SHAREHOLDER LETTER
Dear Shareholder:
This semiannual report for Franklin Custodian Funds, Inc. covers the period
ended March 31, 2000.
The six months under review witnessed the U.S. economy's entry into its 10th
year of record expansion, as gross domestic product (GDP) increased at an
annualized 7.3% in fourth quarter 1999 and is projected to increase 5.4% in
first quarter 2000. Consumer spending, which accounts for two-thirds of growth,
benefited from the combination of restrained U.S. unemployment, where February's
4.1% rate hovered close to a three-decade low, and increased incomes, bolstered
by rising equity and real estate valuations.(1), (2) Inflation, as measured by
the Consumer Price Index, was 2.7% for calendar year 1999 -- lower than many
feared.
Against the backdrop of economic expansion, the Standard & Poor's 500(R) (S&P
500(R)) and Nasdaq Composite(R) Indexes registered gains, although many large
market segments were left out or actually suffered during the reporting period.
Technology stocks continued their trend as the big equity market winners,
especially electronics-related stocks from instruments to semiconductors. By the
end of first quarter 2000, those technology companies with proven earnings, such
as Intel and Cisco, outperformed the Internet companies, whose valuations
investors began to question. Meanwhile, "old economy" value stocks were expected
to reassert themselves, but did so only briefly. Investors proved especially
unmerciful toward those old economy companies with bad news, like consumer
products giant Procter & Gamble, which lost one-third of its market
capitalization after releasing a surprisingly downbeat earnings projection for
the remainder of its fiscal year.(3) The S&P 500 rose 17.51% from October 1,
1999, through March 31, 2000; however, half of the stocks that comprise the
index were down. Despite losing nearly 9.5% from its 5048.62 high on March 10,
the Nasdaq ended the same period up 66.68%, although over one third of that
index's stocks declined.
1. Source: Bureau of Labor Statistics, 4/4/00.
2. Source: www.Bloomberg.com, Top Financial News, 4/4/00.
3. Source: New York Times, 4/1/00.
CONTENTS
Shareholder Letter .................................................... 1
Fund Reports
Franklin DynaTech Fund ............................................... 3
Franklin Growth Fund ................................................. 8
Franklin Income Fund ................................................. 12
Franklin U.S. Government
Securities Fund ...................................................... 18
Franklin Utilities Fund .............................................. 24
Financial Highlights &
Statement of Investments .............................................. 30
Financial Statements .................................................. 58
Notes to
Financial Statements .................................................. 64
U.S. bond markets experienced considerable volatility during the six months
under review. The Federal Reserve Board (the Fed) raised interest rates 0.25% on
three separate occasions due to inflation fears. The final increase, on March
21, lifted the federal funds target rate to 6.00%. While rising interest rates
generally presented challenges for the bond markets, prices picked up at the end
of the period as a 7.9% sell-off in the Nasdaq made fixed-income securities look
more attractive to many investors. The yield on the 30-year Treasury fell from
6.06% on September 30, 1999, to 5.83% on March 31, 2000, after climbing to a
high of 6.75% on January 20, 2000. Bond yields and prices move in an inverse
relationship, so that as yields fall, the dollar value of bonds increased,
meaning bond funds in general appreciated in value.
By the reporting period's end, The Conference Board's Index of leading U.S.
economic indicators fell 0.3%, dropping for the first time in five months.2
While this decline does not signal the end of the economic expansion, it does
point to a slowdown from fourth quarter 1999's breakneck pace. Looking forward,
we anticipate that the Fed will monitor inflationary tendencies closely, and
probably will raise interest rates again. If, as a result, the economy slows
toward the end of 2000, the interest rate-sensitive stocks and the bond markets,
in general, could begin to experience less volatility.
Such uncertainty reinforces the importance of investing for the long term, so
daily market fluctuations and short-term volatility have minimal impact on
overall investment goals. We encourage you to discuss your financial goals with
your investment representative, who can address concerns about volatility and
help you diversify your investments and stay focused on the long term. As
always, we appreciate your support, welcome your questions and comments and look
forward to serving your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
President
Franklin Custodian Funds, Inc.
FRANKLIN DYNATECH FUND
[PYRAMID GRAPHIC]
Your Fund's Goal: Franklin DynaTech Fund seeks capital appreciation by investing
primarily in companies emphasizing technological development.
During the six-month reporting period, U.S. economic growth accelerated from the
previous six months, extending the current economic expansion, the country's
longest. As a result, consumer confidence remained very strong, unemployment
stayed near 30-year lows, and the rest of the world showed signs of a robust
economic recovery. This is more impressive when factoring in Y2K's negative
effects and the Federal Reserve Board's (the Fed's) continuing attempts to slow
economic growth to what they believe is a more sustainable level.
Technology stocks continued to post remarkable performance figures, and were
once again the best-performing sector of the broader market. In this
environment, Franklin DynaTech Fund - Class A shares produced a +35.37%
cumulative total return for the six months under review, indicating the
technology sector's continued relative strength compared with the overall
market.(1)
Corporate spending on technology, estimated to have grown by 22% in 1999, is
fueling solid earnings growth for companies specializing in this field. Over the
past five years, the technology sector of the Standard & Poor's 500 (S&P 500)
Index has had an earnings growth rate approximately twice that of the rest of
the index. As growth in content, Internet traffic and e-commerce increases,
corporate need for data storage, new infrastructure and the latest software
applications becomes ever more indispensable to remain competitive. Going
forward, technology spending is expected to remain strong and some analysts
estimate that certain technology companies will have 30% or more earnings growth
in 2000.
1. Cumulative total return measures the change in value of an investment,
assuming reinvestment of any distributions, and does not include the initial
sales charge.
All portfolio holdings mentioned in the report are listed by their
complete legal titles in the fund's Statement of Investments (SOI), which is a
complete listing of the fund's portfolio holdings, including dollar value and
number of shares or principal amount. The SOI begins on page 32.
PORTFOLIO BREAKDOWN
Franklin DynaTech Fund
3/31/00
<TABLE>
<CAPTION>
% OF TOTAL
SECTOR NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Semiconductors 8.7%
Computer Software 8.3%
Telecommunications
Equipment 4.8%
Computer Communications 4.4%
Internet Services 4.0%
Electronic Data Processing 3.6%
Biotechnology 2.9%
Diversified Electronic Products 2.5%
Major Pharmaceuticals 2.3%
Cellular Telephone 1.6%
Consumer Electronics/
Appliances 1.5%
EDP Services 1.3%
Electronic Production
Equipment 1.0%
Major U.S.
Telecommunications 0.9%
Cable Television 0.8%
Precision Instruments 0.8%
Military/Government/
Technical 0.7%
Other Telecommunications 0.6%
Medical Electronics 0.6%
Media Conglomerates 0.5%
EDP Peripherals 0.5%
Broadcasting 0.5%
Other Sectors 3.3%
Cash and Other Net Assets 43.9%
</TABLE>
During the six months under review, we were quite active, purchasing stocks of
several companies that fit our investment criteria -- leading companies that
offer long-term growth potential. Seven of our new positions were from
technology sectors, where the fund held the majority of its equity investments
on March 31, 2000. Within the communications equipment industry, we added three
holdings we felt had outstanding long-term prospects -- Infonet Services Corp.,
Nokia and QUALCOMM. Infonet is a global data communications networking company
that provides data, e-mail, intranet, Internet, multimedia and many other
services to approximately 30% of the world's 500 largest companies. Nokia and
QUALCOMM are directly benefiting from the explosive growth in wireless voice and
data transmission. Other technology companies added to the fund included Agilent
Technologies, a spin-off from Hewlett-Packard; OpenTV, a leading provider of
software that enables digital interactive television; and SonicWall, an Internet
infrastructure products manufacturer that provides secure, high-speed Internet
access.
We also were active in the health care sector, specifically in biotechnology,
where we added Chiron, Biogen and Inhale Therapeutics. Chiron focuses on human
therapeutics to treat cancer, autoimmune disease, and viral infections, while
Biogen conducts research on infectious diseases and autoimmune disorders. Inhale
is a leading developer of drug delivery technologies for pharmaceutical
companies and has developed a dry powder formulation and device combination that
allows diabetics to inhale rather than inject their required daily insulin.
Despite the recent volatility seen in many biotechnology stocks, we feel the
long-term prospects remain very attractive.
We did eliminate a few positions during the reporting period for a variety of
reasons. Within the technology sector, we sold our positions in Crossroads
Systems, a storage router manufacturer, and Finisar Corp., a provider of
fiber-optic subsystems and network performance test systems, after their strong
stock performances created extremely high valuations. Outside of the technology
sector, the fund sold its position in Casella Waste Systems following
disappointing results, its investment in Associated First Capital due to
interest-rate uncertainty, and shares of Gartner Group after receiving the
shares from a spin-off by current holding IMS Health. While our advantageous
cash position represented 43.9% of total net assets on March 31, 2000, as we
continued to invest in leading companies, it should still provide us enough
flexibility to add to existing positions and make new additions to your
portfolio, as we seek to take advantage of the market volatility.
Looking forward, we believe that technology spending, Internet usage, wireless
communications, and new software applications will continue to grow at a rapid
pace. However, it is also clear that valuations for many technology and Internet
companies are extremely high by historical standards, and one should not expect
that such valuations and the strong returns they have produced recently will
continue indefinitely.
/s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
/s/ Robert R. Dean, CFA
Robert R. Dean, CFA
Portfolio Management Team
Franklin DynaTech Fund
This discussion reflects our views, opinions and portfolio holdings as of March
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
TOP 10 HOLDINGS
Franklin DynaTech Fund
3/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Intel Corp. 7.77%
Electronic Technology
Cisco Systems Inc. 4.39%
Electronic Technology
Microsoft Corp. 4.02%
Technology Services
Motorola Inc. 2.70%
Electronic Technology
JDS Uniphase Corp. 2.54%
Electronic Technology
Inktomi Corp. 2.26%
Technology Services
i2 Technologies Inc. 2.05%
Technology Services
Genentech Inc. 1.94%
Health Technology
Check Point Software
Technologies Ltd. 1.80%
Technology Services
Hewlett-Packard Co. 1.39%
Electronic Technology
</TABLE>
FRANKLIN DYNATECH FUND
SIX-MONTH PERFORMANCE SUMMARY
AS OF 3/31/00
Six-month and aggregate total returns do not include sales charges.
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.
CLASS A: 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: 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.
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A
Six-Month Total Return +35.37%
Net Asset Value (NAV) $30.83 (3/31/00) $23.11 (9/30/99)
Change in NAV +$7.72
Distributions (10/1/99-3/31/00) Dividend Income $0.3694
CLASS B
Aggregate Total Return +9.73%
Net Asset Value (NAV) $30.78 (3/31/00) $28.05 (2/1/00)
Change in NAV +$2.73
CLASS C
Six-Month Total Return +34.86%
Net Asset Value (NAV) $30.24 (3/31/00) $22.64 (9/30/99)
Change in NAV +$7.60
Distributions (10/1/99-3/31/00) Dividend Income $0.2391
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (1/1/68)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +43.43% +240.83% +481.09% +2,836.09%
Average Annual Total Return(2) +35.19% +26.29% +18.53% +10.84%
Value of $10,000 Investment(3) $13,519 $32,125 $54,744 $276,553
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (2/1/00)
--------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +9.73%
Aggregate Total Return(2) +5.73%
Value of $10,000 Investment(3) $10,573
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (9/16/96)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +42.41% +119.00% +146.98%
Average Annual Total Return(2) +39.97% +29.43% +28.75%
Value of $10,000 Investment(3) $13,997 $21,683 $24,447
</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, aggregate total return for that class represents total
return since 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.
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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN GROWTH FUND
[PYRAMID GRAPHIC]
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 six months under review, the U.S. economy continued to grow,
resulting in low unemployment and tight resources. Although inflation remained
under control, the Federal Reserve Board (the Fed), fearing pressures as the
U.S. entered its 10th consecutive year of economic expansion, raised interest
rates three times during the period. These two trends of rising interest rates
and inflationary fears contributed to stock market volatility. The Dow Jones(R)
Industrial Average (the Dow) exemplified this fluctuation, as it moved from
10337 on September 30, 1999, reaching a high of 11723 on January 14, 2000, and
closed at 10922 on March 31, 2000.
Investment interest continued to narrow during the six-month reporting period.
Specifically, investors focused on popular stock averages and telecommunications
and technology issues. Various market indexes do not tell the entire story.
Declining stocks significantly outnumbered advancing issues. This can be
illustrated by the table below.
NYSE ADVANCES VS. DECLINES
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Advances 961 1,058 1,805
Declines 1,621 1,421 538
Unchanged 14 12 12
</TABLE>
TOP 10 HOLDINGS
Franklin Growth Fund
3/31/00
<TABLE>
<CAPTION>
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Cisco Systems Inc. 4.01%
Electronic Technology
Time Warner Inc. 3.45%
Consumer Services
Sun Microsystems Inc. 2.88%
Electronic Technology
Tyco International Ltd. 2.76%
Producer Manufacturing
Computer Sciences Corp. 2.73%
Technology Services
Pfizer Inc. 2.69%
Health Technology
Schering-Plough Corp. 2.54%
Health Technology
International Business
Machines Corp. 2.54%
Electronic Technology
Delta Airlines Inc. 2.04%
Transportation
Hewlett-Packard Co. 2.04%
Electronic Technology
--------------------------------------------------------------------------------
TOTAL 27.68%
</TABLE>
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 38.
Franklin Growth Fund's Class A shares posted a cumulative total return of
+11.84% from September 30, 1999, to March 31, 2000, compared with 6.32% for the
Dow and 17.51% for the Standard & Poor's 500.(1)
As you can see from the adjacent tables, we sought to take advantage of the
recent stock market decline to add to several existing holdings as well as make
new purchases.
Hewlett-Packard and Sun Microsystems are newcomers to the fund's top 10
holdings. Cisco Systems is now our largest investment. Five out of the top 10
positions fall into the electronic technology/technology services category, but
that simply reflects this area's appreciation mainly due to stock-buying
popularity over the past six months. Valuations are high here, but that is of no
great concern to us because we own quantities of other stocks that are
historically quite low.
Looking forward, we are positive on Franklin Growth Fund's long-term outlook. We
are again seeing good value in the stock market and we expect to take advantage
of it.
/s/ V. Jerry Palmieri
V. Jerry Palmieri
Portfolio Manager
Franklin Growth Fund
1. Cumulative total return measures the change in value of an investment,
assuming reinvestment of any distributions, and does not include the initial
sales charge. The indexes are unmanaged and include reinvested dividends; one
cannot invest directly in an index.
This discussion reflects our views, opinions and portfolio holdings as of March
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
POSITIONS ADDED TO
(10/1/99-3/31/00)
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
AMR Corp. 1.22%
Boeing Co. 1.16%
Emerson Electric Co. 1.01%
Cordant Technologies Inc. 0.99%
Continental Airlines Inc., B 0.78%
Teleflex Inc. 0.68%
American Greetings Corp., A 0.63%
Alaska Air Group Inc. 0.58%
Air Products & Chemicals Inc. 0.55%
Raytheon Co., B 0.41%
KLM Royal Dutch Airlines 0.40%
Mattel Inc. 0.40%
National Service
Industries Inc. 0.40%
Lockheed-Martin Corp. 0.39%
Genuine Parts Co. 0.34%
Compaq Computer Corp. 0.18%
Carnival Corp. 0.10%
</TABLE>
NEW POSITIONS
(10/1/99-3/31/00)
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Northrop Grumman Corp. 1.02%
General Dynamics Corp. 0.95%
Ingersoll Rand Co. 0.74%
Pitney-Bowes Inc. 0.72%
Hasbro Inc. 0.38%
W.W. Grainger Inc. 0.33%
Illinois Tool Works Inc. 0.32%
Albertson's Inc. 0.28%
Robert Half International Inc. 0.27%
Thomas & Betts Corp. 0.27%
R.R. Donnelley & Sons Co. 0.21%
RPM Inc. 0.11%
Tootsie Roll Industries Inc. 0.02%
</TABLE>
FRANKLIN GROWTH FUND
SIX-MONTH PERFORMANCE SUMMARY
AS OF 3/31/00
Six-month total return does not include sales charges. 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.
CLASS A: 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: 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.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +11.84%
Net Asset Value (NAV) $36.36 (3/31/00) $33.21 (9/30/99)
Change in NAV +$3.15
Distributions (10/1/99-3/31/00) Dividend Income $0.4543
Long-Term Capital Gain $0.2637
---------------------------------
Total $0.7180
CLASS B
Six-Month Total Return +11.38%
Net Asset Value (NAV) $36.12 (3/31/00) $33.03 (9/30/99)
Change in NAV +$3.09
Distributions (10/1/99-3/31/00) Dividend Income $0.3521
Long-Term Capital Gain $0.2637
---------------------------------
Total $0.6158
CLASS C
Six-Month Total Return +11.43%
Net Asset Value (NAV) $35.78 (3/31/00) $32.58 (9/30/99)
Change in NAV +$3.20
Distributions (10/1/99-3/31/00) Dividend Income $0.2189
Long-Term Capital Gain $0.2637
---------------------------------
Total $0.4826
ADVISOR CLASS
Six-Month Total Return +11.99%
Net Asset Value (NAV) $36.39 (3/31/00) $33.27 (9/30/99)
Change in NAV +$3.12
Distributions (10/1/99-3/31/00) Dividend Income $0.5340
Long-Term Capital Gain $0.2637
---------------------------------
Total $0.7977
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (3/31/48)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +14.21% +145.07% +293.55% +28,547.85%
Average Annual Total Return(2) +7.66% +18.23% +14.01% +11.37%
Value of $10,000 Investment(3) $10,766 $23,100 $37,095 $2,703,390
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +13.30% +16.98%
Average Annual Total Return(2) +9.30% +10.28%
Value of $10,000 Investment(3) $10,930 $11,298
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +13.38% +61.97% +130.05%
Average Annual Total Return(2) +11.27% +17.05% +18.21%
Value of $10,000 Investment(3) $11,127 $16,038 $22,775
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (3/31/48)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +14.50% +148.91% +299.71% +28,995.95%
Average Annual Total Return(2) +14.50% +20.01% +14.86% +11.53%
Value of $10,000 Investment(3) $11,450 $24,891 $39,971 $2,909,595
</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.
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. 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 +68.61% and +17.46% 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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN INCOME FUND
[PYRAMID GRAPHIC]
Your Fund's Goal: Franklin Income Fund seeks to maximize income while
maintaining prospects for capital appreciation through a diversified portfolio
of securities.
