CONTENTS
Shareholder Letter 1
Performance Summaries
Class I 5
Class II 7
Advisor Class 9
Financial Highlights &
Statement of Investments 11
Financial Statements 18
Notes to
Financial Statements 21
You may find a complete listing of the fund's portfolio holdings, including the
number of shares and dollar value, beginning on page 14 of this report.
SHAREHOLDER LETTER
Your Fund's Objective: The Franklin Equity Fund seeks capital appreciation and
secondarily, current income, by investing primarily in common stocks or
securities convertible into common stocks.
Dear Shareholder:
We are pleased to bring you the semi-annual report for the Franklin Equity Fund
covering the six months ended December 31, 1997. During the reporting period,
U.S. gross domestic product grew at an annual rate of almost 4%, and in
November, the federal government posted its first 12-month budget surplus since
1970. Although unemployment dropped to its lowest rate since 1973, improvements
in worker productivity helped keep consumer price inflation at its lowest
annualized rate since 1986. Consequently, the Federal Reserve Board left the
federal funds interest rate unchanged throughout the entire six month reporting
period.
The most notable event of the period was the Asian currency crisis. Devaluations
by several countries caused investors to become fearful that exports to those
areas would decrease, causing lower economic growth and profits for U.S. and
European companies. As a result, global equity markets experienced severe
volatility, preventing the major stock indices from reaching new highs. Within
this environment, the Franklin Equity Fund - Class I shares provided a +8.32%
six-month total return, as discussed in the Performance Summary on page 5.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
One of our best-performing positions during the period was Tekelec, a
telecommunications equipment company that provides diagnostic systems and
network switching products. The fund also benefited from its holdings in SAP,
AG, a German company producing enterprise resource planning software; Travelers
Group, Inc., a diversified financial services firm; U.S. Bancorp, a growing
regional bank; and Bristol-Myers Squibb Co., a multi-national pharmaceutical
company. Total return for these companies ranged from 18% to 53% for the
six-month period.
However, we held positions in some companies whose near-term earnings were below
investors' expectations. This category included 3Com Corp., a leader in the
fast-growing data-networking industry; Nike Inc., the world's best-known shoe
company, and Motorola Inc., a world leader in wireless communications. Our
analysts and managers thoroughly reviewed the long-term growth prospects of each
company and determined that, because of their market positions, the weakness in
these stocks may be merely temporary.
During the period, we purchased shares in software technology companies which
derive a greater portion of their revenues and earnings from the U.S. and Europe
than from Asia. Three of these companies, Parametric Technology Corp., a
software supplier that automates product development; Synopsys Inc., a provider
of design technologies to creators of advanced integrated circuits; and i2
Technologies Inc., which sells supply chain management software to
manufacturers, are leaders in their respective markets, invest heavily in
research and development and enjoy high returns on capital.
Looking forward, our long-term outlook for the domestic stock market remains
bullish. Although the Asian currency crisis could detract from U.S. gross
domestic product in 1998, the increasingly globalized economy is creating
opportunities for many domestic companies to compete successfully overseas, and
the trend of aging "baby-boomers" investing for retirement remains a major
source of market liquidity. We believe the technology sector should continue to
provide tremendous opportunities in the years ahead. This is not to say,
however, that there won't be periods of volatility within this sector. There
will be, but in our opinion, the fund is better positioned to weather any
temporary setbacks than the overall market over the long term.
Top 10 Holdings
12/31/97
Company, % of Total
INDUSTRY Net Assets
Cisco Systems Inc. 2.3%
ELECTRONIC TECHNOLOGY
AES Corp. 2.1%
INDUSTRIAL SERVICES
Enron Corp. 1.9%
UTILITIES
Intel Corp. 1.8%
SEMICONDUCTORS
US Bancorp 1.7%
FINANCE
Parametric Technology Corp. 1.7%
SOFTWARE/TECHNOLOGY SERVICES
Providian Financial Corp. 1.6%
FINANCE
Portugal Telecom SA 1.6%
UTILITIES
BankBoston Corp. 1.5%
FINANCE
Mattel Inc. 1.5%
CONSUMER DURABLES
Please remember, this discussion reflects our views and opinions as of December
31, 1997, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
As always, we thank you for your participation in the Franklin Equity Fund and
look forward to serving your investment needs in the years to come. We welcome
any comments or suggestions you may have.
