ANNUAL REPORT
FRANKLIN EQUITY FUND
JUNE 30, 1999
SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
Your Fund's Goal: 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 this annual report of Franklin Equity Fund, which
covers the fiscal year ended June 30, 1999. During this period, Asia and Russia
experienced economic turmoil, but the U.S. economy performed very well.
Significantly increased productivity helped keep inflation benign, unemployment
rates were remarkably low, and gross domestic product increased at a rate of
3.9%. Concerned that a global economic rebound might lead to inflation in the
already-robust domestic economy, the U.S. Federal Reserve Board raised the
federal funds rate one quarter of a percent on June 30, 1999 to 5.00%.
CONTENTS
Shareholder Letter .................................................. 1
Performance Summary ................................................. 6
Financial Highlights &
Statement of Investments ............................................ 10
Financial Statements ................................................ 19
Notes to
Financial Statements ................................................ 22
Independent
Auditors' Report .................................................... 26
Tax Information ..................................................... 27
FUND CATEGORY
[PYRAMID GRAPHIC]
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 14 of
this report.
PORTFOLIO BREAKDOWN
Based on Total Net Assets
6/30/99
Electronic Technology 22.3%
Finance 11.8%
Health Technology 9.7%
Telecommunications 7.5%
Technology Services 6.3%
Consumer Non-Durables 5.2%
Utilities 4.4%
Transportation 4.0%
Energy Minerals 3.8%
Consumer Services 3.2%
Retail Trade 3.1%
Other Sectors 13.5%
Cash & Equivalents 5.2%
U.S. equities posted strong gains, but a very narrow range of large-cap stocks
were responsible for most of this rise in value. However, during the latter half
of the reporting period, the market broadened, favoring many of the small- and
mid-cap stocks in the fund's portfolio. Within this environment, the fund's
Class A shares delivered a +13.01% one-year cumulative total return, as
discussed in the Performance Summary on page 7.
During the fiscal year, the fund's performance benefited from a number of
technology stocks. For example, shares of Cisco Systems Inc., our largest
position, rose significantly as Internet usage increased dramatically and
continued to fuel this company's growth. And the value of our stock in AirTouch
Communications Inc., a global leader in wireless communications (acquired by
U.K.-based Vodafone Group), increased 84%.
Continuing to search for equities with attractive valuations and growth
prospects, we added to the fund's positions in the health technology and
telecommunications sectors by purchasing shares of Amgen Inc., the world's
largest biotech firm, and MCI WorldCom Inc., which we believed was ideally
positioned to profit from future growth in data, voice and video traffic
capacity. We also increased the fund's exposure to consumer services stocks by
initiating positions in two media companies, Clear Channel Communications Inc.
and Entercom Communications Corp. Both have led the consolidation occurring
within their industries, and we believe increased advertising expenditures might
boost their revenues and market share.
Unfortunately, a number of our finance holdings performed poorly during the
reporting period due to a shift in the yield curve and investor concerns about
potentially higher interest rates. Another disadvantage for the fund was our
holdings of consumer non-durables companies. For example, Proctor & Gamble Co.
and Gillette Co. both reported poor earnings as many blue-chip companies in the
consumer non-durables sector experienced disappointing sales and earnings
resulting from international economic weakness.
Looking forward, we are excited about future prospects for domestic equities. In
our opinion, dramatic changes in computing, telecommunications, and
Internet-related business offer extremely attractive long-term opportunities in
the technology sector, and the demographic shift toward an aging population
should benefit health technology stocks. Although we recognize some near-term
concerns such as the potential for rising interest rates, we expect to find
attractively priced stocks in diverse sectors of the market, and remain
committed to our growth-at-a-reasonable-price investment discipline.
TOP 10 SECTORS
6/30/99
% OF TOTAL
SECTOR NET ASSETS
- ---------------------------------------------------------------
Electronic Technology 22.3%
Finance 11.8%
Health Technology 9.7%
Telecommunications 7.5%
Technology Services 6.3%
Consumer Non-Durables 5.2%
Utilities 4.4%
Transportation 4.0%
Energy Minerals 3.8%
Consumer Services 3.2%
TOP 10 HOLDINGS
6/30/99
COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
- -----------------------------------------------------------------
Cisco Systems Inc.
Electronic Technology 3.4%
Enron Corp.
Utilities 2.3%
Intel Corp.
Electronic Technology 2.3%
Linear Technology Corp.
Electronic Technology 2.1%
Uniphase Corp.
Electronic Technology 2.1%
Providian Financial Corp.
Finance 2.0%
Nokia Corp., ADR (Finland)
Electronic Technology 1.9%
Vodafone AirTouch PLC, ADR (United Kingdom)
Telecommunications 1.9%
American International Group Inc.
Finance 1.9%
Citigroup Inc.
Finance 1.8%
This discussion reflects our views and opinions as of June 30, 1999, the end of
the reporting period. However, market and economic conditions are changing
constantly, which may affect our strategies and portfolio holdings. Although
past performance is not predictive of future results, these insights may help
you understand our investment and management philosophy.
As always, we thank you for your participation in 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,
/s/ Serena Perin Vinton
Serena Perin Vinton, CFA
Portfolio Manager
Franklin Equity Fund
SERENA PERIN VINTON, CFA
Serena Perin Vinton is a vice president of Franklin Advisers, Inc. and portfolio
manager of Franklin Equity Fund. Before joining the equity group in August 1995,
she served as an analyst and portfolio manager in the Franklin Templeton
international fixed-income group for four years.
Prior to joining Franklin in 1991, Ms. Perin Vinton worked as a research
assistant for a member of Parliament in London, England. She attended the
University of London and Oxford University, received a bachelor of arts degree
in business economics from Brown University, and is a Chartered Financial
Analyst (CFA).
- --------------------------------------------------------------------------------
CLASS A (formerly Class I):
Subject to the current, maximum 5.75% initial sales charge. Prior to August 3,
1998, fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends and implemented a Rule 12b-1 Plan, which affects
subsequent performance.
CLASS B:
Subject to no initial sales charge, but subject to a contingent deferred sales
charge (CDSC) declining from 4% to 0% over six years. These shares have higher
annual fees and expenses than Class A shares.
CLASS C (formerly Class II):
Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18
months of investment. These shares have higher annual fees and expenses than
Class A shares.