Aside from a period of temporary weakness in January and February 2000, the U.S.
stock market continued its relentless climb during the six months under review,
driven by healthy economic growth and a relatively benign inflationary
environment. Stocks, in general, displayed a surprising divergence, favoring
those companies and sectors that are considered to be participating in the
technology-driven growth economy, while pressuring valuations for many of the
more traditional industrial, slower-growth issuers. This divergence began to
reverse in March as many slower-growth companies' shares staged a rally,
generally increasing the breadth of stock performance. Reports of economic
strength early in the period weighed on the U.S. bond market, driving the yield
on the 30-year U.S. Treasury bond as high as 6.75%, up from 6.06% at the
beginning of the reporting period. However, Treasury bonds began a strong
rebound in February after the government announcement of a U.S. Treasury bond
repurchase plan and several signs that U.S. economic growth might be slowing.
Our corporate bond holdings increased slightly during the period to end at 30.7%
of total net assets, up from 28.2% on September 30, 1999. Although many of these
bonds' value held up well considering that interest rates were rising during
much of the period, the difference in spreads between the high yield market and
Treasury bonds did widen toward the end of the period. The spread widening
largely resulted from the negative impact of cash outflows from dedicated high
yield mutual funds. We focused most of our new purchases in the
telecommunications and wireless communications sectors, as we believed their
long-term growth prospects, combined with appreciation potential from stock
offerings and merger and acquisition activity, boded well for many of these
companies' credit outlook and total return potential. New high yield purchases
included issues from PSINet, a provider of Internet connectivity and web hosting
services, and VoiceStream Wireless, an operator of wireless personal
communications services systems. In addition to telecommunications, we also
initiated a position in Lone Cypress Company, owner of Pebble Beach Golf Course
near Monterey, California.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 44.
The fund's foreign government bonds, at 17.8% of total net assets on March 31,
2000, continued to perform strongly as several developing countries made
progress on economic and political reforms. Our bond holdings from Latin
America, Russia and Turkey underpinned this sector's strength. In general, the
Latin American region benefited from stronger global growth, an upturn in
commodity prices, and renewed investor confidence in several countries. Brazil,
which represented the fund's largest emerging-market holding, was especially
adept in passing key congressional fiscal reforms. In addition, the central
bank's anti-inflation stance managed to stabilize interest rates and Brazil's
exchange rate far more effectively than previously anticipated. Russia
experienced a significant political change at the end of 1999, as parliamentary
power shifted to reform-minded representatives and Boris Yeltsin resigned as
president of Russia. Prime Minister Vladimir Putin became interim president and
subsequently won presidential elections in March. The fund's Russian bonds
appreciated significantly, largely as a result of these developments, allowing
us to take profits in our two positions. Our investment in government bonds from
Turkey also performed well during the period as the country made significant
progress toward eventually joining the European Union.
Treasury bonds were volatile as fears of strong economic growth gave way to the
positive implications of decreased Treasury bond supply and a belief that the
Federal Reserve Board was near the end of its current rate-tightening cycle. In
this environment, the Treasury bond curve became inverted when rates on
long-term bonds declined below those of short-term bonds. Believing that the
inversion was unlikely to persist, we swapped our 30-year U.S. Treasury bonds
for 5-year Treasury notes and shorter-duration government agency bonds.
The divergence in equity share performance between growth- and value-oriented
stocks reached extreme levels during the period. Although this was a difficult
environment for sectors such as utility stocks, the fund experienced strong
performance from several other sectors and individual stocks. Electric utility
stocks' performance suffered from a combination of rising rates in the first
half of the period and investors' renewed focus on other sectors that had
performed poorly and were trading at compelling valuations. We still believe
utility stocks represent an attractive value at recent levels. However, as
opportunities arose, we reduced the fund's utility exposure during the period by
selling select securities and participating in company-sponsored tender offers.
Many of the fund's energy-related stocks performed strongly during the period,
benefiting from the positive implications of rising oil prices. We believe the
sector may continue to perform well, given the higher price of oil and still
attractive valuations.
PORTFOLIO BREAKDOWN
Franklin Income Fund
3/31/00
<TABLE>
<CAPTION>
% OF TOTAL
SECTOR NET ASSETS
--------------------------------------------------------------------------------
<S> <C>
Corporate Bonds 25.0%
Utility Stocks 21.2%
Foreign Government Bonds 17.8%
Corporate Convertible Bonds 5.7%
Oil & Gas Stocks 5.2%
Consumer Goods Stocks 4.7%
Real Estate Stocks 4.6%
U.S. Government Bonds
& Notes 3.9%
Gold & Other Metal Stocks 2.5%
Telecommunication
Service Stocks 2.1%
Automotive Stocks 1.2%
Other Stocks 3.0%
Cash and Other Net Assets 3.1%
</TABLE>
DIVIDEND DISTRIBUTIONS
Franklin Income Fund
10/1/99 - 3/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
----------------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
October 1.5 cents 1.41 cents 1.41 cents 1.53 cents
November 1.5 cents 1.41 cents 1.41 cents 1.53 cents
December 1.5 cents 1.41 cents 1.40 cents 1.53 cents
January 1.5 cents 1.41 cents 1.40 cents 1.53 cents
February 1.5 cents 1.41 cents 1.40 cents 1.52 cents
March 1.5 cents 1.41 cents 1.41 cents 1.53 cents
--------------------------------------------------------------------------------
TOTAL 9.0 CENTS 8.46 CENTS 8.43 CENTS 9.17 CENTS
</TABLE>
After several months of weak performance, the real estate sector rebounded into
positive territory by period-end. We believe the sector remained extremely
undervalued and sought to take advantage of this relative weakness during the
period by adding to the fund's existing real estate positions. As evidence of
the sector's relatively low share prices, nearly one half of publicly traded
REITs have instituted share repurchase programs, often selling properties at
favorable private market valuations to fund the programs.
Finally, the gold sector weakened considerably during the period after sharp
gold price increases in September and early October. Our outlook for the sector
is more favorable for the remainder of 2000 as the central bank selling process
becomes more predictable, companies curtail their forward hedging programs
(signaling a positive view on gold prices), and economic recovery in world
markets increases demand.
Two other equity investments worth noting are U.S. West and General Motors (GM).
Both were contrarian investments made as a result of their attractive valuations
and dividend yields. U.S. West benefited from its proposed merger with Qwest
Communications, while GM appreciated as investors began to realize the value
contained in the company's GM Hughes division.
As we look forward to the second half of the fund's fiscal year, the divergence
in equity valuations and wider spreads in the corporate bond market present many
attractive investment opportunities. Several equity sectors in particular are
more attractively priced than they have been in some time, and we will actively
pursue these opportunities. In addition, we are continually searching for new
investments across asset classes and industries and remain committed to our
value-oriented approach.
/s/ Charles B. Johnson
Charles B. Johnson
/s/ Christopher J. Molumphy
Christopher J. Molumphy
/s/ Frederick G. Fromm
Frederick G. Fromm
Portfolio Management Team
Franklin Income Fund
This discussion reflects our views, opinions and portfolio holdings as of March
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
fund. Our strategies and the fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
FRANKLIN INCOME FUND
SIX-MONTH PERFORMANCE SUMMARY
AS OF 3/31/00
Six-month total return does not include sales charges. 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.
CLASS A: 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: 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.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return -0.68%
Net Asset Value (NAV) $2.12 (3/31/00) $2.24 (9/30/99)
Change in NAV -$0.12
Distributions (10/1/99-3/31/00) Dividend Income $0.0900
Long-Term Capital Gain $0.0140
---------------------------------
Total $0.1040
CLASS B
Six-Month Total Return -0.93%
Net Asset Value (NAV) $2.12 (3/31/00) $2.24 (9/30/99)
Change in NAV -$0.12
Distributions (10/1/99-3/31/00) Dividend Income $0.0846
Long-Term Capital Gain $0.0140
---------------------------------
Total $0.0986
CLASS C
Six-Month Total Return -0.49%
Net Asset Value (NAV) $2.13 (3/31/00) $2.24 (9/30/99)
Change in NAV -$0.11
Distributions (10/1/99-3/31/00) Dividend Income $0.0843
Long-Term Capital Gain $0.0140
---------------------------------
Total $0.0983
ADVISOR CLASS
Six-Month Total Return -0.15%
Net Asset Value (NAV) $2.12 (3/31/00) $2.23 (9/30/99)
Change in NAV -$0.11
Distributions (10/1/99-3/31/00) Dividend Income $0.0917
Long-Term Capital Gain $0.0140
---------------------------------
Total $0.1057
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (8/31/48)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +2.82% +51.75% +172.78% +21,949.86%
Average Annual Total Return(2) -1.55% +7.81% +10.06% +10.94%
Value of $10,000 Investment(3) $9,845 $14,563 $26,086 $2,113,112
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +2.31% -0.60%
Average Annual Total Return(2) -1.46% -3.38%
Value of $10,000 Investment(3) $9,854 $9,581
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +2.30% +15.91% +44.28%
Average Annual Total Return(2) +0.46% +4.75% +7.54%
Value of $10,000 Investment(3) $10,046 $11,493 $14,297
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (8/31/48)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +2.99% +53.87% +176.59% +22,257.96%
Average Annual Total Return(2) +2.99% +9.00% +10.71% +11.06%
Value of $10,000 Investment(3) $10,299 $15,387 $27,659 $2,235,796
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A B C ADVISOR
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution Rate(5) 8.14% 7.98% 7.87% 8.66%
30-Day Standardized Yield(6) 8.50% 8.39% 8.29% 8.99%
</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.
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. 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 +19.58% and +5.66% respectively.
5. Distribution rate is based on an annualization of the respective class's
March dividend and the maximum offering price (net asset value for Class B and
Advisor Class) per share on March 31, 2000.
6. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 2000.
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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
[PYRAMID GRAPHIC]
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 was extremely strong during the six months under review,
as gross domestic product accelerated at an annualized 7.3% rate in the fourth
quarter of 1999, and the unemployment rate steadily declined toward 4%.
[Franklin U.S. Government Securities Fund --
Class A vs. Comparable Investments* GRAPHIC]
This horizontal bar chart compares the yield for Franklin U.S. Government
Securities Fund - Class A vs. comparable investments on 3/31/00.
<TABLE>
<CAPTION>
<S> <C>
As of 9/30/99 Yield
-------------------------------------------------------------
Franklin U.S. Government Securities 6.32%
Fund - Class A
One Year CD* 6.27%
Ginnie Mae Funds Average* 6.00%
Money Market Funds Average* 5.36%
</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 does not guarantee future returns.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 52.
Although tight labor markets had not yet led to wage inflation, the Federal
Reserve Board (the Fed) expressed concern about the dwindling supply of
available workers. In addition, commodity prices rose at the end of the period
as global demand recovered from the crises of 1997 and 1998. These combined
factors led the Fed to raise interest rates on three separate occasions during
the reporting period.
As short-term interest rates increased, mortgage rates rose, 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 7.70% on October 1, 1999, to 8.23% on March 31, 2000. While
mortgage rates rose significantly during the period, they were still quite low
in historical terms. However, at these recent, higher relative rates,
prepayments slowed and prepayment risk was reduced, which we believe creates a
positive environment going forward for mortgage pass-through securities, the
fund's principal investments.
As a result of the Fed's tightening, short- and intermediate-term Treasury
yields rose substantially during the reporting period. However, expectations for
a reduced supply of longer-term Treasuries led to falling yields toward the end
of the reporting period. The result of rising short-term yields and declining
long-term yields created an inverted yield curve -- an unusual situation --
where shorter-term yields were higher than longer-term yields.
[BAR CHART]
*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 March 31, 2000.
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.
The inverted yield curve had an interesting effect on valuations of
mortgage-backed pass-through securities. Lower-coupon mortgage pass-throughs are
priced based on the yield of 10- to 30-year Treasuries, whereas higher-coupon
pass-throughs are priced according to 3- to 5-year Treasury note yields. Because
shorter-term yields were higher than longer-term yields during the period as a
result of the inverted yield curve, prices for shorter-term securities were
lower than for longer-term securities. Yields and prices move in an inverse
relationship, so as one rises the other falls. Therefore, we purchased
higher-coupon pass-throughs during the reporting period, because their lower
prices offered relatively more attractive yields in this environment than their
lower-coupon counterparts.
Since 1983, the fund has invested primarily in Ginnie Mae securities, which
carry a guarantee backed by the full faith and credit of the U.S. government as
to the timely payment of interest and principal.(1) Issued by the Government
National Mortgage Association (GNMA), Ginnie Maes have been among the highest
yielding U.S. government obligations available.
(1). U.S. government securities owned by the fund, but not shares of the fund,
are guaranteed by the U.S. government as to timely payment of principal and
interest. The fund's yield and share price are not guaranteed and will vary with
market conditions.
DIVIDEND DISTRIBUTIONS
Franklin U.S. Government Securities Fund
10/1/99 - 3/31/00
<TABLE>
<CAPTION>
DIVIDEND PER SHARE
-----------------------------------------------------------------
MONTH CLASS A CLASS B CLASS C ADVISOR CLASS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
October 3.5 cents 3.20 cents 3.20 cents 3.56 cents
November 3.5 cents 3.20 cents 3.20 cents 3.56 cents
December 3.5 cents 3.22 cents 3.22 cents 3.56 cents
January 3.5 cents 3.22 cents 3.22 cents 3.58 cents
February 3.5 cents 3.22 cents 3.22 cents 3.55 cents
March 3.5 cents 3.22 cents 3.20 cents 3.56 cents
--------------------------------------------------------------------------------
TOTAL 21.0 CENTS 19.28 CENTS 19.26 CENTS 21.37 CENTS
</TABLE>
During the period, we sold Government National Mortgage Association (GNMA) II
pass-throughs, taking advantage of their strong performance relative
to GNMA I securities. Using the proceeds, we added to our position in
higher-coupon GNMA I pass-throughs, thereby increasing the fund's income.
Going forward, we expect the Fed to continue raising interest rates over the
near term as it tries to slow the economy to a more sustainable pace. Franklin
U.S. Government Securities Fund will continue to invest primarily in GNMA
pass-through securities as we seek to achieve our goals of providing high,
current income with a relatively stable share price for the fund's shareholders.
/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
GNMA I AND GNMA II
GNMA I securities consist of underlying mortgages that conform to the Government
National Mortgage Association's traditional standards for pooling mortgages;
they generally come from a single issuer and are limited to a relatively narrow
range of interest rates. Alternatively, GNMA II securities are composed of
mortgages from multiple issuers and, therefore, tend to be more geographically
diverse, and the underlying mortgages have a wider range of interest rates than
GNMA I securities.
This discussion reflects our views, opinions and portfolio holdings as of March
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any industry, security or the fund. Our
strategies and the fund's portfolio composition will change depending on market
and economic conditions. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
SIX-MONTH PERFORMANCE SUMMARY
AS OF 3/31/00
Six-month total return does not include sales charges. 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.
CLASS A: 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: 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.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return +2.02%
Net Asset Value (NAV) $6.54 (3/31/00) $6.62 (9/30/99)
Change in NAV -$0.08
Distributions (10/1/99-3/31/00) Dividend Income $0.2100
CLASS B
Six-Month Total Return +1.60%
Net Asset Value (NAV) $6.53 (3/31/00) $6.62 (9/30/99)
Change in NAV -$0.09
Distributions (10/1/99-3/31/00) Dividend Income $0.1928
CLASS C
Six-Month Total Return +1.76%
Net Asset Value (NAV) $6.52 (3/31/00) $6.60 (9/30/99)
Change in NAV -$0.08
Distributions (10/1/99-3/31/00) Dividend Income $0.1926
ADVISOR CLASS
Six-Month Total Return +1.93%
Net Asset Value (NAV) $6.54 (3/31/00) $6.63 (9/30/99)
Change in NAV -$0.09
Distributions (10/1/99-3/31/00) Dividend Income $0.2137
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (5/31/70)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +2.02% +39.21% +105.06% +727.10%
Average Annual Total Return(2) -2.27% +5.93% +6.98% +7.18%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +1.34% +1.86%
Average Annual Total Return(2) -2.48% -1.54%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +1.48% +17.12% +33.39%
Average Annual Total Return(2) -0.50% +5.04% +5.80%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(3) 1-YEAR 5-YEAR 10-YEAR (5/31/70)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +2.13% +40.05% +106.30% +732.09%
Average Annual Total Return(2) +2.13% +6.97% +7.51% +7.36%
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A B C ADVISOR
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution Rate(4) 6.15% 5.92% 5.83% 6.53%
30-Day Standardized Yield(5) 6.32% 6.07% 6.00% 6.68%
</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.
3. 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 +20.48% and +5.91% respectively.
4. Distribution rate is based on an annualization of the respective class's
March dividend and the maximum offering price (net asset value for Class B and
Advisor Class) per share on March 31, 2000.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 2000.
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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN UTILITIES FUND
[PYRAMID GRAPHIC]
Your Fund's Goal: Franklin Utilities Fund seeks both capital appreciation and
current income from a portfolio of public utility industry securities.
During the six-month reporting period, we remained excited about the prospects
of electric utilities industry deregulation, as the business landscape for
utility companies continues to change yearly. Deregulation is approaching full
swing, with over half of the U.S. having a transition plan in place for
competition that provides electric delivery choice for the majority of the U.S.
population. Overall, deregulation will impact 60%-70% of each integrated
electric company's assets, and this change is forcing many company managements
to decide how to proceed into the future. We expect the electric industry
eventually to unfold as the communications and gas industries have done.
Deregulation prompts innovation through the need for product differentiation and
greater efficiency, ultimately leading to higher earnings growth prospects over
the long term.
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the fund's Statement of Investments (SOI), which is a complete
listing of the fund's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 56.
Despite deregulation's positive effects, the utilities industry's equity
valuations are still impacted by general market forces, most notably interest
rates. The Federal Reserve Board (the Fed) raised the interest rate that banks
charge other banks for overnight loans (federal funds target rate) three times
over the past six months, by an increment of 0.25% on each occasion, indicating
that inflation is a concern within the domestic economy's recent boom.
Historically, higher interest rates negatively affect the utilities industry's
stock valuations, and this has been the case for the six months under review.
Additionally, investors generally moved away from "old economy" investments such
as utilities stocks, in favor of hot "new economy" growth stocks of the moment
-- mainly those within the technology and Internet industries. Over the
six-month period, the 30-year Treasury bond yield decreased 22 basis points, to
5.83% on March 31, 2000, while its price, which moves inversely to the yield,
rose 1.36% over the same time. Meanwhile, gross domestic product (GDP) moved
along at a blistering 7.3% annualized rate in the fourth quarter of 1999 and
rose by 5.4% in the first quarter of the new millennium. Within this
environment, Franklin Utilities Fund - Class A produced a cumulative total
return of -4.35% for the six-month period ended March 31, 2000. This return is
substantially greater than the -12.77% total return achieved by the Standard &
Poor's (S&P) Electric Companies Index over the same period, although it was well
below the broader market's performance as shown by the S&P 500 Index's return of
17.51%.(1)
1. Source: Standard & Poor's Micropal. Cumulative total return measures the
change in value of an investment, assuming reinvestment of all distributions,
and does not include the sales charge. The S&P Electric Companies Index is a
capitalization-weighted index that measures the performance of the electric
companies sector of the S&P 500 Index. The unmanaged indexes include reinvested
dividends; one cannot invest directly in an index.
