1995 $10,780 0.99% $10,861 -0.07% $10,105
01/31/1996 $10,853 0.84% $10,952 0.59% $10,165
02/29/1996 $10,754 -1.06% $10,836 0.32% $10,198
03/31/1996 $10,687 -0.46% $10,786 0.52% $10,251
04/30/1996 $10,652 -0.29% $10,755 0.39% $10,291
05/31/1996 $10,616 -0.05% $10,749 0.19% $10,310
06/30/1996 $10,725 1.02% $10,859 0.06% $10,316
07/31/1996 $10,754 0.31% $10,892 0.19% $10,336
08/31/1996 $10,766 0.11% $10,904 0.19% $10,356
09/30/1996 $10,930 1.29% $11,045 0.32% $10,389
10/31/1996 $11,123 1.64% $11,226 0.32% $10,422
11/30/1996 $11,301 1.21% $11,362 0.19% $10,442
12/31/1996 $11,214 -0.54% $11,301 0.00% $10,442
01/31/1997 $11,294 0.38% $11,344 0.32% $10,475
02/28/1997 $11,307 0.16% $11,362 0.31% $10,508
03/31/1997 $11,269 -0.57% $11,297 0.25% $10,534
04/30/1997 $11,434 1.13% $11,425 0.12% $10,547
05/31/1997 $11,546 0.78% $11,514 -0.06% $10,540
06/30/1997 $11,675 0.86% $11,613 0.12% $10,553
07/31/1997 $11,892 1.85% $11,828 0.12% $10,565
08/31/1997 $11,833 -0.38% $11,783 0.19% $10,586
09/30/1997 $11,966 1.09% $11,911 0.25% $10,612
10/31/1997 $12,081 1.17% $12,051 0.25% $10,639
11/30/1997 $12,091 0.22% $12,077 -0.06% $10,632
12/31/1997 $12,208 0.81% $12,175 -0.12% $10,619
01/31/1998 $12,324 1.30% $12,333 0.19% $10,640
02/28/1998 $12,317 -0.11% $12,320 0.19% $10,660
03/31/1998 $12,363 0.31% $12,358 0.19% $10,680
04/30/1998 $12,446 0.48% $12,417 0.18% $10,699
05/31/1998 $12,526 0.69% $12,503 0.18% $10,719
06/30/1998 $12,569 0.67% $12,587 0.12% $10,731
07/31/1998 $12,632 0.38% $12,634 0.12% $10,744
08/31/1998 $12,749 1.89% $12,873 0.12% $10,757
09/30/1998 $12,905 2.33% $13,173 0.12% $10,770
10/31/1998 $12,819 0.17% $13,196 0.24% $10,796
11/30/1998 $12,901 -0.31% $13,155 0.00% $10,796
12/31/1998 $12,946 0.39% $13,206 -0.06% $10,789
01/31/1999 $13,028 0.45% $13,265 0.24% $10,815
02/28/1999 $12,941 -1.37% $13,084 0.12% $10,828
03/31/1999 $13,006 0.66% $13,170 0.30% $10,861
04/30/1999 $13,051 0.27% $13,206 0.73% $10,940
05/31/1999 $12,943 -0.61% $13,125 0.00% $10,940
06/30/1999 $12,874 0.14% $13,143 0.00% $10,940
07/31/1999 $12,765 0.01% $13,145 0.30% $10,973
08/31/1999 $12,770 0.14% $13,163 0.24% $10,999
09/30/1999 $12,972 0.86% $13,276 0.48% $11,052
</TABLE>
*Source: Standard and Poor's Micropal.
Advisor Class(**) (10/1/89 - 9/30/99)
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 and CPI from
10/1/89-9/30/99.
<TABLE>
<CAPTION>
Franklin U.S. Lehman Brothers CPI*
Government Intermediate U.S.
Securities Fund - Government Bond
Advisor Class** Index*
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
10/01/1989 $10,000 $10,000 $10,000
10/31/1989 1.58% $10,158 2.10% $10,210 0.48% $10,048
11/30/1989 1.13% $10,273 0.99% $10,311 0.24% $10,072
12/31/1989 0.84% $10,359 0.29% $10,341 0.16% $10,088
01/31/1990 -0.46% $10,311 -0.62% $10,277 1.03% $10,192
02/28/1990 0.56% $10,369 0.37% $10,315 0.47% $10,240
03/31/1990 0.27% $10,397 0.12% $10,327 0.55% $10,296
04/30/1990 -0.18% $10,378 -0.34% $10,292 0.16% $10,313
05/31/1990 2.36% $10,623 2.14% $10,512 0.23% $10,337
06/30/1990 1.11% $10,741 1.31% $10,650 0.54% $10,392
07/31/1990 1.85% $10,940 1.40% $10,799 0.38% $10,432
08/31/1990 -0.20% $10,918 -0.36% $10,760 0.92% $10,528
09/30/1990 0.67% $10,991 0.89% $10,856 0.84% $10,616
10/31/1990 1.11% $11,113 1.39% $11,007 0.60% $10,680
11/30/1990 1.85% $11,319 1.51% $11,173 0.22% $10,703
12/31/1990 1.39% $11,476 1.38% $11,327 0.00% $10,703
01/31/1991 1.38% $11,635 1.03% $11,444 0.60% $10,768
02/28/1991 0.51% $11,694 0.61% $11,514 0.15% $10,784
03/31/1991 0.81% $11,789 0.55% $11,577 0.15% $10,800
04/30/1991 0.92% $11,897 1.03% $11,696 0.15% $10,816
05/31/1991 0.92% $12,007 0.56% $11,762 0.30% $10,849
06/30/1991 0.49% $12,065 0.08% $11,771 0.29% $10,880
07/31/1991 1.49% $12,245 1.08% $11,899 0.15% $10,896
08/31/1991 1.20% $12,392 1.90% $12,125 0.29% $10,928
09/30/1991 1.48% $12,576 1.70% $12,331 0.44% $10,976
10/31/1991 1.33% $12,743 1.14% $12,471 0.15% $10,993
11/30/1991 0.58% $12,817 1.17% $12,617 0.29% $11,024
12/31/1991 1.84% $13,052 2.43% $12,924 0.07% $11,032
01/31/1992 -0.68% $12,964 -0.96% $12,800 0.15% $11,049
02/29/1992 0.72% $13,057 0.31% $12,839 0.36% $11,089
03/31/1992 -0.26% $13,023 -0.40% $12,788 0.51% $11,145
04/30/1992 0.72% $13,117 0.90% $12,903 0.14% $11,161
05/31/1992 1.52% $13,316 1.49% $13,095 0.14% $11,176
06/30/1992 1.23% $13,480 1.44% $13,284 0.36% $11,217
07/31/1992 0.93% $13,605 1.92% $13,539 0.21% $11,240
08/31/1992 1.35% $13,789 1.02% $13,677 0.28% $11,272
09/30/1992 0.79% $13,898 1.38% $13,866 0.28% $11,303
10/31/1992 -0.74% $13,795 -1.20% $13,699 0.35% $11,343
11/30/1992 0.38% $13,848 -0.41% $13,643 0.14% $11,359
12/31/1992 1.22% $14,017 1.29% $13,819 -0.07% $11,351
01/31/1993 1.36% $14,207 1.86% $14,076 0.49% $11,406
02/28/1993 1.07% $14,359 1.47% $14,283 0.35% $11,446
03/31/1993 0.51% $14,432 0.37% $14,336 0.35% $11,486
04/30/1993 0.51% $14,506 0.78% $14,448 0.28% $11,518
05/31/1993 0.51% $14,580 -0.27% $14,409 0.14% $11,534
06/30/1993 1.07% $14,736 1.45% $14,618 0.14% $11,551
07/31/1993 0.51% $14,811 0.20% $14,647 0.00% $11,551
08/31/1993 0.51% $14,887 1.49% $14,865 0.28% $11,583
09/30/1993 0.06% $14,896 0.41% $14,926 0.21% $11,607
10/31/1993 0.20% $14,925 0.24% $14,962 0.41% $11,655
11/30/1993 -0.36% $14,872 -0.50% $14,887 0.07% $11,663
12/31/1993 0.76% $14,985 0.41% $14,948 0.00% $11,663
01/31/1994 0.91% $15,121 0.99% $15,096 0.27% $11,695
02/28/1994 -0.93% $14,980 -1.37% $14,889 0.34% $11,734
03/31/1994 -2.81% $14,560 -1.46% $14,672 0.34% $11,774
04/30/1994 -0.67% $14,462 -0.65% $14,577 0.14% $11,791
05/31/1994 0.06% $14,471 0.07% $14,587 0.07% $11,799
06/30/1994 -0.46% $14,404 0.02% $14,590 0.34% $11,839
07/31/1994 1.83% $14,668 1.31% $14,781 0.27% $11,871
08/31/1994 0.30% $14,712 0.29% $14,824 0.40% $11,919
09/30/1994 -1.36% $14,512 -0.83% $14,701 0.27% $11,951
10/31/1994 -0.31% $14,467 0.02% $14,704 0.07% $11,959
11/30/1994 -0.15% $14,445 -0.45% $14,638 0.13% $11,975
12/31/1994 0.94% $14,581 0.33% $14,686 0.00% $11,975
01/31/1995 2.04% $14,878 1.63% $14,925 0.40% $12,022
02/28/1995 2.47% $15,246 1.93% $15,213 0.40% $12,071
03/31/1995 0.45% $15,314 0.55% $15,297 0.33% $12,110
04/30/1995 1.37% $15,524 1.16% $15,474 0.33% $12,150
05/31/1995 3.33% $16,041 2.82% $15,911 0.20% $12,175
06/30/1995 0.60% $16,137 0.64% $16,013 0.20% $12,199
07/31/1995 0.16% $16,163 0.05% $16,021 0.00% $12,199
08/31/1995 1.05% $16,333 0.83% $16,154 0.26% $12,231
09/30/1995 0.89% $16,478 0.67% $16,262 0.20% $12,255
10/31/1995 1.04% $16,649 1.10% $16,441 0.33% $12,296
11/30/1995 1.03% $16,821 1.22% $16,641 -0.07% $12,287
12/31/1995 1.17% $17,018 0.99% $16,806 -0.07% $12,278
01/31/1996 0.59% $17,118 0.84% $16,947 0.59% $12,351
02/29/1996 -0.85% $16,973 -1.06% $16,768 0.32% $12,390
03/31/1996 -0.43% $16,900 -0.46% $16,690 0.52% $12,455
04/30/1996 -0.43% $16,827 -0.29% $16,642 0.39% $12,503
05/31/1996 -0.28% $16,780 -0.05% $16,634 0.19% $12,527
06/30/1996 1.22% $16,985 1.02% $16,803 0.06% $12,535
07/31/1996 0.31% $17,037 0.31% $16,855 0.19% $12,559
08/31/1996 0.01% $17,039 0.11% $16,874 0.19% $12,582
09/30/1996 1.68% $17,325 1.29% $17,092 0.32% $12,623
10/31/1996 1.81% $17,639 1.64% $17,372 0.32% $12,663
11/30/1996 1.49% $17,902 1.21% $17,582 0.19% $12,687
12/31/1996 -0.57% $17,800 -0.54% $17,487 0.00% $12,687
01/31/1997 1.06% $17,988 0.38% $17,554 0.32% $12,728
02/28/1997 0.17% $18,019 0.16% $17,582 0.31% $12,767
03/31/1997 -0.28% $17,968 -0.57% $17,482 0.25% $12,799
04/30/1997 1.67% $18,268 1.13% $17,679 0.12% $12,814
05/31/1997 0.88% $18,429 0.78% $17,817 -0.06% $12,807
06/30/1997 1.18% $18,647 0.86% $17,970 0.12% $12,822
07/31/1997 1.91% $19,003 1.85% $18,303 0.12% $12,837
08/31/1997 -0.44% $18,919 -0.38% $18,233 0.19% $12,862
09/30/1997 1.31% $19,167 1.09% $18,432 0.25% $12,894
10/31/1997 0.87% $19,334 1.17% $18,648 0.25% $12,926
11/30/1997 0.28% $19,388 0.22% $18,689 -0.06% $12,919
12/31/1997 1.01% $19,584 0.81% $18,840 -0.12% $12,903
01/31/1998 0.86% $19,752 1.30% $19,085 0.19% $12,928
02/28/1998 0.14% $19,780 -0.11% $19,064 0.19% $12,952
03/31/1998 0.43% $19,865 0.31% $19,123 0.19% $12,977
04/30/1998 0.58% $19,980 0.48% $19,215 0.18% $13,000
05/31/1998 0.84% $20,148 0.69% $19,347 0.18% $13,023
06/30/1998 0.40% $20,229 0.67% $19,477 0.12% $13,039
07/31/1998 0.40% $20,309 0.38% $19,551 0.12% $13,055
08/31/1998 0.98% $20,509 1.89% $19,920 0.12% $13,070
09/30/1998 1.41% $20,798 2.33% $20,385 0.12% $13,086
10/31/1998 -0.61% $20,671 0.17% $20,419 0.24% $13,117
11/30/1998 0.69% $20,813 -0.31% $20,356 0.00% $13,117
12/31/1998 0.40% $20,897 0.39% $20,435 -0.06% $13,110
01/31/1999 0.69% $21,041 0.45% $20,527 0.24% $13,141
02/28/1999 -0.76% $20,881 -1.37% $20,246 0.12% $13,157
03/31/1999 0.56% $20,998 0.66% $20,380 0.30% $13,196
04/30/1999 0.55% $21,113 0.27% $20,435 0.73% $13,293
05/31/1999 -0.77% $20,951 -0.61% $20,310 0.00% $13,293
06/30/1999 -0.63% $20,819 0.14% $20,339 0.00% $13,293
07/31/1999 -0.64% $20,686 0.01% $20,341 0.30% $13,333
08/31/1999 -0.07% $20,671 0.14% $20,369 0.24% $13,365
09/30/1999 1.78% $21,041 0.86% $20,544 0.48% $13,429
</TABLE>
(*)Source: Standard and Poor's Micropal.
(**)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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class.
Past performance is not predictive of future results.
FUND CATEGORY
[PYRAMID GRAPH]
FRANKLIN UTILITIES FUND
- --------------------------------------------------------------------------------
Your Fund's Goal: Franklin Utilities Fund seeks both capital appreciation and
current income from a portfolio of public utility industry securities.
- --------------------------------------------------------------------------------
During the year under review, the electric utilities industry as a whole
remained in a period of transformation, as deregulation, which would create
competition for the first time, forced companies to redefine themselves. As with
the telephone and gas industries before it, we anticipate that electric industry
deregulation will lead to a higher industry growth rate. However, the
traditional forces affecting this industry's equity performance overshadowed
deregulation's near-term accomplishments. During the 12 months under review,
interest rates had the most impact on electric companies' stocks. Long-term
interest rates rose significantly, as evidenced by the 116 basis point increase
in the 30-year Treasury bond yield, from 4.90% on October 1, 1998, to 6.06% at
the end of the reporting period. This is an unusually large increase in such a
short time. The interest rate rise had a negative effect on the stock prices of
many of the utility companies held by the fund, and the fund's Class A shares
produced a cumulative total return of -8.54% for the one-year period ended
September 30, 1999.(1)
1. Cumulative total return measures the change in value of an investment,
assuming reinvestment of all distributions and does not include the sales
charge.
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 65 of
this report.
The fund's sector weightings did not change significantly over the past year, as
utility stocks made up 72% of the fund's total net assets on September 30, 1999.
However, during the period we continued to reposition the fund seeking to take
advantage of two, key developing industry themes. First, we invested in
companies located in states where legislatures have crafted favorable
transitional plans to the pending industry deregulation, and second, we invested
in companies achieving above-average earnings growth through unregulated
business activities.
So far, 1999 has been the most active year for the passage of retail competition
legislation, as Arkansas, Maryland, New Jersey, Ohio, Texas and Virginia passed
such laws. With a portion of the regulatory umbrella removed, individual
managements are more inclined to improve their equity returns, become more
efficient and pursue innovative investment ideas. Virginia based Dominion
Resources Inc., one the fund's five largest positions, is an example of how
beneficial legislation can impact individual electric companies. In late March,
the Virginia Governor signed into law legislation that provided a favorable
transition to competition. Since then, through September 30, 1999, Dominion's
stock price outperformed the S&P Electric Utilities Index by 23.9%. Other large
portfolio positions that we feel will benefit from their states' deregulation
plans include PG&E Corp., Sempra Energy, Unicom Corp., Texas Utilities Co., PECO
Energy Co. and Edison International.
PORTFOLIO BREAKDOWN
FRANKLIN UTILITIES FUND
BASED ON TOTAL NET ASSETS
9/30/99
[PIE CHART]
<TABLE>
<S> <C> 33
Utilities Stocks 72.0%
Utilities Bonds 13.8%
Convertible Securities 9.3%
Short-Term Obligations & Other Assets 4.9%
</TABLE>
TOP 10 HOLDINGS
FRANKLIN UTILITIES FUND
9/30/99
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY NET ASSETS
- ----------------------------------------------------------------------------------
<S> <C>
Southern Co. 4.44%
Duke Energy Corp. 4.37%
FPL Group Inc. 4.34%
Edison International 4.18%
Dominion Resources Inc. 4.04%
Sempra Energy 3.23%
PG&E Energy Co. 2.78%
PECO Energy Co. 2.55%
Unicom Corp. 2.48%
Entergy Corp. 2.29%
</TABLE>
Diversification can be a key performance driver for any company, but it is
particularly relevant to electric utilities, which often have difficulty
achieving significant valuation premiums to their peers based solely on the core
electric business. In last year's annual report, we highlighted Montana Power
Co., which we first began acquiring in the beginning of 1998, for its
outstanding diversification strategy. Montana Power remains one of the fund's
core holdings and was one of the best-performing electric utility companies
in the U.S. for the year ended September 30, 1999. We are pleased with Montana
Power's success and are actively searching for other companies with "hidden
value" among unregulated investments. Other holdings that we feel have potential
include PG&E, Conectiv Inc., PECO Energy, CMS Energy Corp., Northern States
Power Co., Edison International and Kansas City Power & Light Co.