ADVISOR CLASS:
No initial sales charge or Rule 12b-1 fees and are available to a limited class
of investors.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY AS OF 6/30/99
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. Past distributions are not indicative of future
trends. All total returns include reinvested distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION
CLASS A CHANGE 6/30/99 6/30/98
- ------------------------------------------------------------------
Net Asset Value +$0.68 $11.67 $10.99
DISTRIBUTIONS (7/1/98-6/30/99)
---------------------------------
Dividend Income $0.0498
Long-Term Capital Gain $0.4151
Short-Term Capital Gain $0.1611
TOTAL $0.6260
CLASS B CHANGE 6/30/99 1/1/99
- ------------------------------------------------------------------
Net Asset Value +$1.22 $11.61 $10.39
DISTRIBUTIONS (1/1/99-6/30/99)
---------------------------------
Dividend Income $0.0473
CLASS C CHANGE 6/30/99 6/30/98
- ------------------------------------------------------------------
Net Asset Value +$0.61 $11.52 $10.91
DISTRIBUTIONS (7/1/98-6/30/99)
---------------------------------
Dividend Income $0.0167
Long-Term Capital Gain $0.4151
Short-Term Capital Gain $0.1611
TOTAL $0.5929
ADVISOR CLASS CHANGE 6/30/99 6/30/98
- ------------------------------------------------------------------
Net Asset Value +$0.68 $11.68 $11.00
DISTRIBUTIONS (7/1/98-6/30/99)
- ------------------------------------------------------------------
Dividend Income $0.0717
Long-Term Capital Gain $0.4151
Short-Term Capital Gain $0.1611
TOTAL $0.6479
Franklin Equity Fund paid distributions derived from long-term capital gains of
41.51 cents ($0.4151) per share in December 1998. The fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852 (b)(3).
Past performance is not predictive of future results.
PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (1/1/33)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +13.01% +171.46% +254.23% +126,051.91%
Average Annual Total Return(2) +6.52% +20.66% +12.81% +11.23%
Value of $10,000 Investment(3) $10,652 $25,579 $33,385 $11,865,098
</TABLE>
<TABLE>
<CAPTION>
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) +23.78% +22.16% +29.75% +22.43% +13.01%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B (1/1/99)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Cumulative Total Return(1) +12.23%
Aggregate Total Return(2) +8.23%
Value of $10,000 Investment(3) $10,823
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +12.11% +75.57% +132.66%
Average Annual Total Return(2) +10.00% +20.25% +22.16%
Value of $10,000 Investment(3) $11,000 $17,388 $23,024
</TABLE>
<TABLE>
<CAPTION>
6/30/96 6/30/97 6/30/98 6/30/99
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One-Year Total Return(4) +20.94% +28.93% +21.47% +12.11%
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(5) 1-YEAR 5-YEAR 10-YEAR (1/1/33)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +13.22% +176.06% +260.23% +128,189.59%
Average Annual Total Return(2) +13.22% +22.52% +13.67% +11.36%
Value of $10,000 Investment(3) $11,322 $27,606 $36,023 $12,828,959
</TABLE>
<TABLE>
<CAPTION>
6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
One-Year Total Return(4) +23.78% +22.16% +29.99% +22.61% +13.22%
</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.
(4). One-year total return represents the change in value of an investment over
the one-year periods ended on the specified dates and does not include sales
charges.
(5). On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +64.46% and +22.06%, respectively.
- --------------------------------------------------------------------------------
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
- --------------------------------------------------------------------------------
Past performance is not predictive of future results.
TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT
The unmanaged indices differ from the fund in composition, do not pay management
fees or expenses and include reinvested dividends. One cannot invest directly in
an index. Total return represents the change in value of an investment over the
periods shown. It includes the current, applicable, maximum sales charge(s),
fund expenses, account fees, and reinvested distributions.
We are replacing the fund's benchmark, the Standard & Poor's(R) (S&P 500(R))
Composite Index, with the Russell 1000(R) Index, which measures the stock
performance of 1000 of the largest U.S. companies, because we believe its
composition provides a more appropriate comparison to the fund's current and
past portfolio. The S&P 500 may be excluded from next year's report.
AVERAGE ANNUAL TOTAL RETURN
6/30/99
CLASS A
- -----------------------------------
1-Year +6.52%
5-Year +20.66%
10-Year +12.81%
Since Inception (1/1/33) +11.23%
[CLASS A TOTAL RETURN INDEX COMPARISON GRAPH]
The following line graph compares the performance of Franklin Equity Fund, Class
A with the Standard and Poor's(R) 500 (S&P 500(R)) Index and the Russell 1000(R)
Index based on a $10,000 investment from 7/1/89 to 6/30/99. *Source: Standard
and Poor's Micropal.
<TABLE>
<CAPTION>
DATE FRANKLIN EQUITY S&P 500 RUSSELL 1000 500 Composite $T Russell 1000
---- ------- ------------
FUND - CLASS A LgStks $TR
--------------
<S> <C> <C> <C> <C> <C>
07/01/1989 $9,425 $10,000 $10,000
07/31/1989 $10,052 $10,903 $10,839 9.03% 8.39%
08/31/1989 $10,525 $11,117 $11,063 1.96% 2.07%
09/30/1989 $10,255 $11,071 $11,035 -0.41% -0.26%
10/31/1989 $9,594 $10,814 $10,740 -2.32% -2.67%
11/30/1989 $9,688 $11,035 $10,942 2.04% 1.88%