Sincerely,
Charles B. Johnson
Chairman
Franklin Equity Fund
PERFORMANCE SUMMARY
Class I
Franklin Equity Fund - Class I reported a +8.32% cumulative total return for the
six-month period ended December 31, 1997. Cumulative total return measures the
change in value of an investment, assuming reinvestment of dividends and capital
gains distributions, and does not include the sales charge. We have always
maintained a long-term perspective when managing the fund, and we encourage
shareholders to view their investments in a similar manner. Over the 10-year
period ended December 31, 1997, the fund delivered a cumulative total return of
more than +288%, and an average annual total return of more than +14%.
The fund's share price, as measured by net asset value, decreased $0.42, from
$10.16 on June 30, 1997, to $9.74 on December 31, 1997. During the reporting
period, shareholders received per-share distributions of 3.8 cents ($0.038) in
dividend income, 14.95 cents ($0.1495) in short-term capital gains, and $1.0965
in long-term capital gains. Distributions will vary depending on income earned
by the fund and any profits realized from the sale of securities in the
portfolio, as well as the level of the fund's operating expenses.
Class I
Periods ended 12/31/97
One- Five- Ten-
Year Year Year
Cumulative Total Return1 26.62% 121.52% 288.64%
Average Annual Total Return2 20.93% 16.16% 14.02%
Value of $10,000 Investment3 $12,093 $21,148 $37,123
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
One-Year
Total Return4 8.53% -1.38% 32.94% 22.96% 26.62%
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the indicated periods and includes the current maximum 4.5%
initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the sales charge.
4. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and does not include the sales charge.
Prior to July 1, 1994, Class I shares were offered at a lower initial sales
charge, with dividends reinvested at the offering price; thus actual total
returns would 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.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Since markets can go down as well as up, investment return
and principal value will fluctuate with market conditions, and you may have a
gain or loss when you sell your shares.
Class II
Franklin Equity Fund - Class II reported a +7.89% cumulative total return for
the six-month period ended December 31, 1997. Cumulative total return measures
the change in value of an investment, assuming reinvestment of dividends and
capital gains distributions, and does not include sales charges.
The fund's share price, as measured by net asset value, decreased $0.43, from
$10.12 on June 30, 1997, to $9.69 on December 31, 1997. During the reporting
period, shareholders received per-share distributions of 14.95 cents ($0.1495)
in short-term capital gains, and $1.0965 in long-term capital gains.
Distributions will vary depending on income earned by the fund and any profits
realized from the sale of securities in the portfolio, as well as the level of
the fund's operating expenses.
Class II
Periods ended 12/31/97
Since
Inception
One-Year (5/1/95)
Cumulative Total Return1 25.79% 84.32%
Average Annual Total Return2 23.51% 25.25%
Value of $10,000 Investment3 $12,351 $18,240
12/31/96 12/31/97
One-Year Total Return4 21.85% 25.79%
1. Cumulative total return represents the change in value of an investment over
the indicated periods and does not include sales charges.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1.0% initial sales
charge and the 1.0% contingent deferred sales charge applicable to shares
redeemed within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include all sales charges.
4. One-year total return represents the change in value of an investment over
the periods ended on the specified dates and includes sales charges.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
Advisor Class
Franklin Equity Fund - Advisor Class reported a cumulative total return of
+8.32% for the six-month period ended December 31, 1997. Cumulative total return
measures the change in value of an investment, assuming reinvestment of
dividends and capital gains.