Electric utility companies as a whole remain very cheap on a relative valuation
basis. At the end of the fund's fiscal year, the S&P Electric Utilities Index
was trading at 48% of the relative value of the Standard & Poor's 500 (S&P 500)
Index, based on a price/earnings ratio of projected 1999 earnings -- at the
lower end of its five-year range of 45% to 120%. Furthermore, analyst
expectations for the electric utilities industry's earnings growth rate over the
next five years have been trending upward. Recently, projections were as high as
5%, considered solid growth for the industry. Because of the improving electric
company fundamentals, we are optimistic for the fund's performance over the next
year.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1999. 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,
/s/ Sally Edwards Haff
- ---------------------------
Sally Edwards Haff
Portfolio Manager
Franklin Utilities Fund
PERFORMANCE SUMMARY AS OF 9/30/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION
<TABLE>
<CAPTION>
CLASS A CHANGE 9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.77 $9.59 $11.36
DISTRIBUTIONS (10/1/98 - 9/30/99)
-----------------------------------
Dividend Income $0.5240
Long-Term Capital Gain $0.3307
TOTAL $0.8547
</TABLE>
<TABLE>
<CAPTION>
CLASS B CHANGE 9/30/99 1/1/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.47 $9.59 $11.08
DISTRIBUTIONS (1/1/99 - 9/30/99)
-----------------------------------
Dividend Income $0.3558
</TABLE>
<TABLE>
<CAPTION>
CLASS C CHANGE 9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.77 $9.58 $11.35
DISTRIBUTIONS (10/1/98 - 9/30/99)
-----------------------------------
Dividend Income $0.4641
Long-Term Capital Gain $0.3307
TOTAL $0.7948
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS CHANGE 9/30/99 9/30/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Asset Value -$1.78 $9.61 $11.39
DISTRIBUTIONS (10/1/98 - 9/30/99)
-----------------------------------
Dividend Income $0.5385
Long-Term Capital Gain $0.3307
TOTAL $0.8692
</TABLE>
Franklin Utilities Fund paid distributions derived from long-term capital gains
of 33.07 cents ($0.3307) per share in December 1998. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852 (b)(3).
FRANKLIN UTILITIES FUND
CLASS A (formerly Class I):
Subject to the current, maximum 4.25% initial sales charge. Prior to July
1,1994, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1,1994, the fund implemented a Rule
12b-1 plan, which affects subsequent performance.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/30/48)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) -8.54 +66.55% +135.91% +13,009.92%
Average Annual Total Return(2) -12.40% +9.78% +8.49% +9.94%
Value of $10,000 Investment(3) $8,760 $15,946 $22,587 $1,252,984
Distribution Rate(4) 5.23%
30-Day Standardized Yield(5) 4.66%
</TABLE>
<TABLE>
<CAPTION>
9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ONE-YEAR TOTAL RETURN(6) +24.19% +5.94% +13.72% +21.71% -8.54%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- --------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) -10.37%
Aggregate Total Return(2) -13.83%
Value of $10,000 Investment(3) $8,617
Distribution Rate(4) 4.92%
30-Day Standardized Yield(5) 4.34%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -9.06% +24.65% +48.47%
Average Annual Total Return(2) -10.77% +7.26% +9.11%
Value of $10,000 Investment(3) $8,923 $12,338 $14,698
Distribution Rate(4) 4.87%
30-Day Standardized Yield(5) 4.30%
</TABLE>
<TABLE>
<CAPTION>
9/30/96 9/30/97 9/30/98 9/30/99
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ONE-YEAR TOTAL RETURN(6) +5.39% +13.06% +21.24% -9.06%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(7) 1-YEAR 5-YEAR 10-YEAR (9/30/48)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1) -8.48% +68.90% +139.24% +13,195.10%
Average Annual Total Return(2) -8.48% +11.05% +9.11% +10.06%
Value of $10,000 Investment(3) $9,152 $16,890 $23,924 $1,329,510
Distribution Rate(4) 5.61%
30-Day Standardized Yield(5) 5.01%
</TABLE>
<TABLE>
<CAPTION>
9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(6) +24.19% +5.94% +13.83% +22.20% -8.48%
</TABLE>
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 current, applicable,
maximum sales charge(s) for that class. Since Class B shares have existed for
less than one year, the figures for that class represent aggregate total return
from inception, including the maximum 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, applicable, maximum
sales charge(s) for that class.
4. Distribution rate is based on an annualization of the respective class's
September monthly dividend and the maximum offering price (net asset value price
for Class B and Advisor Class) per share on September 30, 1999.
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, 1999.
6. One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
7. 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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; 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 and average
annual total returns of Advisor Class shares were +22.58% and +7.69%
respectively.
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.
Past performance is not predictive of future results.
FRANKLIN UTILITIES FUND
AVERAGE ANNUAL TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
CLASS A
- --------------------------------------------------------------------------------
<S> <C>
1-Year -12.40%
5-Year +9.78%
10-Year +8.49%
Since Inception (9/30/48) +9.94%
</TABLE>
AGGREGATE TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
CLASS B
- --------------------------------------------------------------------------------
<S> <C>
Since Inception (1/1/99) -13.83%
</TABLE>
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), fund
expenses, account fees and reinvested distributions. The unmanaged index differs
from the fund in composition, does not pay management fees or expenses and
includes reinvested dividends. One cannot invest directly in an index.
CLASS A (10/1/89 - 9/30/99)
This graph compares the performance of Franklin Utilities Fund - Class A,
tracking the growth in value of a $10,000 investment, to that of the S&P 500
Index from 10/1/89-9/30/99.
<TABLE>
<CAPTION>
Date Franklin S&P 500* S&P 500
Utilities Fund - $T
Class A
- --------------------------------------------------------------------------
<S> <C> <C> <C>
10/01/1989 $ 9,574 $10,000
10/31/1989 $ 9,693 $ 9,768 -2.32%
11/30/1989 $ 9,976 $ 9,967 2.04%
12/31/1989 $10,466 $10,206 2.40%
01/31/1990 $ 9,972 $ 9,522 -6.71%
02/28/1990 $10,032 $ 9,644 1.29%
03/31/1990 $ 9,952 $ 9,900 2.65%
04/30/1990 $ 9,499 $ 9,654 -2.49%
05/31/1990 $ 9,977 $10,595 9.75%
06/30/1990 $10,057 $10,524 -0.67%
07/31/1990 $10,144 $10,490 -0.32%
08/31/1990 $ 9,558 $ 9,542 9.04%
09/30/1990 $ 9,512 $ 9,077 -4.87%
10/31/1990 $10,174 $ 9,038 -0.43%
11/30/1990 $10,365 $ 9,622 6.46%
12/31/1990 $10,506 $ 9,890 2.79%
01/31/1991 $10,402 $10,322 4.36%
02/28/1991 $10,791 $11,060 7.15%
03/31/1991 $10,945 $11,327 2.42%
04/30/1991 $11,037 $11,354 0.24%
05/31/1991 $10,998 $11,844 4.31%
06/30/1991 $10,913 $11,301 -4.58%
07/31/1991 $11,315 $11,828 4.66%
08/31/1991 $11,611 $12,108 2.37%
09/30/1991 $12,034 $11,906 -1.67%
10/31/1991 $12,185 $12,066 1.34%
11/30/1991 $12,444 $11,579 -4.03%
12/31/1991 $13,046 $12,904 11.44%
01/31/1992 $12,519 $12,664 -1.86%
02/29/1992 $12,491 $12,827 1.29%
03/31/1992 $12,435 $12,577 -1.95%
04/30/1992 $12,745 $12,947 2.94%
05/31/1992 $13,069 $13,011 0.49%
06/30/1992 $13,238 $12,817 -1.49%
07/31/1992 $13,940 $13,341 4.09%
08/31/1992 $13,897 $13,067 -2.05%
09/30/1992 $13,981 $13,220 1.17%
10/31/1992 $13,835 $13,265 0.34%
11/30/1992 $13,850 $13,716 3.40%
12/31/1992 $14,231 $13,885 1.23%
01/31/1993 $14,496 $14,002 0.84%
02/28/1993 $15,277 $14,192 1.36%
03/31/1993 $15,393 $14,491 2.11%
04/30/1993 $15,393 $14,141 -2.42%
05/31/1993 $15,378 $14,518 2.67%
06/30/1993 $15,752 $14,560 0.29%
07/31/1993 $16,085 $14,502 -0.40%
08/31/1993 $16,570 $15,052 3.79%
09/30/1993 $16,509 $14,936 -0.77%
10/31/1993 $16,417 $15,245 2.07%
11/30/1993 $15,667 $15,100 -0.95%
12/31/1993 $15,871 $15,283 1.21%
01/31/1994 $15,559 $15,803 3.40%
02/28/1994 $14,796 $15,374 -2.71%
03/31/1994 $14,291 $14,704 -4.36%
04/30/1994 $14,497 $14,892 1.28%
05/31/1994 $13,691 $15,136 1.64%
06/30/1994 $13,242 $14,766 -2.45%
07/31/1994 $13,835 $15,250 3.28%
08/31/1994 $13,915 $15,875 4.10%
09/30/1994 $13,562 $15,488 -2.44%
10/31/1994 $13,806 $15,836 2.25%
11/30/1994 $13,969 $15,260 -3.64%
12/31/1994 $14,016 $15,486 1.48%
01/31/1995 $14,843 $15,887 2.59%
02/28/1995 $14,826 $16,506 3.90%
03/31/1995 $14,613 $16,993 2.95%
04/30/1995 $14,932 $17,493 2.94%
05/31/1995 $15,788 $18,193 4.00%
06/30/1995 $15,790 $18,615 2.32%
07/31/1995 $15,739 $19,233 3.32%
08/31/1995 $15,978 $19,281 0.25%
09/30/1995 $16,843 $20,094 4.22%
10/31/1995 $17,188 $20,022 -0.36%
11/30/1995 $17,465 $20,901 4.39%
12/31/1995 $18,315 $21,304 1.93%
01/31/1996 $18,615 $22,029 3.40%
02/29/1996 $18,139 $22,234 0.93%
03/31/1996 $18,122 $22,447 0.96%
04/30/1996 $17,515 $22,777 1.47%
05/31/1996 $17,711 $23,365 2.58%
06/30/1996 $18,655 $23,453 0.38%
07/31/1996 $17,624 $22,417 -4.42%
08/31/1996 $17,877 $22,890 2.11%
09/30/1996 $17,844 $24,179 5.63%
10/31/1996 $18,431 $24,846 2.76%
11/30/1996 $18,687 $26,724 7.56%
12/31/1996 $18,687 $26,195 -1.98%
01/31/1997 $18,784 $27,832 6.25%
02/28/1997 $18,939 $28,049 0.78%
03/31/1997 $18,410 $26,897 -4.11%
04/30/1997 $18,272 $28,502 5.97%
05/31/1997 $18,843 $30,238 6.09%
06/30/1997 $19,464 $31,593 4.48%
07/31/1997 $19,922 $34,107 7.96%
08/31/1997 $19,483 $32,197 -5.60%
09/30/1997 $20,292 $33,962 5.48%
10/31/1997 $20,393 $32,828 -3.34%
11/30/1997 $21,747 $34,347 4.63%
12/31/1997 $23,340 $34,938 1.72%
01/31/1998 $22,439 $35,326 1.11%
02/28/1998 $22,795 $37,873 7.21%
03/31/1998 $24,219 $39,812 5.12%
04/30/1998 $23,349 $40,214 1.01%
05/31/1998 $23,052 $39,523 -1.72%
06/30/1998 $23,606 $41,127 4.06%
07/31/1998 $22,747 $40,687 -1.07%
08/31/1998 $23,520 $34,804 -14.46%
09/30/1998 $24,697 $37,035 6.41%
10/31/1998 $24,240 $40,046 8.13%
11/30/1998 $24,501 $42,472 6.06%
12/31/1998 $25,107 $44,919 5.76%
01/31/1999 $23,771 $46,796 4.18%
02/28/1999 $22,638 $45,341 -3.11%
03/31/1999 $22,251 $47,155 4.00%
04/30/1999 $23,651 $48,980 3.87%
05/31/1999 $24,731 $47,824 -2.36%
06/30/1999 $23,853 $50,478 5.55%
07/31/1999 $23,504 $48,903 -3.12%
08/31/1999 $23,457 $48,658 -0.50%
09/30/1999 $22,587 $47,325 -2.74%
</TABLE>
*Source: Standard and Poor's Micropal.
CLASS B (1/1/99 - 9/30/99)
This graph compares the performance of Franklin Utilities Fund - Class B,
tracking the growth in value of a $10,000 investment, to that of the S&P 500
Index from 1/1/99-9/30/99.
<TABLE>
<CAPTION>
Date Franklin S&P 500* S&P 500
Utilities Fund $T
- Class A
- ---------------------------------------------------------------------
<S> <C> <C> <C>
01/01/1999 $10,000 $10,000
01/31/1999 $9,468 $10,418 4.18%
02/28/1999 $9,016 $10,094 -3.11%
03/31/1999 $8,859 $10,498 4.00%
04/30/1999 $9,416 $10,904 3.87%
05/31/1999 $9,845 $10,647 -2.36%
06/30/1999 $9,487 $11,238 5.55%
07/31/1999 $9,339 $10,887 -3.12%
08/31/1999 $9,321 $10,833 -0.50%
09/30/1999 $8,617 $10,536 -2.74%
</TABLE>
*Source: Standard and Poor's Micropal.
Past performance is not predictive of future results.
AVERAGE ANNUAL TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
CLASS C
- --------------------------------------------------------------------------------
<S> <C>
1-Year -10.77%
3-Year +7.26%
Since Inception (5/1/95) +9.11%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
9/30/99
<TABLE>
<CAPTION>
ADVISOR CLASS(**)
- --------------------------------------------------------------------------------
<S> <C>
1-Year -8.48%
5-Year +11.05%
10-Year +9.11%
Since Inception (9/30/48) +10.06%
</TABLE>
(*)Source: Standard and Poor's Micropal.
(**)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
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class.
CLASS C (5/1/95 - 9/30/99)
This graph compares the performance of Franklin Utilities Fund - Class C,
tracking the growth in value of a $10,000 investment, to that of the S&P 500
Index from 5/1/95-9/30/99.
<TABLE>
<CAPTION>
Date Franklin S&P 500* S&P 500
Utilities Fund - $T
Class C
- ---------------------------------------------------------------------
<S> <C> <C> <C>
05/01/1995 $ 9,899 $10,000
05/31/1995 $10,492 $10,400 4.00%
06/30/1995 $10,500 $10,641 2.32%
07/31/1995 $10,454 $10,995 3.32%
08/31/1995 $10,613 $11,022 0.25%
09/30/1995 $11,188 $11,487 4.22%
10/31/1995 $11,406 $11,446 -0.36%
11/30/1995 $11,578 $11,948 4.39%
12/31/1995 $12,150 $12,179 1.93%
01/31/1996 $12,325 $12,593 3.40%
02/29/1996 $12,021 $12,710 0.93%
03/31/1996 $12,005 $12,832 0.96%
04/30/1996 $11,603 $13,021 1.47%
05/31/1996 $11,721 $13,357 2.58%
06/30/1996 $12,331 $13,407 0.38%
07/31/1996 $11,648 $12,815 -4.42%
08/31/1996 $11,816 $13,085 2.11%
09/30/1996 $11,791 $13,822 5.63%
10/31/1996 $12,167 $14,203 2.76%
11/30/1996 $12,337 $15,277 7.56%
12/31/1996 $12,333 $14,975 -1.98%
01/31/1997 $12,397 $15,911 6.25%
02/28/1997 $12,487 $16,035 0.78%
03/31/1997 $12,125 $15,376 -4.11%
04/30/1997 $12,034 $16,294 5.97%
05/31/1997 $12,398 $17,286 6.09%
06/30/1997 $12,804 $18,060 4.48%
07/31/1997 $13,106 $19,498 7.96%
08/31/1997 $12,804 $18,406 -5.60%
09/30/1997 $13,331 $19,415 5.48%
10/31/1997 $13,397 $18,766 -3.34%
11/30/1997 $14,275 $19,635 4.63%
12/31/1997 $15,320 $19,973 1.72%
01/31/1998 $14,727 $20,195 1.11%
02/28/1998 $14,948 $21,651 7.21%
03/31/1998 $15,875 $22,759 5.12%
04/30/1998 $15,304 $22,989 1.01%
05/31/1998 $15,096 $22,594 -1.72%
06/30/1998 $15,454 $23,511 4.06%
07/31/1998 $14,891 $23,259 -1.07%
08/31/1998 $15,383 $19,896 -14.46%
09/30/1998 $16,163 $21,171 6.41%
10/31/1998 $15,849 $22,893 8.13%
11/30/1998 $16,006 $24,280 6.06%
12/31/1998 $16,398 $25,678 5.76%
01/31/1999 $15,524 $26,752 4.18%
02/28/1999 $14,784 $25,920 -3.11%
03/31/1999 $14,528 $26,956 4.00%
04/30/1999 $15,428 $28,000 3.87%
05/31/1999 $16,132 $27,339 -2.36%
06/30/1999 $15,542 $28,856 5.55%
07/31/1999 $15,299 $27,956 -3.12%
08/31/1999 $15,269 $27,816 -0.50%
09/30/1999 $14,698 $27,054 -2.74%
</TABLE>
*Source: Standard and Poor's Micropal.
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 10/1/89-9/30/99.