[PIE CHART]
Portfolio Breakdown
Franklin Utilities Fund
Based on Total Assets
3/31/00
<TABLE>
<S> <C>
Utilities 71.8%
Convertible Securities 12.5%
Utilities Bonds 12.3%
Cash & Other Net Assets 3.4%
</TABLE>
TOP 10 HOLDINGS
Franklin Utilities Fund
3/31/00
<TABLE>
<CAPTION>
% OF TOTAL
COMPANY NET ASSETS
<S> <C>
Duke Energy Corp. 5.5%
FPL Group Inc. 5.2%
Southern Co. 4.6%
PG&E Corp. 3.4%
AES Trust 3.3%
PECO Energy Co. 3.1%
Unicom Corp. 3.0%
Entergy Corp. 2.6%
TECO Energy Inc. 2.2%
Kansas City Power & Light Co. 2.1%
</TABLE>
At the end of the reporting period, the fund had approximately 85.4% of total
net assets in electric utility securities, 8.4% in telephone securities and 2.8%
in gas. The asset class weighting did not change materially over the past six
months, but we continued to reposition the fund seeking to take advantage of
developing industry strategies. One such strategy entails investing in companies
that have unregulated investments of significant "hidden" value not reflected in
the valuations of the companies holding them. Several fund holdings are
traditional utilities that we feel are unlocking hidden value among their
unregulated investments, and have seen their share prices increase substantially
during the first three months of 2000 -- DQE, Montana Power, Avista Corp., Puget
Sound Energy and Kansas City Power & Light.
Recent electric utilities companies' valuations have been at historically low
levels on both absolute and relative bases. As of March 31, 2000, the S&P
Electric Companies Index was trading at just 37% of the relative value of the
S&P 500 Index, based on a price-to-earnings ratio of projected 2000 earnings.
This compared to a 10-year range of between 37% and 132%, placing it at the
bottom of that range.(2) In addition, recent analyst expectations for the
electric utilities industry's earnings growth over the next five years have been
trending upward, from 2%-3% just a couple of years ago, to 5%-6% today, which is
considered solid growth for the industry. Based on electric companies' improving
fundamentals, our expectations for the fund over the next year are positive.
2. Source: Standard & Poor's.
Going forward, we will maintain our long-standing strategy of buying
high-quality utility companies that we believe possess solid, predictable
earnings per share and are competitively well-positioned. We believe the
aforementioned attractive valuations, coupled with the continuing improvement in
the regulatory outlook for utilities companies and the corollary motivation to
enhance shareholder value, offer compelling investment opportunities within this
sector. In our analysis, such improving fundamentals bode well for the fund's
future performance.
/s/ Sally Edwards Haff
Sally Edwards Haff
Portfolio Manager
Franklin Utilities Fund
This discussion reflects our views, opinions and portfolio holdings as of March
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any industry, security or the fund. Our
strategies and the fund's portfolio composition will change depending on market
and economic conditions. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
FRANKLIN UTILITIES FUND
SIX-MONTH PERFORMANCE SUMMARY
AS OF 3/31/00
Six-month total return does not include sales charges. 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.
CLASS A: 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: 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.
<TABLE>
<S> <C> <C>
CLASS A
Six-Month Total Return -4.35%
Net Asset Value (NAV) $8.58 (3/31/00) $9.59 (9/30/99)
Change in NAV -$1.01
Distributions (10/1/99 - 3/31/00) Dividend Income $0.2240
Long-Term Capital Gain $0.3640
---------------------------------
Total $0.5880
CLASS B
Six-Month Total Return -4.37%
Net Asset Value (NAV) $8.60 (3/31/00) $9.59 (9/30/99)
Change in NAV -$0.99
Distributions (10/1/99 - 3/31/00) Dividend Income $0.2033
Long-Term Capital Gain $0.3640
---------------------------------
Total $0.5673
CLASS C
Six-Month Total Return -4.52%
Net Asset Value (NAV) $8.58 (3/31/00) $9.58 (9/30/99)
Change in NAV -$1.00
Distributions (10/1/99 - 3/31/00) Dividend Income $0.1996
Long-Term Capital Gain $0.3640
---------------------------------
Total $0.5636
ADVISOR CLASS
Six-Month Total Return -4.17%
Net Asset Value (NAV) $8.61 (3/31/00) $9.61 (9/30/99)
Change in NAV -$1.00
Distributions (10/1/99 - 3/31/00) Dividend Income $0.2307
Long-Term Capital Gain $0.3640
---------------------------------
Total $0.5947
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 3/31/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (9/30/48)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -2.91% +47.84% +117.07% +12,439.03%
Average Annual Total Return(2) -7.03% +7.19% +7.59% +9.74%
Value of $10,000 Investment(3) $9,297 $14,150 $20,785 $1,198,421
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
<S> <C> <C>
Cumulative Total Return(1) -3.25% -14.29%
Average Annual Total Return(2) -6.79% -14.21%
Value of $10,000 Investment(3) $9,321 $8,261
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) -3.41% +15.74% +41.76%
Average Annual Total Return(2) -5.27% +4.66% +7.13%
Value of $10,000 Investment(3) $9,473 $11,463 $14,033
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (9/30/48)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) -2.75% +50.23% +120.57% +12,641.04%
Average Annual Total Return(2) -2.75% +8.48% +8.23% +9.87%
Value of $10,000 Investment(3) $9,725 $15,023 $22,057 $1,274,104
</TABLE>
<TABLE>
<CAPTION>
SHARE CLASS A B C ADVISOR
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution Rate(5) 5.00% 4.71% 4.63% 5.35%
30-Day Standardized Yield(6) 5.10% 4.82% 4.76% 5.45%
</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.
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. 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), cumulative and average annual
total returns for Advisor Class shares were +17.47% and +5.08% respectively.
5. Distribution rate is based on an annualization of the respective class's
March dividend and the maximum offering price (net asset value for Class B and
Advisor Class) per share on March 31, 2000.
6. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 2000.
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.
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
FRANKLIN DYNATECH FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2000(i) ------------------------------------------------------
CLASS A (UNAUDITED) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 23.11 $ 17.84 $ 18.48 $ 14.03 $ 12.78 $ 9.85
--------------------------------------------------------------------------
Income from investment operations:
Net investment income ............................... .23 .37 .27 .10 .06 .12
Net realized and unrealized gains ................... 7.86 5.14 .23 4.81 1.54 2.99
--------------------------------------------------------------------------
Total from investment operations ..................... 8.09 5.51 .50 4.91 1.60 3.11
--------------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (.37) (.24) (.17) (.06) (.12) (.05)
Net realized gains .................................. -- -- (.97) (.40) (.23) (.13)
--------------------------------------------------------------------------
Total distributions .................................. (.37) (.24) (1.14) (.46) (.35) (.18)
--------------------------------------------------------------------------
Net asset value, end of period ....................... $ 30.83 $ 23.11 $ 17.84 $ 18.48 $ 14.03 $ 12.78
==========================================================================
Total return(a) ...................................... 35.37% 31.15% 3.06% 35.63% 12.84% 32.10%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $822,548 $499,471 $215,864 $188,102 $104,508 $92,987
Ratios to average net assets:
Expenses ............................................ .94%(b) 1.00% 1.02% 1.04% 1.05% 1.01%
Net investment income ............................... 1.68%(b) 1.70% 1.55% .75% .43% 1.11%
Portfolio turnover rate .............................. .46% 6.49% 10.84% 5.59% 11.94% 9.83%
CLASS B
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 28.05
------------
Income from investment operations:
Net investment income ............................... .04
Net realized and unrealized gains ................... 2.69
------------
Total from investment operations ..................... 2.73
------------
Net asset value, end of period ....................... $ 30.78
============
Total return(a) ...................................... 9.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $ 1,317
Ratios to average net assets:
Expenses ............................................ 1.76%(b)
Net investment income ............................... .86%(b)
Portfolio turnover rate .............................. .46%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end September 30, 1999.
(i) For the period February 1, 2000 (effective date) to March 31, 2000 for
Class B.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights (continued)
FRANKLIN DYNATECH FUND (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2000 ---------------------------------------------------
CLASS C (UNAUDITED) 1999 1998 1997 1996(e)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period ................. $ 22.64 $ 17.53 $ 18.30 $14.03 $13.57
--------------------------------------------------------------------------
Income from investment operations:
Net investment income ............................... .13 .22 .15 .07 --
Net realized and unrealized gains ................... 7.71 5.05 .17 4.66 .46
--------------------------------------------------------------------------
Total from investment operations ..................... 7.84 5.27 .32 4.73 .46
--------------------------------------------------------------------------
Less distributions from:
Net investment income ............................... (.24) (.16) (.12) (.06) --
Net realized gains .................................. -- -- (.97) (.40) --
--------------------------------------------------------------------------
Total distributions .................................. (.24) (.16) (1.09) (.46) --
--------------------------------------------------------------------------
Net asset value, end of period ....................... $ 30.24 $ 22.64 $ 17.53 $18.30 $14.03
==========================================================================
Total return(a) ...................................... 34.86% 30.20% 2.03% 34.32% 3.39%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .................... $127,239 $73,890 $12,358 $3,386 $ --
Ratios to average net assets:
Expenses ............................................ 1.68%(b) 1.75% 1.79% 1.82% 1.85%(b)
Net investment income ............................... .94%(b) 1.00% .81% .25% (.14%)(b)
Portfolio turnover rate .............................. .46% 6.49% 10.84% 5.59% 11.94%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end September 30, 1999.
(e) For the period September 16, 1996 (effective date) to September 30, 1996.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
DYNATECH FUND SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 56.1%
AIR FREIGHT/DELIVERY SERVICES .4%
C.H. Robinson Worldwide Inc. ..................... 20,000 $ 745,000
(a) Fedex Corp. ...................................... 40,000 1,560,000
United Parcel Service Inc., B .................... 20,000 1,260,000
-----------
3,565,000
-----------
BIOTECHNOLOGY 2.9%
(a) Aclara Biosciences Inc. .......................... 28,000 1,104,250
(a) Amgen Inc. ....................................... 90,000 5,523,750
(a) Biogen Inc. ...................................... 20,000 1,397,500
(a) Chiron Corp. ..................................... 30,000 1,496,250
(a) Genentech Inc. ................................... 121,600 18,483,200
-----------
28,004,950
-----------
BROADCASTING .5%
(a) Clear Channel Communications Inc. ................ 20,000 1,381,250
(a) Entercom Communications Corp. .................... 60,000 3,060,000
-----------
4,441,250
-----------
CABLE TELEVISION .8%
(a) AT&T Corp. - Liberty Media Group, A .............. 130,000 7,702,500
(a) NDS Group PLC, ADR (United Kingdom) .............. 3,500 246,750
-----------
7,949,250
-----------
CATALOG/SPECIALTY DISTRIBUTION .2%
(a) Amazon.com Inc. .................................. 24,000 1,608,000
-----------
CELLULAR TELEPHONE 1.6%
(a) Nextel Communications Inc., A .................... 30,000 4,447,500
(a) Sprint Corp. (PCS Group) ......................... 80,000 5,225,000
(a) TeleCorp PCS Inc. ................................ 27,600 1,428,300
Vodafone AirTouch PLC, ADR (United Kingdom) ...... 70,000 3,889,374
-----------
14,990,174
-----------
COMPUTER COMMUNICATIONS 4.4%
(a) Cisco Systems Inc. ............................... 540,000 41,748,750
-----------
COMPUTER SOFTWARE 8.3%
(a) Check Point Software Technologies Ltd. (Israel) .. 100,000 17,106,250
(a) i2 Technologies Inc. ............................. 160,000 19,540,000
(a) Intuit Inc. ...................................... 75,000 4,078,125
(a) Microsoft Corp. .................................. 360,000 38,250,000
-----------
78,974,375
-----------
CONSUMER ELECTRONICS/APPLIANCES 1.5%
Sony Corp., ADR (Japan) .......................... 50,000 14,006,250
-----------
CONTRACT DRILLING
Transocean Sedco Forex Inc. ...................... 5,808 298,023
-----------
DEPARTMENT STORES .1%
(a) Federated Department Stores Inc. ................. 30,000 1,252,500
-----------
DIVERSIFIED ELECTRONIC PRODUCTS 2.5%
(a) JDS Uniphase Corp. ............................... 200,000 24,112,500
-----------
DIVERSIFIED FINANCIAL SERVICES .3%
Citigroup Inc. ................................... 50,000 2,965,625
-----------
EDP PERIPHERALS .5%
(a) EMC Corp ......................................... 10,000 1,250,000
Symbol Technologies Inc. ......................... 45,000 3,704,063
-----------
4,954,063
-----------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
DYNATECH FUND SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
DP SERVICES 1.3%
(a) Computer Sciences Corp. ............................. 20,000 $ 1,582,500
(a) Equant NV (Netherlands) ............................. 50,000 4,253,125
First Data Corp. .................................... 60,000 2,655,000
(a) Infonet Services Corp., B ........................... 175,200 3,963,900
-----------
12,454,525
-----------
ELECTRONIC DATA PROCESSING 3.6%
(a) Apple Computer Inc. ................................. 20,000 2,716,250
Compaq Computer Corp. ............................... 180,000 4,792,500
Hewlett-Packard Co. ................................. 100,000 13,256,250
International Business Machines Corp. ............... 30,000 3,540,000
(a) NCR Corp. ........................................... 10,000 401,250
(a) Sun Microsystems Inc. ............................... 100,000 9,370,313
-----------
34,076,563
-----------
ELECTRONIC PRODUCTION EQUIPMENT 1.0%
(a) Applied Materials Inc. .............................. 80,000 7,540,000
(a) Taiwan Semiconductor Manufacturing Co. Ltd.,
ADR (Taiwan)....................................... 24,600 1,402,200
-----------
8,942,200
-----------
FINANCIAL PUBLISHING/SERVICES .1%
Equifax Inc. ........................................ 20,000 505,000
-----------
INSURANCE BROKERS/SERVICES
(a) Choicepoint Inc. .................................... 4,000 149,500
-----------
INTERNET SERVICES 4.0%
(a) Allaire Corp. ....................................... 45,000 3,403,125
(a) America Online Inc. ................................. 50,000 3,362,500
(a) China.Com Corp., A .................................. 1,200 97,200
(a) Extensity Inc. ...................................... 5,100 244,800
(a) Inktomi Corp. ....................................... 110,000 21,450,000
(a) Intertrust Technologies Corp. ....................... 6,800 289,000
(a) Keynote Systems Inc. ................................ 9,600 981,600
(a) Liberate Technologies Inc. .......................... 42,400 2,660,600
(a) OpenTV Corp. ........................................ 2,600 307,775
(a) Proxicom Inc. ....................................... 9,800 434,263
(a) Realnetworks Inc. ................................... 37,200 2,118,075
(a) RoweCom Inc. ........................................ 2,700 45,900
(a) SonicWALL Inc. ...................................... 20,800 1,385,800
(a) VerticalNet Inc. .................................... 3,600 489,600
(a) Vignette Corp. ...................................... 4,400 705,100
(a) Websense Inc. ....................................... 2,200 105,738
-----------
38,081,076
-----------
INVESTMENT BANKERS/BROKERS/SERVICES .3%
(a) E*TRADE Group Inc. .................................. 80,000 2,410,000
-----------
MAJOR PHARMACEUTICALS 2.3%
Bristol-Myers Squibb Co. ............................ 30,000 1,732,500
Johnson & Johnson ................................... 12,780 895,399
Merck & Co. Inc. .................................... 30,000 1,863,750
Pfizer Inc. ......................................... 150,000 5,484,375
Schering-Plough Corp. ............................... 80,000 2,940,000
Warner-Lambert Co. .................................. 90,000 8,775,000
-----------
21,691,024
-----------
MAJOR U.S. TELECOMMUNICATIONS .9%
AT&T Corp. .......................................... 50,000 2,812,500
(a) MCI WorldCom Inc. ................................... 120,000 5,437,500
-----------
8,250,000
-----------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
DYNATECH FUND SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
MANAGED HEALTH CARE .2%
United HealthCare Corp. ........................ 30,000 $ 1,788,750
-----------
MEDIA CONGLOMERATES .5%
News Corp. Ltd., ADR (Australia) ............... 20,000 1,125,000
Time Warner Inc. ............................... 40,000 4,000,000
-----------
5,125,000
-----------
MEDICAL ELECTRONICS .6%
Medtronic Inc. ................................. 110,000 5,658,125
-----------
MEDICAL SPECIALTIES .3%
(a) Inhale Therapeutic Systems Inc. ................ 40,000 2,980,000
-----------
MEDICAL/DENTAL DISTRIBUTORS .1%
McKesson HBOC Inc. ............................. 43,000 903,000
-----------
MILITARY/GOVERNMENT/TECHNICAL .7%
(a) General Motors Corp., H ........................ 50,000 6,225,000
-----------
OILFIELD SERVICES/EQUIPMENT .3%
Schlumberger Ltd. .............................. 30,000 2,295,000
-----------
OTHER CONSUMER SERVICES .4%
(a) Ebay Inc. ...................................... 22,500 3,960,000
-----------
OTHER PHARMACEUTICALS
(a) Noven Pharmaceuticals Inc. ..................... 20,400 223,125
-----------
OTHER TELECOMMUNICATIONS .6%
(a) Global Crossing Ltd. (Bermuda) ................. 82,000 3,356,875
(a) Qwest Communications International Inc. ........ 50,000 2,425,000
-----------
5,781,875
-----------
PACKAGE GOODS/COSMETICS .2%
Estee Lauder Cos. Inc., A ...................... 40,000 2,002,500
-----------
PRECISION INSTRUMENTS .8%
(a) Agilent Technologies Inc. ...................... 60,000 6,240,000
(a) Waters Corp. ................................... 17,600 1,676,400
-----------
7,916,400
-----------
RECREATIONAL PRODUCTS/TOYS .2%
(a) Electronic Arts Inc. ........................... 30,000 2,135,625
-----------
SEMICONDUCTORS 8.7%
(a) Broadcom Corp., A .............................. 3,200 777,200
Intel Corp. .................................... 560,000 73,885,000
Linear Technology Corp. ........................ 80,000 4,400,000
(a) Xilinx Inc. .................................... 40,000 3,312,500
-----------
82,374,700
-----------
SERVICES TO THE HEALTH INDUSTRY .1%
IMS Health Inc. ................................ 80,000 1,355,000
-----------
SPECIALTY CHEMICALS .1%
Sigma-Aldrich Corp. ............................ 50,000 1,343,750
-----------
TELECOMMUNICATIONS EQUIPMENT 4.8%
Corning Inc. ................................... 33,700 6,537,800
(a) Interwave Communications Intl. Ltd. (Bermuda) .. 6,000 180,750
Lucent Technologies Inc. ....................... 100,000 6,075,000
Motorola Inc. .................................. 180,250 25,663,093
Nokia Corp., ADR (Finland) ..................... 10,000 2,172,500
(a) QUALCOMM Inc. .................................. 35,000 5,225,937
-----------
45,855,080
-----------
TOTAL COMMON STOCKS (COST $149,937,494) ........ 533,353,528
-----------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
DYNATECH FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(d) REPURCHASE AGREEMENT 44.0%
Joint Repurchase Agreement, 6.081%, 04/03/00 (Maturity Value $419,151,089) (COST $418,938,792) $418,938,792 $418,938,792
Banc of America Securities LLC (Maturity Value $20,915,639)
Barclays Capital Inc. (Maturity Value $38,188,856)
Bear, Stearns & Co. Inc. (Maturity Value $16,346,894)
Chase Securities Inc. (Maturity Value $38,188,856)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $38,188,856)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $38,188,856)
Goldman Sachs (Maturity Value $38,188,856)
Lehman Govt. Securities (Maturity Value $38,188,856)
Nesbitt Burns Securities Inc. (Maturity Value $38,188,856)
Paribas Corporation (Maturity Value $49,099,355)
Societe Generale (Maturity Value $27,278,353)
Warburg Dillon Read LLC (Maturity Value $38,188,856)
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $568,876,286) 100.1% 952,292,320
OTHER ASSETS, LESS LIABILITIES (.1%) (1,188,910)
------------
NET ASSETS 100.0% $951,103,410
============
</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>
SIX MONTHS ENDED
MARCH 31, 2000 YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
CLASS A (UNAUDITED) 1999(g) 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $33.21 $28.58 $27.09 $22.82 $19.38 $14.96
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .26 .39 .49 .36 .22 .17
Net realized and unrealized gains ............ 3.60 4.89 1.71 4.34 3.53 4.43
---------------------------------------------------------------------------------
Total from investment operations .............. 3.86 5.28 2.20 4.70 3.75 4.60
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.45) (.44) (.47) (.23) (.16) (.14)
Net realized gains ........................... (.26) (.21) (.24) (.20) (.15) (.04)
---------------------------------------------------------------------------------
Total distributions ........................... (.71) (.65) (.71) (.43) (.31) (.18)
---------------------------------------------------------------------------------
Net asset value, end of period ................ $36.36 $33.21 $28.58 $27.09 $22.82 $19.38
=================================================================================
Total return(a) ............................... 11.84% 18.63% 8.22% 20.84% 19.60% 31.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $2,168,455 $2,119,740 $1,635,780 $1,435,561 $1,020,486 $712,866
Ratios to average net assets:
Expenses ..................................... .90%(b) .89% .88% .89% .87% .90%
Net investment income ........................ 1.56%(b) 1.19% 1.78% 1.60% 1.16% 1.08%
Portfolio turnover rate ....................... 7.27% 3.74% .58% 1.77% 2.03% 1.39%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $33.03 $31.45
-----------------------------
Income from investment operations:
Net investment income ........................ .13 .14
Net realized and unrealized gains ............ 3.57 1.44
-----------------------------
Total from investment operations .............. 3.70 1.58
-----------------------------
Less distributions from:
Net investment income ........................ (.35) --
Net realized gains ........................... (.26) --
-----------------------------
Total distributions ........................... (.61) --
-----------------------------
Net asset value, end of period ................ $36.12 $33.03
=============================
Total return(a) ............................... 11.38% 5.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $28,582 $17,271
Ratios to average net assets:
Expenses ..................................... 1.65%(b) 1.65%(b)
Net investment income ........................ .78%(b) .57%(b)
Portfolio turnover rate ....................... 7.27% 3.74%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end September 30, 1999.