The fund's share price, as measured by net asset value, decreased $0.43 from
$10.17 on June 30, 1997, to $9.74 on December 31, 1997. During the reporting
period, shareholders received per-share distributions of 4.82 cents ($0.0482) in
dividend income, 14.95 cents ($0.1495) in short-term capital gains, and $1.0965
in long-term capital gains. Distributions will vary depending on income earned
by the fund and any profits realized from the sale of securities in the
portfolio, as well as the level of the fund's operating expenses.
Advisor Class
Periods ended 12/31/97
One- Five- Ten-
Year* Year* Year*
Cumulative Total Return1 26.85% 121.92% 289.34%
Average Annual Total Return1 26.85% 17.28% 14.56%
Value of $10,000 Investment2 $12,685 $22,192 $38,934
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
One-Year
Total Return*,3 8.53% -1.38% 32.94% 22.96% 26.85%
*On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
the fund's Class I performance, excluding the effect of the Class I maximum
initial sales charge, but including the effect of the Class I expenses,
including Rule 12b-1 fees; and (b) for periods after January 1, 1997, figures
reflect actual Advisor Class performance including the deduction of all fees and
expenses applicable only to that class. Since January 2, 1997 (commencement of
sales), the cumulative total return of Advisor Class shares was 28.32%. This was
a period of generally rising securities prices.
1. Cumulative total return represents the change in value of an investment over
the periods indicated. Average annual total return represents the average annual
change in value of an investment over the indicated periods.
2. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated.
3. One-year total return represents the change in value of an investment over
the periods ended on the specified dates. All calculations assume reinvestment
of dividends and capital gains at net asset value. Since markets can go down as
well as up, investment return and principal value will fluctuate with market
conditions. You may have a gain or loss when you sell your shares.
Past performance is not predictive of future results.
FRANKLIN EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
Class I
Six Months Ended
December 31, 1997 Year Ended June 30,
(unaudited) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...... $10.16 $8.26 $7.24 $6.53 $7.25 $7.12
------------------------------------------------------------------
Income from investment operations:
Net investment income.................... .03 .05 .06 .08 .10 .12
Net realized and unrealized gains........ .84 2.34 1.48 1.33 .11 .56
------------------------------------------------------------------
Total from investment operations.......... .87 2.39 1.54 1.41 .21 .68
------------------------------------------------------------------
Less distributions from:
Net investment income.................... (.04) (.06) (.06) (.08) (.10) (.12)
Net realized gains....................... (1.25) (.43) (.46) (.62) (.83) (.43)
-------------------------------------------------------------------
Total distributions....................... (1.29) (.49) (.52) (.70) (.93) (.55)
-------------------------------------------------------------------
Net asset value, end of period............ $9.74 $10.16 $8.26 $7.24 $6.53 $7.25
==================================================================
Total return*............................. 8.32% 29.75% 22.16% 23.78% 2.28% 9.53%
Ratios/supplemental data:
Net assets, end of period (000's)......... $521,621 $462,972 $366,602 $317,463 $279,880 $345,755
Ratios to average net assets:
Expenses................................. .89%*** .91% .95% .95% .79% .69%
Net investment income.................... .42%*** .61% .72% 1.21% 1.27% 1.67%
Portfolio turnover rate................... 20.85% 53.67% 59.86% 86.20% 95.18% 51.12%