<TABLE>
<CAPTION>
Date Franklin Utilities S&P 500* S&P 500
Fund - $T
Advisor Class**
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
10/01/1989 $10,000 $10,000
10/31/1989 $10,123 $9,768 -2.32%
11/30/1989 $10,420 $9,967 2.04%
12/31/1989 $10,931 $10,206 2.40%
01/31/1990 $10,415 $9,522 -6.71%
02/28/1990 $10,478 $9,644 1.29%
03/31/1990 $10,395 $9,900 2.65%
04/30/1990 $ 9,921 $9,654 -2.49%
05/31/1990 $10,420 $10,595 9.75%
06/30/1990 $10,504 $10,524 -0.67%
07/31/1990 $10,595 $10,490 -0.32%
08/31/1990 $ 9,982 $9,542 -9.04%
09/30/1990 $ 9,935 $9,077 -4.87%
10/31/1990 $10,626 $9,038 -0.43%
11/30/1990 $10,825 $9,622 6.46%
12/31/1990 $10,973 $9,890 2.79%
01/31/1991 $10,865 $10,322 4.36%
02/28/1991 $11,270 $11,060 7.15%
03/31/1991 $11,431 $11,327 2.42%
04/30/1991 $11,528 $11,354 0.24%
05/31/1991 $11,486 $11,844 4.31%
06/30/1991 $11,398 $11,301 -4.58%
07/31/1991 $11,818 $11,828 4.66%
08/31/1991 $12,127 $12,108 2.37%
09/30/1991 $12,569 $11,906 -1.67%
10/31/1991 $12,726 $12,066 1.34%
11/30/1991 $12,997 $11,579 -4.03%
12/31/1991 $13,626 $12,904 11.44%
01/31/1992 $13,075 $12,664 -1.86%
02/29/1992 $13,046 $12,827 1.29%
03/31/1992 $12,987 $12,577 1.95%
04/30/1992 $13,311 $12,947 2.94%
05/31/1992 $13,650 $13,011 0.49%
06/30/1992 $13,827 $12,817 -1.49%
07/31/1992 $14,559 $13,341 4.09%
08/31/1992 $14,514 $13,067 -2.05%
09/30/1992 $14,602 $13,220 1.17%
10/31/1992 $14,450 $13,265 0.34%
11/30/1992 $14,466 $13,716 3.40%
12/31/1992 $14,863 $13,885 1.23%
01/31/1993 $15,140 $14,002 0.84%
02/28/1993 $15,956 $14,192 1.36%
03/31/1993 $16,077 $14,491 2.11%
04/30/1993 $16,077 $14,141 -2.42%
05/31/1993 $16,062 $14,518 2.67%
06/30/1993 $16,453 $14,560 0.29%
07/31/1993 $16,800 $14,502 -0.40%
08/31/1993 $17,306 $15,052 3.79%
09/30/1993 $17,243 $14,936 -0.77%
10/31/1993 $17,147 $15,245 2.07%
11/30/1993 $16,363 $15,100 -0.95%
12/31/1993 $16,576 $15,283 1.21%
01/31/1994 $16,251 $15,803 3.40%
02/28/1994 $15,454 $15,374 -2.71%
03/31/1994 $14,926 $14,704 -4.36%
04/30/1994 $15,141 $14,892 1.28%
05/31/1994 $14,300 $15,136 1.64%
06/30/1994 $13,831 $14,766 -2.45%
07/31/1994 $14,450 $15,250 3.28%
08/31/1994 $14,534 $15,875 4.10%
09/30/1994 $14,165 $15,488 -2.44%
10/31/1994 $14,420 $15,836 2.25%
11/30/1994 $14,590 $15,260 -3.64%
12/31/1994 $14,639 $15,486 1.48%
01/31/1995 $15,503 $15,887 2.59%
02/28/1995 $15,485 $16,506 3.90%
03/31/1995 $15,262 $16,993 2.95%
04/30/1995 $15,595 $17,493 2.94%
05/31/1995 $16,490 $18,193 4.00%
06/30/1995 $16,492 $18,615 2.32%
07/31/1995 $16,439 $19,233 3.32%
08/31/1995 $16,688 $19,281 0.25%
09/30/1995 $17,592 $20,094 4.22%
10/31/1995 $17,952 $20,022 -0.36%
11/30/1995 $18,241 $20,901 4.39%
12/31/1995 $19,129 $21,304 1.93%
01/31/1996 $19,442 $22,029 3.40%
02/29/1996 $18,945 $22,234 0.93%
03/31/1996 $18,927 $22,447 0.96%
04/30/1996 $18,293 $22,777 1.47%
05/31/1996 $18,499 $23,365 2.58%
06/30/1996 $19,484 $23,453 0.38%
07/31/1996 $18,407 $22,417 -4.42%
08/31/1996 $18,672 $22,890 2.11%
09/30/1996 $18,637 $24,179 5.63%
10/31/1996 $19,250 $24,846 2.76%
11/30/1996 $19,518 $26,724 7.56%
12/31/1996 $19,517 $26,195 -1.98%
01/31/1997 $19,619 $27,832 6.25%
02/28/1997 $19,781 $28,049 0.78%
03/31/1997 $19,235 $26,897 -4.11%
04/30/1997 $19,091 $28,502 5.97%
05/31/1997 $19,687 $30,238 6.09%
06/30/1997 $20,342 $31,593 4.48%
07/31/1997 $20,821 $34,107 7.96%
08/31/1997 $20,342 $32,197 -5.60%
09/30/1997 $21,215 $33,962 5.48%
10/31/1997 $21,300 $32,828 -3.34%
11/30/1997 $22,715 $34,347 4.63%
12/31/1997 $24,410 $34,938 1.72%
01/31/1998 $23,467 $35,326 1.11%
02/28/1998 $23,840 $37,873 7.21%
03/31/1998 $25,338 $39,812 5.12%
04/30/1998 $24,450 $40,214 1.01%
05/31/1998 $24,116 $39,523 -1.72%
06/30/1998 $24,705 $41,127 4.06%
07/31/1998 $23,806 $40,687 -1.07%
08/31/1998 $24,593 $34,804 -14.46%
09/30/1998 $25,924 $37,035 6.41%
10/31/1998 $25,446 $40,046 8.13%
11/30/1998 $25,720 $42,472 6.06%
12/31/1998 $26,340 $44,919 5.76%
01/31/1999 $24,964 $46,796 4.18%
02/28/1999 $23,777 $45,341 -3.11%
03/31/1999 $23,380 $47,155 4.00%
04/30/1999 $24,848 $48,980 3.87%
05/31/1999 $25,978 $47,824 -2.36%
06/30/1999 $25,068 $50,478 5.55%
07/31/1999 $24,678 $48,903 -3.12%
08/31/1999 $24,653 $48,658 -0.50%
09/30/1999 $23,924 $47,325 2.74%
</TABLE>
Past performance is not predictive of future results.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
FRANKLIN DYNATECH FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
CLASS A 1999(3) 1998 1997 1996(5) 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 17.84 $ 18.48 $ 14.03 $ 12.78 $ 9.85
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .37 .27 .10 .06 .12
Net realized and unrealized gains .......... 5.14 .23 4.81 1.54 2.99
---------------------------------------------------------------------------------
Total from investment operations ............ 5.51 .50 4.91 1.60 3.11
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.24) (.17) (.06) (.12) (.05)
Net realized gains ......................... -- (.97) (.40) (.23) (.13)
---------------------------------------------------------------------------------
Total distributions ......................... (.24) (1.14) (.46) (.35) (.18)
---------------------------------------------------------------------------------
Net asset value, end of year ................ $ 23.11 $ 17.84 $ 18.48 $ 14.03 $ 12.78
=================================================================================
Total return(1) ............................. 31.15% 3.06% 35.63% 12.84% 32.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 499,471 $ 215,864 $ 188,102 $ 104,508 $ 92,987
Ratios to average net assets:
Expenses ................................... 1.00% 1.02% 1.04% 1.05% 1.01%
Net investment income ...................... 1.70% 1.55% .75% .43% 1.11%
Portfolio turnover rate ..................... 6.49% 10.84% 5.59% 11.94% 9.83%
CLASS C
- -------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 17.53 $ 18.30 $ 14.03 $ 13.57
-----------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .22 .15 .07 --
Net realized and unrealized gains .......... 5.05 .17 4.66 .46
-----------------------------------------------------------------
Total from investment operations ............ 5.27 .32 4.73 .46
-----------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.16) (.12) (.06) --
Net realized gains ......................... -- (.97) (.40) --
-----------------------------------------------------------------
Total distributions ......................... (.16) (1.09) (.46) --
-----------------------------------------------------------------
Net asset value, end of year ................ $ 22.64 $ 17.53 $ 18.30 $ 14.03
=================================================================
Total return(1) ............................. 30.20% 2.03% 34.32% 3.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 73,890 $ 12,358 $ 3,386 $ --
Ratios to average net assets:
Expenses ................................... 1.75% 1.79% 1.82% 1.85%(2)
Net investment income ...................... 1.00% .81% .25% (0.14%)(2)
Portfolio turnover rate ..................... 6.49% 10.84% 5.59% 11.94%
</TABLE>
(1)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2)Annualized.
(3)Based on average shares outstanding.
(5)For the period September 16,1996 (effective date) to September 30,1996 for
Class C.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30,1999
<TABLE>
<CAPTION>
DYNATECH FUND SHARES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 48.1%
AIR FREIGHT/DELIVERY SERVICES .5%
Air Express International Corp................. 20,000 $ 453,750
C.H.Robinson Worldwide Inc. ................... 20,000 673,750
(a)FDX Corp. ..................................... 40,000 1,550,000
----------
2,677,500
----------
BIOTECHNOLOGY 1.8%
(a)Amgen Inc. .................................... 40,000 3,260,000
(a)Centocor Inc. ................................. 20,000 1,171,250
(a)Genentech Inc. ................................ 40,800 5,969,550
(a)Noven Pharmaceuticals Inc. .................... 20,400 173,400
----------
10,574,200
----------
BROADCASTING 1.1%
(a)AT&T Corp.- Liberty Media Group,A ............. 120,000 4,455,000
(a)Entercom Communications Corp. ................. 48,500 1,746,000
----------
6,201,000
----------
CATALOG/SPECIALTY DISTRIBUTION .3%
(a)Amazon.com Inc. ............................... 24,000 1,918,500
----------
CELLULAR TELEPHONE .8%
(a)Nextel Communications Inc.,A .................. 30,000 2,034,375
(a)Vodafone AirTouch PLC,ADR (United Kingdom) .... 10,000 2,377,500
----------
4,411,875
----------
COMPUTER COMMUNICATIONS 3.2%
(a)Cisco Systems Inc. ............................ 270,000 18,511,875
----------
COMPUTER SOFTWARE 7.4%
(a)Check Point Software Technologies Ltd. ........ 50,000 4,221,875
(a)I2 Technologies Inc. .......................... 80,000 3,105,000
(a)Intuit Inc. ................................... 25,000 2,191,406
(a)Microsoft Corp. ............................... 360,000 32,602,500
----------
42,120,781
----------
CONSUMER ELECTRONICS/APPLIANCES 1.0%
Sony Corp.,ADR (Japan) ........................ 40,000 6,002,500
----------
DEPARTMENT STORES .2%
(a)Federated Department Stores Inc. .............. 30,000 1,310,625
----------
DIVERSIFIED COMMERCIAL SERVICES
(a)Gartner Group Inc., B ......................... 7,812 130,363
----------
DIVERSIFIED ELECTRONIC PRODUCTS 1.0%
(a)JDS Uniphase Corp. ............................ 50,000 5,690,625
----------
DIVERSIFIED FINANCIAL SERVICES .3%
Citigroup Inc. ................................ 45,000 1,980,000
----------
EDP PERIPHERALS .3%
Symbol Technologies Inc. ...................... 45,000 1,513,125
----------
EDP Services 1.6%
(a)Computer Sciences Corp. ....................... 20,000 1,406,250
(a)Equant NV (Netherlands) ....................... 25,000 2,034,375
First Data Corp. .............................. 60,000 2,632,500
(a)International Network Services ................ 52,500 2,854,688
----------
8,927,813
----------
ELECTRONIC DATA PROCESSING 4.0%
(a)Apple Computer Inc. ........................... 20,000 1,266,250
Compaq Computer Corp. ......................... 180,000 4,128,750
Hewlett-Packard Co. ........................... 100,000 9,200,000
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30,1999 (CONT.)
<TABLE>
<CAPTION>
DYNATECH FUND SHARES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC DATA PROCESSING (CONT.)
International Business Machines Corp. ......... 30,000 $ 3,641,250
(a)NCR Corp. ..................................... 10,000 330,625
(a)Sun Microsystems Inc. ......................... 50,000 4,650,000
-----------
23,216,875
-----------
ELECTRONIC PRODUCTION EQUIPMENT .5%
(a)Applied Materials Inc. ........................ 40,000 3,115,000
-----------
ENVIRONMENTAL SERVICES .1%
(a)Casella Waste Systems Inc.,A .................. 25,000 417,186
-----------
FINANCIAL PUBLISHING/SERVICES .1%
Equifax Inc. .................................. 20,000 562,500
-----------
INSURANCE BROKERS/SERVICES
(a)Choicepoint Inc. .............................. 2,000 134,750
-----------
INTERNET SERVICES 2.7%
(a)Allaire Corp. ................................. 22,500 1,260,000
(a)America Online Inc. ........................... 10,000 1,040,000
(a)China.Com Corp. ............................... 600 39,000
(a)Ebay Inc. ..................................... 22,500 3,173,906
(a)Inktomi Corp. ................................. 50,000 6,001,563
(a)Keynote Systems Inc. .......................... 9,600 240,000
(a)Liberate Technologies Inc. .................... 21,200 893,050
(a)Proxicom Inc. ................................. 4,900 286,650
(a)Realnetworks Inc. ............................. 18,600 1,944,863
(a)RoweCom Inc. .................................. 2,700 74,925
(a)VerticalNet Inc. .............................. 3,600 133,200
(a)Vignette Corp. ................................ 2,200 199,100
-----------
15,286,257
-----------
INVESTMENT BANKERS/BROKERS/SERVICES .3%
(a)E(*)TRADE Group Inc. .......................... 80,000 1,880,000
-----------
MAJOR PHARMACEUTICALS 3.3%
Bristol-Myers Squibb Co. ...................... 30,000 2,025,000
Merck & Co.Inc. ............................... 30,000 1,944,375
Pfizer Inc. ................................... 150,000 5,390,625
Schering-Plough Corp. ......................... 80,000 3,490,000
Warner-Lambert Co. ............................ 90,000 5,973,750
-----------
18,823,750
-----------
MAJOR U.S.TELECOMMUNICATIONS .9%
AT&T Corp. .................................... 50,000 2,175,000
(a)Sprint Corp.(PCS Group) ....................... 40,000 2,982,500
-----------
5,157,500
-----------
MANAGED HEALTH CARE .3%
United Healthcare Corp. ....................... 30,000 1,460,625
-----------
MEDIA CONGLOMERATES .3%
(a)Clear Channel Communications Inc. ............. 20,000 1,597,500
-----------
MEDICAL ELECTRONICS .6%
Medtronic Inc. ................................ 100,000 3,550,000
-----------
MEDICAL/DENTAL DISTRIBUTORS .2%
McKesson HBOC Inc. ............................ 43,000 1,247,000
-----------
MILITARY/GOVERNMENT/TECHNICAL .4%
(a)General Motors Corp., H ....................... 40,000 2,290,000
-----------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30,1999 (CONT.)
<TABLE>
<CAPTION>
DYNATECH FUND SHARES VALUE
------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
MOVIES/ENTERTAINMENT .4%
Time Warner Inc. ............................................. 40,000 $ 2,430,000
-----------
NEWSPAPERS .1%
News Corp.Ltd.,Sponsored ADR (Australia) ..................... 20,000 568,750
-----------
OILFIELD SERVICES/EQUIPMENT .3%
Schlumberger Ltd. ............................................ 30,000 1,869,375
-----------
OTHER TELECOMMUNICATIONS 1.3%
(a)Global Crossing Ltd. ......................................... 82,000 2,173,000
(a)MCI Worldcom Inc. ............................................ 60,000 4,312,500
(a)Qwest Communications International Inc. ...................... 30,000 886,875
-----------
7,372,375
-----------
PACKAGE GOODS/COSMETICS .3%
Estee Lauder Cos.Inc.,A ...................................... 40,000 1,562,500
-----------
PRECISION INSTRUMENTS .3%
(a)Waters Corp. ................................................. 27,600 1,671,525
-----------
RECREATIONAL PRODUCTS/TOYS .1%
(a)Electronic Arts Inc. ......................................... 10,000 723,750
-----------
SEMICONDUCTORS 8.1%
(a)Broadcom Corp.,A ............................................. 1,600 174,400
Intel Corp. .................................................. 560,000 41,615,000
Linear Technology Corp. ...................................... 40,000 2,351,250
Taiwan Semiconductor Manufacturing Co.Ltd.,ADR (Taiwan) ...... 24,600 725,700
(a)Xilinx Inc. .................................................. 20,000 1,310,625
-----------
46,176,975
-----------
SERVICES TO THE HEALTH INDUSTRY .2%
IMS Health Inc. .............................................. 60,000 1,368,750
-----------
SPECIALTY CHEMICALS .3%
Sigma-Aldrich Corp. .......................................... 50,000 1,587,500
-----------
TELECOMMUNICATIONS EQUIPMENT 3.5%
(a)Corning Inc. ................................................. 20,000 1,371,250
(a)General Instrument Corp. ..................................... 70,000 3,368,750
Lucent Technologies Inc. ..................................... 42,408 2,751,218
Motorola Inc. ................................................ 140,000 12,320,000
-----------
19,811,218
-----------
TOTAL COMMON STOCKS (COST $105,160,579) ...................... 275,852,443
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
-----------
<S> <C> <C>
SHORT TERM INVESTMENTS 21.1%
FHLB,1/19/00 .................................................... $ 20,000,000 19,682,220
FHLB,2/02/00 .................................................... 5,000,000 4,906,310
FHLMC,1/20/00 ................................................... 15,000,000 14,759,505
FHLMC,1/27/00 ................................................... 33,190,000 32,624,310
FHLMC,2/03/00 ................................................... 25,000,000 24,527,775
FNMA,2/07/00 .................................................... 25,000,000 24,512,675
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $120,968,939) ................ 121,012,795
-----------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT
(COST $226,129,518) ........................................... 396,865,238
-----------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30,1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
DYNATECH FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(d)REPURCHASE AGREEMENT 30.8%
Joint Repurchase Agreement,5.217%,10/01/99 (Maturity Value $176,290,692)
(COST $176,265,148) ....................................................................... 176,265,148 $176,265,148
Banc of America Securities LLC (Maturity Value $17,750,643)
Barclays Capital Inc.(Maturity Value $17,750,643)
Bear,Stearns & Co.Inc. (Maturity Value $17,750,643)
Chase Securities Inc. (Maturity Value $16,534,905)
CIBC World Markets Corp.(Maturity Value $17,750,643)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $17,750,643)
Dresdner Kleinwort Benson,North America LLC (Maturity Value $17,750,643)
Paine Webber Inc. (Maturity Value $17,750,643)
Paribas Corp. (Maturity Value $17,750,643)
Warburg Dillon Read LLC (Maturity Value $17,750,643)
Collateralized by U. S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $402,394,666) 100.0% .................................................. 573,130,386
OTHER ASSETS, LESS LIABILITIES ................................................................ 230,075
------------
NET ASSETS 100.0% ............................................................................. $573,360,461
------------
</TABLE>
(a)Non-Income Producing.
(d)See note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
FINANCIAL HIGHLIGHTS
FRANKLIN GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
CLASS A 1999(3,7) 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 28.58 $ 27.09 $ 22.82 $ 19.38 $ 14.96
-------------------------------------------------------------------------------
Income from investment operations:
Net investment income ......................... .39 .49 .36 .22 .17
Net realized and unrealized gains ............. 4.89 1.71 4.34 3.53 4.43
-------------------------------------------------------------------------------
Total from investment operations ............... 5.28 2.20 4.70 3.75 4.60
-------------------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (.44) (.47) (.23) (.16) (.14)
Net realized gains ............................ (.21) (.24) (.20) (.15) (.04)
-------------------------------------------------------------------------------
Total distributions ............................ (.65) (.71) (.43) (.31) (.18)
-------------------------------------------------------------------------------
Net asset value, end of year ................... $ 33.21 $ 28.58 $ 27.09 $ 22.82 $ 19.38
===============================================================================
Total return(1) ................................ 18.63% 8.22% 20.84% 19.60% 31.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 2,119,740 $ 1,635,780 $ 1,435,561 $ 1,020,486 $ 712,866
Ratios to average net assets:
Expenses ...................................... .89% .88% .89% .87% .90%
Net investment income ......................... 1.19% 1.78% 1.60% 1.16% 1.08%
Portfolio turnover rate ........................ 3.74% .58% 1.77% 2.03% 1.39%
CLASS B
- -----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 31.45
-------------
Income from investment operations:
Net investment income ......................... .14
Net realized and unrealized gains ............. 1.44
-------------
Total from investment operations ............... 1.58
-------------
Net asset value, end of year ................... $ 33.03
=============
Total return(1) ................................ 5.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 17,271
Ratios to average net assets:
Expenses ...................................... 1.65%(2)
Net investment income ......................... 57%(2)
Portfolio turnover rate ........................ 3.74%
</TABLE>
(1)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2)Annualized.