12/31/1989 $9,874 $11,300 $11,165 2.40% 2.04%
01/31/1990 $9,219 $10,542 $10,368 -6.71% -7.14%
02/28/1990 $9,400 $10,677 $10,536 1.29% 1.62%
03/31/1990 $9,846 $10,960 $10,797 2.65% 2.48%
04/30/1990 $9,456 $10,688 $10,518 -2.49% -2.59%
05/31/1990 $10,278 $11,730 $11,503 9.75% 9.37%
06/30/1990 $10,101 $11,651 $11,440 -0.67% -0.55%
07/31/1990 $10,030 $11,614 $11,338 -0.32% -0.89%
08/31/1990 $8,776 $10,564 $10,296 -9.04% -9.19%
09/30/1990 $8,199 $10,049 $9,770 -4.87% -5.11%
10/31/1990 $7,804 $10,006 $9,721 -0.43% -0.50%
11/30/1990 $8,523 $10,653 $10,385 6.46% 6.83%
12/31/1990 $8,989 $10,950 $10,701 2.79% 3.04%
01/31/1991 $9,918 $11,427 $11,215 4.36% 4.81%
02/28/1991 $10,561 $12,244 $12,034 7.15% 7.30%
03/31/1991 $10,689 $12,541 $12,361 2.42% 2.72%
04/30/1991 $10,632 $12,571 $12,376 0.24% 0.12%
05/31/1991 $11,189 $13,112 $12,884 4.31% 4.10%
06/30/1991 $10,602 $12,512 $12,306 -4.58% -4.48%
07/31/1991 $10,904 $13,095 $12,897 4.66% 4.80%
08/31/1991 $11,120 $13,405 $13,234 2.37% 2.61%
09/30/1991 $10,933 $13,181 $13,067 -1.67% -1.26%
10/31/1991 $10,803 $13,358 $13,277 1.34% 1.61%
11/30/1991 $10,299 $12,820 $12,776 -4.03% -3.78%
12/31/1991 $11,391 $14,286 $14,236 11.44% 11.43%
01/31/1992 $11,452 $14,021 $14,059 -1.86% -1.24%
02/29/1992 $11,666 $14,201 $14,231 1.29% 1.22%
03/31/1992 $11,299 $13,924 $13,928 -1.95% -2.13%
04/30/1992 $11,238 $14,334 $14,263 2.94% 2.41%
05/31/1992 $11,208 $14,404 $14,352 0.49% 0.62%
06/30/1992 $10,967 $14,189 $14,122 -1.49% -1.60%
07/31/1992 $11,259 $14,770 $14,712 4.09% 4.18%
08/31/1992 $11,074 $14,467 $14,402 -2.05% -2.11%
09/30/1992 $11,213 $14,636 $14,585 1.17% 1.27%
10/31/1992 $11,198 $14,686 $14,706 0.34% 0.83%
11/30/1992 $11,675 $15,185 $15,271 3.40% 3.84%
12/31/1992 $11,800 $15,372 $15,523 1.23% 1.65%
01/31/1993 $11,883 $15,501 $15,644 0.84% 0.78%
02/28/1993 $11,685 $15,712 $15,785 1.36% 0.90%
03/31/1993 $12,047 $16,044 $16,168 2.11% 2.43%
04/30/1993 $11,701 $15,655 $15,741 -2.42% -2.64%
05/31/1993 $12,047 $16,073 $16,173 2.67% 2.74%
06/30/1993 $12,020 $16,120 $16,279 0.29% 0.66%
07/31/1993 $11,854 $16,056 $16,229 -0.40% -0.31%
08/31/1993 $12,401 $16,664 $16,854 3.79% 3.85%
09/30/1993 $12,219 $16,536 $16,806 -0.77% -0.28%
10/31/1993 $12,617 $16,878 $17,028 2.07% 1.32%
11/30/1993 $12,849 $16,718 $16,795 -0.95% -1.37%
12/31/1993 $12,806 $16,920 $17,101 1.21% 1.82%
01/31/1994 $13,181 $17,495 $17,622 3.40% 3.05%
02/28/1994 $13,219 $17,021 $17,159 -2.71% -2.63%
03/31/1994 $12,487 $16,279 $16,424 -4.36% -4.28%
04/30/1994 $12,619 $16,487 $16,621 1.28% 1.20%
05/31/1994 $12,544 $16,758 $16,843 1.64% 1.33%
06/30/1994 $12,299 $16,347 $16,393 -2.45% -2.67%
07/31/1994 $12,468 $16,883 $16,929 3.28% 3.27%
08/31/1994 $12,977 $17,576 $17,643 4.10% 4.22%
09/30/1994 $12,713 $17,147 $17,232 -2.44% -2.33%
10/31/1994 $12,920 $17,533 $17,558 2.25% 1.89%
11/30/1994 $12,619 $16,894 $16,924 -3.64% -3.61%
12/31/1994 $12,629 $17,144 $17,164 1.48% 1.42%
01/31/1995 $12,629 $17,588 $17,609 2.59% 2.59%
02/28/1995 $13,089 $18,274 $18,327 3.90% 4.08%
03/31/1995 $13,591 $18,813 $18,798 2.95% 2.57%
04/30/1995 $13,905 $19,367 $19,297 2.94% 2.65%
05/31/1995 $14,469 $20,141 $20,038 4.00% 3.84%
06/30/1995 $15,224 $20,609 $20,569 2.32% 2.65%
07/31/1995 $15,855 $21,293 $21,354 3.32% 3.82%
08/31/1995 $15,960 $21,346 $21,514 0.25% 0.75%
09/30/1995 $16,527 $22,247 $22,401 4.22% 4.12%
10/31/1995 $16,149 $22,167 $22,298 -0.36% -0.46%
11/30/1995 $16,633 $23,140 $23,292 4.39% 4.46%
12/31/1995 $16,789 $23,586 $23,646 1.93% 1.52%
01/31/1996 $17,170 $24,388 $24,410 3.40% 3.23%
02/29/1996 $17,462 $24,615 $24,727 0.93% 1.30%
03/31/1996 $17,462 $24,851 $24,950 0.96% 0.90%
04/30/1996 $18,360 $25,217 $25,329 1.47% 1.52%
05/31/1996 $18,719 $25,867 $25,937 2.58% 2.40%
06/30/1996 $18,598 $25,966 $25,966 0.38% 0.11%
07/31/1996 $17,337 $24,818 $24,714 -4.42% -4.82%
08/31/1996 $18,103 $25,342 $25,386 2.11% 2.72%
09/30/1996 $19,318 $26,768 $26,813 5.63% 5.62%
10/31/1996 $19,498 $27,507 $27,406 2.76% 2.21%
11/30/1996 $21,075 $29,587 $29,428 7.56% 7.38%
12/31/1996 $20,644 $29,001 $28,951 -1.98% -1.62%
01/31/1997 $22,017 $30,813 $30,668 6.25% 5.93%
02/28/1997 $21,307 $31,054 $30,785 0.78% 0.38%
03/31/1997 $20,644 $29,777 $29,399 -4.11% -4.50%
04/30/1997 $21,733 $31,555 $30,990 5.97% 5.41%
05/31/1997 $23,556 $33,477 $32,973 6.09% 6.40%
06/30/1997 $24,131 $34,977 $34,338 4.48% 4.14%
07/31/1997 $26,102 $37,761 $37,147 7.96% 8.18%
08/31/1997 $25,366 $35,646 $35,394 -5.60% -4.72%
09/30/1997 $27,076 $37,600 $37,333 5.48% 5.48%
10/31/1997 $25,793 $36,344 $36,124 -3.34% -3.24%
11/30/1997 $26,031 $38,027 $37,692 4.63% 4.34%
12/31/1997 $26,140 $38,681 $38,457 1.72% 2.03%
01/31/1998 $26,140 $39,110 $38,741 1.11% 0.74%
02/28/1998 $28,260 $41,930 $41,504 7.21% 7.13%
03/31/1998 $29,199 $44,077 $43,595 5.12% 5.04%
04/30/1998 $29,790 $44,522 $44,044 1.01% 1.03%
05/31/1998 $28,501 $43,756 $43,093 -1.72% -2.16%
06/30/1998 $29,542 $45,532 $44,687 4.06% 3.70%
07/31/1998 $28,548 $45,045 $44,151 -1.07% -1.20%
08/31/1998 $23,064 $38,532 $37,551 -14.46% -14.95%
09/30/1998 $23,843 $41,002 $40,078 6.41% 6.73%
10/31/1998 $25,886 $44,335 $43,244 8.13% 7.90%
11/30/1998 $27,311 $47,022 $45,921 6.06% 6.19%
12/31/1998 $29,588 $49,730 $48,846 5.76% 6.37%
01/31/1999 $31,183 $51,809 $50,590 4.18% 3.57%
02/28/1999 $29,702 $50,198 $48,986 -3.11% -3.17%
03/31/1999 $31,041 $52,206 $50,862 4.00% 3.83%
04/30/1999 $32,123 $54,226 $52,988 3.87% 4.18%
05/31/1999 $31,268 $52,946 $51,844 -2.36% -2.16%
06/30/1999 $33,385 $55,885 $54,488 5.55% 5.10%
</TABLE>
Past performance is not predictive of future results.