(g) 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>
SIX MONTHS ENDED
MARCH 31, 2000 YEAR ENDED SEPTEMBER 30,
CLASS C (UNAUDITED) 1999 1998 1997(f) 1996 1995(d)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $32.58 $28.11 $26.70 $22.60 $19.33 $16.88
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .14 .14 .29 .20 .12 .02
Net realized and unrealized gains ............ 3.54 4.81 1.66 4.25 3.46 2.43
---------------------------------------------------------------------------------
Total from investment operations .............. 3.68 4.95 1.95 4.45 3.58 2.45
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.22) (.27) (.30) (.15) (.16) --
Net realized gains ........................... (.26) (.21) (.24) (.20) (.15) --
---------------------------------------------------------------------------------
Total distributions ........................... (.48) (.48) (.54) (.35) (.31) --
---------------------------------------------------------------------------------
Net asset value, end of period ................ $35.78 $32.58 $28.11 $26.70 $22.60 $19.33
=================================================================================
Total return(a) ............................... 11.43% 17.71% 7.39% 19.91% 18.73% 14.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $370,062 $362,216 $189,572 $117,218 $43,417 $4,161
Ratios to average net assets:
Expenses ..................................... 1.65%(b) 1.65% 1.65% 1.66% 1.63% 1.79%(b)
Net investment income ........................ .82%(b) .45% 1.02% .85% .40% .37%(b)
Portfolio turnover rate ....................... 7.27% 3.74% .58% 1.77% 2.03% 1.39%
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $33.27 $28.63 $27.13 $23.24
--------------------------------------------------------
Income from investment operations:
Net investment income ........................ .31 .46 .57 .25
Net realized and unrealized gains ............ 3.60 4.90 1.69 3.64
--------------------------------------------------------
Total from investment operations .............. 3.91 5.36 2.26 3.89
--------------------------------------------------------
Less distributions from:
Net investment income ........................ (.53) (.51) (.52) --
Net realized gains ........................... (.26) (.21) (.24) --
--------------------------------------------------------
Total distributions ........................... (.79) (.72) (.76) --
--------------------------------------------------------
Net asset value, end of period ................ $36.39 $33.27 $28.63 $27.13
========================================================
Total return(a) ............................... 11.99% 18.89% 8.47% 16.74%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $38,547 $35,461 $41,871 $25,823
Ratios to average net assets:
Expenses ..................................... .65%(b) .65% .65% .66%(b)
Net investment income ........................ 1.82%(b) 1.41% 2.01% 1.93%(b)
Portfolio turnover rate ....................... 7.27% 3.74% .58% 1.77%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average share outstanding effective year end September 30, 1999.
(d) For the period May 1, 1995 (effective date) to September 30, 1995 for Class
C.
(f) 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, MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
GROWTH FUND SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 82.8%
COMMERCIAL SERVICES 3.1%
(a)ACNielsen Corp. .............................. 81,333 $1,829,993
Dun & Bradstreet Corp. ....................... 244,000 6,984,500
Equifax Inc. ................................. 400,000 10,100,000
(a)Gartner Group Inc., B ........................ 63,537 845,836
Kelly Services Inc., A ....................... 300,000 7,181,250
(a)Programming & Systems Inc. ................... 345,300 6,906
(a)R.H. Donnelley Corp. ......................... 48,800 829,600
R.R. Donnelley & Sons Co. .................... 256,000 5,360,000
(a)Robert Half International Inc. ............... 150,000 7,115,625
Sabre Holdings Corp., A ...................... 722,652 26,692,958
W.W. Grainger Inc. ........................... 156,700 8,500,975
Wallace Computer Services Inc. ............... 440,800 5,206,950
-----------
80,654,593
-----------
CONSUMER DURABLES 1.7%
Eastman Kodak Co. ............................ 200,000 10,862,500
Genuine Parts Co. ............................ 369,000 8,809,875
Hasbro Inc. .................................. 600,000 9,900,000
Mattel Inc. .................................. 1,000,000 10,437,500
Polaroid Corp. ............................... 200,000 4,750,000
-----------
44,759,875
-----------
CONSUMER NON-DURABLES 2.2%
American Greetings Corp., A .................. 900,000 16,425,000
Hershey Foods Corp. .......................... 258,200 12,587,250
International Flavors & Fragrances Inc. ...... 412,600 14,466,788
Tootsie Roll Industries Inc. ................. 19,400 611,100
V.F. Corp. ................................... 500,000 12,031,250
-----------
56,121,388
-----------
CONSUMER SERVICES 5.6%
Carnival Corp. ............................... 100,000 2,481,250
(a)CBS Corp. .................................... 16,200 917,325
(a)Intervisual Books Inc. ....................... 100,000 212,500
The Walt Disney Co. .......................... 914,796 37,849,685
Time Warner Inc. ............................. 900,000 90,000,000
(a)USA Networks Inc. ............................ 600,200 13,542,013
-----------
145,002,773
-----------
ELECTRONIC TECHNOLOGY 21.4%
(a)Apple Computer Inc. .......................... 200,000 27,162,500
Boeing Co. ................................... 800,000 30,350,000
(a)Cisco Systems Inc. ........................... 1,350,000 104,371,875
Compaq Computer Corp. ........................ 175,000 4,659,375
(a)Conexant Systems Inc. ........................ 100,000 7,100,000
Cordant Technologies Inc. .................... 454,300 25,696,344
(a)Dell Computer Corp. .......................... 40,000 2,157,500
(a)Dionex Corp. ................................. 200,000 6,587,500
General Dynamics Corp. ....................... 500,000 24,875,000
Hewlett-Packard Co. .......................... 400,000 53,025,000
(a)Imation Corp. ................................ 37,200 992,775
Intel Corp. .................................. 400,000 52,775,000
International Business Machines Corp. ........ 560,000 66,080,000
Lockheed Martin Corp. ........................ 500,000 10,218,750
Northrop Grumman Corp. ....................... 500,000 26,468,750
Raytheon Co., B .............................. 600,000 10,650,000
Rockwell International Corp. ................. 100,000 4,181,250
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
GROWTH FUND SHARES VALUE
-------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
(a)Sun Microsystems Inc. ............................ 800,000 $74,962,500
United Technologies Corp. ........................ 400,000 25,275,000
-----------
557,589,119
-----------
ENERGY MINERALS 1.4%
Atlantic Richfield Co. ........................... 180,000 15,300,000
Murphy Oil Corp. ................................. 40,000 2,305,000
Royal Dutch Petroleum Co., N.Y. shs. (Netherlands) 280,000 16,117,500
Union Pacific Resources Group Inc. ............... 101,633 1,473,679
-----------
35,196,179
-----------
FINANCE .1%
(a)Choicepoint Inc. ................................. 80,000 2,990,000
-----------
HEALTH SERVICES .6%
Cardinal Health Inc. ............................. 157,500 7,225,313
(a)Caremark RX Inc. ................................. 75,625 316,680
IMS Health Inc. .................................. 488,000 8,265,500
-----------
15,807,493
-----------
HEALTH TECHNOLOGY 15.5%
Abbott Laboratories .............................. 400,000 14,075,000
Allergan Inc. .................................... 400,000 20,000,000
(a)Allergan Specialty Therapeutics Inc., A .......... 10,000 136,250
(a)Alza Corp. ....................................... 100,000 3,756,250
American Home Products Corp. ..................... 600,000 32,175,000
(a)Amgen Inc. ....................................... 800,000 49,100,000
Baxter International Inc. ........................ 250,000 15,671,875
Bristol-Myers Squibb Co. ......................... 640,000 36,960,000
(a)Crescendo Pharmaceuticals Corp., A ............... 5,000 91,875
(a)Immunex Corp. .................................... 240,000 15,225,000
Johnson & Johnson ................................ 400,000 28,025,000
Lilly (Eli) & Co. ................................ 400,000 25,200,000
Mallinckrodt Inc. ................................ 116,000 3,335,000
Merck & Co. Inc. ................................. 400,000 24,850,000
(a)Perrigo Co. ...................................... 31,500 239,203
Pfizer Inc. ...................................... 1,920,000 70,200,000
Schering-Plough Corp. ............................ 1,800,000 66,150,000
-----------
405,190,453
-----------
INDUSTRIAL SERVICES 1.4%
Schlumberger Ltd. ................................ 400,000 30,600,000
Transocean Sedco Forex Inc. ...................... 77,440 3,973,640
Waste Management Inc. ............................ 152,250 2,083,922
-----------
36,657,562
-----------
NON-ENERGY MINERALS
Deltic Timber Corp. .............................. 11,428 270,701
-----------
PROCESS INDUSTRIES 5.0%
Air Products & Chemicals Inc. .................... 500,000 14,218,750
Canadian Pacific Ltd. (Canada) ................... 500,000 11,187,500
Eastman Chemical Co. ............................. 25,000 1,137,500
(a)Ionics Inc. ...................................... 400,000 10,225,000
Millipore Corp. .................................. 400,000 22,575,000
National Service Industries Inc. ................. 500,000 10,531,250
NCH Corp. ........................................ 200,000 9,062,500
Pall Corp. ....................................... 500,000 11,218,750
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
GROWTH FUND SHARES VALUE
-----------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS (CONT.)
PROCESS INDUSTRIES (CONT.)
RPM Inc. ......................................... 258,400 $2,842,400
Sigma-Aldrich Corp. .............................. 200,000 5,375,000
Textron Inc. ..................................... 525,000 31,959,375
-------------
130,333,025
-------------
PRODUCER MANUFACTURING 10.1%
(a)American Power Conversion Corp. .................. 200,000 8,575,000
Avery Dennison Corp. ............................. 220,000 13,433,750
Caterpillar Inc. ................................. 200,000 7,887,500
Deere & Co. ...................................... 300,000 11,400,000
Emerson Electric Co. ............................. 500,000 26,437,500
Illinois Tool Works Inc. ......................... 150,000 8,287,500
Ingersoll-Rand Co. ............................... 437,500 19,359,375
Meritor Automotive Inc. .......................... 16,666 263,531
Minnesota Mining & Manufacturing Co. ............. 400,000 35,425,000
Molex Inc. ....................................... 146,483 8,605,876
Molex Inc., A .................................... 146,483 6,500,183
(a)Osmonics Inc. .................................... 300,000 2,400,000
Pitney Bowes Inc. ................................ 418,900 18,719,594
Teleflex Inc. .................................... 500,000 17,750,000
Thomas & Betts Corp. ............................. 250,000 7,062,500
Tyco International Ltd. (Bermuda) ................ 1,441,198 71,879,750
-------------
263,987,059
-------------
RETAIL TRADE .4%
Albertson's Inc. ................................. 235,000 7,285,000
Weis Markets Inc. ................................ 58,218 1,979,411
-------------
9,264,411
-------------
TECHNOLOGY SERVICES 4.5%
Automatic Data Processing Inc. ................... 800,000 38,600,000
(a)Computer Sciences Corp. .......................... 900,000 71,212,500
(a)Microsoft Corp. .................................. 80,000 8,500,000
-------------
118,312,500
-------------
TRANSPORTATION 8.7%
(a)Alaska Air Group Inc. ............................ 500,000 15,031,250
(a)AMR Corp. ........................................ 1,000,000 31,875,000
British Airways PLC, ADR (United Kingdom) ........ 200,000 10,750,000
(a)Continental Airlines Inc., B ..................... 500,000 20,437,500
Delta Air Lines Inc. ............................. 1,000,000 53,250,000
KLM Royal Dutch Airlines, N.Y. shs. (Netherlands) 500,001 10,500,020
(a)Northwest Airlines Corp. ......................... 500,000 11,312,500
Providence & Worchester Railroad Co. ............. 85,000 626,874
(a)UAL Corp. ........................................ 800,000 47,900,000
Union Pacific Corp. .............................. 300,000 11,737,500
(a)US Airways Group Inc. ............................ 500,000 13,906,250
-------------
227,326,894
-------------
UTILITIES 1.1%
Coastal Corp. .................................... 600,000 27,600,000
-------------
TOTAL COMMON STOCKS (COST $959,404,140) .......... 2,157,064,025
-------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
GROWTH FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
(d)REPURCHASE AGREEMENT 17.4%
<S> <C> <C>
Joint Repurchase Agreement, 6.081%, 4/03/00 (Maturity Value $454,059,551) (COST $453,829,573) ... $453,829,573 $453,829,573
Banc of America Securities LLC (Maturity Value $22,657,572)
Barclays Capital Inc. (Maturity Value $41,369,366)
Bear, Stearns & Co. Inc. (Maturity Value $17,708,323)
Chase Securities Inc. (Maturity Value $41,369,366)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $41,369,366)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $41,369,366)
Goldman Sachs (Maturity Value $41,369,366)
Lehman Govt. Securities (Maturity Value $41,369,366)
Nesbitt Burns Securities Inc. (Maturity Value $41,369,366)
Paribas Corporation (Maturity Value 53,188,534)
Societe Generale (Maturity Value $29,550,194)
Warburg Dillon Read LLC (Maturity Value $41,369,366)
Collateralized by U.S. Treasury Bills & Notes
--------------
TOTAL INVESTMENTS (COST $1,413,233,713) 100.2% ..................................................... 2,610,893,598
OTHER ASSETS, LESS LIABILITIES (.2%) ............................................................... (5,246,839)
--------------
NET ASSETS 100.0% .................................................................................. $2,605,646,759
==============
</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 INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 2000 YEAR ENDED SEPTEMBER 30,
CLASS A (UNAUDITED) 1999(g) 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $2.23 $2.34 $2.49 $2.30 $2.30 $2.22
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .09 .17 .17 .18 .19 .18
Net realized and unrealized gains (losses) ... (.10) (.09) (.11) .20 .02 .11
----------------------------------------------------------------------------------
Total from investment operations .............. (.01) .08 .06 .38 .21 .29
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.09) (.18) (.18) (.18) (.18) (.18)
Net realized gains ........................... (.01) (.01) (.03) (.01) (.03) (.03)
----------------------------------------------------------------------------------
Total distributions ........................... (.10) (.19) (.21) (.19) (.21) (.21)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $2.12 $2.23 $2.34 $2.49 $2.30 $2.30
==================================================================================
Total return(a) ............................... (.68%) 4.02% 2.23% 17.31% 9.43% 14.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $5,792,652 $6,776,804 $7,704,983 $7,738,746 $6,780,153 $5,885,788
Ratios to average net assets:
Expenses ..................................... .74%(b) .73% .72% .72% .70% .71%
Net investment income ........................ 8.30%(b) 7.46% 6.83% 7.45% 8.27% 8.26%
Portfolio turnover rate ....................... 4.84% 17.35% 22.01% 16.15% 25.29% 58.64%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $2.24 $2.36
-------------------------------
Income from investment operations:
Net investment income ........................ .09 .12
Net realized and unrealized losses ........... (.11) (.11)
-------------------------------
Total from investment operations .............. (.02) .01
-------------------------------
Less distributions from:
Net investment income ........................ (.09) (.13)
Net realized gains ........................... (.01) --
-------------------------------
Total distributions ........................... (.10) (.13)
-------------------------------
Net asset value, end of period ................ $2.12 $2.24
===============================
Total return(a) ............................... (.93%) .34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $100,887 $83,031
Ratios to average net assets:
Expenses ..................................... 1.24%(b) 1.23%(b)
Net investment income ........................ 7.86%(b) 7.22%(b)
Portfolio turnover rate ....................... 4.84% 17.35%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end September 30, 1999.