(3)Based on average shares outstanding.
(7)For the period January 1,1999 (effective date) to September 30,1999 for Class
B.
FRANKLIN CUSTODIAN FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
CLASS C 1999(3) 1998 1997(6) 1996 1995(4)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $ 28.11 $ 26.70 $ 22.60 $ 19.33 $ 16.88
----------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................... 14 .29 .20 .12 .02
Net realized and unrealized gains ............... 4.81 1.66 4.25 3.46 2.43
----------------------------------------------------------------------------
Total from investment operations ................. 4.95 1.95 4.45 3.58 2.45
----------------------------------------------------------------------------
Less distributions from:
Net investment income ........................... (.27) (.30) (.15) (.16) --
Net realized gains .............................. (.21) (.24) (.20) (.15) --
----------------------------------------------------------------------------
Total distributions .............................. (.48) (.54) (.35) (.31) --
----------------------------------------------------------------------------
Net asset value, end of year ..................... $ 32.58 $ 28.11 $ 26.70 $ 22.60 $ 19.33
============================================================================
Total return(1) .................................. 17.71% 7.39% 19.91% 18.73% 14.72%
RATIOS/SUPPLEMENTAL DATA
Net assets,end of year (000's) ................... $ 362,216 $ 189,572 $ 117,218 $ 43,417 $ 4,161
Ratios to average net assets:
Expenses ........................................ 1.65% 1.65% 1.66% 1.63% 1.79%(2)
Net investment income ........................... .45% 1.02% .85% .40% .37%(2)
Portfolio turnover rate .......................... 3.74% .58% 1.77% 2.03% 1.39%
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value,beginning of year ................ $ 28.63 $ 27.13 $ 23.24
---------------------------------------------------
Income from investment operations:
Net investment income ........................... .46 .57 .25
Net realized and unrealized gains ............... 4.90 1.69 3.64
---------------------------------------------------
Total from investment operations ................. 5.36 2.26 3.89
---------------------------------------------------
Less distributions from:
Net investment income ........................... (.51) (.52) --
Net realized gains .............................. (.21) (.24) --
---------------------------------------------------
Total distributions .............................. (.72) (.76) --
---------------------------------------------------
Net asset value,end of year ...................... $ 33.27 $ 28.63 $ 27.13
===================================================
Total return(1) .................................. 18.89% 8.47% 16.74%
RATIOS/SUPPLEMENTAL DATA
Net assets,end of year (000's) ................... $ 35,461 $ 41,871 $ 25,823
Ratios to average net assets:
Expenses ........................................ .65% .65% .66%(2)
Net investment income ........................... 1.41% 2.01% 1.93%(2)
Portfolio turnover rate .......................... 3.74% .58% 1.77%
</TABLE>
(1) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2) Annualized.
(3) Based on average shares outstanding.
(4) For the period May 1, 1995 (effective date) to September 30,1995 for Class
C.
(6) For the period January 2, 1997 (effective date) to September 30,1997 for
Advisor Class.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
SHARES/
GROWTH FUND WARRANTS VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS, WARRANTS, AND RIGHTS 68.7%
COMMERCIAL SERVICES 1.5%
(a)AC Nielsen Corp. ........................... 81,333 $ 1,845,242
Dun & Bradstreet Corp. ..................... 244,000 7,289,500
Equifax Inc. ............................... 400,000 11,250,000
(a)Gartner Group Inc., B ...................... 63,537 1,060,274
Kelly Services Inc., A ..................... 300,000 9,037,500
Nielsen Media Research ..................... 81,333 3,024,571
(a)Programming & Systems Inc. ................. 345,300 6,906
R.H. Donnelley Corp. ....................... 48,800 908,900
Wallace Computer Services Inc. ............. 200,000 4,050,000
------------
38,472,893
------------
CONSUMER DURABLES 1.3%
Eastman Kodak Co. .......................... 200,000 15,087,500
Genuine Parts Co. .......................... 135,000 3,585,938
Mattel Inc. ................................ 500,000 9,500,000
Polaroid Corp. ............................. 200,000 5,200,000
------------
33,373,438
------------
CONSUMER NON-DURABLES 1.9%
American Greetings Corp., A ................ 500,000 12,875,000
Hershey Foods Corp. ........................ 258,200 12,571,113
International Flavors & Fragrances Inc. .... 412,600 14,234,700
Nature's Sunshine Products Inc. ............ 33,000 312,469
V. F. Corp. ................................ 300,000 9,300,000
------------
49,293,282
------------
CONSUMER SERVICES 3.6%
Carnival Corp. ............................. 25,200 1,096,200
(a)Intervisual Books Inc. ..................... 100,000 112,500
(a)King World Productions Inc. ................ 20,000 750,000
The Walt Disney Co. ........................ 914,796 23,670,347
Time Warner Inc. ........................... 900,000 54,675,000
(a)USA Networks Inc. .......................... 300,100 11,628,875
------------
91,932,922
------------
ELECTRONIC TECHNOLOGY 14.1%
(a)Apple Computer Inc. ........................ 200,000 12,662,500
Boeing Co. ................................. 600,000 25,575,000
(a)Cabletron Systems Inc. ..................... 225,000 3,529,688
(a)Cisco Systems Inc. ......................... 675,000 46,279,688
Compaq Computer Corp. ...................... 150,000 3,440,625
(a)Conexant Systems Inc. ...................... 50,000 3,632,813
Cordant Technologies Inc. .................. 240,000 7,305,000
(a)Dell Computer Corp. ........................ 40,000 1,672,500
(a)Dionex Corp. ............................... 200,000 8,550,000
Hewlett-Packard Co. ........................ 400,000 36,800,000
Intel Corp. ................................ 400,000 29,725,000
International Business Machines Corp. ...... 560,000 67,970,000
Lockheed Martin Corp. ...................... 325,200 10,629,975
Molex Inc. ................................. 117,187 4,262,677
Molex Inc., A .............................. 117,187 3,793,929
Raytheon Co., B ............................ 500,000 24,812,500
Rockwell International Corp. ............... 100,000 5,250,000
(a)Sun Microsystems Inc. ...................... 400,000 37,200,000
United Technologies Corp. .................. 400,000 23,725,000
------------
356,816,895
------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
GROWTH FUND WARRANTS VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS, WARRANTS, AND RIGHTS (CONT.)
ENERGY MINERALS 1.4%
Atlantic Richfield Co. ............................. 180,000 $ 15,952,500
Murphy Oil Corp. ................................... 40,000 2,162,500
Royal Dutch Petroleum Co., N.Y. shs.(Netherlands) .. 280,000 16,537,500
Union Pacific Resources Group Inc. ................. 101,633 1,632,480
------------
36,284,980
------------
FINANCE .1%
(a)Choicepoint Inc. ................................... 40,000 2,695,000
------------
HEALTH SERVICES .6%
Cardinal Health Inc. ............................... 62,250 3,392,625
(a)Caremark RX Inc. ................................... 75,625 425,391
IMS Health Inc. .................................... 488,000 11,132,500
------------
14,950,516
------------
HEALTH TECHNOLOGY 15.8%
Abbott Laboratories ................................ 400,000 14,700,000
Allergan Inc. ...................................... 200,000 22,000,000
(a)Allergan Specialty Therapeutics Inc., A ............ 10,000 118,125
(a)Alza Corp. ......................................... 100,000 4,281,250
(a)Alza Corp.,wts., 12/31/99 .......................... 8,000 250
American Home Products Corp. ....................... 600,000 24,900,000
(a)Amgen Inc. ......................................... 400,000 32,600,000
Baxter International Inc. .......................... 250,000 15,062,500
Bristol-Myers Squibb Co. ........................... 640,000 43,200,000
(a)Crescendo Pharmaceuticals Corp., A ................. 5,000 90,313
(a)Immunex Corp. ...................................... 80,000 3,470,000
Johnson & Johnson .................................. 400,000 36,750,000
Lilly (Eli) & Co. .................................. 400,000 25,600,000
Mallinckrodt Inc. .................................. 116,000 3,501,750
Merck & Co. Inc. ................................... 400,000 25,925,000
(a)Perrigo Co. ........................................ 100,000 787,500
Pfizer Inc. ........................................ 1,920,000 69,000,000
(a)Respironics Inc. ................................... 93,000 767,250
Schering-Plough Corp. .............................. 1,800,000 78,525,000
U.S.Surgical Corp., rts.,6/23/00 ................... 515 --
------------
401,278,938
------------
INDUSTRIAL SERVICES 1.1%
Schlumberger Ltd. .................................. 400,000 24,925,000
Waste Management Inc. .............................. 152,250 2,930,813
------------
27,855,813
------------
NON-ENERGY MINERALS
Deltic Timber Corp. ................................ 11,428 259,987
------------
PROCESS INDUSTRIES 4.1%
Air Products & Chemicals Inc. ...................... 400,000 11,625,000
Avery Dennison Corp. ............................... 220,000 11,605,000
Canadian Pacific Ltd.(Canada) ...................... 500,000 11,406,250
Eastman Chemical Co. ............................... 25,000 1,000,000
(a)Imation Corp. ...................................... 37,200 1,153,200
(a)Ionics Inc. ........................................ 400,000 12,950,000
Millipore Corp. .................................... 400,000 15,025,000
National Service Industries Inc. ................... 100,000 3,150,000
NCH Corp. .......................................... 200,000 9,037,500
Pall Corp. ......................................... 500,000 11,593,750
Sigma-Aldrich Corp. ................................ 200,000 6,350,000
Textron Inc. ....................................... 100,000 7,737,500
------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
SHARES/
GROWTH FUND WARRANTS VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS,WARRANTS,AND RIGHTS (CONT.)
102,633,200
-------------
PRODUCER MANUFACTURING 6.3%
(a)American Power Conversion Corp. ....................... 200,000 $ 3,800,000
Caterpillar Inc. ...................................... 200,000 10,962,500
Deere & Co. ........................................... 300,000 11,606,250
Emerson Electric Co. .................................. 100,000 6,318,750
Meritor Automotive Inc. ............................... 16,666 347,903
Minnesota Mining & Manufacturing Co. .................. 400,000 38,425,000
(a)Osmonics Inc. ......................................... 300,000 3,168,750
Teleflex Inc. ......................................... 250,000 9,859,375
Tyco International Ltd. ............................... 720,599 74,401,847
-------------
158,890,375
-------------
RETAIL TRADE 3.4%
Tiffany & Co. ......................................... 1,400,000 83,912,500
Weis Markets Inc. ..................................... 58,218 1,993,967
-------------
85,906,467
-------------
TECHNOLOGY SERVICES 4.2%
Automatic Data Processing Inc. ........................ 800,000 35,700,000
(a)Computer Sciences Corp. ............................... 900,000 63,281,250
(a)Microsoft Corp. ....................................... 80,000 7,245,000
-------------
106,226,250
-------------
TRANSPORTATION 8.3%
Air Express International Corp. ....................... 300,000 6,806,250
(a)Alaska Air Group Inc. ................................. 200,000 8,137,500
(a)AMR Corp. ............................................. 900,000 49,050,000
British Airways PLC,ADR (United Kingdom) .............. 200,000 11,425,000
(a)Continental Airlines Inc., B .......................... 300,000 9,825,000
Delta Air Lines Inc. .................................. 1,000,000 48,500,000
KLM Royal Dutch Airlines, N.Y. shs.(Netherlands) ...... 307,893 8,043,711
(a)Northwest Airlines Corp. .............................. 400,000 10,200,000
Providence & Worchester Railroad Co. .................. 40,200 427,120
(a)UAL Corp. ............................................. 600,000 39,187,500
Union Pacific Corp. ................................... 300,000 14,418,750
(a)US Airways Group Inc. ................................. 200,000 5,250,000
-------------
211,270,831
-------------
UTILITIES 1.0%
Coastal Corp. ......................................... 600,000 24,562,500
-------------
TOTAL COMMON STOCKS AND WARRANTS (COST $705,294,548) .... 1,742,704,287
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
SHORT TERM INVESTMENTS 14.0%
FHLB,1/19/00 ...................................................... $55,000,000 54,126,105
FHLB,2/02/00 ...................................................... 45,000,000 44,156,790
FHLMC,1/20/00 ..................................................... 50,000,000 49,198,350
FHLMC,1/27/00 ..................................................... 70,000,000 68,806,920
FHLMC,2/03/00 ..................................................... 90,000,000 88,299,990
FNMA,2/07/00 ...................................................... 50,000,000 49,025,350
-------------
TOTAL SHORT TERM INVESTMENTS (COST $353,506,963) .................. 353,613,505
-------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENT (COST $1,058,801,511) 2,096,317,792
-------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
GROWTH FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(d) REPURCHASE AGREEMENT 17.7%
Joint Repurchase Agreement,5.217%,10/01/99
(Maturity Value $448,771,625) (COST $448,706,600) ............................. $ 448,706,600 $ 448,706,600
Banc of America Securities LLC (Maturity Value $45,186,644)
Barclays Capital Inc. (Maturity Value $45,186,644)
Bear, Stearns & Co. Inc. (Maturity Value $45,186,644)
Chase Securities Inc. (Maturity Value $42,091,829)
CIBC World Markets Corp. (Maturity Value $45,186,644)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $45,186,644)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $45,186,644)
Paine Webber Inc. (Maturity Value $45,186,644)
Paribas Corp. (Maturity Value $45,186,644)
Warburg Dillon Read LLC (Maturity Value $45,186,644)
Collateralized by U.S. Treasury Bills & Notes
---------------
TOTAL INVESTMENTS (COST $1,507,508,111) 100.4% ................................. 2,545,024,392
OTHER ASSETS, LESS LIABILITIES (.4%) ........................................... (10,336,569)
---------------
NET ASSETS 100.0% .............................................................. $ 2,534,687,823
===============
</TABLE>
(a)Non-income producing.
(d) See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
<TABLE>
<CAPTION>
FRANKLIN INCOME FUND
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------
CLASS A 1999(3,7) 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ......... $ 2.34 $ 2.49 $ 2.30 $ 2.30 $ 2.22
------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income .................... .17 .17 .18 .19 .18
Net realized and unrealized gains (losses) (.09) (.11) .20 .02 .11
------------- ------------- ------------- ------------- -------------
Total from investment operations .......... .08 .06 .38 .21 .29
------------- ------------- ------------- ------------- -------------
Less distributions from:
Net investment income .................... (.18) (.18) (.18) (.18) (.18)
Net realized gains ....................... (.01) (.03) (.01) (.03) (.03)
------------- ------------- ------------- ------------- -------------
Total distributions ....................... (.19) (.21) (.19) (.21) (.21)
------------- ------------- ------------- ------------- -------------
Net asset value, end of year ............... $ 2.23 $ 2.34 $ 2.49 $ 2.30 $ 2.30
============= ============= ============= ============= =============
Total return(1) ........................... 4.02% 2.23% 17.31% 9.43% 14.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $ 6,776,804 $ 7,704,983 $ 7,738,746 $ 6,780,153 $ 5,885,788
Ratios to average net assets:
Expenses ................................. 73% .72% .72% .70% .71%
Net investment income .................... 7.46% 6.83% 7.45% 8.27% 8.26%
Portfolio turnover rate ................... 17.35% 22.01% 16.15% 25.29% 58.64%
CLASS B
- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ........ $ 2.36
------------
Income from investment operations:
Net investment income .................... .12
Net realized and unrealized losses ....... (.11)
------------
Total from investment operations .......... .01
------------
Less distributions from net investment
income .................................. (.13)
------------
Net asset value, end of year .............. $ 2.24
============
Total return(1) ........................... .34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........... $ 83,031
Ratios to average net assets:
Expenses ................................. 1.23%(2)
Net investment income .................... 7.22%(2)
Portfolio turnover rate ................... .17.35%
</TABLE>
(1)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2)Annualized.
(3)Based on average shares outstanding.
(7)For the period January 1,1999 (effective date) to September 30,1999 for Class
B.
FRANKLIN CUSTODIAN FUNDS, INC.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
CLASS C 1999(3) 1998 1997(6) 1996 1995(4)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 2.34 $ 2.49 $ 2.30 $ 2.30 $ 2.18
------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income ...................... .16 .16 .16 .17 .08
Net realized and unrealized gains (losses) . (.08) (.11) .21 .03 .11
------------- ------------- ------------- ------------- -------------
Total from investment operations ............ .08 .05 .37 .20 .19
------------- ------------- ------------- ------------- -------------
Less distributions from:
Net investment income ...................... (.17) (.17) (.17) (.17) (.07)
Net realized gains ......................... (.01) (.03) (.01) (.03) --
------------- ------------- ------------- ------------- -------------
Total distributions ......................... (.18) (.20) (.18) (.20) (.07)
------------- ------------- ------------- ------------- -------------
Net asset value, end of year ................ $ 2.24 $ 2.34 $ 2.49 $ 2.30 $ 2.30
============= ============= ============= ============= =============
Total return(1) ............................. 3.46% 1.70% 16.72% 8.86% 8.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 997,438 $ 1,014,634 $ 695,355 $ 343,314 $ 65,822
Ratios to average net assets:
Expenses ................................... 1.23% 1.22% 1.22% 1.21% 1.23%(2)
Net investment income ...................... 6.97% 6.35% 6.96% 7.84% 7.89%(2)
Portfolio turnover rate ..................... 17.35% 22.01% 16.15% 25.29% 58.64%
ADVISOR CLASS
- -------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 2.34 $ 2.48 $ 2.34
------------- ------------- -------------
Income from investment operations:
Net investment income ...................... .17 .17 .14
Net realized and unrealized gains (losses) . (.09) (.10) .14
------------- ------------- -------------
Total from investment operations ............ .08 .07 .28
------------- ------------- -------------
Less distributions from:
Net investment income ...................... (.18) (.18) (.14)
Net realized gains ......................... (.01) (.03) --
------------- ------------- -------------
Total distributions ......................... (.19) (.21) (.14)
------------- ------------- -------------
Net asset value, end of year ................ $ 2.23 $ 2.34 $ 2.48
============= ============= =============
Total return(1) ............................. 3.71% 2.82% 12.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 23,891 $ 21,851 $ 13,318
Ratios to average net assets:
Expenses ................................... .58% .57% .57%(2)
Net investment income ...................... 7.60% 7.02% 7.58%(2)
Portfolio turnover rate ..................... 17.35% 22.01% 16.15%
</TABLE>
(1)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2)Annualized.