AVERAGE ANNUAL TOTAL RETURN
6/30/99
<TABLE>
<CAPTION>
CLASS C
- -------------------------------------
<S> <C>
1-Year +10.00%
3-Year +20.25%
Since Inception (5/1/95) +22.16%
</TABLE>
[CLASS C TOTAL RETURN INDEX COMPARISON $10,000 INVESTMENT GRAPH]
The following line graph compares the performance of Franklin Equity Fund, Class
C, with the Standard and Poor's(R) 500 (S&P 500(R)) Index and the Russell
1000(R) Index based on a $10,000 investment from 5/1/95 to 6/30/99. *Source:
Standard and Poor's Micropal.
<TABLE>
<CAPTION>
DATE FRANKLIN EQUITY S&P 500 RUSSELL 1000 500 Composite $T Russell 1000
---- ------- ------------
FUND - CLASS C LgStks $TR
--------------
<S> <C> <C> <C> <C> <C>
05/01/1995 $9,896 $10,000 $10,000
05/31/1995 $10,298 $10,400 $10,384 4.00% 3.84%
06/30/1995 $10,843 $10,641 $10,659 2.32% 2.65%
07/31/1995 $11,262 $10,995 $11,066 3.32% 3.82%
08/31/1995 $11,322 $11,022 $11,149 0.25% 0.75%
09/30/1995 $11,726 $11,487 $11,609 4.22% 4.12%
10/31/1995 $11,457 $11,446 $11,555 -0.36% -0.46%
11/30/1995 $11,786 $11,948 $12,071 4.39% 4.46%
12/31/1995 $11,901 $12,179 $12,254 1.93% 1.52%
01/31/1996 $12,156 $12,593 $12,650 3.40% 3.23%
02/29/1996 $12,363 $12,710 $12,814 0.93% 1.30%
03/31/1996 $12,347 $12,832 $12,930 0.96% 0.90%
04/30/1996 $12,968 $13,021 $13,126 1.47% 1.52%
05/31/1996 $13,223 $13,357 $13,441 2.58% 2.40%
06/30/1996 $13,113 $13,407 $13,456 0.38% 0.11%
07/31/1996 $12,221 $12,815 $12,808 -4.42% -4.82%
08/31/1996 $12,747 $13,085 $13,156 2.11% 2.72%
09/30/1996 $13,607 $13,822 $13,895 5.63% 5.62%
10/31/1996 $13,719 $14,203 $14,202 2.76% 2.21%
11/30/1996 $14,818 $15,277 $15,250 7.56% 7.38%
12/31/1996 $14,501 $14,975 $15,003 -1.98% -1.62%
01/31/1997 $15,453 $15,911 $15,893 6.25% 5.93%
02/28/1997 $14,969 $16,035 $15,953 0.78% 0.38%
03/31/1997 $14,484 $15,376 $15,236 -4.11% -4.50%
04/30/1997 $15,236 $16,294 $16,060 5.97% 5.41%
05/31/1997 $16,506 $17,286 $17,088 6.09% 6.40%
06/30/1997 $16,907 $18,060 $17,795 4.48% 4.14%
07/31/1997 $18,260 $19,498 $19,251 7.96% 8.18%
08/31/1997 $17,742 $18,406 $18,342 -5.60% -4.72%
09/30/1997 $18,928 $19,415 $19,347 5.48% 5.48%
10/31/1997 $17,993 $18,766 $18,720 -3.34% -3.24%
11/30/1997 $18,176 $19,635 $19,533 4.63% 4.34%
12/31/1997 $18,240 $19,973 $19,929 1.72% 2.03%
01/31/1998 $18,221 $20,195 $20,077 1.11% 0.74%
02/28/1998 $19,690 $21,651 $21,508 7.21% 7.13%
03/31/1998 $20,330 $22,759 $22,592 5.12% 5.04%
04/30/1998 $20,725 $22,989 $22,825 1.01% 1.03%
05/31/1998 $19,803 $22,594 $22,332 -1.72% -2.16%
06/30/1998 $20,537 $23,511 $23,158 4.06% 3.70%
07/31/1998 $19,821 $23,259 $22,880 -1.07% -1.20%
08/31/1998 $16,000 $19,896 $19,460 -14.46% -14.95%
09/30/1998 $16,546 $21,171 $20,769 6.41% 6.73%
10/31/1998 $17,939 $22,893 $22,410 8.13% 7.90%
11/30/1998 $18,918 $24,280 $23,797 6.06% 6.19%
12/31/1998 $20,494 $25,678 $25,313 5.76% 6.37%
01/31/1999 $21,571 $26,752 $26,217 4.18% 3.57%
02/28/1999 $20,533 $25,920 $25,386 -3.11% -3.17%
03/31/1999 $21,431 $26,956 $26,358 4.00% 3.83%
04/30/1999 $22,190 $28,000 $27,460 3.87% 4.18%
05/31/1999 $21,571 $27,339 $26,867 -2.36% -2.16%
06/30/1999 $23,024 $28,856 $28,237 5.55% 5.10%
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
6/30/99
ADVISOR CLASS**
- ---------------------------------------
1-Year +13.22%
5-Year +22.52%
10-Year +13.67%
Since Inception (1/1/33) +11.36%
[ADVISOR CLASS TOTAL RETURN INDEX COMPARISON $10,000 INVESTMENT GRAPH]
The following line graph compares the performance of Franklin Equity Fund,
Advisor Class, with the Standard and Poor's(R) 500 (S&P 500(R)) Index and the
Russell 1000(R) Index based on a $10,000 investment from 7/1/89 to 6/30/99.
*Source: Standard and Poor's Micropal.