(g) 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>
SIX MONTHS ENDED
MARCH 31, 2000 YEAR ENDED SEPTEMBER 30,
CLASS C (UNAUDITED) 1999 1998 1997(f) 1996 1995(d)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $2.24 $2.34 $2.49 $2.30 $2.30 $2.18
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .08 .16 .16 .16 .17 .08
Net realized and unrealized gains (losses) ... (.10) (.08) (.11) .21 .03 .11
---------------------------------------------------------------------------------
Total from investment operations .............. (.02) .08 .05 .37 .20 .19
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.08) (.17) (.17) (.17) (.17) (.07)
Net realized gains ........................... (.01) (.01) (.03) (.01) (.03) --
---------------------------------------------------------------------------------
Total distributions ........................... (.09) (.18) (.20) (.18) (.20) (.07)
---------------------------------------------------------------------------------
Net asset value, end of period ................ $2.13 $2.24 $2.34 $2.49 $2.30 $2.30
=================================================================================
Total return(a) ............................... (.49%) 3.46% 1.70% 16.72% 8.86% 8.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $823,569 $997,438 $1,014,634 $695,355 $343,314 $65,822
Ratios to average net assets:
Expenses ..................................... 1.24%(b) 1.23% 1.22% 1.22% 1.21% 1.23%(b)
Net investment income ........................ 7.80%(b) 6.97% 6.35% 6.96% 7.84% 7.89%(b)
Portfolio turnover rate ....................... 4.84% 17.35% 22.01% 16.15% 25.29% 58.64%
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $2.23 $2.34 $2.48 $2.34
------------------------------------------------------
Income from investment operations:
Net investment income ........................ .09 .17 .17 .14
Net realized and unrealized gains (losses) ... (.10) (.09) (.10) .14
------------------------------------------------------
Total from investment operations .............. (.01) .08 .07 .28
------------------------------------------------------
Less distributions from:
Net investment income ........................ (.09) (.18) (.18) (.14)
Net realized gains ........................... (.01) (.01) (.03) --
------------------------------------------------------
Total distributions ........................... (.10) (.19) (.21) (.14)
------------------------------------------------------
Net asset value, end of period ................ $2.12 $2.23 $2.34 $2.48
======================================================
Total return(a) ............................... (.15%) 3.71% 2.82% 12.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $18,241 $23,891 $21,851 $13,318
Ratios to average net assets:
Expenses ..................................... .59%(b) .58% .57% .57%(b)
Net investment income ........................ 8.43%(b) 7.60% 7.02% 7.58%(b)
Portfolio turnover rate ....................... 4.84% 17.35% 22.01% 16.15%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end September 30, 1999.
(d) For the period May 1, 1995 (effective date) to September 30, 1995 for Class
C.
(f) 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, MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
INCOME FUND COUNTRY SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 31.5%
CONSUMER DURABLES 1.2%
General Motors Corp. ....................................... United States 1,000,000 $82,812,500
-----------
CONSUMER NON-DURABLES 4.7%
Nabisco Group Holdings Corp. ............................... United States 600,000 7,200,000
Philip Morris Cos. Inc. .................................... United States 14,035,500 296,499,937
R.J. Reynolds Tobacco Holdings Inc. ........................ United States 900,000 15,300,000
-----------
318,999,937
-----------
ENERGY MINERALS 2.1%
Athabasca Oil Sands Trust .................................. Canada 2,700,000 46,029,066
BP Prudhoe Bay Royalty Trust ............................... United States 500,000 5,281,250
Canadian Oil Sands Trust Units ............................. Canada 2,400,000 42,485,190
EOG Resources Inc. ......................................... United States 1,258,900 26,672,944
(a)Santa Fe Snyder Corp. ...................................... United States 693,405 6,674,023
Ultramar Diamond Shamrock Corp. ............................ United States 625,000 15,859,375
-----------
143,001,848
-----------
-----------
NON-ENERGY MINERALS 1.9%
Anglo American Platinum Corp. Ltd., ADR .................... South Africa 943,691 23,946,159
AngloGold Ltd., ADR ........................................ South Africa 2,320,000 55,680,000
De Beers Consolidated Mines AG, ADR ........................ South Africa 400,000 9,175,000
Impala Platinum Holdings Ltd., ADR ......................... South Africa 1,184,200 39,374,650
-----------
128,175,809
-----------
PROCESS INDUSTRIES .3%
(a)Dan River Inc., A .......................................... United States 547,400 3,523,888
Lyondell Chemical Co. ...................................... United States 1,100,000 16,225,000
-----------
19,748,888
-----------
PRODUCER MANUFACTURING .2%
McDermott International Inc. ............................... United States 1,300,000 11,943,750
-----------
REAL ESTATE
MeriStar Hospitality Corp. ................................. United States 112,500 1,961,719
-----------
TELECOMMUNICATIONS .9%
U.S. West Inc. ............................................. United States 800,000 58,100,000
-----------
UTILITIES 20.2%
American Electric Power Co. Inc. ........................... United States 2,200,000 65,587,500
Central & South West Corp. ................................. United States 3,500,000 59,718,750
CInergy Corp. .............................................. United States 2,000,000 43,000,000
Conectiv Inc. .............................................. United States 2,011,900 35,208,250
Dominion Resources Inc. .................................... United States 564,804 21,709,654
Edison International ....................................... United States 1,550,000 25,671,875
Energy East Corp. .......................................... United States 1,900,000 37,643,750
Entergy Corp. .............................................. United States 3,400,000 68,637,500
FirstEnergy Corp. .......................................... United States 2,100,000 43,312,500
Florida Progress Corp. ..................................... United States 2,622,800 120,320,950
FPL Group Inc. ............................................. United States 1,400,000 64,487,500
GPU Inc. ................................................... United States 1,700,000 46,537,500
Hawaiian Electric Industries Inc. .......................... United States 610,000 19,405,625
KeySpan Corp. .............................................. United States 1,500,000 41,437,500
New Century Energies Inc. .................................. United States 1,805,000 54,262,813
Northern States Power Co. .................................. United States 2,020,000 40,147,500
PECO Energy Co. ............................................ United States 2,596,000 95,727,500
PG&E Corp. ................................................. United States 3,100,000 65,100,000
Potomac Electric Power Co. ................................. United States 2,000,000 45,250,000
Public Service Enterprise Group Inc. ....................... United States 2,350,000 69,618,750
Reliant Energy Inc. ........................................ United States 1,900,000 44,531,250
SCANA Corp. ................................................ United States 504,820 12,399,641
ScottishPower PLC, ADR ..................................... United Kingdom 304,500 9,648,844
Sempra Energy .............................................. United States 2,821,349 47,257,596
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
INCOME FUND COUNTRY SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
UTILITIES (CONT.)
Sierra Pacific Resources .......................................................... United States 825,000 $10,312,500
Southern Co. ...................................................................... United States 2,600,000 56,550,000
Texas Utilities Co. ............................................................... United States 2,637,250 78,293,359
Western Resources Inc. ............................................................ United States 2,200,000 34,787,500
-------------
1,356,566,107
-------------
MISCELLANEOUS
Miscellaneous ..................................................................... 14
-------------
TOTAL COMMON STOCKS (COST $2,066,196,471) ......................................... 2,121,310,572
-------------
PREFERRED STOCKS 1.5%
FINANCE .4%
IBJ Preferred Capital Co. LLC, 8.79%, 144A ........................................ Japan 30,000,000 28,200,000
-------------
NON-ENERGY MINERALS .1%
Freeport-McMoran Copper & Gold Inc., cum. variable pfd., Gold ..................... United States 400,000 8,150,000
-------------
PROCESS INDUSTRIES .8%
Asia Pulp & Paper Co. Ltd., 12.00% ................................................ Indonesia 95,000,000 55,575,000
-------------
TELECOMMUNICATIONS .2%
Nortel Inversora SA, B, ADR ....................................................... Argentina 524,000 10,807,500
-------------
TOTAL PREFERRED STOCKS (COST $131,841,195) ........................................ 102,732,500
-------------
CONVERTIBLE PREFERRED STOCKS 11.6%
ENERGY MINERALS 3.3%
(a)Chesapeake Energy Corp., 7.00%, cvt. pfd., 144A ................................... United States 800,000 30,000,000
Enron Corp., 7.00%, cvt. pfd ...................................................... United States 519,500 11,461,469
Kerr-McGee Corp., 5.50%, cvt. pfd. (exchangeable into Devon Energy
Corp. common) .................................................................... United States 1,512,000 68,040,000
Lomak Financing Trust, 5.75%, cvt. pfd ............................................ United States 1,500,000 28,125,000
Newfield Financial Trust I, 6.50%, cvt. pfd ....................................... United States 750,000 43,359,375
Nuevo Financing I, 5.75%, cvt. pfd., A ............................................ United States 1,450,000 36,612,500
-------------
217,598,344
-------------
INDUSTRIAL SERVICES .9%
Weatherford International Inc., 5.00%, cvt. pfd., 144A ............................ United States 1,200,000 58,200,000
-------------
NON-ENERGY MINERALS .5%
Battle Mountain Gold Co., $3.25, cvt. pfd ......................................... United States 295,000 7,706,875
Hecla Mining Co., 7.00%, cvt. pfd., B ............................................. United States 375,000 9,281,250
Kinam Gold Inc., $3.75, cvt. pfd., B .............................................. Canada 650,000 16,696,875
-------------
33,685,000
-------------
REAL ESTATE 4.6%
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 27,950,000
Felcor Lodging Trust Inc., $1.95, cvt. pfd., A .................................... United States 2,100,000 33,206,250
Glenborough Realty Trust Inc., 7.75%, cvt. pfd., A ................................ United States 3,400,000 50,575,000
Host Marriott Corp., 6.75%, cvt. pfd .............................................. United States 1,200,000 37,800,000
Innkeepers USA Trust, 8.625%, cvt. pfd., A ........................................ United States 2,000,000 33,500,000
Prologis Trust, 7.00%, cvt. pfd., B ............................................... United States 800,000 19,200,000
Reckson Associates Realty Corp., 7.625%, cvt. pfd., A ............................. United States 1,750,000 33,140,625
Vornado Realty Trust, 6.50%, cvt. pfd., A ......................................... United States 700,000 33,425,000
-------------
310,446,875
-------------
TELECOMMUNICATIONS 1.0%
Nortel Inversora SA, 10.00%, cvt. pfd. (exchangeable into Telecom Argentina
Stet-France Telecom, SA, B, ADR, common) ......................................... Argentina 1,200,000 72,000,000
-------------
TRANSPORTATION .5%
Union Pacific Capital Trust, 6.25%, cvt. pfd ...................................... United States 900,000 35,100,000
-------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
INCOME FUND COUNTRY SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE PREFERRED STOCKS (CONT.)
UTILITIES .8%
CMS Energy Trust I, 7.75%, cvt. pfd. ................................. United States 1,600,000 $55,200,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $963,813,323) ............... 782,230,219
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT*
---------
<S> <C> <C> <C>
BONDS 19.6%
COMMERCIAL SERVICES
(b)AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 ............. United States $ 25,000,000 1,375,000
-----------
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 2.6%
Compania de Alimentos Fargo SA, senior note, 13.25%, 8/01/08 ...................... Argentina 30,000,000 26,775,000
Doane Pet Care Co., senior sub. note, 9.75%, 5/15/07 .............................. United States 15,381,000 14,227,425
Evenflo Company Inc., senior note, B, 11.75%, 8/15/06 ............................. United States 28,000,000 27,160,000
Hartmarx Corp., senior sub. note, 10.875%, 1/15/02 ................................ United States 29,000,000 28,782,500
Playtex Family Products Corp., senior sub. note, 9.00%, 12/15/03 .................. United States 38,500,000 37,537,500
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ................. United States 34,700,000 15,441,500
SFC New Holdings Inc., senior note, 11.25%, 8/15/01 ............................... United States 20,000,000 18,400,000
The William Carter Co., senior sub. note, A, 10.375%, 12/01/06 .................... United States 6,000,000 5,070,000
-----------
173,393,925
-----------
CONSUMER SERVICES 2.9%
AMF Bowling Worldwide Inc., senior sub. note, B, 10.875%, 3/15/06 ................. United States 17,000,000 6,375,000
Cablevision SA, 13.75%, 5/01/09 ................................................... United States 11,500,000 11,528,750
Coast Hotel & Casino Inc., senior sub. note, 9.50%, 4/01/09 ....................... United States 14,000,000 12,950,000
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 7,880,000
Harvey Casinos Resorts, senior sub. note, 10.625%, 6/01/06 ........................ United States 11,000,000 11,165,000
Lone Cypress Co., sub. note, 144A, 11.50%, 8/01/09 ................................ United States 60,000,000 60,000,000
Protection One Alarm Monitoring Inc., senior sub. note,
144A, 8.125%, 1/15/09 ............................................................ United States 28,000,000 15,400,000
Venetian Casino/Las Vegas Sands, mortgage note, 12.25%, 11/15/04 .................. United States 30,000,000 28,050,000
-----------
194,848,750
-----------
ELECTRONIC TECHNOLOGY 1.3%
Anacomp Inc., senior sub. note, B, 10.875%, 4/01/04 ............................... United States 60,000,000 56,700,000
Samsung Electronics America Inc., 144A, 9.75%, 5/01/03 ............................ United States 30,500,000 31,693,465
-----------
88,393,465
-----------
ENERGY MINERALS 2.8%
Bellwether Exploration Co., senior sub. note, 10.875%, 4/01/07 .................... United States 39,000,000 35,295,000
Chesapeake Energy Corp., senior note, B, 7.875%, 3/15/04 .......................... United States 5,000,000 4,475,000
Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 ..................... Mexico 90,000,000 97,875,000
Denbury Management Inc., senior unsecured sub. note, 9.00%, 3/01/08 ............... United States 41,000,000 35,875,000
Mesa Operating Co., 10.625%, 7/01/06 .............................................. United States 4,800,000 4,656,000
Plains Resources Inc., senior sub. note, B, 10.25%, 3/15/06 ....................... United States 8,000,000 7,800,000
-----------
185,976,000
-----------
HEALTH TECHNOLOGY .9%
Dade International Inc., senior sub. note, B, 11.125%, 5/01/06 .................... United States 22,000,000 20,900,000
ICN Pharmaceuticals Inc., senior note, B, 9.25%, 8/15/05 .......................... United States 37,000,000 36,630,000
-----------
57,530,000
-----------
INDUSTRIAL SERVICES 1.0%
Allied Waste North America Inc., B, 10.00%, 8/01/09 ............................... United States 37,000,000 27,935,000
First Wave Marine Inc., senior note, 11.00%, 2/01/08 .............................. United States 10,000,000 6,050,000
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME FUND COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BONDS (CONT.)
INDUSTRIAL SERVICES (CONT.)
Great Lakes Dredge & Dock Corp., 11.25%, 8/15/08 .............................. United States $10,000,000 $10,350,000
R & B Falcon Corp., senior note, B, 6.50%, 4/15/03 ............................ United States 22,000,000 19,965,000
--------------
64,300,000
--------------
PROCESS INDUSTRIES 4.4%
Applied Extrusion Technology, senior note, B, 11.50%, 4/01/02 ................. United States 25,000,000 25,062,500
Consoltex Group Inc., senior sub. note, B, 11.00%, 10/01/03 ................... United States 50,000,000 45,750,000
Four M Corp., senior note, B, 12.00%, 6/01/06 ................................. United States 30,000,000 29,550,000
Packaging Resources Inc., senior note, 11.625%, 5/01/03 ....................... United States 42,000,000 25,410,000
Printpack Inc., senior sub. note, B, 10.625%, 8/15/06 ......................... United States 50,000,000 48,250,000
RBX Corp., senior sub. note, B, 11.25%, 10/15/05 .............................. United States 60,000,000 10,800,000
Riverwood International, senior sub. note, 10.875%, 4/01/08 ................... United States 50,000,000 46,750,000
Tjiwi Kimia Finance Mauritius, senior unsecured note, 10.00%, 8/01/04 ......... Indonesia 87,000,000 66,555,000
--------------
298,127,500
--------------
PRODUCER MANUFACTURING 1.5%
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 17,436,250
Outsourcing Services Group Inc., senior sub. note, 144A, 10.875%, 3/01/06 ..... United States 22,000,000 18,590,000
Thermadyne Industries Inc., sub. note, 10.75%, 11/01/03 ....................... United States 14,500,000 13,412,500
Trench Electric & Trench Inc., senior sub. deb., 10.25%, 12/15/07 ............. Canada 30,000,000 20,550,000
--------------
103,501,250
--------------
TECHNOLOGY SERVICES .5%
PSINet Inc., senior note, 144A, 10.50%, 12/01/06 .............................. United States 34,000,000 32,810,000
--------------
TELECOMMUNICATIONS 1.5%
Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ............................. United States 32,000,000 26,080,000
Nextlink Communications Inc., senior unsecured note, 10.75%, 6/01/09 .......... United States 46,000,000 44,390,000
Voicestream Wireless Corp., senior note, 144A, 10.375%, 11/15/09 .............. United States 16,000,000 16,000,000
Williams Communications Group Inc., senior note, 10.875%, 10/01/09 ............ United States 19,000,000 18,715,000
--------------
105,185,000
--------------
TOTAL BONDS (COST $1,501,699,012) ............................................ 1,318,400,890
--------------
CONVERTIBLE BONDS 5.2%
ELECTRONIC TECHNOLOGY .1%
Trans-Lux Corp., cvt. sub. note, 7.50%, 12/01/06 .............................. United States 8,000,000 6,600,000
--------------
ENERGY MINERALS 1.1%
Kerr McGee Corp., cvt., 7.50%, 5/15/14 ........................................ United States 28,422,000 27,107,483
Swift Energy Co., cvt. sub. note, 6.25%, 11/15/06 ............................. United States 57,750,000 50,892,188
--------------
77,999,671
--------------
HEALTH SERVICES
(b)Continucare Corp., cvt. sub. note, 144A, 7.00%, 10/31/02 ...................... United States 9,500,000 475,000
--------------
INDUSTRIAL SERVICES .7%
Key Energy Services Inc., cvt., 5.00%, 9/15/04 ................................ United States 50,000,000 38,150,500
Parker Drilling Co., cvt. sub. note, 5.50%, 8/01/04 ........................... United States 13,500,000 10,209,375
--------------
48,359,875
--------------
NON-ENERGY MINERALS 1.3%
Ashanti Capital Ltd., cvt., 5.50%, 3/15/03 .................................... Ghana 50,000,000 33,750,000
Coeur D'Alene Mines Corp., cvt. senior sub. deb., 6.00%, 6/10/02 .............. United States 900,000 540,000
Coeur D'Alene Mines Corp., cvt. sub. deb., 6.375%, 1/31/04 .................... United States 20,000,000 9,925,000
Trizec Hahn Corp., cvt. senior deb., 3.00%, 1/29/21
(exchangeable into Barrick Gold Corp. common) ................................ Canada 70,000,000 40,790,400
--------------
85,005,400
--------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME FUND COUNTRY AMOUNT* VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE BONDS (CONT.)