Average commission rate paid**............ $.0593 $.0641 $.0548 $-- $-- $--
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
**Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.
***Annualized
FRANKLIN EQUITY FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class II
Six Months Ended
December 31, 1997 Year Ended June 30,
(unaudited) 1997 1996 1995
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period...................... $10.12 $8.23 $7.24 $6.65
------------------------------------------------
Income from investment operations:
Net investment income (loss)............................. (.01) (.02) .02 .01
Net realized and unrealized gains........................ .83 2.34 1.45 .62
------------------------------------------------
Total from investment operations.......................... .82 2.32 1.47 .63
------------------------------------------------
Less distributions from:
Net investment income.................................... -- -- (.02) (.04)
Net realized gains....................................... (1.25) (.43) (.46) --
------------------------------------------------
Total distributions....................................... (1.25) (.43) (.48) (.04)
------------------------------------------------
Net asset value, end of period............................ $9.69 $10.12 $8.23 $7.24
================================================
Total return*............................................. 7.89% 28.93% 20.94% 9.42%
Ratios/supplemental data:
Net assets, end of period (000's)......................... $17,006 $9,554 $4,208 $342
Ratios to average net assets:
Expenses................................................. 1.70%*** 1.72% 1.77% 1.77%***
Net investment income.................................... (.40%)*** (.22%) (.10%) .74%***
Portfolio turnover rate................................... 20.85% 53.67% 59.86% 86.20%
Average commission rate paid**............................ $.0593 $.0641 $.0548 $--
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
**Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.
***Annualized
For the period May 1, 1995 (effective date) to June 30, 1995.
FRANKLIN EQUITY FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
Advisor Class
Six Months Ended
December 31, 1997 Year Ended June 30,
(unaudited) 1997
<S> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period.................................... $10.17 $8.62
--------------------------------
Income from investment operations:
Net investment income.................................................. .04 .03
Net realized and unrealized gains...................................... .83 1.56
--------------------------------
Total from investment operations........................................ .87 1.59
--------------------------------
Less distributions from:
Net investment income.................................................. (.05) (.04)
Net realized gains..................................................... (1.25) --
-----------------------------
Total distributions..................................................... (1.30) (.04)
---------------------------------
Net asset value, end of period.......................................... $9.74 $10.17
================================
Total return*........................................................... 8.32% 18.47%
Ratios/supplemental data:
Net assets, end of period (000's)....................................... $13,673 $6,890
Ratios to average net assets:
Expenses............................................................... .70%*** .72%***
Net investment income.................................................. .58%*** .79%***
Portfolio turnover rate................................................. 20.85% 53.67%
Average commission rate paid**.......................................... $.0593 $.0641
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
**Relates to purchases and sales of equity securities.
***Annualized
For the period January 2, 1997 (effective date) to June 30, 1997.
See notes to financial statements.
FRANKLIN EQUITY FUND
Statement of Investments, December 31, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES VALUE
<S> <C> <C>
Common Stocks 90.3%
Consumer Durables 1.5%
Mattel, Inc. ................................................................ 225,000 $ 8,381,250
-------------
Consumer Non-Durables 6.7%
Gillette Co. ................................................................ 65,000 6,528,438
Nike, Inc., Class B.......................................................... 100,000 3,925,000
Pepsico, Inc. ............................................................... 150,000 5,465,625
Philip Morris Cos., Inc. .................................................... 170,000 7,703,125
Proctor & Gamble Co. ........................................................ 80,000 6,385,000
Sara Lee Corp. .............................................................. 125,000 7,039,063
-------------
37,046,251
-------------
Consumer Services 2.9%
a AMF Bowling, Inc. ........................................................... 91,800 2,295,000