(3)Based on average shares outstanding.
(4)For the period May 1,1995 (effective date) to September 30,1995 for Class C.
(6)For the period January 2,1997 (effective date) to September 30,1997 for
Advisor Class.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30,1999
<TABLE>
<CAPTION>
INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 30.2%
CONSUMER DURABLES .4%
General Motors Corp. ......................................... United States 450,000 $ 28,321,875
------------
CONSUMER NON-DURABLES 1.6%
Nabisco Group Holdings Corp .................................. United States 600,000 9,000,000
Philip Morris Cos. Inc. ...................................... United States 3,300,000 112,818,750
R.J. Reynolds Tobacco Holdings Inc. .......................... United States 300,000 8,100,000
------------
129,918,750
------------
ELECTRONIC TECHNOLOGY .1%
(a)Anacomp Inc. ................................................. United States 263,900 4,346,103
------------
ENERGY MINERALS 1.9%
Athabasca Oil Sands Trust .................................... Canada 2,700,000 43,821,028
BP Prudhoe Bay Royalty Trust ................................. United States 500,000 5,406,250
Canadian Oil Sands Trust Units ............................... Canada 2,400,000 41,075,196
EOG Resources Inc ............................................ United States 1,800,000 38,250,000
(a)Santa Fe Snyder Corp. ........................................ United States 693,405 6,240,645
Ultramar Diamond Shamrock Corp. .............................. United States 625,000 15,937,500
------------
150,730,619
------------
NON-ENERGY MINERALS 1.9%
Anglo American Platinum Corp. Ltd., ADR ...................... South Africa 943,691 25,039,268
AngloGold Ltd., ADR .......................................... South Africa 2,320,000 72,935,000
De Beers Consolidated Mines AG, ADR .......................... South Africa 400,000 10,800,000
Impala Platinum Holdings Ltd., ADR ........................... South Africa 1,184,200 40,854,900
------------
149,629,168
------------
PROCESS INDUSTRIES .2%
(a)Dan River Inc., A ............................................ United States 547,400 3,558,100
Lyondell Chemical Co. ........................................ United States 1,000,000 13,375,000
------------
16,933,100
------------
PRODUCER MANUFACTURING .3%
McDermott International Inc .................................. United States 1,300,000 26,325,000
------------
UTILITIES 23.8%
American Electric Power Co. Inc. ............................. United States 2,200,000 75,075,000
Central & South West Corp .................................... United States 3,796,600 80,203,175
CINergy Corp. ................................................ United States 2,000,000 56,625,000
Conectiv Inc ................................................. United States 2,200,000 43,175,000
Dominion Resources Inc. ...................................... United States 2,300,000 103,787,500
Edison International ......................................... United States 3,100,000 75,368,750
Energy East Corp. ............................................ United States 1,900,000 45,125,000
Entergy Corp. ................................................ United States 3,400,000 98,387,500
FirstEnergy Corp ............................................. United States 2,100,000 53,550,000
Florida Progress Corp ........................................ United States 2,622,800 121,304,500
FPL Group Inc ................................................ United States 1,400,000 70,525,000
GPU Inc ...................................................... United States 1,700,000 55,462,500
Hawaiian Electric Industries Inc ............................. United States 610,000 21,464,375
KeySpan Corp ................................................. United States 1,500,000 42,937,500
New Century Energies Inc ..................................... United States 1,805,000 60,354,687
New England Electric System .................................. United States 1,700,000 88,187,500
Northern States Power Co ..................................... United States 2,020,000 43,556,250
Pacificorp ................................................... United States 525,000 10,565,625
PECO Energy Co ............................................... United States 2,596,000 97,350,000
PG&E Corp .................................................... United States 3,100,000 80,212,500
Potomac Electric Power Co. ................................... United States 2,000,000 50,875,000
Public Service Enterprise Group Inc .......................... United States 2,350,000 90,768,750
Reliant Energy Inc ........................................... United States 1,900,000 51,418,750
SCANA Corp. .................................................. United States 800,000 19,350,000
Sempra Energy ................................................ United States 3,100,000 64,518,750
Sierra Pacific Resources ..................................... United States 825,000 18,356,250
Southern Co .................................................. United States 2,600,000 66,950,000
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES (CONT.)
Texas Utilities Co. ............................................................... United States 2,637,250 $ 98,402,390
U.S. West Inc. .................................................................... United States 800,000 45,650,000
Western Resources Inc. ............................................................ United States 2,200,000 47,025,000
--------------
1,876,532,252
--------------
MISCELLANEOUS
Miscellaneous ..................................................................... 68
--------------
TOTAL COMMON STOCKS (COST $1,967,648,658) ........................................ 2,382,736,935
--------------
PREFERRED STOCKS .7%
NON-ENERGY MINERALS .1%
Freeport-McMoran Copper & Gold Inc., cum. variable pfd., Series Gold .............. United States 400,000 7,775,000
--------------
PROCESS INDUSTRIES .5%
Asia Pulp & Paper Co.Ltd., 12.00%, 12/29/49 ....................................... Indonesia 70,000,000 37,625,000
--------------
TELECOMMUNICATIONS .1%
Nortel Inversora SA, B, ADR ....................................................... Argentina 524,000 8,842,500
--------------
TOTAL PREFERRED STOCKS (COST $86,776,103) ........................................ 54,242,500
--------------
CONVERTIBLE PREFERRED STOCKS 10.8%
ENERGY MINERALS 3.0%
(a)Chesapeake Energy Corp., 7.00%, cvt. pfd., 144A ................................... United States 800,000 26,600,000
Devon Financing Trust, $3.25, cvt. pfd., 144A ..................................... United States 500,000 34,218,750
Kerr-McGee Corp., 5.50%, cvt. pfd. (exchangeable into Devon Energy Corp. common) .. United States 1,512,000 59,346,000
Lomak Financing Trust, 5.75%, cvt. pfd............................................. United States 1,500,000 36,000,000
Newfield Financial Trust I, 6.50%, cvt. pfd........................................ United States 750,000 40,875,000
Nuevo Financing I, 5.75%, cvt. pfd., A ............................................ United States 1,450,000 43,137,500
--------------
240,177,250
--------------
REAL ESTATE 4.1%
Apartment Investment & Management Co., 8.00%, cvt. pfd., K ........................ United States 1,700,000 41,650,000
Archstone Communities Trust, $1.75, cvt. pfd., A .................................. United States 1,040,000 27,690,000
Felcor Lodging Trust Inc., $1.95, cvt. pfd., A .................................... United States 2,100,000 35,043,750
Glenborough Realty Trust Inc., 7.75%, cvt. pfd., A ................................ United States 3,400,000 55,887,500
Host Marriott Corp., 6.75%, cvt. pfd............................................... United States 1,200,000 41,100,000
Innkeepers USA Trust, 8.625%, cvt. pfd., A ........................................ United States 2,000,000 34,000,000
Prologis Trust, 7.00%, cvt. pfd., B .............................................. United States 800,000 19,500,000
Reckson Associates Realty Corp., 7.625%, cvt. pfd., A ............................. United States 1,750,000 35,328,125
Vornado Realty Trust, 6.50%, cvt. pfd., A ......................................... United States 700,000 32,725,000
--------------
322,924,375
--------------
INDUSTRIAL SERVICES .6%
Weatherford International Inc., 5.00%, cvt. pfd., 144A ............................ United States 1,200,000 44,700,000
--------------
NON-ENERGY MINERALS 1.0%
Armco Inc., $3.625, cvt. pfd., A .................................................. United States 300,000 15,450,000
Armco Inc., $4.50, cvt. pfd., B ................................................... United States 114,200 5,695,725
Battle Mountain Gold Co., $3.25, cvt. pfd.......................................... United States 295,000 10,325,000
Cyprus Amax Minerals Co., $4.00, cvt. pfd., A ..................................... United States 300,000 14,775,000
Hecla Mining Co., 7.00%, cvt. pfd., B ............................................ United States 375,000 12,726,563
Kinam Gold Inc., $3.75, cvt. pfd., B .............................................. United States 650,000 23,075,000
--------------
82,047,288
--------------
TELECOMMUNICATIONS .8%
Nortel Inversora SA, 10.00%, cvt. pfd. (exchangeable into Telecom Argentina
Stet-France Telecom SA, B, ADR, common) ......................................... Argentina 1,200,000 58,950,000
--------------
TRANSPORTATION .4%
Union Pacific Capital Trust, 6.25%, cvt. pfd....................................... United States 600,000 27,450,000
--------------
UTILITIES .9%
CMS Energy Trust I, 7.75%, cvt. pfd. .............................................. United States 1,600,000 74,000,000
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,000,497,824) .......................... 850,248,913
--------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME FUND COUNTRY AMOUNT(*) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS 18.1%
COMMERCIAL SERVICES .2%
AmeriServe Food Distribution Inc., senior unsecured sub. note, 10.125%, 7/15/07 .... United States $ 25,000,000 $ 16,875,000
--------------
CONSUMER DURABLES .2%
E&S Holdings Corp., senior sub. note, B, 10.375%, 10/01/06 ......................... United States 32,000,000 12,960,000
--------------
CONSUMER NON-DURABLES 3.1%
Compania de Alimentos Fargo SA, senior note, 13.25%, 8/01/08 ....................... Argentina 30,000,000 23,325,000
Del Monte Corp., senior sub. note, B, 12.25%, 4/15/07 .............................. United States 25,000,000 27,375,000
Doane Pet Care Co., senior unsecured sub. note, 9.75%, 5/15/07 ..................... United States 15,381,000 15,457,905
Evenflo Company Inc., senior note, B, 11.75%, 8/15/06 .............................. United States 28,000,000 27,580,000
Hartmarx Corp., senior sub. note, 10.875%, 1/15/02 ................................. United States 35,000,000 35,525,000
International Home Foods Inc., senior sub. note, 10.375%, 11/01/06 ................. United States 30,000,000 30,675,000
Playtex Family Products Corp., senior sub. note, 9.00%, 12/15/03 ................... United States 38,500,000 38,692,500
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 .................. United States 23,000,000 18,917,500
Specialty Foods Corp., senior note, 11.25%, 8/15/01 ................................ United States 20,000,000 18,700,000
The William Carter Co., senior sub. note, A, 10.375%, 12/01/06 ..................... United States 6,000,000 5,970,000
--------------
242,217,905
--------------
CONSUMER SERVICES 2.2%
AMF Bowling Worldwide Inc., senior sub. note, B, 10.875%, 3/15/06 .................. United States 17,000,000 12,410,000
Cablevision SA, 144A, 13.75%, 5/01/09 .............................................. Argentina 30,000,000 27,750,000
Coast Hotel & Casino Inc., senior sub. note, 9.50%, 4/01/09 ........................ United States 14,000,000 13,160,000
CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ............................... United States 40,000,000 41,500,000
Eldorado Resorts LLC, senior sub. note, 10.50%, 8/15/06 ............................ United States 8,000,000 8,240,000
Hard Rock Hotel Inc., senior sub. note, B, 9.25%, 4/01/05 .......................... United States 19,000,000 15,865,000
Harvey's Casino Resorts, senior sub. note, 10.625%, 6/01/06 ........................ United States 11,000,000 11,220,000
Protection One Alarm Monitoring Inc., senior sub. note, 144A, 8.125%, 1/15/09 ...... United States 28,000,000 19,040,000
Venetian Casino/Las Vegas Sands, mortgage note, 12.25%, 11/15/04 ................... United States 30,000,000 23,850,000
--------------
173,035,000
--------------
ELECTRONIC TECHNOLOGY 1.7%
Anacomp Inc., senior sub. note, B, 10.875%, 4/01/04 ................................ United States 60,000,000 59,700,000
Samsung Electronics America Inc., note, 144A, 9.75%, 5/01/03 ....................... United States 70,000,000 71,750,000
--------------
131,450,000
--------------
ENERGY MINERALS 2.5%
Bellwether Exploration Co., senior sub. note, 10.875%, 4/01/07 ..................... United States 39,000,000 35,880,000
Chesapeake Energy Corp., senior note, Series B, 7.875%, 3/15/04 .................... United States 5,000,000 4,425,000
Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 ...................... Mexico 90,000,000 85,050,000
Denbury Management Inc., senior unsecured sub. note, 9.00%, 3/01/08 ................ United States 41,000,000 37,720,000
Mesa Operating Co., senior unsecured sub. note, 10.625%, 7/01/06 ................... United States 5,000,000 5,512,500
Plains Resources Inc., senior sub. note, B, 10.25%, 3/15/06 ........................ United States 8,000,000 8,080,000
R & B Falcon Corp., senior note, B, 6.50%, 4/15/03 ................................. United States 22,000,000 19,690,000
--------------
196,357,500
--------------
FINANCE .4%
IBJ Preferred Capital Co.LLC, A, 144A, 8.79%, 12/29/49 ............................. United States 34,000,000 32,555,000
--------------
HEALTH TECHNOLOGY .7%
Dade International Inc., senior sub. note, B, 11.125%, 5/01/06 ..................... United States 22,000,000 22,880,000
ICN Pharmaceuticals Inc., senior note, B, 9.25%, 8/15/05 .......................... United States 37,000,000 34,965,000
--------------
57,845,000
--------------
INDUSTRIAL SERVICES .6%
Allied Waste North America Inc., senior sub. note, 144A, 10.00%, 8/01/09 ........... United States 37,000,000 33,947,500
First Wave Marine Inc., senior note, 11.00%, 2/01/08 ............................... United States 10,000,000 7,550,000
Great Lakes Dredge & Dock Corp., senior unsecured sub. note, 11.25%, 8/15/08 ....... United States 10,000,000 10,150,000
--------------
51,647,500
--------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME FUND COUNTRY AMOUNT(*) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
PROCESS INDUSTRIES 3.9%
Applied Extrusion Technology, senior note, B, 11.50%, 4/01/02 ................... United States $ 25,000,000 $ 25,625,000
Consoltex Group Inc., senior sub. note, B, 11.00%, 10/01/03 ..................... United States 50,000,000 50,250,000
Four M Corp., senior note, B, 12.00%, 6/01/06 ................................... United States 30,000,000 27,150,000
Lyondell Chemical Co., secured note, A, 9.625%, 5/01/07 ......................... United States 6,500,000 6,467,500
Lyondell Chemical Co., senior sub. note, 10.875%, 5/01/09 ....................... United States 6,500,000 6,532,500
Packaging Resources Inc., senior note, 11.625%, 5/01/03 ......................... United States 42,000,000 42,630,000
Printpack Inc., senior sub. note, B, 10.625%, 8/15/06 .......................... United States 50,000,000 46,500,000
RBX Corp., senior sub. note, B, 11.25%, 10/15/05 ................................ United States 60,000,000 12,600,000
Riverwood International, senior sub. note, 10.875%, 4/01/08 .................... United States 50,000,000 47,250,000
Tjiwi Kimia Finance Mauritius, senior unsecured note, 10.00%, 8/01/04 ........... Indonesia 70,000,000 40,950,000
--------------
305,955,000
--------------
PRODUCER MANUFACTURING 1.4%
Collins & Aikman Products, senior sub. note, 11.50%, 4/15/06 .................... United States 35,000,000 33,512,500
Nortek Inc., senior sub. note, 9.875%, 3/01/04 .................................. United States 18,500,000 18,222,500
Outsourcing Services Group Inc., senior sub. note, 144A, 10.875%, 3/01/06 ...... United States 22,000,000 20,460,000
Thermadyne Industries Inc., sub. note, 10.75%, 11/01/03 ........................ United States 14,500,000 13,702,500
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07 ............... Canada 30,000,000 27,150,000
--------------
113,047,500
--------------
TELECOMMUNICATIONS 1.2%
Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ............................... United States 32,000,000 20,000,000
Nextlink Communications Inc., senior unsecured note, 10.75%, 6/01/09 ............ United States 46,000,000 46,115,000
Paging Network Inc., senior sub. note, 10.125%, 8/01/07 ......................... United States 25,000,000 7,000,000
(e)Williams Communications Group Inc., senior note, 10.875%, 10/01/09 .............. United States 19,000,000 18,857,310
--------------
91,972,310
--------------
TOTAL BONDS (COST $1,580,770,660) ............................................... 1,425,917,715
--------------
CONVERTIBLE BONDS 5.2%
ELECTRONIC TECHNOLOGY .1%
Trans-Lux Corp., cvt. sub. note, 7.50%, 12/01/06 ................................ United States 8,000,000 7,000,000
--------------
ENERGY MINERALS 1.0%
Kerr McGee Corp., cvt., 7.50%, 5/15/14 .......................................... United States 28,422,000 28,031,198
Swift Energy Co., cvt. sub. note, 6.25%, 11/15/06 ............................... United States 57,750,000 47,643,750
--------------
75,674,948
--------------
HEALTH SERVICES
(b)Continucare Corp., cvt. sub. note, 144A, 8.00%, 10/31/02 ........................ United States 9,500,000 475,000
--------------
Industrial Services .6%
Key Energy Services Inc., cvt., 5.00%, 9/15/04 .................................. United States 50,000,000 35,062,500
Parker Drilling Co., cvt. sub. note, 5.50%, 8/01/04 ............................. United States 11,500,000 8,783,125
--------------
43,845,625
--------------
NON-ENERGY MINERALS 1.4%
Ashanti Capital Ltd., cvt., 5.50%, 3/15/03 ...................................... Ghana 50,000,000 41,750,000
Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 6/10/02 ................ United Kingdom 900,000 562,500
Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 1/31/04 ...................... United States 20,000,000 12,700,000
Trizec Hahn Corp., cvt. senior deb., 3.00%, 1/29/21 (exchangeable into
Barrick Gold Corp. common) ................................................ Canada 70,000,000 55,829,200
--------------
110,841,700
--------------
PROCESS INDUSTRIES .3%
APP Finance VI Mauritius Ltd., cvt., zero cpn., 11/18/12 ........................ Indonesia 150,000,000 27,562,500
--------------
PRODUCER MANUFACTURING .4%
Exide Corp., cvt. senior sub. note, 144A, 2.90%, 12/15/05 ....................... United States 50,000,000 29,500,000
--------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments, September 30, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME FUND COUNTRY AMOUNT(*) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
REAL ESTATE 1.4%
Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 ....................... United States $ 58,000,000 $ 52,780,000
Meristar Hospitality Corp., cvt. sub. note, 4.75%, 10/15/04 ............... United States 82,000,000 61,602,500
--------------
114,382,500
--------------
TOTAL CONVERTIBLE BONDS (COST $451,882,680) ............................... 409,282,273
--------------
FOREIGN GOVERNMENT BONDS 15.3%
ESCOM, E168, 11.00%, 6/01/08 .............................................. South Africa 320,000,000 ZAR 42,186,666
Republic of Argentina, L-GP, step coupon, 6.00%, 3/31/23 .................. Argentina 520,000,000 332,475,000
Republic of Brazil, 11.625%, 4/15/04 ...................................... Brazil 45,000,000 42,243,750
Republic of Brazil, A, FRN, 6.50%, 1/01/01 ................................ Brazil 22,232,250 21,537,492
Republic of Brazil, FRN, 5.75%, 4/15/24 ................................... Brazil 280,000,000 158,550,000
Republic of Brazil, L, FRN, 5.875%, 4/15/06 ............................... Brazil 223,250,000 176,367,500
Republic of Korea, 8.875%, 4/15/08 ........................................ South Korea 225,000,000 233,916,750
Republic of South Africa, 12.00%, 2/28/05 ................................. South Africa 265,000,000 ZAR 40,346,250
Republic of Turkey, 12.375%, 6/15/09 ...................................... Turkey 70,000,000 69,825,000
Russia Ministry of Finance, 11.75%, 6/10/03 ............................... Russia 90,000,000 46,845,000
Russia Ministry of Finance, Reg S, 10.00%, 6/26/07 ........................ Russia 90,000,000 38,362,500
--------------
TOTAL FOREIGN GOVERNMENT BONDS (COST $1,301,352,609) ..................... 1,202,655,908
--------------
U.S. GOVERNMENT SECURITIES 12.9%
FHLMC, 5.75%, 4/15/08 ..................................................... United States 150,000,000 141,219,750
U.S. Treasury Bond, 7.125%, 2/15/23 ....................................... United States 250,000,000 271,406,250
U.S. Treasury Bond, 6.25%, 8/15/23 ........................................ United States 506,000,000 497,935,878
U.S. Treasury Bond, 6.125%, 11/15/27 ...................................... United States 110,000,000 106,906,250
--------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $991,178,061) ..................... 1,017,468,128
--------------
ZERO COUPON/STEP-UP BONDS 4.4%
AMF Bowling Worldwide Inc., senior disc. note, B, zero cpn. to 3/15/01,
12.25% thereafter, 3/15/06 ......................................... United States 26,294,000 15,513,460
Charter Communications Holdings LLC, senior disc. note, 144A, zero cpn.