PRODUCER MANUFACTURING .4%
Exide Corp., cvt. senior sub. note, 144A, 2.90%, 12/15/05 .................... United States $50,000,000 $29,000,000
-------------
REAL ESTATE 1.6%
Macerich Co., cvt. sub. deb., 144A, 7.25%, 12/15/02 .......................... United States 65,000,000 53,950,000
Meristar Hospitality Corp., cvt. sub. note, 4.75%, 10/15/04 .................. United States 70,000,000 51,362,500
-------------
105,312,500
-------------
TOTAL CONVERTIBLE BONDS (COST $417,822,901) .................................. 352,752,446
-------------
FOREIGN GOVERNMENT BONDS 17.8%
ESCOM, E168, utility deb., 11.00%, 6/01/08 ................................... South Africa 240,000,000 ZAR 30,527,120
Republic of Argentina, L-GP, step coupon, 6.00%, 3/31/23 ..................... Argentina 500,000,000 350,625,000
Republic of Brazil, 11.625%, 4/15/04 ......................................... Brazil 45,000,000 45,236,250
Republic of Brazil, 14.50%, 10/15/09 ......................................... Brazil 29,539,000 32,227,049
Republic of Brazil, A, FRN, 7.00%, 1/01/01 ................................... Brazil 14,821,500 14,784,446
Republic of Brazil, FRN, 5.75%, 4/15/24 ...................................... Brazil 230,000,000 150,650,000
Republic of Brazil, L, FRN, 6.938%, 4/15/06 .................................. Brazil 220,900,000 201,019,000
Republic of Korea, 8.875%, 4/15/08 ........................................... South Korea 210,000,000 217,770,000
Republic of South Africa, 12.00%, 2/28/05 .................................... South Africa 200,000,000 ZAR 28,939,303
Republic of Turkey, 12.375%, 6/15/09 ......................................... Turkey 70,000,000 75,162,500
Russia Ministry of Finance, 11.75%, 6/10/03 .................................. Russia 30,000,000 26,812,500
Russia Ministry of Finance, Reg S, 10.00%, 6/26/07 ........................... Russia 30,000,000 22,526,250
-------------
TOTAL FOREIGN GOVERNMENT BONDS (COST $1,139,428,318) ......................... 1,196,279,418
-------------
U.S. GOVERNMENT SECURITIES 3.9%
FHLMC, 6.875%, 1/15/05 ....................................................... United States 90,000,000 89,293,500
U.S. Treasury Notes, 5.875%, 11/15/04 ........................................ United States 173,000,000 169,918,524
-------------
TOTAL U.S. GOVERNMENT SECURITIES (COST $256,063,205) 259,212,024
-------------
ZERO COUPON/STEP-UP BONDS 5.8%
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 6,704,970
APP Finance VI Mauritius Ltd., cvt., 11/18/12 ................................ Indonesia 150,000,000 28,875,000
Charter Communications Holdings LLC, senior disc. note, zero cpn
to 4/01/04, 9.92% thereafter, 4/01/11 ....................................... United States 60,000,000 33,150,000
Crown Castle International Corp., senior disc. note, zero cpn
to 8/01/04, 11.25% thereafter, 8/01/11 ...................................... United States 50,000,000 29,250,000
Huntsman ICI Chemicals LLC, senior disc. note, 12/31/09 ...................... United States 75,000,000 22,875,000
(b)International Wireless Communications, senior disc. note,
zero cpn., 8/15/01 ......................................................... United States 13,500,000 1,620,000
Level 3 Communications Inc., senior disc. note, zero cpn. to 1/15/02,
10.50% thereafter, 12/01/08 ................................................. United States 50,000,000 28,000,000
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 2,557,500
Mesa Operating Co., senior unsecured sub. note, zero cpn
to 7/01/01, 11.625% thereafter, 7/01/06 ..................................... United States 15,000,000 12,900,000
Microcell Telecommunications Inc., senior disc. note, zero cpn
to 6/01/04, 12.00% thereafter, 6/01/09 ...................................... Canada 50,000,000 31,250,000
Nextel Communications Inc., senior disc. note, zero cpn
to 2/15/03, 9.95% thereafter, 12/15/08 ....................................... United States 90,000,000 60,750,000
Nextel International Inc., senior disc. note, zero cpn
to 4/15/03, 12.125% thereafter, 4/15/08 ..................................... United States 50,000,000 31,250,000
Nextlink Communications Inc., 144A, zero cpn. to 6/01/04,
12.25% thereafter, 6/01/09 .................................................. United States 44,000,000 25,080,000
Revlon Worldwide Corp., senior disc. note, B, 3/15/01 ........................ United States 33,000,000 10,065,000
SFC New Holdings Inc., zero cpn. to 6/15/05, 11.00% thereafter, 12/15/09 ..... United States 957,873 --
Sellco Corp., PIK, sub. note, 12.00%, 12/15/04 ............................... United States 12,700 2,604
Spectrasite Holdings Inc., senior disc. note, 144A, zero cpn
to 3/15/05, 12.875% thereafter, 3/15/10 ..................................... United States 36,000,000 17,820,000
Spectrasite Holdings Inc., senior disc. note, zero cpn. to 4/15/04,
11.25% thereafter, 4/15/09 .................................................. United States 20,000,000 10,900,000
United Pan-Europe Communications NV, senior disc. note, 144A,
zero cpn. to 8/01/04, 12.50% thereafter, 8/01/09 ............................ Netherlands 52,000,000 26,000,000
VoiceStream Wireless Corp., senior disc. note, 144A, zero cpn
to 11/15/04, 11.875% thereafter, 11/15/09 ................................... United States 23,000,000 13,800,000
-------------
TOTAL ZERO COUPON/STEP-UP BONDS (COST $484,848,461) .......................... 392,850,074
-------------
TOTAL LONG TERM INVESTMENTS (COST $6,961,712,886) ............................ 6,525,768,143
-------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
INCOME FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT 1.5%
(d)Joint Repurchase Agreement, 6.081%, 04/03/00 (Maturity Value $102,042,880)
(COST $101,991,196) .................................................................... $101,991,196 $101,991,196
Banc of America Securities LLC (Maturity Value $5,091,940)
Barclays Capital Inc. (Maturity Value $9,297,127)
Bear, Stearns & Co. Inc. (Maturity Value $3,979,674)
Chase Securities Inc. (Maturity Value $9,297,127)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $9,297,127)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $9,297,127)
Goldman Sachs (Maturity Value $9,297,127)
Lehman Govt. Securities (Maturity Value $9,297,127)
Nesbitt Burns Securities Inc. (Maturity Value $9,297,127)
Paribas Corporation (Maturity Value $11,953,300)
Societe Generale (Maturity Value $6,640,950)
Warburg Dillon Read LLC (Maturity Value $9,297,127)
Collateralized by U.S. Treasury Bills & Notes
--------------
TOTAL INVESTMENTS (COST $7,063,704,081) 98.4% ........................................... 6,627,759,339
OTHER ASSETS, LESS LIABILITIES 1.6% ..................................................... 107,589,507
--------------
NET ASSETS 100.0% ....................................................................... $6,735,348,846
--------------
</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 note1(c) regarding joint repurchase agreement.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Highlights
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2000 --------------------------------------------------------------
CLASS A (UNAUDITED) 1999(g) 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(C)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $6.62 $6.99 $6.89 $6.72 $6.87 $6.51
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .22 .44 .46 .48 .49 .50
Net realized and unrealized gains (losses) ... (.21) (.37) .10 .17 (.15) .35
----------------------------------------------------------------------------------
Total from investment operations .............. .01 .07 .56 .65 .34 .85
----------------------------------------------------------------------------------
Less distributions from net investment income . (.09) (.44) (.46) (.48) (.49) (.49)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $6.54 $6.62 $6.99 $6.89 $6.72 $6.87
==================================================================================
Total return(a) ............................... 2.02% 1.05% 8.41% 10.08% 5.15% 13.56%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $7,144,020 $7,895,906 $9,049,829 $9,350,751 $10,129,483 $11,101,605
Ratios to average net assets:
Expenses ..................................... .68%(b) .67% .65% .64% .61% .61%
Net investment income ........................ 6.64%(b) 6.43% 6.67% 7.01% 7.18% 7.50%
Portfolio turnover rate(h) .................... 11.22% 15.04% 25.98% 1.74% 8.01% 5.48%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
PER SHARE OPERATING PERFORMANCE(C)
--------------------------------------------------------------------------------
<S> <C> <C>
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $6.62 $6.91
------------------------------
Income from investment operations:
Net investment income ........................ .20 .30
Net realized and unrealized losses ........... (.19) (.28)
------------------------------
Total from investment operations .............. .01 .02
------------------------------
Less distributions from net investment income . (.10) (.31)
------------------------------
Net asset value, end of period ................ $6.53 $6.62
==============================
Total return(a) ............................... 1.60% .25%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $66,077 $51,433
Ratios to average net assets:
Expenses ..................................... 1.22%(b) 1.22%(b)
Net investment income ........................ 6.12%(b) 5.93%(b)
Portfolio turnover rate(h) .................... 11.22% 15.04%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end September 30, 1999.
(g) For the period January 1, 1999 (effective date) to September 30, 1999 for
Class B.
(h) 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>
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2000 ------------------------------------------------------------
CLASS C (UNAUDITED) 1999 1998 1997(f) 1996 1995(d)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $6.60 $6.97 $6.87 $6.70 $6.85 $6.67
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .20 .40 .42 .44 .45 .21
Net realized and unrealized gains (losses) ... (.19) (.37) .10 .17 (.15) .16
----------------------------------------------------------------------------------
Total from investment operations .............. .01 .03 .52 .61 .30 .37
----------------------------------------------------------------------------------
Less distributions from net investment income . (.09) (.40) (.42) (.44) (.45) (.19)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $6.52 $6.60 $6.97 $6.87 $6.70 $6.85
==================================================================================
Total return(a) ............................... 1.76% .50% 7.85% 9.48% 4.55% 5.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $270,067 $308,961 $271,665 $120,818 $57,657 $11,695
Ratios to average net assets:
Expenses ..................................... 1.22%(b) 1.22% 1.21% 1.20% 1.17% 1.18%(b)
Net investment income ........................ 6.10%(b) 5.89% 6.10% 6.44% 6.80% 6.48%(b)
Portfolio turnover rate(h) .................... 11.22% 15.04% 25.98% 1.74% 8.01% 5.48%
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $6.63 $7.00 $6.90 $6.76
-----------------------------------------------------
Income from investment operations:
Net investment income ........................ .22 .45 .47 .38
Net realized and unrealized gains (losses) ... (.21) (.37) .10 .12
-----------------------------------------------------
Total from investment operations .............. .01 .08 .57 .50
-----------------------------------------------------
Less distributions from net investment income . (.10) (.45) (.47) (.36)
-----------------------------------------------------
Net asset value, end of period ................ $6.54 $6.63 $7.00 $6.90
=====================================================
Total return(a) ............................... 1.93% 1.16% 8.51% 7.68%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $39,032 $15,544 $36,308 $14,469
Ratios to average net assets:
Expenses ..................................... .58%(b) .57% .56% .56%(b)
Net investment income ........................ 6.82%(b) 6.53% 6.75% 7.01%(b)
Portfolio turnover rate(h) .................... 11.22% 15.04% 25.98% 1.74%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end Septmber 30, 1999.
(d) For the period May 1, 1995 (effective date) to September 30, 1995 for Class
C.
(f) For the period January 2, 1997 (effective date) to September 30, 1997 for
Advisor Class.
(h) 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, MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) 95.9%
GNMA I, SF, 5.50%, 5/15/28 - 1/15/29 ..................................................... $14,391,141 $12,645,098
GNMA II, 5.50%, 11/20/28 - 3/20/29 ....................................................... 27,139,450 23,707,747
GNMA I, SF, 6.00%, 9/15/23 - 12/15/28 .................................................... 128,006,763 118,065,741
GNMA II, 6.00%, 10/20/23 - 1/20/29 ....................................................... 591,105,557 538,564,832
GNMA I, SF, 6.50%, 3/15/03 - 6/15/29 ..................................................... 1,986,513,088 1,882,255,972
GNMA II, 6.50%, 6/20/24 - 7/20/28 ........................................................ 357,473,272 336,212,733
GNMA I, SF, 6.75%, 3/15/26 - 5/15/26 ..................................................... 2,710,072 2,596,233
GNMA PL, 6.75%, 1/15/34 .................................................................. 35,572,145 33,381,439
GNMA I, SF, 7.00%, 4/15/16 - 7/15/29 ..................................................... 1,619,594,855 1,577,674,186
GNMA PL, 7.00%, 9/15/35 .................................................................. 8,851,031 8,438,624
GNMA I, SF, 7.25%, 10/15/25 - 1/15/26 .................................................... 5,665,024 5,559,822
GNMA I, SF, 7.50%, 6/15/05 - 10/15/29 .................................................... 899,074,269 895,804,513
GNMA II, 7.50%, 10/20/22 - 12/20/26 ...................................................... 96,216,203 95,208,198
GNMA PL, 7.75%, 10/15/12 ................................................................. 5,036,438 4,995,609
GNMA I, SF, 8.00%, 1/15/30 - 12/15/29 .................................................... 708,490,465 719,778,692
GNMA II, 8.00%, 8/20/16 - 10/20/26 ....................................................... 35,000,053 35,306,240
GNMA PL, 8.00%, 1/15/32 - 5/15/32 ........................................................ 13,975,615 14,077,976
GNMA I, GPM, 8.25%, 2/15/28 .............................................................. 3,947,731 3,995,418
GNMA PL, 8.25%, 3/15/17 - 11/15/17 ....................................................... 12,699,211 13,027,015
GNMA I, SF, 8.50%, 5/15/16 - 11/15/24 .................................................... 118,264,025 121,846,699
GNMA II, 8.50%, 4/20/16 - 6/20/25 ........................................................ 22,793,362 23,325,643
GNMA II, GPM, 8.75%, 3/20/17 - 7/20/17 ................................................... 484,250 496,021
GNMA I, SF, 9.00%, 10/15/04 - 7/15/23 .................................................... 143,155,412 149,335,041
GNMA II, 9.00%, 5/20/16 - 11/20/21 ....................................................... 7,007,520 7,259,801
GNMA I, GPM, 9.25%, 5/15/16 - 1/15/17 .................................................... 2,363,804 2,430,538
GNMA I, SF, 9.50%, 5/15/09 - 2/15/23 ..................................................... 80,021,510 84,162,534
GNMA II, 9.50%, 9/20/15 - 4/20/25 ........................................................ 5,544,169 5,788,354
GNMA I, GPM, 10.00%, 11/15/09 - 11/15/13 ................................................. 2,619,428 2,749,634
GNMA I, SF, 10.00%, 4/15/12 - 4/15/25 .................................................... 93,128,953 99,304,147
GNMA II, 10.00%, 8/20/15 - 3/20/21 ....................................................... 9,736,534 10,300,104
GNMA I, GPM, 10.25%, 2/15/16 - 2/15/21 ................................................... 601,036 640,705
GNMA I, SF, 10.50%, 10/15/00 - 10/15/21 .................................................. 67,139,645 72,604,726
GNMA II, 10.50%, 9/20/13 - 3/20/21 ....................................................... 17,627,790 18,918,608
GNMA I, GPM, 11.00%, 12/15/09 - 3/15/11 .................................................. 5,354,622 5,721,569
GNMA I, SF, 11.00%, 11/15/09 - 5/15/21 ................................................... 60,341,576 66,223,832
GNMA II, 11.00%, 8/20/13 - 1/20/21 ....................................................... 4,074,860 4,455,098
GNMA I, GPM, 11.25%, 6/15/13 - 1/15/16 ................................................... 2,200,542 2,381,722
GNMA I, GPM, 11.50%, 7/20/13 - 1/20/14 ................................................... 630,779 683,374
GNMA I, SF, 11.50%, 2/15/13 - 12/15/17 ................................................... 12,813,382 14,177,838
GNMA II, 11.50%, 8/20/13 - 4/20/18 ....................................................... 959,762 1,054,006
GNMA II, GPM, 11.50%, 3/15/10 - 6/15/13 .................................................. 125,794 137,607
GNMA I, GPM, 11.75%, 7/15/13 - 12/15/15 .................................................. 446,698 490,703
GNMA I, GPM, 12.00%, 10/15/10 - 1/15/13 .................................................. 202,251 221,581
GNMA I, SF, 12.00%, 5/15/11 - 7/15/18 .................................................... 58,436,509 65,466,865
GNMA II, 12.00%, 9/20/13 - 2/20/16 ....................................................... 2,537,019 2,819,883
GNMA I, GPM, 12.50%, 4/15/10 - 10/15/11 .................................................. 574,957 637,681
GNMA I, SF, 12.50%, 1/15/10 - 8/15/18 .................................................... 54,216,391 61,500,169
GNMA II, 12.50%, 9/20/13 - 11/20/15 ...................................................... 2,500,676 2,819,192
GNMA I, GPM, 12.75%, 5/15/14 - 6/15/15 ................................................... 9,225 10,397
GNMA I, SF, 13.00%, 7/15/10 - 1/15/16 .................................................... 51,933,153 59,297,831
GNMA II, 13.00%, 10/20/13 - 9/20/15 ...................................................... 1,749,753 1,985,230
-------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) (COST $7,409,196,638) .............. 7,210,543,221
-------------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
U.S. GOVERNMENT SECURITIES FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS 3.9%
(c)U.S. Treasury Bills, 4/06/00 - 5/04/00 ...................................... $86,020,000 $85,927,953
(c)U.S. Treasury Bills, 4/27/00 ................................................ 172,530,000 171,865,242
U.S. Treasury Notes, 4.625%, 11/30/00 ....................................... 40,000,000 39,550,000
--------------
TOTAL SHORT TERM INVESTMENTS (COST $297,337,263) ............................ 297,343,195
--------------
TOTAL INVESTMENTS (COST $7,706,533,901) 99.8% ............................... 7,507,886,416
OTHER ASSETS, LESS LIABILITIES .2% .......................................... 11,308,669
--------------
NET ASSETS 100.0% ........................................................... $7,519,195,085
--------------
</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>
SIX MONTHS ENDED
MARCH 31, 2000 YEAR ENDED SEPTEMBER 30,
CLASS A (UNAUDITED) 1999(g) 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $9.58 $11.36 $10.04 $9.73 $9.75 $8.33
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .22 .48 .52 .53 .54 .53
Net realized and unrealized gains (losses) ... (.64) (1.41) 1.58 .73 .03 1.42
----------------------------------------------------------------------------------
Total from investment operations .............. (.42) (.93) 2.10 1.26 .57 1.95
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.22) (.52) (.52) (.52) (.52) (.52)
Net realized gains ........................... (.36) (.33) (.26) (.43) (.07) (.01)
----------------------------------------------------------------------------------
Total distributions ........................... (.58) (.85) (.78) (.95) (.59) (.53)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $8.58 $9.58 $11.36 $10.04 $9.73 $9.75
==================================================================================
Total return(a) ............................... (4.35%) (8.54%) 21.71% 13.72% 5.94% 24.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $1,309,893 $1,594,862 $2,054,546 $1,953,273 $2,400,561 $2,765,976
Ratios to average net assets:
Expenses ..................................... .85%(b) .80% .76% .75% .71% .73%
Net investment income ........................ 4.98%(b) 4.60% 4.73% 5.26% 5.24% 5.88%
Portfolio turnover rate ....................... 8.88% 33.99% 11.77% 7.24% 17.05% 5.55%
</TABLE>
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $9.59 $11.08
-----------------------------------
Income from investment operations:
Net investment income ........................ .20 .31
Net realized and unrealized losses ........... (.63) (1.44)
-----------------------------------
Total from investment operations .............. (.43) (1.13)
-----------------------------------
Less distributions from:
Net investment income ........................ (.20) (.36)
Net realized gains ........................... (.36) --
-----------------------------------
Total distributions ........................... (.56) (.36)
-----------------------------------
Net asset value, end of period ................ $8.60 $9.59
===================================
Total return(a) ............................... (4.37%) (10.37%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $4,306 $3,142
Ratios to average net assets:
Expenses ..................................... 1.36%(b) 1.31%(b)
Net investment income ........................ 4.47%(b) 4.12%(b)
Portfolio turnover rate ....................... 8.88% 33.99%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end September 30, 1999.