a CapStar Hotel Co. ........................................................... 225,000 7,720,313
a Cendant Corp. ............................................................... 175,000 6,015,625
-------------
16,030,938
-------------
Electronic Technology 11.4%
a 3Com Corp. .................................................................. 175,000 6,114,063
a Ascend Communications, Inc. ................................................. 25,000 612,500
a Cabletron Systems, Inc. ..................................................... 50,000 750,000
a Cisco Systems, Inc. ......................................................... 225,000 12,543,750
a Komag, Inc. ................................................................. 425,000 6,321,875
Lockheed Martin Corp. ....................................................... 47,305 4,659,543
Lucent Technologies, Inc. ................................................... 40,000 3,195,000
Motorola, Inc. .............................................................. 85,000 4,850,313
a Newbridge Networks Corp. (Canada)............................................ 150,000 5,231,250
Nokia Corp., ADR (Finland)................................................... 60,000 4,200,000
a Tekelec...................................................................... 125,000 3,812,500
a Tellabs, Inc. ............................................................... 125,000 6,609,375
a Uniphase Corp. .............................................................. 100,000 4,137,500
-------------
63,037,669
-------------
Energy/Minerals 6.3%
a Barrett Resources Corp. ..................................................... 225,000 6,806,250
Mobil Corp. ................................................................. 90,000 6,496,875
Repsol, SA, ADR (Spain)...................................................... 150,000 6,384,375
Ultramar Diamond Shamrock Corp. ............................................. 235,000 7,490,625
YPF, SA, ADR (Argentina)..................................................... 225,000 7,692,188
-------------
34,870,313
-------------
Finance 12.3%
American International Group, Inc. .......................................... 75,000 8,156,250
Associates First Capital Corp. .............................................. 115,000 8,179,375
BankBoston Corp. ............................................................ 90,000 8,454,375
Citicorp..................................................................... 50,000 6,321,875
Espirito Santo Financial Group, ADR (Luxembourg)............................. 350,000 7,109,375
Providian Financial Corp. ................................................... 200,000 9,037,500
a Risk Capital Holdings, Inc. ................................................. 175,000 3,893,750
Finance (cont.)
Travelers Group, Inc. ....................................................... 129,999 $ 7,003,696
U.S. Bancorp................................................................. 85,000 9,514,688
-------------
67,670,884
-------------
Health Services 1.3%
HBO & Co. ................................................................... 125,000 6,000,000
a Oxford Health Plans, Inc. ................................................... 75,000 1,167,188
-------------
7,167,188
-------------
Health Technology 7.8%
Baxter International, Inc. .................................................. 125,000 6,304,688
Bristol-Myers Squibb Co. .................................................... 70,000 6,623,750
Mentor Corp. ................................................................ 200,000 7,300,000
Novartis, AG (Switzerland)................................................... 5,000 8,124,380
Roche Holdings, AG (Switzerland)............................................. 700 6,946,601
a Serologicals Corp. .......................................................... 303,000 7,878,000
-------------
43,177,419
-------------
Industrial Services 2.8%
a AES Corp. ................................................................... 250,000 11,656,250
a U.S.A. Waste Services, Inc. ................................................. 100,000 3,925,000
-------------
15,581,250
-------------
Non-Energy Minerals 1.6%
Carpenter Technology Corp. .................................................. 117,400 5,642,538
a Ispat International (Netherlands)............................................ 150,000 3,243,750
-------------
8,886,288
-------------
Process Industries 3.9%
Crown Cork & Seal Co., Inc. ................................................. 75,000 3,759,375
a Owens-Illinois, Inc. ........................................................ 216,900 8,228,644
Praxair, Inc. ............................................................... 125,000 5,625,000
a UCAR International, Inc. .................................................... 100,000 3,993,750
-------------
21,606,769
-------------
Producer Manufacturing 2.5%
a Atchison Casting Corp. ...................................................... 130,000 2,112,500
General Cable Corp. ......................................................... 26,700 966,206