to 8/01/04, 9.92% thereafter, 8/01/11 .............................. United States 60,000,000 35,850,000
Crown Castle International Corp., senior disc. note, 144A, zero cpn.
to 8/01/04, 11.25% thereafter, 8/01/11 ............................. United States 50,000,000 28,750,000
Huntsman ICI Chemicals, zero cpn., senior disc. note, 144A, 12/31/09 ...... United States 75,000,000 18,750,000
(b)International Wireless Communications, senior disc. note, 8/15/01 ......... United States 13,500,000 1,350,000
Level 3 Communications Inc., senior disc. note, zero cpn to 12/01/03,
10.50% thereafter, 12/01/08 ........................................ United States 50,000,000 28,250,000
Loral Space and Communications Ltd., senior disc. note, zero cpn.
to 1/15/02, 12.50% thereafter, 1/15/07 .............................. United States 5,500,000 2,667,500
Mesa Operating Co., senior unsecured sub. note, zero cpn. to 7/01/01,
11.625% thereafter, 7/01/06 ........................................ United States 15,000,000 11,437,500
Microcell Telecommunications Inc., senior disc. note, zero cpn.
to 6/01/04, 12.00% thereafter, 6/01/09 ............................. United States 50,000,000 30,375,000
Nextel Communications Inc., senior disc. note, zero cpn. to 2/15/03,
9.95% thereafter, 2/15/08 .......................................... United States 90,000,000 63,225,000
Nextel International Inc., senior disc. note, zero cpn. to 4/15/03,
12.125% thereafter, 4/15/08 ........................................ United States 50,000,000 25,125,000
Nextlink Communications Inc., 144A, zero cpn. to 6/01/04, 12.25%
thereafter, 6/01/09 ................................................ United States 44,000,000 25,190,000
Revlon Worldwide Corp., senior disc. note, B, 3/15/01 ..................... United States 42,000,000 23,310,000
Specialty Foods Corp., senior sub. disc. note, zero cpn. to 6/15/05,
11.00% thereafter, 12/15/09 ........................................ United States 957,873 --
Spectrasite Holdings Inc., senior disc. note, zero cpn. to 4/15/04,
11.25% thereafter, 4/15/09 ......................................... United States 20,000,000 10,100,000
United Pan-Europe Communications NV, senior disc. note, 144A, zero cpn.
to 8/01/04, 12.50% thereafter, 8/01/09 ............................. Netherlands 50,000,000 28,250,000
--------------
TOTAL ZERO COUPON/STEP-UP BONDS (COST $396,026,024) ...................... 348,143,460
--------------
TOTAL LONG TERM INVESTMENTS (COST $7,776,132,619) ......................... 7,690,695,832
--------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME FUND COUNTRY AMOUNT* VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(d)Repurchase Agreement .5%
Joint Repurchase Agreement, 5.217%, 10/01/99 (Maturity Value $38,902,895)
(COST $38,897,258) ............................................................ $ 38,897,258 $ 38,897,258
Banc of America Securities LLC (Maturity Value $3,917,132)
Barclays Capital Inc. (Maturity Value $3,917,132)
Bear, Stearns & Co. Inc. (Maturity Value $3,917,132)
Chase Securities Inc. (Maturity Value $3,648,707)
CIBC World Markets Corp. (Maturity Value $3,917,132)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $3,197,132)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $3,917,132)
Paine Webber Inc. (Maturity Value $3,917,132)
Paribas Corp. (Maturity Value $3,917,132)
Warburg Dillon Read LLC (Maturity Value $3,917,132)
Collateralized by U.S. Treasury Bills & Notes
--------------
TOTAL INVESTMENTS (COST $7,815,029,877) 98.1% .................................... 7,729,593,090
OTHER ASSETS, LESS LIABILITIES 1.9% .............................................. 151,571,278
--------------
NET ASSETS 100.0% ................................................................ $7,881,164,368
==============
</TABLE>
CURRENCY ABBREVIATION
ZAR - South African Rand
*The principal amount is stated in U.S. dollars unless otherwise indicated.
(a)Non-income producing.
(b)See Note 6 regarding defaulted securities.
(d)See Note 1(c) regarding joint repurchase agreement.
(e)Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
CLASS A 1999(3,7) 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $ 6.99 $ 6.89 $ 6.72 $ 6.87 $ 6.51
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .44 .46 .48 .49 .50
Net realized and unrealized gains (losses) ... (.37) .10 .17 (.15) .35
---------------------------------------------------------------------------------
Total from investment operations .............. .07 .56 .65 .34 .85
---------------------------------------------------------------------------------
Less distributions from net investment income (.44) (.46) (.48) (.49) (.49)
---------------------------------------------------------------------------------
Net asset value, end of year .................. $ 6.62 $ 6.99 $ 6.89 $ 6.72 $ 6.87
=================================================================================
Total return(1) ............................... 1.05% 8.41% 10.08% 5.15% 13.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $ 7,895,906 $ 9,049,829 $ 9,350,751 $ 10,129,483 $ 11,101,605
Ratios to average net assets:
Expenses ..................................... .67% .65% .64% .61% .61%
Net investment income ........................ 6.43% 6.67% 7.01% 7.18% 7.50%
Portfolio turnover rate(8) .................... 15.04% 25.98% 1.74% 8.01% 5.48%
CLASS B
- -----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $ 6.91
Income from investment operations:
Net investment income ........................ .30
Net realized and unrealized losses ........... (.28)
-----------
Total from investment operations .............. .02
-----------
Less distributions from net investment income (.31)
-----------
Net asset value, end of year .................. $ 6.62
===========
Total return(1) ............................... .25%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $ 51,433
Ratios to average net assets:
Expenses ..................................... 1.22%(2)
Net investment income ........................ 5.93%(2)
Portfolio turnover rate(8) .................... 15.04%
</TABLE>
(1)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2)Annualized.
(3)Based on average shares outstanding.
(7)For the period January 1, 1999 (effective date) to September 30, 1999 for
Class B.
(8)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.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights (continued)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------
CLASS C 1999(3) 1998 1997(6) 1996 1995(4)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 6.97 $ 6.87 $ 6.70 $ 6.85 $ 6.67
------------------------------------------------------------------------
Income from investment operations:
Net investment income .............................. .40 .42 .44 .45 .21
Net realized and unrealized gains (losses) ......... (.37) .10 .17 (.15) .16
------------------------------------------------------------------------
Total from investment operations .................... .03 .52 .61 .30 .37
------------------------------------------------------------------------
Less distributions from net investment income........ (.40) (.42) (.44) (.45) (.19)
------------------------------------------------------------------------
Net asset value, end of year ........................ $ 6.60 $ 6.97 $ 6.87 $ 6.70 $ 6.85
========================================================================
Total return(1) ..................................... .50% 7.85% 9.48% 4.55% 5.66%
Ratios/supplemental data
Net assets, end of year (000's) ..................... $ 308,961 $ 271,665 $ 120,818 $ 57,657 $ 11,695
RATIOS TO AVERAGE NET ASSETS:
Expenses ........................................... 1.22% 1.21% 1.20% 1.17% 1.18%(2)
Net investment income .............................. 5.89% 6.10% 6.44% 6.80% 6.48%(2)
Portfolio turnover rate(8) .......................... 15.04% 25.98% 1.74% 8.01% 5.48%
ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 7.00 $ 6.90 $ 6.76
---------------------------------------------
Income from investment operations:
Net investment income .............................. .45 .47 .38
Net realized and unrealized gains (losses) ......... (.37) .10 .12
---------------------------------------------
Total from investment operations .................... .08 .57 .50
---------------------------------------------
Less distributions from net investment income........ (.45) (.47) (.36)
---------------------------------------------
Net asset value, end of year ........................ $ 6.63 $ 7.00 $ 6.90
=============================================
Total return(1) ..................................... 1.16% 8.51% 7.68%
Ratios/supplemental data
Net assets, end of year (000's) ..................... $ 15,544 $ 36,308 $ 14,469
Ratios to average net assets:
Expenses ........................................... .57% .56% .56%(2)
Net investment income .............................. 6.53% 6.75% 7.01%(2)
Portfolio turnover rate(8) .......................... 15.04% 25.98% 1.74%
</TABLE>
(1)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2)Annualized.
(3)Based on average shares outstanding.
(4)For the period May 1, 1995 (effective date) to September 30, 1995 for Class
C. (6)For the period January 2, 1997 (effective date) to September 30, 1997
for Advisor Class.
(8)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.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 96.9%
GNMA I, SF, 5.50%, 5/15/28 - 1/15/29 ..................................................... $ 14,590,953 $ 13,152,245
GNMA II, 5.50%, 11/20/28 - 3/20/29 ....................................................... 27,653,190 24,853,580
GNMA I, SF, 6.00%, 9/15/23 - 12/15/28 .................................................... 260,302,388 242,407,522
GNMA II, 6.00%, 10/20/23 - 2/20/29 ....................................................... 902,256,726 835,898,040
GNMA I, SF, 6.50%, 3/15/03 - 6/15/29 ..................................................... 2,088,694,269 2,006,525,259
GNMA II, 6.50%, 6/20/24 - 7/20/28 ........................................................ 373,405,587 356,763,779
GNMA I, SF, 6.75%, 3/15/26 - 5/15/26 ..................................................... 3,003,889 2,912,053
GNMA PL, 6.75%, 1/15/34 .................................................................. 35,699,144 34,009,760
GNMA I, SF, 7.00%, 4/15/16 - 7/15/29 ..................................................... 1,711,945,279 1,689,754,591
GNMA PL, 7.00%, 9/15/35 .................................................................. 8,877,182 8,585,864
GNMA I, SF, 7.25%, 10/15/25 - 1/15/26 .................................................... 5,974,150 5,927,126
GNMA I, SF, 7.50%, 6/15/05 - 7/15/29 ..................................................... 926,209,378 933,542,747
GNMA II, 7.50%, 10/20/22 - 12/20/26 ...................................................... 103,667,609 104,037,056
GNMA PL, 7.75%, 10/15/12 ................................................................. 5,150,393 5,239,661
GNMA I, SF, 8.00%, 10/15/07 - 5/15/26 .................................................... 630,566,754 649,431,655
GNMA II, 8.00%, 8/20/16 - 10/20/26 ....................................................... 38,511,535 39,391,227
GNMA PL, 8.00%, 1/15/32 - 5/15/32 ........................................................ 14,019,342 14,324,111
GNMA I, GPM, 8.25%, 3/15/17 - 11/15/17 ................................................... 4,213,568 4,369,273
GNMA PL, 8.25%, 2/15/28 .................................................................. 12,753,840 13,356,390
GNMA I, SF, 8.50%, 5/15/16 - 11/15/24 .................................................... 131,918,455 137,684,384
GNMA II, 8.50%, 4/20/16 - 6/20/25 ........................................................ 26,200,905 27,144,563
GNMA II, GPM, 8.75%, 3/20/17 - 7/20/17 ................................................... 549,877 575,710
GNMA I, SF, 9.00%, 10/15/04 - 7/15/23 .................................................... 161,183,574 170,001,747
GNMA II, 9.00%, 5/20/16 - 11/20/21 ....................................................... 8,592,446 8,994,629
GNMA I, GPM, 9.25%, 5/15/16 - 1/15/17 .................................................... 2,651,398 2,811,229
GNMA I, SF, 9.50%, 5/15/09 - 2/15/23 ..................................................... 91,376,650 98,199,201
GNMA II, 9.50%, 9/20/15 - 4/20/25 ........................................................ 6,490,675 6,918,133
GNMA I, GPM, 10.00%, 11/15/09 - 11/15/13 ................................................. 2,859,996 3,080,133
GNMA I, SF, 10.00%, 4/15/12 - 4/15/25 .................................................... 106,591,630 116,452,743
GNMA II, 10.00%, 8/20/13 - 3/20/21 ....................................................... 11,419,028 12,371,762
GNMA I, GPM, 10.25%, 2/15/16 - 2/15/21 ................................................... 913,201 994,880
GNMA I, SF, 10.50%, 8/15/00 - 10/15/21 ................................................... 77,547,683 86,325,938
GNMA II, 10.50%, 9/20/13 - 3/20/21 ....................................................... 21,015,950 23,184,836
GNMA I, GPM, 11.00%, 12/15/09 - 3/15/11 .................................................. 5,976,263 6,513,646
GNMA I, SF, 11.00%, 1/15/01 - 5/15/21 .................................................... 68,061,814 76,188,783
GNMA II, 11.00%, 7/20/13 - 1/20/21 ....................................................... 4,893,706 5,448,058
GNMA I, GPM, 11.25%, 6/15/13 - 1/15/16 ................................................... 2,561,240 2,826,111
GNMA I, GPM, 11.50%, 3/15/10 - 6/15/13 ................................................... 825,522 912,803
GNMA I, SF, 11.50%, 2/15/13 - 12/15/17 ................................................... 14,598,813 16,490,988
GNMA II, 11.50%, 8/20/13 - 4/20/18 ....................................................... 1,097,729 1,231,731
GNMA II, GPM, 11.50%, 7/20/13 - 1/20/14 .................................................. 128,125 143,547
GNMA I, GPM, 11.75%, 7/15/13 - 12/15/15 .................................................. 583,167 648,350
GNMA I, GPM, 12.00%, 10/15/10 - 1/15/13 .................................................. 239,362 265,594
GNMA I, SF, 12.00%, 5/15/11 - 7/15/18 .................................................... 66,928,963 76,029,259
GNMA II, 12.00%, 9/20/13 - 2/20/16 ....................................................... 2,939,686 3,310,514
GNMA I, GPM, 12.50%, 4/15/10 - 10/15/12 .................................................. 616,993 693,039
GNMA I, SF, 12.50%, 1/15/10 - 8/15/18 .................................................... 61,419,655 70,573,959
GNMA II, 12.50%, 9/20/13 - 11/20/15 ...................................................... 2,852,647 3,241,868
GNMA I, GPM, 12.75%, 5/15/14 - 6/15/15 ................................................... 9,331 10,582
GNMA I, SF, 13.00%, 7/15/10 - 1/15/16 .................................................... 58,824,932 68,290,021
GNMA II, 13.00%, 10/20/13 - 9/20/15 ...................................................... 1,875,840 2,148,514
--------------
Total Government National Mortgage Association (GNMA) (Cost $8,137,666,127)............... 8,014,189,194
--------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS 2.4%
(c)U.S. Treasury Bills, 11/12/99 - 1/27/00 ............................................... $ 165,980,000 $ 164,217,554
U.S. Treasury Notes, 6.875%, 3/31/00 .................................................. 23,400,000 23,612,074
U.S. Treasury Notes, 7.75%, 12/31/99 .................................................. 10,000,000 10,068,750
--------------
TOTAL SHORT TERM INVESTMENTS (COST $198,268,439)....................................... 197,898,378
--------------
TOTAL INVESTMENTS (COST $8,335,934,566) 99.3% ......................................... 8,212,087,572
OTHER ASSETS, LESS LIABILITIES .7% .................................................... 59,756,863
--------------
NET ASSETS 100.0% ..................................................................... $8,271,844,435
==============
</TABLE>
(c)Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
FRANKLIN UTILITIES FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------
CLASS A 1999(3,7) 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............ $ 11.36 $ 10.04 $ 9.73 $ 9.75 $ 8.33
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .48 .52 .53 .54 .53
Net realized and unrealized gains (losses) ... (1.41) 1.58 .73 .03 1.42
--------------------------------------------------------------------------------
Total from investment operations .............. (.93) 2.10 1.26 .57 1.95
--------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.52) (.52) (.52) (.52) (.52)
Net realized gains ........................... (.33) (.26) (.43) (.07) (.01)
--------------------------------------------------------------------------------
Total distributions ........................... (.85) (.78) (.95) (.59) (.53)
--------------------------------------------------------------------------------
Net asset value, end of year .................. $ 9.58 $ 11.36 $ 10.04 $ 9.73 $ 9.75
================================================================================
Total return(1) ............................... (8.54%) 21.71% 13.72% 5.94% 24.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............... $ 1,594,862 $ 2,054,546 $ 1,953,273 $ 2,400,561 $ 2,765,976
Ratios to average net assets:
Expenses ..................................... .80% .76% .75% .71% .73%
Net investment income ........................ 4.60% 4.73% 5.26% 5.24% 5.88%
Portfolio turnover rate ....................... 33.99% 11.77% 7.24% 17.05% 5.55%
CLASS B
- ----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.08
-----------
Income from investment operations:
Net investment income ...................... .31
Net realized and unrealized losses ......... (1.44)
-----------
Total from investment operations ............ (1.13)
-----------
Less distributions from net investment income (.36)
-----------
Net asset value, end of year ................ $ 9.59
===========
Total return(1) ............................. (10.37%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 3,142
Ratios to average net assets:
Expenses ................................... 1.31%(2)
Net investment income ...................... 4.12%(2)
Portfolio turnover rate ..................... 33.99%
</TABLE>
(1)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2)Annualized.