(g) 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>
SIX MONTHS ENDED
MARCH 31, 2000 YEAR ENDED SEPTEMBER 30,
CLASS C (UNAUDITED) 1999 1998 1997(f) 1996 1995(d)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $9.57 $11.35 $10.02 $9.72 $9.75 $8.89
----------------------------------------------------------------------------------
Income from investment operations:
Net investment income ........................ .20 .43 .46 .45 .46 .23
Net realized and unrealized gains (losses) ... (.63) (1.42) 1.60 .76 .06 .88
----------------------------------------------------------------------------------
Total from investment operations .............. (.43) (.99) 2.06 1.21 .52 1.11
----------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.20) (.46) (.47) (.48) (.48) (.25)
Net realized gains ........................... (.36) (.33) (.26) (.43) (.07) --
----------------------------------------------------------------------------------
Total distributions ........................... (.56) (.79) (.73) (.91) (.55) (.25)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $8.58 $9.57 $11.35 $10.02 $9.72 $9.75
==================================================================================
Total return(a) ............................... (4.52%) (9.06%) 21.24% 13.06% 5.39% 13.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $28,117 $34,697 $40,628 $21,906 $19,655 $8,369
Ratios to average net assets:
Expenses ..................................... 1.36%(b) 1.31% 1.28% 1.27% 1.23% 1.21%(b)
Net investment income ........................ 4.46%(b) 4.08% 4.19% 4.78% 4.86% 5.15%(b)
Portfolio turnover rate ....................... 8.88% 33.99% 11.77% 7.24% 17.05% 5.55%
</TABLE>
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE(c)
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $9.61 $11.39 $10.04 $9.55
------------------------------------------------------
Income from investment operations:
Net investment income ......................... .23 .51 .58 .36
Net realized and unrealized gains (losses) .... (.64) (1.42) 1.57 .53
------------------------------------------------------
Total from investment operations .............. (.41) (.91) 2.15 .89
------------------------------------------------------
Less distributions from:
Net investment income ........................ (.23) (.54) (.54) (.40)
Net realized gains ........................... (.36) (.33) (.26) --
------------------------------------------------------
Total distributions ........................... (.59) (.87) (.80) (.40)
------------------------------------------------------
Net asset value, end of period ................ $8.61 $9.61 $11.39 $10.04
======================================================
Total return(a) ............................... (4.17%) (8.48%) 22.20% 9.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $7,372 $8,058 $13,651 $8,719
Ratios to average net assets:
Expenses ..................................... .71%(b) .66% .63% .62%(b)
Net investment income ........................ 5.11%(b) 4.82% 4.93% 5.33%(b)
Portfolio turnover rate ....................... 8.88% 33.99% 11.77% 7.24%
</TABLE>
(a) Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(b) Annualized.
(c) Based on average shares outstanding effective year end September 30, 1999.
(d) For the period May 1, 1995 (effective date) to September 30, 1995 for Class
C.
(f) 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, MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
UTILITIES FUND SHARES VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 71.8%
Allegheny Energy Inc. ............................................................... 700,000 $19,293,750
American Electric Power Co. Inc. .................................................... 439,100 13,090,668
Avista Corp. ........................................................................ 350,000 14,262,500
Bell Atlantic Corp. ................................................................. 400,000 24,450,000
Central & South West Corp. .......................................................... 675,000 11,517,187
CH Energy Group Inc. ................................................................ 355,000 10,783,124
Cinergy Corp. ....................................................................... 600,000 12,900,000
CMS Energy Corp. .................................................................... 51,900 940,687
Conectiv Inc. ....................................................................... 98,600 1,725,500
Constellation Energy Group Inc. ..................................................... 882,900 28,142,437
Dominion Resources Inc. ............................................................. 710,726 27,318,531
DQE Inc. ............................................................................ 600,000 27,300,000
Duke Energy Corp. ................................................................... 1,425,000 74,812,500
Edison International ................................................................ 1,000,000 16,562,500
Entergy Corp. ....................................................................... 1,750,000 35,328,125
FirstEnergy Corp. ................................................................... 200,000 4,125,000
Florida Progress Corp. .............................................................. 296,900 13,620,288
FPL Group Inc. ...................................................................... 1,515,000 69,784,688
GPU Inc. ............................................................................ 387,000 10,594,125
GTE Corp. ........................................................................... 300,000 21,300,000
Hawaiian Electric Industries Inc. ................................................... 400,000 12,725,000
Kansas City Power & Light Co. ....................................................... 1,000,000 29,000,000
MCN Energy Group Inc. ............................................................... 90,500 2,262,500
Montana Power Co. ................................................................... 400,000 25,600,000
New Century Energies Inc. ........................................................... 812,145 24,415,109
NiSource Inc. ....................................................................... 1,200,000 20,250,000
Northeast Utilities ................................................................. 500,000 10,750,000
Northern States Power Co. ........................................................... 399,600 7,942,050
Northwestern Corp. .................................................................. 809,600 16,698,000
NSTAR ............................................................................... 234,700 9,857,400
PECO Energy Co. ..................................................................... 1,116,700 41,178,313
PG&E Corp. .......................................................................... 2,190,000 45,990,000
Pinnacle West Capital Corp. ......................................................... 600,000 16,912,500
Puget Sound Energy Inc. ............................................................. 750,000 16,640,625
Reliant Energy Inc. ................................................................. 640,000 15,000,000
SBC Communications Inc. ............................................................. 514,200 21,596,400
SCANA Corp. ......................................................................... 300,000 7,368,750
Sempra Energy ....................................................................... 859,006 14,388,351
Sierra Pacific Resources ............................................................ 1,504,000 18,800,000
SIGCORP Inc. ........................................................................ 550,000 13,750,000
Southern Co. ........................................................................ 2,829,300 61,537,275
TECO Energy Inc. .................................................................... 1,500,000 29,156,250
Texas Utilities Co. ................................................................. 762,750 22,644,141
Unicom Corp. ........................................................................ 1,100,000 40,150,000
Washington Gas Light Co. ............................................................ 250,000 6,796,875
-----------
TOTAL COMMON STOCKS (COST $933,413,873) ............................................. 969,261,149
-----------
CONVERTIBLE PREFERRED STOCKS 11.3%
AES Trust I, 5.375%, cvt. pfd., A ................................................... 400,000 44,400,000
CMS Energy Trust I, 7.75%, cvt. pfd ................................................. 705,000 24,322,500
Kinder Morgan Inc., 8.25%, cvt. pfd ................................................. 250,000 11,812,500
NiSource Inc., 7.75%, cvt. pfd ...................................................... 200,000 7,300,000
Nortel Inversora SA, 10.00%, cvt. pfd. MEDS (Argentina) ............................. 350,000 21,000,000
Texas Utilities Co., 9.25%, cvt. pfd ................................................ 647,600 25,539,725
Utilicorp United Inc., 9.75%, cvt. pfd .............................................. 800,000 17,800,000
-----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $144,365,098) .............................. 152,174,725
-----------
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
UTILITIES FUND AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BONDS 13.5%
Arizona Public Service Co., 10.25%, 5/15/20 .............................................. $10,500,000 $11,012,400
Arizona Public Service Co., 9.00%, 12/15/21 .............................................. 14,500,000 14,446,060
CalEnergy Co. Inc., senior note, 8.48%, 9/15/28 .......................................... 25,000,000 25,373,500
CMS Energy Corp., senior note, 7.50%, 1/15/09 ............................................ 8,250,000 7,053,750
Commonwealth Edison Co., 8.50%, 7/15/22 .................................................. 5,000,000 5,030,495
Commonwealth Edison Co., 8.375%, 9/15/22 ................................................. 10,000,000 10,188,700
Consolidated Edison Inc., 7.10%, 2/01/28 ................................................. 15,000,000 13,746,000
Duquesne Light Co., 8.375%, 5/15/24 ...................................................... 5,000,000 5,251,850
(e)Liberty Media Group, cvt., 144A, 4.00%, 11/15/29 ......................................... 10,000,000 15,812,500
Midland Funding Corp. I, C-94, 10.33%, 7/23/02 ........................................... 7,160,542 7,463,125
Niagara Mohawk Power Corp., 8.75%, 4/01/22 ............................................... 5,000,000 5,067,945
Niagara Mohawk Power Corp., senior disc. note, H, zero cpn
to 7/01/03, 8.50% thereafter, 7/01/10 ................................................... 6,000,000 4,653,780
Niagara Mohawk Power Corp., senior note, D, 7.25%, 10/01/02 .............................. 3,024,391 2,993,149
Niagara Mohawk Power Corp., senior note, G, 7.75%, 10/01/08 .............................. 4,600,000 4,520,512
Northwest Pipeline Corp., 7.125%, 12/01/25 ............................................... 3,000,000 2,878,440
Ohio Edison Co., 8.75%, 6/15/22 .......................................................... 8,000,000 8,203,584
Panhandle Eastern Co., 7.20%, 8/15/24 .................................................... 20,000,000 17,440,220
Texas Utilities Co., 8.75%, 11/01/23 ..................................................... 10,000,000 10,459,300
Texas Utilities Co., 8.50%, 8/01/24 ...................................................... 10,000,000 10,203,900
-------------
TOTAL BONDS (COST $178,468,540) .......................................................... 181,799,210
-------------
TOTAL LONG TERM INVESTMENTS (COST $1,256,247,511) ........................................ 1,303,235,084
-------------
(d)REPURCHASE AGREEMENT 3.1%
Joint Repurchase Agreement, 6.081%, 4/03/00 (Maturity Value $41,883,538)
(COST $41,862,324) .................................................................... 41,862,324 41,862,324
Banc of America Securities LLC (Maturity Value $2,089,989)
Barclays Capital Inc. (Maturity Value $3,816,009)
Bear, Stearns & Co. Inc. (Maturity Value $1,633,458)
Chase Securities Inc. (Maturity Value $3,816,009)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $3,816,009)
Dresdner Kleinwort Benson, North America LLC (Maturity Value $3,816,009)
Goldman, Sachs & Co. (Maturity Value $3,816,009)
Lehman Govt. Securities (Maturity Value $3,816,009)
Nesbitt Burns Securities Inc. (Maturity Value $3,816,009)
Paribas Corporation (Maturity Value $4,906,238)
Societe Generale (Maturity Value $2,725,781)
Warburg Dillon Read LLC (Maturity Value $3,816,009)
Collateralized by U.S. Treasury Bills & Notes
-------------
TOTAL INVESTMENTS (COST $1,298,109,835) 99.7% ............................................ 1,345,097,408
OTHER ASSETS, LESS LIABILITIES .3% ....................................................... 4,590,195
-------------
NET ASSETS 100.0% ........................................................................ $1,349,687,603
-------------
</TABLE>
(d) See note 1(c) regarding joint repurchase agreement.
(e) See note 7 regarding restricted security.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2000 (UNAUDITED)
<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 ....................................... $149,937,494 $959,404,140 $6,961,712,886 $7,706,533,901 $1,256,247,511
===================================================================================
Value ...................................... 533,353,528 2,157,064,025 6,525,768,143 7,507,886,416 1,303,235,084
Repurchase agreements, at value and cost .... 418,938,792 453,829,573 101,991,196 -- 41,862,324
Cash ........................................ -- -- -- 1,203 --
Receivables:
Investment securities sold ................. -- 17,917 16,486,681 -- 3,466,716
Capital shares sold ........................ 5,692,024 7,052,497 6,286,493 4,471,116 536,269
Dividends and interest ..................... 95,366 1,296,623 132,095,195 45,314,813 6,761,754
-----------------------------------------------------------------------------------
Total assets ........................... 958,079,710 2,619,260,635 6,782,627,708 7,557,673,548 1,355,862,147
-----------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased ............ 3,226,047 818,370 5,850,971 -- --
Capital shares redeemed .................... 2,373,996 8,867,567 31,405,777 27,299,323 3,584,851
Affiliates ................................. 988,322 2,745,629 5,445,638 5,257,550 1,215,844
Shareholders ............................... 371,552 1,061,546 3,970,576 5,147,891 1,110,084
Other liabilities ........................... 16,383 120,764 605,900 773,699 263,765
-----------------------------------------------------------------------------------
Total liabilities ...................... 6,976,300 13,613,876 47,278,862 38,478,463 6,174,544
-----------------------------------------------------------------------------------
Net assets, at value .................. $951,103,410 $2,605,646,759 $6,735,348,846 $7,519,195,085 $1,349,687,603
===================================================================================
Net assets consist of:
Undistributed net investment income ......... $2,880,974 $7,918,935 $40,345,031 $10,784,047 $1,641,180
Net unrealized appreciation (depreciation) .. 383,416,034 1,197,659,885 (436,011,254) (198,647,485) 46,987,573
Accumulated net realized gain (loss) ........ (558,943) 102,481,501 (9,240,637) (332,251,979) (21,059,274)
Capital shares .............................. 565,365,345 1,297,586,438 7,140,255,706 8,039,310,502 1,322,118,124
-----------------------------------------------------------------------------------
Net assets, at value .................. $951,103,410 $2,605,646,759 $6,735,348,846 $7,519,195,085 $1,349,687,603
===================================================================================
</TABLE>
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (continued)
STATEMENTS OF ASSETS AND LIABILITIES (CONT.)
MARCH 31, 2000 (UNAUDITED)
<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 ................................ $822,547,534 $2,168,454,739 $5,792,651,892 $7,144,019,614 $1,309,893,017
=============================================================================
Shares outstanding .................................. 26,680,553 59,643,106 2,726,824,000 1,092,660,926 152,601,470
=============================================================================
Net asset value per share* .......................... $30.83 $36.36 $2.12 $6.54 $8.58
=============================================================================
Maximum offering price per share
(net asset value per share - 94.25%, 94.25%,
95.75%, 95.75%, and 95.75%, respectively) ......... $32.71 $38.58 $2.21 $6.83 $8.96
=============================================================================
CLASS B:
Net assets, at value ................................ $1,316,688 $28,582,426 $100,886,855 $66,076,872 $4,305,502
=============================================================================
Shares outstanding .................................. 42,780 791,254 47,484,178 10,115,350 500,661
=============================================================================
Net asset value and maximum offering price per share* $30.78 $36.12 $2.12 $6.53 $8.60
=============================================================================
CLASS C:
Net assets, at value ................................ $127,239,188 $370,062,153 $823,568,695 $270,066,751 $28,117,480
=============================================================================
Shares outstanding .................................. 4,207,622 10,343,137 386,243,228 41,445,290 3,278,175
=============================================================================
Net asset value per share* .......................... $30.24 $35.78 $2.13 $6.52 $8.58
=============================================================================
Maximum offering price per share
(net asset value per share - 99.00%) ............... $30.55 $36.14 $2.15 $6.59 $8.67
=============================================================================
ADVISOR CLASS:
Net assets, at value ................................ -- $38,547,441 $18,241,404 $39,031,848 $7,371,604
=============================================================================
Shares outstanding .................................. -- 1,059,363 8,609,639 5,964,008 856,480
=============================================================================
Net asset value and maximum offering price per share -- $36.39 $2.12 $6.54 $8.61
=============================================================================
</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 SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:(+)
Dividends ............................................. $378,432 $10,854,039 $99,953,218 $ -- $33,996,382
Interest .............................................. 9,592,595 20,708,021 230,414,056 288,456,316 9,269,171
--------------------------------------------------------------------------
Total investment income .......................... 9,971,027 31,562,060 330,367,274 288,456,316 43,265,553
--------------------------------------------------------------------------
Expenses:
Management fees (Note 3) .............................. 1,885,179 5,902,318 16,386,795 17,736,651 3,437,011
Distribution fees: (Note 3)
Class A .............................................. 825,656 2,706,002 4,722,371 4,164,923 954,794
Class B .............................................. 1,055 112,895 304,657 192,992 11,932
Class C .............................................. 500,148 1,826,123 2,971,956 951,492 98,402
Transfer agent fees (Note 3) .......................... 577,754 1,905,590 3,892,325 3,889,299 1,472,227
Custodian fees ........................................ 3,517 15,807 213,298 52,986 10,600
Reports to shareholders ............................... 87,099 313,342 801,424 714,697 289,645
Registration and filing fees .......................... 37,867 68,769 84,703 100,011 52,668
Professional fees (Note 3) ............................ 7,029 27,409 79,634 108,478 17,870
Directors' fees and expenses .......................... 2,428 8,958 26,757 29,326 6,362
Other ................................................. 5,697 28,969 105,172 102,245 16,856
--------------------------------------------------------------------------
Total expenses ................................... 3,933,429 12,916,182 29,589,092 28,043,100 6,368,367
--------------------------------------------------------------------------
Net investment income ........................... 6,037,598 18,645,878 300,778,182 260,413,216 36,897,186
--------------------------------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .......................................... 435,378 105,018,403 19,151,372 (42,305,552) (21,040,380)
Foreign currency transactions ........................ -- -- (163,270) -- --
--------------------------------------------------------------------------
Net realized gain (loss) ......................... 435,378 105,018,403 18,988,102 (42,305,552) (21,040,380)
Net unrealized appreciation (depreciation) on:
Investments .......................................... 212,680,314 160,143,604 (350,507,956) (74,800,491) (84,771,376)
Translation of assets and liabilities denominated in
foreign currencies .................................. -- -- (100,960) -- --
--------------------------------------------------------------------------
Net unrealized appreciation (depreciation) ......... 212,680,314 160,143,604 (350,608,916) (74,800,491) (84,771,376)
--------------------------------------------------------------------------
Net realized and unrealized gain (loss) ................ 213,115,692 265,162,007 (331,620,814) (117,106,043) (105,811,756)
--------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ....................................... $219,153,290 $283,807,885 $(30,842,632) $143,307,173 $(68,914,570)
==========================================================================
</TABLE>
(+) Net of foreign taxes and fees of $3,429, $32,672 and $328,985 for the
DynaTech Fund, Growth Fund and Income Fund, respectively.