<TABLE>
<CAPTION>
DATE FRANKLIN EQUITY S&P 500 RUSSELL 1000 500 Composite $T Russell 1000
---- ------- ------------
FUND - ADV CLASS LgStks $TR
----------------
<S> <C> <C> <C> <C> <C>
07/01/1989 $10,000 $10,000 $10,000
07/31/1989 $10,666 $10,903 $10,839 9.03% 8.39%
08/31/1989 $11,167 $11,117 $11,063 1.96% 2.07%
09/30/1989 $10,881 $11,071 $11,035 -0.41% -0.26%
10/31/1989 $10,179 $10,814 $10,740 -2.32% -2.67%
11/30/1989 $10,279 $11,035 $10,942 2.04% 1.88%
12/31/1989 $10,476 $11,300 $11,165 2.40% 2.04%
01/31/1990 $9,782 $10,542 $10,368 -6.71% -7.14%
02/28/1990 $9,974 $10,677 $10,536 1.29% 1.62%
03/31/1990 $10,447 $10,960 $10,797 2.65% 2.48%
04/30/1990 $10,033 $10,688 $10,518 -2.49% -2.59%
05/31/1990 $10,905 $11,730 $11,503 9.75% 9.37%
06/30/1990 $10,717 $11,651 $11,440 -0.67% -0.55%
07/31/1990 $10,642 $11,614 $11,338 -0.32% -0.89%
08/31/1990 $9,312 $10,564 $10,296 -9.04% -9.19%
09/30/1990 $8,699 $10,049 $9,770 -4.87% -5.11%
10/31/1990 $8,281 $10,006 $9,721 -0.43% -0.50%
11/30/1990 $9,043 $10,653 $10,385 6.46% 6.83%
12/31/1990 $9,537 $10,950 $10,701 2.79% 3.04%
01/31/1991 $10,523 $11,427 $11,215 4.36% 4.81%
02/28/1991 $11,205 $12,244 $12,034 7.15% 7.30%
03/31/1991 $11,342 $12,541 $12,361 2.42% 2.72%
04/30/1991 $11,281 $12,571 $12,376 0.24% 0.12%
05/31/1991 $11,872 $13,112 $12,884 4.31% 4.10%
06/30/1991 $11,249 $12,512 $12,306 -4.58% -4.48%
07/31/1991 $11,570 $13,095 $12,897 4.66% 4.80%
08/31/1991 $11,799 $13,405 $13,234 2.37% 2.61%
09/30/1991 $11,600 $13,181 $13,067 -1.67% -1.26%
10/31/1991 $11,463 $13,358 $13,277 1.34% 1.61%
11/30/1991 $10,928 $12,820 $12,776 -4.03% -3.78%
12/31/1991 $12,086 $14,286 $14,236 11.44% 11.43%
01/31/1992 $12,151 $14,021 $14,059 -1.86% -1.24%
02/29/1992 $12,378 $14,201 $14,231 1.29% 1.22%
03/31/1992 $11,989 $13,924 $13,928 -1.95% -2.13%
04/30/1992 $11,924 $14,334 $14,263 2.94% 2.41%
05/31/1992 $11,892 $14,404 $14,352 0.49% 0.62%
06/30/1992 $11,636 $14,189 $14,122 -1.49% -1.60%
07/31/1992 $11,946 $14,770 $14,712 4.09% 4.18%
08/31/1992 $11,750 $14,467 $14,402 -2.05% -2.11%
09/30/1992 $11,897 $14,636 $14,585 1.17% 1.27%
10/31/1992 $11,881 $14,686 $14,706 0.34% 0.83%
11/30/1992 $12,388 $15,185 $15,271 3.40% 3.84%
12/31/1992 $12,520 $15,372 $15,523 1.23% 1.65%
01/31/1993 $12,608 $15,501 $15,644 0.84% 0.78%
02/28/1993 $12,398 $15,712 $15,785 1.36% 0.90%
03/31/1993 $12,783 $16,044 $16,168 2.11% 2.43%
04/30/1993 $12,415 $15,655 $15,741 -2.42% -2.64%
05/31/1993 $12,783 $16,073 $16,173 2.67% 2.74%
06/30/1993 $12,753 $16,120 $16,279 0.29% 0.66%
07/31/1993 $12,577 $16,056 $16,229 -0.40% -0.31%
08/31/1993 $13,158 $16,664 $16,854 3.79% 3.85%
09/30/1993 $12,964 $16,536 $16,806 -0.77% -0.28%
10/31/1993 $13,387 $16,878 $17,028 2.07% 1.32%
11/30/1993 $13,633 $16,718 $16,795 -0.95% -1.37%
12/31/1993 $13,588 $16,920 $17,101 1.21% 1.82%
01/31/1994 $13,986 $17,495 $17,622 3.40% 3.05%
02/28/1994 $14,025 $17,021 $17,159 -2.71% -2.63%
03/31/1994 $13,250 $16,279 $16,424 -4.36% -4.28%
04/30/1994 $13,389 $16,487 $16,621 1.28% 1.20%
05/31/1994 $13,309 $16,758 $16,843 1.64% 1.33%
06/30/1994 $13,049 $16,347 $16,393 -2.45% -2.67%
07/31/1994 $13,229 $16,883 $16,929 3.28% 3.27%
08/31/1994 $13,769 $17,576 $17,643 4.10% 4.22%
09/30/1994 $13,489 $17,147 $17,232 -2.44% -2.33%
10/31/1994 $13,709 $17,533 $17,558 2.25% 1.89%
11/30/1994 $13,389 $16,894 $16,924 -3.64% -3.61%
12/31/1994 $13,400 $17,144 $17,164 1.48% 1.42%
01/31/1995 $13,400 $17,588 $17,609 2.59% 2.59%
02/28/1995 $13,888 $18,274 $18,327 3.90% 4.08%
03/31/1995 $14,420 $18,813 $18,798 2.95% 2.57%
04/30/1995 $14,753 $19,367 $19,297 2.94% 2.65%
05/31/1995 $15,352 $20,141 $20,038 4.00% 3.84%
06/30/1995 $16,153 $20,609 $20,569 2.32% 2.65%
07/31/1995 $16,822 $21,293 $21,354 3.32% 3.82%
08/31/1995 $16,934 $21,346 $21,514 0.25% 0.75%
09/30/1995 $17,536 $22,247 $22,401 4.22% 4.12%
10/31/1995 $17,134 $22,167 $22,298 -0.36% -0.46%
11/30/1995 $17,648 $23,140 $23,292 4.39% 4.46%
12/31/1995 $17,813 $23,586 $23,646 1.93% 1.52%
01/31/1996 $18,218 $24,388 $24,410 3.40% 3.23%
02/29/1996 $18,528 $24,615 $24,727 0.93% 1.30%
03/31/1996 $18,528 $24,851 $24,950 0.96% 0.90%
04/30/1996 $19,481 $25,217 $25,329 1.47% 1.52%
05/31/1996 $19,862 $25,867 $25,937 2.58% 2.40%
06/30/1996 $19,733 $25,966 $25,966 0.38% 0.11%
07/31/1996 $18,395 $24,818 $24,714 -4.42% -4.82%
08/31/1996 $19,207 $25,342 $25,386 2.11% 2.72%
09/30/1996 $20,497 $26,768 $26,813 5.63% 5.62%
10/31/1996 $20,688 $27,507 $27,406 2.76% 2.21%
11/30/1996 $22,361 $29,587 $29,428 7.56% 7.38%
12/31/1996 $21,904 $29,001 $28,951 -1.98% -1.62%
01/31/1997 $23,361 $30,813 $30,668 6.25% 5.93%
02/28/1997 $22,633 $31,054 $30,785 0.78% 0.38%
03/31/1997 $21,929 $29,777 $29,399 -4.11% -4.50%
04/30/1997 $23,085 $31,555 $30,990 5.97% 5.41%
05/31/1997 $25,019 $33,477 $32,973 6.09% 6.40%
06/30/1997 $25,651 $34,977 $34,338 4.48% 4.14%
07/31/1997 $27,720 $37,761 $37,147 7.96% 8.18%
08/31/1997 $26,963 $35,646 $35,394 -5.60% -4.72%
09/30/1997 $28,779 $37,600 $37,333 5.48% 5.48%
10/31/1997 $27,417 $36,344 $36,124 -3.34% -3.24%
11/30/1997 $27,694 $38,027 $37,692 4.63% 4.34%
12/31/1997 $27,785 $38,681 $38,457 1.72% 2.03%
01/31/1998 $27,813 $39,110 $38,741 1.11% 0.74%
02/28/1998 $30,039 $41,930 $41,504 7.21% 7.13%
03/31/1998 $31,065 $44,077 $43,595 5.12% 5.04%
04/30/1998 $31,693 $44,522 $44,044 1.01% 1.03%
05/31/1998 $30,295 $43,756 $43,093 -1.72% -2.16%
06/30/1998 $31,451 $45,532 $44,687 4.06% 3.70%
07/31/1998 $30,365 $45,045 $44,151 -1.07% -1.20%
08/31/1998 $24,532 $38,532 $37,551 -14.46% -14.95%
09/30/1998 $25,390 $41,002 $40,078 6.41% 6.73%
10/31/1998 $27,563 $44,335 $43,244 8.13% 7.90%
11/30/1998 $29,078 $47,022 $45,921 6.06% 6.19%
12/31/1998 $31,530 $49,730 $48,846 5.76% 6.37%
01/31/1999 $33,227 $51,809 $50,590 4.18% 3.57%
02/28/1999 $31,682 $50,198 $48,986 -3.11% -3.17%
03/31/1999 $33,075 $52,206 $50,862 4.00% 3.83%
04/30/1999 $34,256 $54,226 $52,988 3.87% 4.18%
05/31/1999 $33,348 $52,946 $51,844 -2.36% -2.16%
06/30/1999 $36,023 $55,885 $54,488 5.55% 5.10%
</TABLE>
*Source: Standard and Poor's Micropal.
**On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable to that class.
Past performance is not predictive of future results.
FRANKIN EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