(3)Based on average shares outstanding.
(7)For the period January 1, 1999 (effective date) to September 30, 1999 for
Class B.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights (continued)
FRANKLIN UTILITIES FUND (CONT.)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
CLASS C 1999(3) 1998 1997(6) 1996 1995(4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 11.35 $ 10.02 $ 9.72 $ 9.75 $ 8.89
------------------------------------------------------------------------------
Income from investment operations:
Net investment income .......................... .43 .46 .45 .46 .23
Net realized and unrealized gains (losses) ..... (1.42) 1.60 .76 .06 .88
------------------------------------------------------------------------------
Total from investment operations ................ (.99) 2.06 1.21 .52 1.11
------------------------------------------------------------------------------
Less distributions from:
Net investment income .......................... (.46) (.47) (.48) (.48) (.25)
Net realized gains ............................. (.33) (.26) (.43) (.07) --
------------------------------------------------------------------------------
Total distributions ............................. (.79) (.73) (.91) (.55) (.25)
------------------------------------------------------------------------------
Net asset value, end of year .................... $ 9.57 $ 11.35 $ 10.02 $ 9.72 $ 9.75
==============================================================================
Total return(1) ................................. (9.06%) 21.24% 13.06% 5.39% 13.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 34,697 $ 40,628 $ 21,906 $ 19,655 $ 8,369
Ratios to average net assets:
Expenses ....................................... 1.31% 1.28% 1.27% 1.23% 1.21%(2)
Net investment income .......................... 4.08% 4.19% 4.78% 4.86% 5.15%(2)
Portfolio turnover rate ......................... 33.99% 11.77% 7.24% 17.05% 5.55%
ADVISOR CLASS
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 11.39 $ 10.04 $ 9.55
---------------------------------------------
Income from investment operations:
Net investment income .......................... .51 .58 .36
Net realized and unrealized gains (losses) ..... (1.42) 1.57 .53
---------------------------------------------
Total from investment operations ................ (.91) 2.15 .89
---------------------------------------------
Less distributions from:
Net investment income .......................... (.54) (.54) (.40)
Net realized gains ............................. (.33) (.26) --
---------------------------------------------
Total distributions ............................. (.87) (.80) (.40)
---------------------------------------------
Net asset value, end of year .................... $ 9.61 $ 11.39 $ 10.04
=============================================
Total return(1) ................................. (8.48%) 22.20% 9.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 8,058 $ 13,651 $ 8,719
Ratios to average net assets:
Expenses ....................................... .66% .63% .62%(2)
Net investment income .......................... 4.82% 4.93% 5.33%(2)
Portfolio turnover rate ......................... 33.99% 11.77% 7.24%
</TABLE>
(1)Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2)Annualized.
(3)Based on average shares outstanding.
(4)For the period May 1, 1995 (effective date) to September 30, 1995 for
Class C.
(6)For the period January 2, 1997 (effective date) to September
30, 1997 for Advisor Class.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
UTILITIES FUND SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 72.0%
Allegheny Energy Inc. ....................................................................... 700,000 $ 22,268,750
American Electric Power Co. Inc. ............................................................ 439,100 14,984,288
Avista Corp. ................................................................................ 500,000 8,781,250
Bell Atlantic Corp. ......................................................................... 400,000 26,925,000
Central & South West Corp. .................................................................. 913,500 19,297,688
Cinergy Corp. ............................................................................... 800,000 22,650,000
CMS Energy Corp. ............................................................................ 301,900 10,245,731
Conectiv Inc. ............................................................................... 1,659,800 32,573,575
Constellation Energy Group Inc. ............................................................. 507,900 14,284,688
Dominion Resources Inc. ..................................................................... 1,468,950 66,286,369
DQE Inc. .................................................................................... 600,000 23,475,000
Duke Energy Corp. ........................................................................... 1,300,000 71,662,500
Edison International ........................................................................ 2,821,000 68,585,563
Entergy Corp. ............................................................................... 1,300,000 37,618,750
FirstEnergy Corp. ........................................................................... 200,000 5,100,000
Florida Progress Corp. ...................................................................... 296,900 13,731,625
FPL Group Inc. .............................................................................. 1,415,000 71,280,625
GPU Inc. .................................................................................... 387,000 12,625,875
GTE Corp. ................................................................................... 300,000 23,062,500
Hawaiian Electric Industries Inc. ........................................................... 400,000 14,075,000
Kansas City Power & Light Co. ............................................................... 1,000,000 24,187,500
Montana Power Co. ........................................................................... 800,000 24,350,000
New Century Energies Inc. ................................................................... 812,145 27,156,099
New England Electric System ................................................................. 300,000 15,562,500
NiSource Inc. ............................................................................... 671,000 14,845,875
Northern States Power Co. ................................................................... 399,600 8,616,375
Northwestern Corp. .......................................................................... 809,600 18,418,400
NSTAR ....................................................................................... 234,700 9,094,625
PECO Energy Co. ............................................................................. 1,116,700 41,876,250
PG&E Corp. .................................................................................. 1,760,000 45,540,000
Pinnacle West Capital Corp. ................................................................. 768,485 27,953,642
Puget Sound Energy Inc. ..................................................................... 750,000 16,828,125
SBC Communications Inc. ..................................................................... 264,200 13,490,713
SCANA Corp. ................................................................................. 900,000 21,768,750
Sempra Energy ............................................................................... 2,546,811 53,005,504
Sierra Pacific Resources .................................................................... 1,504,000 33,464,000
SIGCORP Inc. ................................................................................ 600,000 15,300,000
Southern Co. ................................................................................ 2,829,300 72,854,475
TECO Energy Inc. ............................................................................ 1,500,000 31,687,500
Texas Utilities Co. ......................................................................... 762,750 28,460,109
Unicom Corp. ................................................................................ 1,100,000 40,631,250
Washington Gas Light Co. .................................................................... 600,000 16,275,000
--------------
TOTAL COMMON STOCKS (COST $1,054,708,437) ................................................... 1,180,881,469
--------------
CONVERTIBLE PREFERRED STOCKS 9.3%
AES Trust I, 5.375%, cvt. pfd., A ........................................................... 400,000 33,300,000
CMS Energy Trust I, 7.75%, cvt. pfd. ........................................................ 705,000 32,606,250
K N Energy Inc., 8.25%, cvt. pfd. ........................................................... 250,000 9,125,000
NiSource Inc., 7.75%, cvt. pfd. ............................................................. 200,000 8,575,000
Nortel Inversora SA, 10.00%, cvt. pfd. MEDS (Argentina)...................................... 350,000 17,193,750
Texas Utilities Co., 9.25%, cvt. pfd. ....................................................... 647,600 31,934,775
Utilicorp United, 9.75%, cvt. pfd. .......................................................... 800,000 20,200,000
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $144,365,098) ...................................... 152,934,775
--------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
UTILITIES FUND AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS 13.8%
Arizona Public Service Co., 10.25%, 5/15/20 ..................................................... $10,500,000 $ 11,192,755
Arizona Public Service Co., 9.00%, 12/15/21 ..................................................... 14,500,000 14,873,085
CalEnergy Co., senior note, 8.48%, 9/15/28 ...................................................... 25,000,000 25,912,000
CMS Energy Corp., senior note, 7.50%, 1/15/09 ................................................... 8,250,000 7,466,250
Commonwealth Edison Co., 8.50%, 7/15/22 ......................................................... 5,000,000 5,014,600
Commonwealth Edison Co., 8.375%, 9/15/22 ........................................................ 10,000,000 10,131,200
Consolidated Edison Inc., 7.10%, 2/01/28 ........................................................ 15,000,000 13,694,400
Duquesne Light Co., 8.375%, 5/15/24 ............................................................. 5,000,000 5,111,275
Midland Funding Corp. I, C-94, 10.33%, 7/23/02 .................................................. 8,445,600 8,924,770
Niagara Mohawk Power Corp., 8.75%, 4/01/22 ...................................................... 5,000,000 5,212,010
Niagara Mohawk Power Corp., senior disc. note, H, zero cpn. to 7/01/03, 8.50% thereafter, 7/01/10 6,000,000 4,480,140
Niagara Mohawk Power Corp., senior note, D, 7.25%, 10/01/02 ..................................... 3,024,391 3,044,171
Niagara Mohawk Power Corp., senior note, G, 7.75%, 10/01/08 ..................................... 4,600,000 4,681,650
Northwest Pipeline Corp., 7.125%, 12/01/25 ...................................................... 3,000,000 2,690,010
Ohio Edison Co., 8.75%, 6/15/22 ................................................................. 8,000,000 8,239,512
Panhandle Eastern Co., 7.20%,8/15/24 ............................................................ 20,000,000 18,264,180
Sprint Capital Corp., 6.875%, 11/15/28 .......................................................... 20,000,000 18,334,200
Texas Utilities Co., 8.75%, 11/01/23 ............................................................ 10,000,000 10,562,600
Texas Utilities Co., 8.50%, 8/01/24 ............................................................. 10,000,000 10,250,800
U.S. West Communications Inc., 6.875%, 9/15/33 .................................................. 21,000,000 18,266,430
Williams Cos., 7.625%, 7/15/19 .................................................................. 20,000,000 19,367,400
--------------
TOTAL BONDS (COST $228,697,198) ................................................................. 225,713,438
--------------
TOTAL LONG TERM INVESTMENTS (COST $1,427,770,733) ............................................... 1,559,529,682
--------------
(d)REPURCHASE AGREEMENT 1.8%
Joint Repurchase Agreement, 5.217%, 10/01/99 (Maturity Value $29,839,350) (COST $29,835,026) .... 29,835,026 29,835,026
Banc of America Securities LLC (Maturity Value $3,004,524)
Barclays Capital Inc. (Maturity Value $3,004,524)
Bear, Stearns & Co.Inc. (Maturity Value $3,004,524)
Chase Securities Inc. (Maturity Value $2,798,634)
CIBC World Markets Corp. (Maturity Value $3,004,524)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $3,004,524)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $3,004,524)
Paine Webber Inc. (Maturity Value $3,004,524)
Paribas Corp. (Maturity Value $3,004,524)
Warburg Dillon Read LLC (Maturity Value $3,004,524)
Collateralized by U.S. Treasury Bills & Notes --------------
TOTAL INVESTMENTS (COST $1,457,605,759) 96.9% ................................................... 1,589,364,708
OTHER ASSETS, LESS LIABILITIES 3.1% ............................................................. 51,394,506
--------------
NET ASSETS 100.0% ............................................................................... $1,640,759,214
==============
</TABLE>
PORTFOLIO ABBREVIATION
MEDS - Mandatorially Exchangeable Debt Security
(d)See Note 1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
U.S.GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
Cost .................................... $ 226,129,518 $1,058,801,511 $ 7,776,132,619 $ 8,335,934,566 $1,427,770,733
======================================================================================
Value ................................... 396,865,238 2,096,317,792 7,690,695,832 8,212,087,572 1,559,529,682
Repurchase agreement, at value and cost .. 176,265,148 448,706,600 38,897,258 -- 29,835,026
Cash ..................................... -- -- -- 5,318 --
Receivables:
Investment securities sold .............. -- -- 101,535,826 34,834,040 46,686,220
Capital shares sold ..................... 1,719,584 3,741,634 13,897,030 5,564,925 564,070
Dividends and interest .................. 85,130 1,389,735 140,030,505 48,993,178 9,465,275
--------------------------------------------------------------------------------------
Total assets ........................ 574,935,100 2,550,155,761 7,985,056,451 8,301,485,033 1,646,080,273
--------------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ......... -- 78,001 77,633,289 -- --
Capital shares redeemed ................. 874,028 12,235,693 18,370,172 22,380,854 3,469,987
Affiliates .............................. 639,295 2,843,971 6,532,201 5,587,274 1,351,911
Shareholders ............................ 35,743 141,470 740,636 1,300,780 233,019
Other liabilities ........................ 25,573 168,803 615,785 371,690 266,142
--------------------------------------------------------------------------------------
Total liabilities ................... 1,574,639 15,467,938 103,892,083 29,640,598 5,321,059
--------------------------------------------------------------------------------------
Net assets, at value .............. $ 573,360,461 $2,534,687,823 $ 7,881,164,368 $ 8,271,844,435 $1,640,759,214
======================================================================================
Net assets consist of:
Undistributed net investment income ...... $ 6,023,143 $ 21,016,483 $ 43,630,103 $ 4,078,828 $ 1,200,468
Net unrealized appreciation (depreciation) 170,735,720 1,037,516,281 (85,402,338) (123,846,994) 131,758,949
Accumulated net realized gain (loss) ..... (994,321) 17,380,293 20,135,302 (289,946,427) 60,353,071
Capital shares ........................... 397,595,919 1,458,774,766 7,902,801,301 8,681,559,028 1,447,446,726
--------------------------------------------------------------------------------------
Net assets, at value .............. $ 573,360,461 $2,534,687,823 $ 7,881,164,368 $ 8,271,844,435 $1,640,759,214
======================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
SEPTEMBER 30,1999
<TABLE>
<CAPTION>
U.S.GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A:
Net assets, at value ........................ $499,470,659 $2,119,739,965 $6,776,804,411 $7,895,906,416 $1,594,862,048
=================================================================================
Shares outstanding .......................... 21,609,700 63,830,926 3,032,386,878 1,192,036,231 166,422,945
=================================================================================
Net asset value per share(*) ................ $23.11 $33.21 $2.23 $6.62 $ 9.58
=================================================================================
Maximum offering price per share
(net asset value per share divided by
94.25%, 94.25%, 95.75%, 95.75%, and
95.75%, respectively) ...................... $24.52 $35.24 $2.33 $6.91 $10.01
=================================================================================
CLASS B:
Net assets, at value ........................ -- $ 17,271,190 $ 83,030,927 $ 51,433,065 $ 3,141,841
=================================================================================
Shares outstanding .......................... -- 522,947 37,147,261 7,770,969 327,449
Net asset value and maximum offering
price per share ............................ -- $33.03 $2.24 $6.62 $ 9.59
=================================================================================
CLASS C:
Net assets, at value ........................ $ 73,889,802 $ 362,215,622 $ 997,437,891 $ 308,960,646 $ 34,697,046
=================================================================================
Shares outstanding .......................... 3,263,606 11,117,291 444,804,961 46,793,514 3,624,218
=================================================================================
Net asset value per share(*) ................ $22.64 $32.58 $2.24 $6.60 $ 9.57
=================================================================================
Maximum offering price per share
(net asset value per share divided by
99.00%) .................................... $22.87 $32.91 $2.26 $6.67 $ 9.67
=================================================================================
ADVISOR CLASS:
Net assets, at value ........................ -- $ 35,461,046 $ 23,891,139 $ 15,544,308 $ 8,058,279
==================================================================================
Shares outstanding .......................... -- 1,065,839 10,711,033 2,345,521 838,720
=================================================================================
Net asset value and maximum offering
price per share ............................ -- $33.27 $2.23 $6.63 $ 9.61
=================================================================================
</TABLE>
(*) Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
U.S.GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends ....................................... $ 691,827 $ 16,872,600 $ 191,306,749 $ -- $ 84,207,503
Interest ........................................ 10,717,805 32,930,351 502,856,568 629,046,513 21,296,156
-----------------------------------------------------------------------------
Total investment income .................... 11,409,632 49,802,951 694,163,317 629,046,513 105,503,659
-----------------------------------------------------------------------------
Expenses:
Management fees (Note 3) ........................ 2,208,918 11,122,057 38,308,264 39,973,823 8,923,770
Distribution fees: (Note 3)
Class A ........................................ 935,939 4,838,038 11,052,509 8,778,526 2,615,384
Class B ........................................ -- 62,600 216,325 132,974 9,105
Class C ........................................ 460,723 3,091,593 6,790,626 1,966,045 276,406
Transfer agent fees (Note 3) .................... 719,403 3,520,527 8,404,502 7,983,457 3,030,253
Custodian fees .................................. 5,452 28,752 438,923 113,032 21,442
Reports to shareholders ......................... 121,453 591,879 1,671,117 1,563,031 640,196
Registration and filing fees .................... 71,220 136,886 197,830 177,273 111,437
Professional fees (Note 3) ...................... 11,892 48,907 160,866 201,104 37,624
Directors' fees and expenses .................... 2,673 15,508 55,475 57,959 12,793
Other ........................................... 6,369 40,498 133,551 178,891 45,014
-----------------------------------------------------------------------------
Total expenses ............................. 4,544,042 23,497,245 67,429,988 61,126,115 15,723,424
-----------------------------------------------------------------------------
Net investment income .................... 6,865,590 26,305,706 626,733,329 567,920,398 89,780,235
-----------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .................................... (338,333) 29,214,381 52,030,938 (20,761,165) 60,357,191
Foreign currency transactions .................. -- -- (413,407) -- --
-----------------------------------------------------------------------------
Net realized gain (loss) ................. (338,333) 29,214,381 51,617,531 (20,761,165) 60,357,191
Net unrealized appreciation (depreciation) on:
Investments .................................... 83,837,801 306,579,274 (348,188,739) (456,909,537) (326,085,108)
Translation of assets and liabilities
denominated in foreign currencies ............. -- -- (73,472) -- --
-----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) ... 83,837,801 306,579,274 (348,262,211) (456,909,537) (326,085,108)
-----------------------------------------------------------------------------
Net realized and unrealized gain (loss) .......... 83,499,468 335,793,655 (296,644,680) (477,670,702) (265,727,917)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ....................... $90,365,058 $362,099,361 $ 330,088,649 $ 90,249,696 $(175,947,682)
=============================================================================
</TABLE>
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
DYNATECH FUND GROWTH FUND INCOME FUND
----------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .......... $ 6,865,590 $ 3,166,004 $ 26,305,706 $ 30,643,649 $ 626,733,329 $ 601,278,083
Net realized gain (loss) from
investments and foreign
currency transactions ......... (338,333) 2,646,405 29,214,381 2,337,429 51,617,531 61,914,434
Net unrealized appreciation
(depreciation) on investments
and translation of assets
and liabilities denominated
in foreign currencies ......... 83,837,801 55,304 306,579,274 98,696,494 (348,262,211) (499,281,870)
------------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 90,365,058 5,867,713 362,099,361 131,677,572 330,088,649 163,910,647
Distributions to
shareholders from:
Net investment income:
Class A ...................... (3,136,187) (1,752,624) (25,640,633) (25,162,491) (577,135,832) (580,116,095)
Class B ...................... -- -- -- -- (2,209,823) --
Class C ...................... (124,996) (30,919) (2,012,593) (1,440,530) (75,801,312) (59,901,819)
Advisor Class ................ -- -- (1,007,143) (559,926) (1,498,463) (1,149,906)
Net realized gains:
Class A ...................... -- (9,999,974) (12,164,613) (12,689,864) (39,569,871) (87,786,345)
Class C ...................... -- (253,737) (1,558,802) (1,116,441) (5,375,553) (8,459,296)
Advisor Class ................ -- -- (412,806) (251,592) (111,728) (152,675)
------------------------------------------------------------------------------------------------
Total distributions to
shareholders ................... (3,261,183) (12,037,254) (42,796,590) (41,220,844) (701,702,582) (737,566,136)
Capital share transactions:
(Note 2)
Class A ...................... 204,020,827 33,897,043 208,528,068 118,026,556 (606,190,104) 476,200,885
Class B ...................... -- -- 17,377,780 -- 85,436,281 --
Class C ...................... 54,012,938 9,007,974 136,924,339 65,767,634 29,256,414 381,864,680
Advisor Class ................ -- -- (14,668,648) 14,371,083 2,808,064 9,638,333
-----------------------------------------------------------------------------------------------
Total capital share
transactions ................... 258,033,765 42,905,017 348,161,539 198,165,273 (488,689,345) 867,703,898
Net increase (decrease)
in net assets ............ 345,137,640 36,735,476 667,464,310 288,622,001 (860,303,278) 294,048,409
Net assets:
Beginning of year .............. 228,222,821 191,487,345 1,867,223,513 1,578,601,512 8,741,467,646 8,447,419,237
-----------------------------------------------------------------------------------------------
End of year .................... $573,360,461 $228,222,821 $2,534,687,823 $1,867,223,513 $7,881,164,368 $8,741,467,646
===============================================================================================
Undistributed net investment
income included in net assets:
End of year .................... $ 6,023,143 $ 2,410,194 $ 21,016,483 $ 23,371,146 $ 43,630,103 $ 42,789,225
===============================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
U.S.GOVERNMENT SECURITIES FUND UTILITIES FUND
---------------------------------------------------------------------
1999 1998 1999 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................... $ 567,920,398 $ 620,560,396 $ 89,780,235 $ 97,710,050
Net realized gain (loss) from investments ............... (20,761,165) (19,483,269) 60,357,191 64,441,884
Net unrealized appreciation (depreciation) on investments (456,909,537) 153,127,093 (326,085,108) 243,719,485
---------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ................................... 90,249,696 754,204,220 (175,947,682) 405,871,419
Distributions to shareholders from:
Net investment income:
Class A ................................................ (553,411,179) (605,836,717) (93,740,439) (97,138,958)
Class B ................................................ (1,105,149) -- (70,888) --
Class C ................................................ (17,924,290) (10,286,891) (1,856,680) (1,326,251)
Advisor Class .......................................... (1,446,021) (1,427,760) (573,225) (572,152)
Net realized gains:
Class A ................................................ -- -- (61,726,172) (49,822,909)
Class C ................................................ -- -- (1,415,836) (578,595)
Advisor Class .......................................... -- -- (394,011) (244,503)
---------------------------------------------------------------------
Total distributions to shareholders ...................... (573,886,639) (617,551,368) (159,777,251) (149,683,368)
Capital share transactions: (Note 2)
Class A ................................................ (688,853,199) (433,557,135) (133,473,544) (150,106,983)
Class B ................................................ 52,403,589 -- 3,363,935 --
Class C ................................................ 53,652,278 147,302,002 1,499,912 15,244,227
Advisor Class ........................................... (19,523,483) 21,365,919 (3,731,163) 3,601,051
---------------------------------------------------------------------
Total capital share transactions ......................... (602,320,815) (264,889,214) (132,340,860) (131,261,705)
Net increase (decrease) in net assets ............... (1,085,957,758) (128,236,362) (468,065,793) 124,926,346
Net assets:
Beginning of year ........................................ 9,357,802,193 9,486,038,555 2,108,825,007 1,983,898,661
---------------------------------------------------------------------
End of year .............................................. $ 8,271,844,435 $9,357,802,193 $1,640,759,214 $2,108,825,007
=====================================================================
Undistributed net investment income included in net assets:
End of year .............................................. $ 4,078,828 $ 10,045,069 $ 1,200,468 $ 7,661,465
=====================================================================
</TABLE>
See notes to financial statements.