Mark IV Industries, Inc. .................................................... 262,500 5,742,188
Roper Industries, Inc. ...................................................... 150,000 4,237,500
a U.S. Filter Corp. ........................................................... 29,300 877,169
-------------
13,935,563
-------------
Real Estate 1.9%
FelCor Suite Hotels, Inc. ................................................... 175,000 6,212,500
a Security Capital Group, Inc., Class B........................................ 83,400 2,710,500
a Trammell Crow Co. ........................................................... 67,500 1,738,125
-------------
10,661,125
-------------
Semiconductors & Semiconductor Equipment 5.6%
a Adaptec, Inc. ............................................................... 150,000 $ 5,568,750
a Applied Materials, Inc. ..................................................... 100,000 3,012,500
Intel Corp. ................................................................. 140,000 9,835,000
Linear Technology Corp. ..................................................... 80,000 4,610,000
a Xilinx, Inc. ................................................................ 225,000 7,889,063
-------------
30,915,313
-------------
Software/Technology Services 9.5%
Adobe Systems, Inc. ......................................................... 100,000 4,125,000
a Electronic Arts, Inc. ....................................................... 200,000 7,562,500
a I2 Technologies, Inc. ....................................................... 150,000 7,912,500
a Oracle Corp. ................................................................ 225,000 5,020,313
a Parametric Technology Corp. ................................................. 200,000 9,475,000
SAP, AG (Germany)............................................................ 25,000 7,580,600
a Siebel Systems, Inc. ........................................................ 333 13,924
a Sterling Commerce, Inc. ..................................................... 119,200 4,581,750
a Synopsys, Inc. .............................................................. 165,200 5,905,900
-------------
52,177,487
-------------
Transportation 3.5%
Air Express International Corp. ............................................. 260,000 7,930,000
C.H. Robinson Worldwide, Inc. ............................................... 162,200 3,629,225
Pittston Burlington Group.................................................... 100,000 2,625,000
Southwest Airlines Co. ...................................................... 202,500 4,986,563
-------------
19,170,788
-------------
Utilities 8.8%
a AirTouch Communications, Inc. ............................................... 200,000 8,312,500
Enron Corp. ................................................................. 250,000 10,390,625
GTE Corp. ................................................................... 125,000 6,531,250
a Paging Network, Inc. ........................................................ 750,000 8,062,500
PG & E Corp. ................................................................ 125,000 3,804,688
Portugal Telecom, SA (Portugal).............................................. 191,400 8,881,043
TECO Energy, Inc. ........................................................... 100,000 2,812,492
-------------
48,795,098
-------------
Total Common Stocks (Cost $354,810,416)...................................... 499,111,593
-------------
PRINCIPAL
AMOUNT
Convertible Bonds 2.0%
Altera Corp., sub. notes, 5.75%, 6/15/02 .................................... $ 1,550,000 2,123,500
Omnicom Group, Inc., sub. notes, 144A, 4.25%, 1/03/07........................ 2,000,000 2,797,500
Omnicom Group, Inc., sub. notes, 4.25%, 1/03/07.............................. 2,000,000 2,740,000
U.S. Filter Corp., sub. notes, 4.50%, 12/15/01............................... 3,400,000 3,493,500
-------------
Total Convertible Bonds (Cost $9,679,313).................................... 11,154,500
-------------
PRINCIPAL
AMOUNT VALUE
b Repurchase Agreement 7.2%
Joint Repurchase Agreement, 6.307%, 1/02/98, (Maturity Value $39,517,881) (Cost $39,504,087)
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
BT Securities Corp.
Chase Securities, Inc.
CIBC Wood Gundy Securities Corp.
Deutsche Bank AG.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner, Kleinwort and Benson, North America L.L.C.
Greenwich Capital Markets, Inc.
Paribas Capital Markets Group
SBC Warburg, Inc.
UBS Securities L.L.C.
Collateralized by U.S. Treasury Bills and Notes.............................. $39,504,087$ 39,504,087
-------------
Total Investments (Cost $403,993,816) 99.5% ................................. 549,770,180
Other Assets, less Liabilities .5% .......................................... 2,529,307
-------------
Net Assets 100.0%............................................................ $552,299,487
=============
</TABLE>
a Non-income producing.
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At December 31, 1997, all repurchase agreements held
by the Fund had been entered into on that date.