1999(2) 1998 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 10.99 $ 10.16 $ 8.26 $ 7.24 $ 6.53
-------------------------------------------------------------------------
Income from investment operations:
Net investment income ...................... .06 .05 .05 .06 .08
Net realized and unrealized gains .......... 1.25 2.08 2.34 1.48 1.33
-------------------------------------------------------------------------
Total from investment operations ............ 1.31 2.13 2.39 1.54 1.41
-------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.05) (.05) (.06) (.06) (.08)
Net realized gains ......................... (.58) (1.25) (.43) (.46) (.62)
-------------------------------------------------------------------------
Total distributions ......................... (.63) (1.30) (.49) (.52) (.70)
-------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.67 $ 10.99 $ 10.16 $ 8.26 $ 7.24
=========================================================================
Total return* ............................... 13.01% 22.43% 29.75% 22.16% 23.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 708,607 $ 613,835 $ 462,972 $ 366,602 $ 317,463
Ratios to average net assets:
Expenses ................................... .92% .90% .91% .95% .95%
Net investment income ...................... .57% .48% .61% .72% 1.21%
Portfolio turnover rate ..................... 45.99% 38.00% 53.67% 59.86% 86.20%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
(2) Based on average shares outstanding.
FRANKIN EQUITY FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
-------------------
PERIOD ENDED
JUNE 30, 1999(1),(2)
-------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ................................. $10.39
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss ................................................. (.01)
Net realized and unrealized gains ................................... 1.28
------
Total from investment operations ..................................... 1.27
------
Less distributions from investment income ............................ (.05)
Net asset value, end of period ....................................... $11.61
======
Total return* ........................................................ 12.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's)..................................... $1,276
Ratios to average net assets:
Expenses ............................................................ 1.56%**
Net investment loss ................................................. (.32%)**
Portfolio turnover rate .............................................. 45.99%
</TABLE>
*Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
**Annualized
(1) For the period January 1, 1999 (effective date) to June 30, 1999.
(2) Based on average shares outstanding.
FRANKIN EQUITY FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
----------------------------------------------------------------------------
YEAR ENDED JUNE 30,
----------------------------------------------------------------------------
1999(2) 1998 1997 1996 1995(1)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 10.91 $ 10.12 $ 8.23 $ 7.24 $ 6.65
----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ............... (.02) (.01) (.02) .02 .01
Net realized and unrealized gains .......... 1.23 2.05 2.34 1.45 .62
----------------------------------------------------------------------------
Total from investment operations ............ 1.21 2.04 2.32 1.47 .63
----------------------------------------------------------------------------
Less distributions from:
Net investment income ...................... (.02) -- -- (.02) (.04)
Net realized gains ......................... (.58) (1.25) (.43) (.46) --
----------------------------------------------------------------------------
Total distributions ......................... (.60) (1.25) (.43) (.48) (.04)
----------------------------------------------------------------------------
Net asset value, end of year ................ $ 11.52 $ 10.91 $ 10.12 $ 8.23 $ 7.24
============================================================================
Total return* ............................... 12.11% 21.47% 28.93% 20.94% 9.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 87,057 $ 35,717 $ 9,554 $ 4,208 $ 342
Ratios to average net assets:
Expenses ................................... 1.68% 1.69% 1.72% 1.77% 1.77%**
Net investment income (loss) ............... (.25%) (.28%) (.22%) (.10%) .74%**
Portfolio turnover rate...................... 45.99% 38.00% 53.67% 59.86% 86.20%
</TABLE>
*Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized for periods less than one year.
**Annualized
(1)For the period May 1, 1995 (effective date) to June 30, 1995.
(2)Based on average shares outstanding.
FRANKIN EQUITY FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
-------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------
1999(2) 1998 1997(1)
-------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......... $ 11.00 $ 10.17 $ 8.62
-------------------------------------------
Income from investment operations:
Net investment income ...................... .08 .07 .03
Net realized and unrealized gains .......... 1.25 2.08 1.56
-------------------------------------------
Total from investment operations ............ 1.33 2.15 1.59
-------------------------------------------
Less distributions from:
Net investment income ...................... (.07) (.07) (.04)
Net realized gains ......................... (.58) (1.25) --
-------------------------------------------
Total distributions ......................... (.65) (1.32) (.04)
-------------------------------------------
Net asset value, end of year ................ $ 11.68 $ 11.00 $ 10.17
===========================================
TOTAL RETURN* ............................... 13.22% 22.61% 18.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $ 7,327 $ 16,911 $ 6,890
Ratios to average net assets:
Expenses ................................... .70% .69% .72%**
Net investment income ...................... .80% .71% .79%**
Portfolio turnover rate ..................... 45.99% 38.00% 53.67%
</TABLE>
*Total return is not annualized for periods less than one year.