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:
<TABLE>
<CAPTION>
CAPITAL GROWTH GROWTH AND INCOME CURRENT INCOME
-------------------------------------------------------------------
<S> <C> <C>
DynaTech Fund Income Fund U.S.Government Securities Fund
Growth Fund Utilities Fund
</TABLE>
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. 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 gain or loss 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. JOINT 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, 1999,
all outstanding repurchase agreements held by the Funds 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 to
distribute substantially 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.
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.
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. SECURITY TRANSACTIONS,INVESTMENT INCOME,EXPENSES AND DISTRIBUTIONS (CONT.)
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
The Funds, except the DynaTech Fund, offer four classes of shares: Class A,
Class B, Class C, and Advisor Class. The DynaTech Fund offers two classes of
shares: Class A and Class C. Effective January 1, 1999, Class I and Class II
were renamed Class A and Class C, respectively, and the Funds, except the
DynaTech Fund, began offering a new class of shares, Class B. Each class of
shares differs by its initial sales load, distribution fees, voting rights on
matters affecting a single class and its exchange privilege.
At September 30, 1999, there were 23 billion shares authorized ($0.01 par
value), allocated to the Funds as follows (in millions):
<TABLE>
<CAPTION>
U.S.Government
DynaTech Fund Growth Fund Income Fund Securities Fund Utilities Fund
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A ..... 250 250 4,600 2,500 400
Class B ..... 500 750 1,000 1,000 750
Class C ..... 250 250 3,600 2,500 400
Advisor Class -- 1,000 1,000 1,000 1,000
</TABLE>
Transactions in the Funds' shares were as follows:
<TABLE>
<CAPTION>
DYNATECH FUND GROWTH FUND
-----------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
1999
Shares sold .................................. 17,286,196 $ 370,259,728 24,514,491 $ 788,134,524
Shares issued in reinvestment of distributions 127,556 2,501,368 1,118,691 34,679,441
Shares redeemed .............................. (7,906,769) (168,740,269) (19,040,973) (614,285,897)
-----------------------------------------------------------
Net increase ................................. 9,506,983 $ 204,020,827 6,592,209 $ 208,528,068
===========================================================
1998
Shares sold .................................. 6,750,544 $ 118,551,094 16,876,245 $ 478,773,933
Shares issued in reinvestment of distributions 600,645 10,126,853 1,274,095 34,617,093
Shares redeemed .............................. (5,425,966) (94,780,904) (13,907,716) (395,364,470)
-----------------------------------------------------------
Net increase ................................. 1,925,223 $ 33,897,043 4,242,624 $ 118,026,556
===========================================================
CLASS B SHARES:
1999(*)
Shares sold .................................. 543,882 $ 18,086,933
Shares redeemed .............................. (20,935) (709,153)
------------------------
Net increase ................................. 522,947 $ 17,377,780
========================
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
DYNATECH FUND GROWTH FUND
--------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
1999
Shares sold .................................. 3,291,292 $ 69,762,043 6,792,630 $ 214,759,039
Shares issued in reinvestment of distributions 6,129 118,473 108,414 3,318,582
Shares redeemed .............................. (738,937) (15,867,578) (2,527,969) (81,153,282)
--------------------------------------------------------
Net increase ................................. 2,558,484 $ 54,012,938 4,373,075 $ 136,924,339
========================================================
1998
Shares sold .................................. 664,798 $ 11,517,361 3,446,754 $ 96,492,539
Shares issued in reinvestment of distributions 16,410 274,674 88,123 2,369,656
Shares redeemed .............................. (161,064) (2,784,061) (1,181,670) (33,094,561)
--------------------------------------------------------
Net increase ................................. 520,144 $ 9,007,974 2,353,207 $ 65,767,634
========================================================
ADVISOR CLASS SHARES:
1999
Shares sold .................................. 981,629 $ 31,090,587
Shares issued in reinvestment of distributions 45,473 1,409,662
Shares redeemed .............................. (1,423,873) (47,168,897)
---------------------------
Net decrease ................................. (396,771) $(14,668,648)
===========================
1998
Shares sold .................................. 742,913 $ 21,088,014
Shares issued in reinvestment of distributions 29,525 801,892
Shares redeemed .............................. (261,759) (7,518,823)
---------------------------
Net increase ................................. 510,679 $ 14,371,083
===========================
</TABLE>
<TABLE>
<CAPTION>
U.S.GOVERNMENT
INCOME FUND SECURITIES FUND
-------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
1999
Shares sold ........................................ 338,537,606 $ 782,395,737 285,103,662 $ 1,934,434,693
Shares issued in reinvestment of distributions ..... 157,627,005 363,473,509 41,934,467 283,874,052
Shares redeemed .................................... (760,496,959) (1,752,059,350) (429,458,313) (2,907,161,944)
-------------------------------------------------------------------
Net decrease ....................................... (264,332,348) $ (606,190,104) (102,420,184) $ (688,853,199)
===================================================================
1998
Shares sold ........................................ 630,074,991 $ 1,551,286,174 166,821,011 $ 1,151,492,514
Shares issued in connection with tax-free merger(**) 83,468,440 205,332,362 -- --
Shares issued in reinvestment of distributions ..... 164,917,373 405,797,953 42,846,891 294,856,000
Shares redeemed .................................... (688,362,366) (1,686,215,604) (272,493,464) (1,879,905,649)
-------------------------------------------------------------------
Net increase (decrease) ............................ 190,098,438 $ 476,200,885 (62,825,562) $ (433,557,135)
===================================================================
CLASS B SHARES:
1999(*)
Shares sold ........................................ 37,825,077 $ 86,986,436 8,225,072 $ 55,415,226
Shares issued in reinvestment of distributions ..... 505,585 1,157,703 109,018 723,581
Shares redeemed .................................... (1,183,401) (2,707,858) (563,121) (3,735,218)
-------------------------------------------------------------------
Net increase ....................................... 37,147,261 $ 85,436,281 7,770,969 $ 52,403,589
===================================================================
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
U.S.GOVERNMENT
INCOME FUND SECURITIES FUND
-------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS C SHARES:
1999
Shares sold .................................. 109,923,377 $ 255,290,823 25,192,988 $ 171,121,432
Shares issued in reinvestment of distributions 22,213,949 51,426,235 1,822,494 12,288,387
Shares redeemed .............................. (120,130,411) (277,460,644) (19,198,838) (129,757,541)
-------------------------------------------------------------
Net increase ................................. 12,006,915 $ 29,256,414 7,816,644 $ 53,652,278
=============================================================
1998
Shares sold .................................. 195,225,220 $ 482,543,161 28,331,456 $ 195,095,336
Shares issued in reinvestment of distributions 18,087,826 44,486,191 1,020,467 7,008,019
Shares redeemed .............................. (59,466,410) (145,164,672) (7,961,919) (54,801,353)
-------------------------------------------------------------
Net increase ................................. 153,846,636 $ 381,864,680 21,390,004 $ 147,302,002
=============================================================
ADVISOR CLASS SHARES:
1999
Shares sold .................................. 4,378,496 $ 9,880,188 2,098,984 $ 14,369,642
Shares issued in reinvestment of distributions 633,401 1,460,321 171,896 1,170,966
Shares redeemed .............................. (3,655,393) (8,532,445) (5,113,145) (35,064,091)
-------------------------------------------------------------
Net increase (decrease) ...................... 1,356,504 $ 2,808,064 (2,842,265) $ (19,523,483)
=============================================================
1998
Shares sold .................................. 4,656,243 $ 11,256,541 6,196,861 $ 42,832,286
Shares issued in reinvestment of distributions 488,818 1,197,290 176,791 1,217,749
Shares redeemed .............................. (1,156,742) (2,815,498) (3,283,856) (22,684,116)
-------------------------------------------------------------
Net increase ................................. 3,988,319 $ 9,638,333 3,089,796 $ 21,365,919
=============================================================
</TABLE>
<TABLE>
<CAPTION>
UTILITIES FUND
----------------------------
SHARES AMOUNT
----------------------------
<S> <C> <C>
CLASS A SHARES:
1999
Shares sold ................................................................. 27,242,414 $ 297,519,311
Shares issued in reinvestment of distributions .............................. 11,041,416 116,411,589
Shares redeemed ............................................................. (52,663,254) (547,404,444)
----------------------------
Net decrease ................................................................ (14,379,424) $(133,473,544)
============================
1998
Shares sold ................................................................. 20,202,105 $ 216,397,168
Shares issued in reinvestment of distributions .............................. 10,580,531 112,600,891
Shares redeemed ............................................................. (44,515,255) (479,105,042)
----------------------------
Net decrease ................................................................ (13,732,619) $(150,106,983)
============================
CLASS B SHARES:
1999(*)
Shares sold ................................................................. 334,316 $ 3,432,812
Shares issued in reinvestment of distributions .............................. 5,132 52,100
Shares redeemed ............................................................. (11,999) (120,977)
----------------------------
Net increase ................................................................ 327,449 $ 3,363,935
============================
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
UTILITIES FUND
--------------------------
SHARES AMOUNT
--------------------------
<S> <C> <C>
CLASS C SHARES:
1999
Shares sold ..................................... 2,112,393 $ 22,884,423
Shares issued in reinvestment of distributions .. 242,398 2,560,093
Shares redeemed ................................. (2,311,438) (23,944,604)
--------------------------
Net increase .................................... 43,353 $ 1,499,912
==========================
1998
Shares sold ..................................... 2,055,247 $ 22,366,990
Shares issued in reinvestment of distributions .. 139,963 1,492,613
Shares redeemed ................................. (799,899) (8,615,376)
--------------------------
Net increase .................................... 1,395,311 $ 15,244,227
==========================
ADVISOR CLASS SHARES:
1999
Shares sold ..................................... 635,157 $ 6,855,548
Shares issued in reinvestment of distributions .. 78,903 832,220
Shares redeemed ................................. (1,073,756) (11,418,931)
--------------------------
Net decrease .................................... (359,696) $ (3,731,163)
==========================
1998
Shares sold ..................................... 1,530,293 $ 16,618,957
Shares issued in reinvestment of distributions .. 61,776 659,656
Shares redeemed ................................. (1,262,420) (13,677,562)
--------------------------
Net increase .................................... 329,649 $ 3,601,051
==========================
</TABLE>
(*) For the period January 1, 1999 (effective date) to September 30, 1999.
(**) During the year ended September 30, 1998, the Income Fund acquired the net
assets of the Franklin Principal Maturity Trust pursuant to a plan of
reorganization approved by the Funds' shareholders.
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 month-end net assets of the Funds as follows:
<TABLE>
<CAPTION>
ANNUALIZED FEE RATE NET ASSETS
-------------------------------------------------------------------------
<S> <C>
.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
</TABLE>
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.
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
The Funds reimburse Distributors for costs incurred in marketing the Funds'
shares as follows:
<TABLE>
<CAPTION>
U.S.GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A ............ 0.25% 0.25% 0.15% 0.15% 0.15%
Class B ............ -- 1.00% 0.65% 0.65% 0.65%
Class C ............ 1.00% 1.00% 0.65% 0.65% 0.65%
</TABLE>
Distributors paid net commissions on sales of the Funds shares, and received
contingent deferred sales charges for the year 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 ............ $171,485 $1,599,092 $4,415,388 $5,324,459 $219,134
Contingent deferred sales charges $ 40,965 $ 211,566 $ 713,435 $ 345,385 $ 44,618
</TABLE>
The Funds paid transfer agent fees of $23,658,142, of which $21,068,726 were
paid to Investor Services.
Included in professional fees are legal fees of $72,742 that were paid to a law
firm in which a partner is an officer of the Funds.
4. INCOME TAXES
At September 30, 1999, the DynaTech Fund and the U.S. Government Securities Fund
had tax basis capital losses of $677,592 and $269,891,173, respectively, which
may be carried over to offset future capital gains. Such losses expire as
follows:
<TABLE>
<CAPTION>
U.S.GOVERNMENT
DYNATECH FUND SECURITIES FUND
-------------------------------
<S> <C> <C>
Capital loss carryovers expiring in: 2002.... $ -- $111,364,839
2003.... -- 3,698,366
2004.... -- 57,539,178
2005.... -- 50,054,906
2006.... -- 28,279,472
2007.... 677,592 18,954,412
--------------------------
$677,592 $269,891,173
--------------------------
--------------------------
</TABLE>
At September 30, 1999, the DynaTech Fund and the U.S. Government Securities Fund
have deferred capital losses occurring subsequent to October 31, 1998 of
$316,729 and $20,055,254, respectively. For tax purposes, such losses will be
reflected in the year ending September 30, 2000.
At September 30, 1999, the Income Fund has deferred currency losses occurring
subsequent to October 31, 1998 of $26,380,813. For tax purposes, such losses
will be reflected in the year ending September 30, 2000.
On September 30, 1999, the U.S. Government Securities Fund had expired capital
loss carryovers of $67,082,683, which were reclassified to paid-in-capital.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and 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, 1999, the net unrealized appreciation (depreciation) 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 .............. $ 402,394,666 $ 1,507,508,111 $ 7,815,029,877 $ 8,335,934,566 $ 1,457,608,159
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Unrealized appreciation .......... 176,421,211 1,064,059,809 687,537,270 83,328,596 191,636,257
Unrealized depreciation .......... (5,685,491) (26,543,528) (772,974,057) (207,175,590) (59,879,708)
---------------------------------------------------------------------------------------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (continued)
<TABLE>
<S> <C> <C> <C> <C> <C>
Net unrealized appreciation (depreciation) ......... $170,735,720 $1,037,516,281 $(85,436,787) $(123,846,994) $131,756,549
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
U.S.GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases ................... $82,885,731 $169,256,270 $1,411,684,721 $1,312,652,454 $644,521,939
Sales ....................... $13,200,516 $ 63,704,927 $1,757,954,001 $2,068,287,185 $834,383,245
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
The Income Fund has 41.7% 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, 1999, the
Income Fund held defaulted securities with a value aggregating $1,825,000,
representing 0.02% of the Fund's net assets. For information as to specific
securities, see the accompanying Statement of Investments.
For financial reporting purposes, the Fund discontinues 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 that
industry/sector.
7. 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
International Wireless Communications. As a result of this involvement, Advisers
may be in possession of certain material non-public information. The Fund's
manager has not nor does it intend to sell any of its holdings in this security
while in possession of this information.
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,
1999, 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 statements presentation. We believe that our
audits, which included confirmation of securities at September 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
November 1, 1999
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, 1999:
<TABLE>
<CAPTION>
GROWTH FUND INCOME FUND UTILITIES FUND
------------------------------------------
<S> <C> <C>
$26,381,825 $46,325,208 $60,357,191
</TABLE>
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, 1999:
<TABLE>
<CAPTION>
DYNATECH FUND GROWTH FUND INCOME FUND UTILITIES FUND
-------------------------------------------------------------------
<S> <C> <C> <C>
16.68% 49.36% 23.16% 85.48%
</TABLE>