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1997 (unaudited)
<S> <C>
Assets:
Investments in securities, at value (cost $403,993,816)................................ $549,770,180
Cash................................................................................... 627,750
Receivables:
Investment securities sold............................................................ 3,714,874
Capital shares sold................................................................... 392,843
Dividends and interest................................................................ 539,467
-------------
Total assets............................................................................ 555,045,114
-------------
Liabilities:
Payables:
Investment securities purchased....................................................... 95,894
Capital shares redeemed............................................................... 70,347
Affiliates............................................................................ 467,981
Shareholders.......................................................................... 2,045,739
Other liabilities...................................................................... 65,666
-------------
Total liabilities....................................................................... 2,745,627
-------------
Net assets, at value................................................................... $552,299,487
=============
Net assets consist of:
Undistributed net investment income.................................................... $ 102,143
Net unrealized appreciation............................................................ 145,776,364
Accumulated net realized gain.......................................................... 17,504,365
Capital shares......................................................................... 388,916,615
-------------
Net assets, at value.................................................................... $552,299,487
=============
Class I:
Net asset value per share ($521,621,035 / 53,568,229 shares outstanding)*.............. $9.74
=============
Maximum offering price per share ($9.74 / 95.5%)....................................... $10.20
=============
Class II:
Net asset value per share ($17,005,937 / 1,755,680 shares outstanding)*................ $9.69
=============
Maximum offering price per share ($9.69 / 99.0%)....................................... $9.79
=============
Advisor Class:
Net asset value and maximum offering price per share ($13,672,515 / 1,403,474 shares outstanding) $9.74
=============
*Redemption price is equal to net asset value less any applicable contingent deferred sales charge.
</TABLE>
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements (continued)
<TABLE>
<CAPTION>
Statement of Operations
for the six months ended December 31, 1997 (unaudited)
<S> <C> <C>
Investment income:
(net of foreign taxes of $15,449)
Dividends...................................................................... $ 2,307,498
Interest....................................................................... 1,216,420
-------------
Total investment income......................................................... $ 3,523,918
Expenses:
Management fees (Note 3)....................................................... 1,351,623
Distribution fees (Note 3)
Class I....................................................................... 497,560
Class II...................................................................... 66,550
Transfer agent fees (Note 3)................................................... 340,835
Custodian fees................................................................. 9,393
Reports to shareholders........................................................ 94,696
Registration and filing fees................................................... 42,063
Professional fees.............................................................. 18,054
Directors' fees and expenses................................................... 12,561
Other.......................................................................... 8,507
-------------
Total expenses.................................................................. 2,441,842
-------------
Net investment income.......................................................... 1,082,076
-------------
Realized and unrealized gains:
Net realized gain from:
Investments................................................................... 27,709,807
Foreign currency transactions................................................. 19,189
-------------
Net realized gain............................................................... 27,728,996
-------------
Net unrealized appreciation on investments..................................... 10,771,761
-------------
Net realized and unrealized gain................................................ 38,500,757
-------------
Net increase in net assets resulting from operations............................ $39,582,833
=============
</TABLE>
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements (continued)
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
for the six months ended December 31, 1997 (unaudited)
and the year ended June 30, 1997
Six Months Year
Ended 12/31/97 Ended 6/30/97
-----------------------------
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income...................................................... $ 1,082,076 $ 2,459,947
Net realized gain from investments and foreign currency transactions....... 27,728,996 53,832,495
Net unrealized appreciation on investments................................. 10,771,761 52,251,082
-----------------------------
Net increase in net assets resulting from operations......................... 39,582,833 108,543,524
Distributions to shareholders from:
Net investment income:
Class I.................................................................... (1,876,306) (2,742,841)
Class II................................................................... -- (499)
Advisor Class.............................................................. (57,518) (13,857)
Net realized gains:
Class I.................................................................... (59,596,634) (19,328,932)
Class II................................................................... (1,734,194) (302,817)
Advisor Class.............................................................. (1,486,880) --
-----------------------------
Total distributions to shareholders.......................................... (64,751,532) (22,388,946)
Capital share transactions (Note 2):
Class I.................................................................... 81,874,571 12,024,439
Class II................................................................... 8,420,480 3,888,815
Advisor Class.............................................................. 7,756,721 6,538,415
-----------------------------
Total capital share transactions............................................. 98,051,772 22,451,669
Net increase in net assets................................................... 72,883,073 108,606,247
Net assets:
Beginning of period......................................................... 479,416,414 370,810,167
-----------------------------
End of period............................................................... $552,299,487 $479,416,414
=============================
Undistributed net investment income included in net assets:
End of period............................................................... $ 102,143 $--
=============================
</TABLE>
See notes to financial statements.