**Annualized
(1)For the period January 2, 1997 (effective date) to June 30, 1997.
(2)Based on average shares outstanding.
See notes to financial statements.
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 93.0%
COMMERCIAL SERVICES 1.6%
a Concord EFS Inc. ...................... United States 214,400 $ 9,071,800
Young & Rubicam Inc. .................. United States 75,000 3,407,813
----------
12,479,613
----------
CONSUMER DURABLES 1.1%
Ford Motor Co. .......................... United States 23,000 1,298,063
Goodyear Tire & Rubber Co. .............. United States 18,000 1,058,625
Harman International Industries Inc. .... United States 20,500 902,000
Mattel Inc. ............................. United States 200,000 5,287,500
----------
8,546,188
----------
CONSUMER NON-DURABLES 5.2%
Gillette Co. ............................ United States 130,000 5,330,000
Nike Inc., B ............................ United States 115,000 7,280,938
PepsiCo Inc. ............................ United States 150,000 5,803,125
Philip Morris Cos. Inc. ................. United States 170,000 6,831,875
Procter & Gamble Co. .................... United States 100,000 8,925,000
Sara Lee Corp. .......................... United States 250,000 5,671,875
Wolverine World Wide Inc. ............... United States 152,600 2,136,400
----------
41,979,213
----------
a CONSUMER SERVICES 3.2%
Apollo Group Inc., A .................... United States 150,000 3,984,375
Clear Channel Communications Inc ........ United States 115,000 7,927,813
Entercom Communications Corp ............ United States 95,200 4,069,800
Fox Entertainment Group Inc., A ......... United States 160,000 4,310,000
MediaOne Group Inc. ..................... United States 50,000 3,718,750
Scholastic Corp. ........................ United States 34,600 1,751,625
----------
25,762,363
----------
ELECTRONIC TECHNOLOGY 22.3%
a 3Com Corp. .............................. United States 40,300 1,075,506
a Altera Corp. ............................ United States 351,164 12,927,225
a Applied Materials Inc. .................. United States 125,000 9,234,375
a Cisco Systems Inc. ...................... United States 420,000 27,090,000
Compaq Computer Corp. ................... United States 22,869 541,709
a EMC Corp. ............................... United States 140,000 7,700,000
Hewlett-Packard Co. ..................... United States 9,900 994,950
Intel Corp. ............................. United States 308,400 18,349,800
International Business Machines Corp. ... United States 50,000 6,462,500
Linear Technology Corp. ................. United States 250,000 16,812,500
Lucent Technologies Inc. ................ United States 200,000 13,487,500
Motorola Inc. ........................... United States 94,000 8,906,500
a Newbridge Networks Corp. ................ Canada 41,845 1,203,044
Nokia Corp., ADR ........................ Finland 170,000 15,565,625
Nortel Networks Corp. ................... Canada 70,000 6,076,875
a Quantum Corp. ........................... United States 32,300 779,238
a Uniphase Corp. .......................... United States 100,000 16,600,000
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
ELECTRONIC TECHNOLOGY (CONT.)
a Tekelec .................................. United States 175,000 $ 2,132,813
a Tellabs Inc. ............................. United States 200,000 13,512,500
------------
179,452,660
------------
ENERGY MINERALS 3.8%
Apache Corp. ............................. United States 150,000 5,850,000
a Barrett Resources Corp. .................. United States 100,000 3,837,500
Mobil Corp. .............................. United States 100,000 9,900,000
Norsk Hydro ASA, ADR ..................... Norway 8,800 336,600
Sunoco Inc. .............................. United States 23,300 703,369
Texaco Inc. .............................. United States 100,000 6,250,000
Ultramar Diamond Shamrock Corp. .......... United States 175,000 3,817,188
------------
30,694,657
------------
FINANCE 11.8%
Ace Ltd. ................................. Bermuda 250,000 7,062,500
Aetna Inc. ............................... United States 12,275 1,097,845
American General Corp. ................... United States 17,000 1,281,375
American International Group Inc. ........ United States 127,537 14,929,800
Associates First Capital Corp., A ........ United States 250,000 11,078,125
BankBoston Corp. ......................... United States 150,000 7,668,750
Citigroup Inc. ........................... United States 300,000 14,250,000
Fannie Mae ............................... United States 16,000 1,094,000
Federated Investors Inc. ................. United States 375,000 6,726,563
Fifth Third Bancorp ...................... United States 100,000 6,656,250
Household International Inc. ............. United States 75,000 3,553,125
Morgan Stanley, Dean Witter & Co. ........ United States 21,644 2,218,510
Presidential Life Corp. .................. United States 47,100 924,338
Providian Financial Corp. ................ United States 175,000 16,362,500
------------
94,903,681
------------
HEALTH SERVICES 1.1%
Cardinal Health Inc. ..................... United States 110,000 7,053,750
Columbia/HCA Healthcare Corp. ............ United States 26,000 593,125
Omnicare Inc. ............................ United States 125,000 1,578,125
------------
9,225,000
------------
HEALTH TECHNOLOGY 9.7%
Abbott Laboratories ...................... United States 190,000 8,645,000
American Home Products Corp. ............. United States 150,000 8,625,000
a Amgen Inc. ............................... United States 150,000 9,131,250
Bausch & Lomb Inc. ....................... United States 100,000 7,650,000
Baxter International Inc. ................ United States 175,000 10,609,375
Bristol-Myers Squibb Co. ................. United States 140,000 9,861,250
Pfizer Inc. .............................. United States 30,000 3,292,500
Roche Holding AG ......................... Switzerland 700 7,195,420
Schering-Plough Corp. .................... United States 170,000 9,010,000
a Watson Pharmaceuticals Inc. .............. United States 100,000 3,506,250
------------
77,526,045
------------
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
INDUSTRIAL SERVICES 2.1%
a AES Corp. ................................ United States 175,000 $ 10,171,875
Waste Management Inc. .................... United States 125,000 6,718,750
------------
16,890,625
------------
NON-ENERGY MINERALS 1.1%
De Beers Consolidated Mines AG, ADR ...... South Africa 325,000 7,759,375
Oregon Steel Mills Inc. .................. United States 36,600 487,238
Owens Corning ............................ United States 26,015 894,266
------------
9,140,879
------------
PROCESS INDUSTRIES 2.7%
Boise Cascade Corp. ...................... United States 20,300 870,363
Ecolab Inc. .............................. United States 200,000 8,725,000
General Electric Co. ..................... United States 50,000 5,650,000
Great Lakes Chemical Corp. ............... United States 11,000 506,688
a Owens-Illinois Inc. ...................... United States 175,000 5,720,313
------------
21,472,364
------------
PRODUCER MANUFACTURING .8%
AMETEK Inc. .............................. United States 31,100 715,300
Avery Dennison Corp. ..................... United States 85,000 5,131,875