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
AND THE YEAR ENDED SEPTEMBER 30,1999
<TABLE>
<CAPTION>
DYNATECH FUND GROWTH FUND
---------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999 MARCH 31, 2000 SEPTEMBER 30, 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $6,037,598 $6,865,590 $18,645,878 $26,305,706
Net realized gain (loss) from investments ........ 435,378 (338,333) 105,018,403 29,214,381
Net unrealized appreciation on investments ....... 212,680,314 83,837,801 160,143,604 306,579,274
---------------------------------------------------------------------------
Net increase in net assets
resulting from operations ................... 219,153,290 90,365,058 283,807,885 362,099,361
Distributions to shareholders from:
Net investment income:
Class A ......................................... (8,348,647) (3,136,187) (28,512,588) (25,640,633)
Class B ......................................... -- -- (210,850) --
Class C ......................................... (831,120) (124,996) (2,415,971) (2,012,593)
Advisor Class ................................... -- -- (604,017) (1,007,143)
Net realized gains:
Class A ......................................... -- -- (16,550,368) (12,164,613)
Class B ......................................... -- -- (157,913) --
Class C ......................................... -- -- (2,910,638) (1,558,802)
Advisor Class ................................... -- -- (298,276) (412,806)
---------------------------------------------------------------------------
Total distributions to shareholders ............... (9,179,767) (3,261,183) (51,660,621) (42,796,590)
Capital share transactions: (Note 2)
Class A .......................................... 140,863,612 204,020,827 (143,864,547) 208,528,068
Class B .......................................... 1,304,752 -- 9,105,035 17,377,780
Class C .......................................... 25,601,062 54,012,938 (26,123,082) 136,924,339
Advisor Class .................................... -- -- (305,734) (14,668,648)
---------------------------------------------------------------------------
Total capital share transactions .................. 167,769,426 258,033,765 (161,188,328) 348,161,539
Net increase in net assets ................... 377,742,949 345,137,640 70,958,936 667,464,310
Net assets
Beginning of period ............................... 573,360,461 228,222,821 2,534,687,823 1,867,223,513
---------------------------------------------------------------------------
End of period ..................................... $951,103,410 $573,360,461 $2,605,646,759 $2,534,687,823
===========================================================================
Undistributed net investment income included
in net assets:
End of period ..................................... $2,880,974 $6,023,143 $7,918,935 $21,016,483
===========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
AND THE YEAR ENDED SEPTEMBER 30,1999
<TABLE>
<CAPTION>
INCOME FUND U.S. GOVERNMENT SECURITIES FUND
---------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999 MARCH 31, 2000 SEPTEMBER 30, 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................ $300,778,182 $626,733,329 $260,413,216 $567,920,398
Net realized gain (loss) from investments
and foreign currency transactions .............. 18,988,102 51,617,531 (42,305,552) (20,761,165)
Net unrealized depreciation on investments
and transaction assets and liabilities
denominated in foreign currencies ............... (350,608,916) (348,262,211) (74,800,491) (456,909,537)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................... (30,842,632) 330,088,649 143,307,173 90,249,696
Distributions to shareholders from:
Net investment income:
Class A ......................................... (263,651,275) (577,135,832) (242,728,081) (553,411,179)
Class B ......................................... (3,597,805) (2,209,823) (1,717,030) (1,105,149)
Class C ......................................... (35,946,205) (75,801,312) (8,706,877) (17,924,290)
Advisor Class ................................... (867,969) (1,498,463) (556,009) (1,446,021)
Net realized gains:
Class A ......................................... (41,552,782) (39,569,871) -- --
Class B ......................................... (596,476) -- -- --
Class C ......................................... (6,094,233) (5,375,553) -- --
Advisor Class ................................... (120,550) (111,728) -- --
---------------------------------------------------------------------------
Total distributions to shareholders ............... (352,427,295) (701,702,582) (253,707,997) (573,886,639)
Capital share transactions: (Note 2)
Class A .......................................... (654,666,057) (606,190,104) (646,479,997) (688,853,199)
Class B .......................................... 22,403,328 85,436,281 15,297,698 52,403,589
Class C .......................................... (125,650,962) 29,256,414 (34,632,169) 53,652,278
Advisor Class .................................... (4,631,904) 2,808,064 23,565,942 (19,523,483)
---------------------------------------------------------------------------
Total capital share transactions .................. (762,545,595) (488,689,345) (642,248,526) (602,320,815)
Net decrease in net assets ................... (1,145,815,522) (860,303,278) (752,649,350) (1,085,957,758)
Net assets
Beginning of period ............................... 7,881,164,368 8,741,467,646 8,271,844,435 9,357,802,193
End of period ..................................... $6,735,348,846 $7,881,164,368 $7,519,195,085 $8,271,844,435
===========================================================================
Undistributed net investment income
included in net assets:
End of period ..................................... $40,345,031 $43,630,103 $10,784,047 $4,078,828
===========================================================================
</TABLE>
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
FOR THE SIX MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
AND THE YEAR ENDED SEPTEMBER 30,1999
<TABLE>
<CAPTION>
UTILITIES FUND
------------------------------------------
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 2000 SEPTEMBER 30, 1999
------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................ $36,897,186 $89,780,235
Net realized gain (loss) from investments .................................... (21,040,380) 60,357,191
Net unrealized depreciation on investments ................................... (84,771,376) (326,085,108)
------------------------------------------
Net decrease in net assets resulting from operations ..................... (68,914,570) (175,947,682)
Distributions to shareholders from:
Net investment income:
Class A ..................................................................... (35,511,224) (93,740,439)
Class B ..................................................................... (82,478) (70,888)
Class C ..................................................................... (666,610) (1,856,680)
Advisor Class ............................................................... (196,162) (573,225)
Net realized gains:
Class A ..................................................................... (58,704,324) (61,726,172)
Class B ..................................................................... (135,732) --
Class C ..................................................................... (1,227,161) (1,415,836)
Advisor Class ............................................................... (304,748) (394,011)
------------------------------------------
Total distributions to shareholders ........................................... (96,828,439) (159,777,251)
Capital share transactions: (Note 2)
Class A ...................................................................... (123,809,654) (133,473,544)
Class B ...................................................................... 1,543,767 3,363,935
Class C ...................................................................... (3,216,365) 1,499,912
Advisor Class ................................................................ 153,650 (3,731,163)
------------------------------------------
Total capital share transactions .............................................. (125,328,602) (132,340,860)
Net decrease in net assets ............................................... (291,071,611) (468,065,793)
Net assets
Beginning of period ........................................................... 1,640,759,214 2,108,825,007
------------------------------------------
End of period ................................................................. $1,349,687,603 $1,640,759,214
==========================================
Undistributed net investment income included in net assets:
End of period ................................................................. $1,641,180 $1,200,468
==========================================
</TABLE>
See notes to financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Custodian Funds, Inc. (the Company) is registered under the Investment
Company Act of 1940 as a diversified, open-end 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 FundIncome 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. Restricted Securities and securities for
which market quotations are not readily available are valued at fair value as
determined by management in accordance with procedures established by the Board
of Directors.
b. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized 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 the 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 March 31, 2000, 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 (unaudited) (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 classes of shares offered within each of the Funds are indicated below.
Effective February 1, 2000, 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.
<TABLE>
<CAPTION>
CLASS A, CLASS B & CLASS C CLASS A, CLASS B, CLASS C & ADVISOR CLASS
------------------------------------------------------------------------
<S> <C>
DynaTech Fund Growth Fund
Income Fund
U.S. Government Securities Fund
Utilities Fund
</TABLE>
At March 31, 2000, there were 23 billion shares authorized ($0.01 par value),
allocated to the Funds as follows (in millions):
<TABLE>
<CAPTION>
U.S.
GOVERNMENT
DYNATECH GROWTH INCOME SECURITIES UTILITIES
FUND FUND FUND FUND 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
---------------------------------------------------------------------
CLASS A SHARES:
<S> <C> <C> <C> <C>
Six months ended March 31, 2000
Shares sold ........................................... 11,203,736 $317,258,141 7,515,550 $256,130,069
Shares issued in reinvestment of distributions ........ 268,754 6,756,479 1,230,934 41,075,991
Shares redeemed ....................................... (6,401,637) (183,151,008) (12,934,304) (441,070,607)
---------------------------------------------------------------------
Net increase (decrease) ............................... 5,070,853 $140,863,612 (4,187,820) $(143,864,547)
=====================================================================
Year ended September 30, 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
=====================================================================
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
DYNATECH FUND GROWTH FUND
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Period ended March 31, 2000(a)
Shares sold .............................................. 42,790 $1,305,052 339,760 $11,534,112
Shares issued in reinvestment of distributions ........... -- -- 10,298 342,192
Shares redeemed .......................................... (10) (300) (81,751) (2,771,269)
------------------------------------------------------------------
Net increase ............................................. 42,780 $1,304,752 268,307 $9,105,035
==================================================================
Year ended September 30, 1999(b)
Shares sold .............................................. 543,882 $18,086,933
Shares redeemed .......................................... (20,935) (709,153)
------------------------------
Net increase ............................................. 522,947 $17,377,780
==============================
CLASS C SHARES:
Six months ended March 31, 2000
Shares sold .............................................. 1,405,390 $38,128,684 1,623,573 $54,260,198
Shares issued in reinvestment of distributions ........... 30,588 756,126 149,267 4,913,870
Shares redeemed .......................................... (491,962) (13,283,748) (2,546,994) (85,297,150)
------------------------------------------------------------------
Net increase (decrease) .................................. 944,016 $25,601,062 (774,154) $(26,123,082)
==================================================================
Year ended September 30, 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
==================================================================
ADVISOR CLASS SHARES:
Six months ended March 31, 2000
Shares sold .............................................. 164,658 $5,641,990
Shares issued in reinvestment of distributions ........... 26,712 891,373
Shares redeemed .......................................... (197,846) (6,839,097)
-------------------------------
Net decrease ............................................. (6,476) $(305,734)
===============================
Year ended September 30, 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)
===============================
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT
INCOME FUND SECURITIES FUND
----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------
CLASS A SHARES:
<S> <C> <C> <C> <C>
Six months ended March 31, 2000
Shares sold ............................................. 135,519,984 $291,036,912 80,377,187 $523,662,804
Shares issued in reinvestment of distributions .......... 84,194,766 180,780,251 19,618,626 127,696,096
Shares redeemed ......................................... (525,277,628) (1,126,483,220) (199,371,118) (1,297,838,897)
----------------------------------------------------------------------
Net decrease ............................................ (305,562,878) $(654,666,057) (99,375,305) $(646,479,997)
======================================================================
Year ended September 30, 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)
======================================================================
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
INCOME FUND SECURITIES FUND
--------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS B SHARES:
Six months ended March 31, 2000
Shares sold .............................................. 14,164,531 $30,594,349 3,267,021 $21,292,478
Shares issued in reinvestment of distributions ........... 1,055,265 2,264,688 173,988 1,130,666
Shares redeemed .......................................... (4,882,879) (10,455,709) (1,096,628) (7,125,446)
--------------------------------------------------------------------
Net increase ............................................. 10,336,917 $22,403,328 2,344,381 $15,297,698
====================================================================
Year ended September 30, 1999(b)
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
====================================================================
CLASS C SHARES:
Six months ended March 31, 2000
Shares sold .............................................. 32,693,455 $70,725,316 7,164,719 $46,556,034
Shares issued in reinvestment of distributions ........... 12,320,899 26,581,700 896,770 5,820,340
Shares redeemed .......................................... (103,576,087) (222,957,978) (13,409,713) (87,008,543)
--------------------------------------------------------------------
Net decrease ............................................. (58,561,733) $(125,650,962) (5,348,224) $(34,632,169)
====================================================================
Year ended September 30, 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
====================================================================
ADVISOR CLASS SHARES:
Six months ended March 31, 2000
Shares sold .............................................. 2,675,153 $5,755,353 4,365,707 $28,426,198
Shares issued in reinvestment of distributions ........... 386,645 830,967 61,481 399,945
Shares redeemed .......................................... (5,163,192) (11,218,224) (808,701) (5,260,201)
--------------------------------------------------------------------
Net increase (decrease) .................................. (2,101,394) $(4,631,904) 3,618,487 $23,565,942
====================================================================
Year ended September 30, 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)
====================================================================
</TABLE>
<TABLE>
<CAPTION>
UTILITIES FUND
----------------------------
SHARES AMOUNT
----------------------------
CLASS A SHARES:
<S> <C> <C>
Six months ended March 31, 2000
Shares sold ..................................... 5,481,979 $48,394,862
Shares issued in reinvestment of distributions .. 8,636,773 74,410,818
Shares redeemed ................................. (27,940,227) (246,615,334)
----------------------------
Net decrease .................................... (13,821,475) $(123,809,654)
============================
Year ended September 30, 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)
============================
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (unaudited) (continued)
2. CAPITAL STOCK (CONT.)
<TABLE>
<CAPTION>
UTILITIES FUND
--------------------------
SHARES AMOUNT
--------------------------
<S> <C> <C>
CLASS B SHARES:
Six months ended March 31, 2000
Shares sold ....................................... 215,985 $ 1,911,176
Shares issued in reinvestment of distributions .... 19,829 170,430
Shares redeemed ................................... (62,602) (537,839)
--------------------------
Net increase ...................................... 173,212 $ 1,543,767
==========================
Year ended September 30, 1999(b)
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
==========================
CLASS C SHARES:
Six months ended March 31, 2000
Shares sold ....................................... 749,665 $ 6,588,199
Shares issued in reinvestment of distributions .... 174,941 1,508,222
Shares redeemed ................................... (1,270,649) (11,312,786)
--------------------------
Net decrease ...................................... (346,043) $ (3,216,365)
==========================
Year ended September 30, 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
==========================
ADVISOR CLASS SHARES:
Six months ended March 31, 2000
Shares sold ....................................... 30,221 $ 276,303
Shares issued in reinvestment of distributions .... 48,277 416,724
Shares redeemed ................................... (60,738) (539,377)
--------------------------
Net increase ...................................... 17,760 $ 153,650
==========================
Year ended September 30, 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)
==========================
</TABLE>
a For the period February 1, 2000 (effective date) to March 31,2000 for the
DynaTech Fund.
b For the period January 1, 1999 (effective date) to September 30, 1999.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and directors of the Funds are also officers and/or directors
of the following entities:
<TABLE>
<CAPTION>
ENTITY AFFILIATION
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Franklin Advisers Inc. (Advisers) Investment manager (all Funds except the Growth Fund)
Franklin Investment Advisory Services, LLC (Investment Advisory) Investment manager (the Growth Fund)
Franklin/Templeton Distributors, Inc. (Distributors) Principal Underwriter
Franklin/Templeton Services, Inc. (FT Services) Administrative manager
Franklin/Templeton Investor Services, Inc, (Investor Services) Transfer agent
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (unaudited) (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
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.
The Funds reimburse Distributors up to the stated percentages of their daily
average net assets for costs incurred in marketing the Funds' shares as follows:
<TABLE>
<CAPTION>
U.S.
GOVERNMENT
DYNATECH GROWTH INCOME SECURITIES UTILITIES
FUND FUND FUND FUND FUND
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A ............................. 0.25% 0.25% 0.15% 0.15% 0.15%
Class B ............................. 1.00% 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 period as follows:
<TABLE>
<CAPTION>
U.S.
GOVERNMENT
DYNATECH GROWTH INCOME SECURITIES UTILITIES
FUND FUND FUND FUND FUND
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net commissions paid .................................. $83,686 $538,216 $1,346,287 $1,180,816 $75,436
Contingent deferred sales charges ..................... $26,664 $128,971 $ 454,462 $ 232,790 $22,457
</TABLE>
The Funds paid transfer agent fees of $11,737,195, of which $10,350,098 were
paid to Investor Services.
Included in professional fees are legal fees of $105,746 that were paid to two
law firms in which a partner in each law firm 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
had 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.
FRANKLIN CUSTODIAN FUNDS, INC.
Notes to Financial Statements (unaudited) (continued)
4. INCOME TAXES (CONT.)
At September 30, 1999, the Income Fund had 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 March 31, 2000, 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 ........................ $ 568,876,286 $ 1,413,233,713 $ 7,063,704,082 $ 7,706,533,901 $ 1,299,817,928
--------------------------------------------------------------------------------------
Unrealized appreciation .................... $ 389,553,722 $ 1,248,510,494 $ 551,932,709 $ 52,510,607 $ 160,697,977
Unrealized depreciation .................... (6,137,688) (50,850,609) (987,877,452) (251,158,092) (115,418,497)
--------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) . $ 383,416,034 $ 1,197,659,885 $ (435,944,743) $ (198,647,485) $ 45,279,480
--------------------------------------------------------------------------------------
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended March 31, 2000 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 ..................... $46,218,462 $282,645,979 $924,275,216 $6,318,465,187 $128,925,300
Sales ......................... $ 1,876,925 $133,554,789 $346,207,555 $ 857,150,463 $279,595,345
</TABLE>
6. CREDIT RISK AND DEFAULTED SECURITIES
The Income Fund has 41.9% 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 March 31, 2000, the
Income Fund held defaulted securities with a value aggregating $3,470,000,
representing 0.05% of the Fund's net assets. For information as to specific
securities, see the accompanying Statement of Investments.
For financial reporting purposes, the Income 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 assets in the
Utilities industry. The Income Fund has investments in excess of 10% of its
total net assets in the utility industry and various foreign government
agencies. Such concentration may subject the Funds more significantly to
economic changes occurring within that industry/country.
7. RESTRICTED SECURITIES
The Utilities Fund may purchase securities through a private offering that
generally cannot be sold to the public without prior registration under the
Securities Act of 1933. The costs of registering such securities are paid by the
issuer. At March 31, 2000, the Fund held one restricted security as follows:
<TABLE>
<CAPTION>
QUANTITY ISSUER ACQUISITION DATE COST VALUE
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10,000,000 Liberty Media Group, cvt., 144A, 4.00% 11/15/29
(1.17% of Net Assets) 11/10/99 10,000,000 $15,812,500
</TABLE>