FRANKLIN EQUITY FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Equity Fund (the Fund) is registered under the Investment Company Act
of 1940 as an open-end, diversified investment company. The Fund seeks to
provide capital growth. The following summarizes the Fund's significant
accounting policies.
a. Security Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Directors.
b. Foreign Currency Translation:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the foreign exchange rate
of such currencies against the U.S. dollar 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 fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. Income Taxes:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
d. 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. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
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.
e. 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 Fund offers three classes of shares: Class I, Class II and Advisor Class.
The shares have the same rights except for their initial sales load,
distribution fees, voting rights on matters affecting a single class and the
exchange privilege of each class.
At December 31, 1997, there were 5 billion shares authorized (no par value), of
which 2 billion shares each were designated as Class I and Class II, and 1
billion shares were designated as Advisor Class. Transactions in the Fund's
shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1997 June 30, 1997
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class I
Shares sold....................................... 10,478,512 $112,173,278 12,390,036 $110,637,538
Shares issued in reinvestment of distributions.... 5,721,285 56,525,963 2,264,152 20,354,201
Shares redeemed................................... (8,185,335) (86,824,670) (13,503,886)(118,967,300)
Net increase...................................... 8,014,462 $ 81,874,571 1,150,302 $ 12,024,439
Class II
Shares sold....................................... 959,026 $ 10,133,535 709,987 $ 6,305,367
Shares issued in reinvestment of distributions.... 160,015 1,573,025 30,191 268,397
Shares redeemed................................... (307,805) (3,286,080) (307,006) (2,684,949)
Net increase...................................... 811,236 $ 8,420,480 433,172 $ 3,888,815
Advisor Class*
Shares sold....................................... 812,239 $ 8,875,312 732,158 $ 7,035,865
Shares issued in reinvestment of distributions.... 156,315 1,544,399 1,393 13,857
Shares redeemed................................... (242,616) (2,662,990) (56,015) (511,307)
Net increase...................................... 725,938 $ 7,756,721 677,536 $ 6,538,415
*Effective date of Advisor Class shares was January 2, 1997.
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and directors of the Fund are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin Templeton Services, Inc. (FT
Services), Franklin/Templeton Distributors, Inc. (Distributors), and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, administrative manager, principal underwriter and transfer
agent, respectively.
The fund pays an investment management fee to Advisers based on the average net
assets of the Fund as follows:
Annualized Fee Rate Month-End Net Assets
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Fund reimburses Distributors up to .25% and 1.00% per year of its average
daily net assets of Class I and Class II, respectively, for costs incurred in
marketing the Fund's shares.
Distributors paid net commissions on sales of Fund shares, and received
contingent deferred sales charges for the period of $51,713 and $3,245,
respectively.
4. INCOME TAXES
At December 31, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $404,429,461 was as follows:
Unrealized appreciation $153,133,424
Unrealized depreciation (7,792,705)
Net unrealized appreciation $145,340,719
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of foreign currency transactions. Net realized
capital gains differ for financial statement and tax purposes primarily due to
differing treatment of foreign currency transactions and wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended December 31, 1997 aggregated $142,481,997 and $103,745,217,
respectively.
Franklin Equity Fund - Semi-Annual Report December 31, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the Portfolio Breakdown based on total net
assets. Period ended 12/31/97
Finance 12.3%
Electronics Technology 11.4%
Software/Technology Services 9.5%
Utilities 8.8%
Health Technology 7.8%
Consumer Non-durables 6.7%
Other Sectors 35.8%
Short-Term Obligations
& Other Net Assets 7.7%