Kaman Corp., A ............................ United States 50,200 787,513
-----------
6,634,688
-----------
REAL ESTATE 1.2%
LTC Properties Inc. ....................... United States 41,720 542,360
MeriStar Hospitality Corp. ................ United States 250,000 5,609,375
Starwood Hotels & Resorts Worldwide Inc. .. United States 125,000 3,820,313
-----------
9,972,048
-----------
RETAIL TRADE 3.1%
Albertson's Inc. .......................... United States 167,019 8,611,940
a Circuit City Stores Inc. - CarMax Group ... United States 63,200 335,750
Claire's Stores Inc. ...................... United States 100,000 2,562,500
Dayton Hudson Corp. ....................... United States 100,000 6,500,000
a Fruit of the Loom Inc. .................... United States 58,700 572,325
a Gymboree Corp ............................. United States 73,800 774,900
Sears, Roebuck & Co. ...................... United States 21,400 953,638
a Williams-Sonoma Inc. ...................... United States 125,000 4,351,563
-----------
24,662,616
-----------
TECHNOLOGY SERVICES 6.3%
a Electronic Arts Inc. ...................... United States 100,000 5,425,000
a HNC Software Inc. ......................... United States 125,000 3,851,563
a i2 Technologies Inc. ...................... United States 200,000 8,600,000
a International Network Services ............ United States 50,000 2,018,750
a Oracle Corp. .............................. United States 262,500 9,745,313
SAP AG .................................... Germany 5,000 1,714,448
a Sapient Corp. ............................. United States 120,000 6,795,000
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (CONT.)
TECHNOLOGY SERVICES (CONT.)
a Synopsys Inc. ............................. United States 125,000 $ 6,898,438
a VERITAS Software Corp. .................... United States 60,000 5,696,250
-----------
50,744,762
-----------
TELECOMMUNICATIONS 7.5%
Bell Atlantic Corp. ....................... United States 60,000 3,922,500
a Equant NV, N.Y. shs ....................... Netherlands 139,600 13,139,850
GTE Corp. ................................. United States 75,000 5,681,250
a MCI WorldCom Inc. ......................... United States 60,000 5,163,750
a NEXTLINK Communications Inc., A ........... United States 25,000 1,859,375
a Qwest Communications International Inc. ... United States 150,000 4,959,375
Swisscom AG ............................... Switzerland 27,300 10,273,061
Vodafone AirTouch PLC ADR ................. United Kingdom 77,500 15,267,500
-----------
60,266,661
-----------
TRANSPORTATION 4.0%
C.H. Robinson Worldwide Inc. .............. United States 275,000 10,106,250
Expeditors International of Washington Inc. United States 400,000 10,900,000
a Landstar System Inc. ...................... United States 42,400 1,530,377
Southwest Airlines Co. .................... United States 303,750 9,454,219
-----------
31,990,846
-----------
UTILITIES 4.4%
Enron Corp. ............................... United States 225,000 18,393,750
Montana Power Co. ......................... United States 182,800 12,887,400
PG&E Corp. ................................ United States 100,000 3,250,000
Potomac Electric Power Co. ................ United States 35,208 1,036,425
-----------
35,567,575
-----------
COMPANY IN LIQUIDATION
a S & C Liquidating Trust .................. United States 8,487 --
------------
TOTAL COMMON STOCKS (COST $453,502,532) .. 747,912,484
------------
CONVERTIBLE PREFERRED STOCK .1%
Loral Space & Communication Ltd., 6.00%,
cvt. pfd ............................... United States 17,500 883,750
------------
TOTAL CONVERTIBLE PREFERRED STOCK
(COST $1,022,940) ..................... 883,750
------------
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONVERTIBLE BONDS 1.7%
Amazon.com Inc., cvt. sub. note, 144A, 4.75%, 2/01/09 .. United States $ 3,500,000 $ 3,412,500
Omnicom Group Inc., cvt. sub. deb., 144A, 4.25%, 1/03/07 United States 2,000,000 5,065,000
Omnicom Group Inc., cvt. sub. deb., 4.25%, 1/03/07 ..... United States 2,000,000 5,060,000
------------
TOTAL CONVERTIBLE BONDS (COST $8,095,000) .............. 13,537,500
------------
b REPURCHASE AGREEMENT 5.2%
Joint Repurchase Agreement, 4.767%, 7/01/99,
(Maturity Value $41,544,236)
(COST $41,538,735) ..................................... United States 41,538,735 41,538,735
Barclays Capital Inc. ................................
Bear, Stearns & Co. Inc. .............................
Chase Securities Inc. ................................
CIBC Oppenheimer Corp. ...............................
Donaldson, Lufkin & Jenrette Securities Corp. ........
Dresdner Kleinwort Benson, North America LLC
Goldman, Sachs & Co. .................................
NationsBanc Montgomery Securities LLC
Paine Webber Inc. ....................................
Paribas Corp. ........................................
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills & Notes
------------
TOTAL INVESTMENTS (COST $504,159,207) 100.0% ........... 803,872,469
OTHER ASSETS, LESS LIABILITIES ......................... 394,681
------------
NET ASSETS 100.0% ...................................... $804,267,150
============
</TABLE>
(a) Non-income producing.
(b)Investment is through participation in a joint account with other funds
managed by the investment advisor. At June 30, 1999, all repurchase agreements
had been entered into on that date.
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value (cost $504,159,207) ....................................... $ 803,872,469
Receivables:
Investment securities sold ................................................................... 2,814,802
Capital shares sold .......................................................................... 363,458
Dividends and interest ....................................................................... 640,159
-------------
Total assets .............................................................................. 807,690,888
-------------
Liabilities:
Payables:
Capital shares redeemed ...................................................................... 2,078,431
Affiliates ................................................................................... 800,884
Shareholders ................................................................................. 344,937
Distributions to shareholders ................................................................. 60,254
Other liabilities ............................................................................. 139,232
-------------
Total liabilities ......................................................................... 3,423,738
-------------
Net assets, at value ...................................................................... $ 804,267,150
=============
Net assets consist of:
Undistributed net investment income ........................................................... $ 185,821
Net unrealized appreciation ................................................................... 299,713,262
Accumulated net realized loss ................................................................. (4,213,129)
Capital shares ................................................................................ 508,581,196
-------------
Net assets, at value ...................................................................... $ 804,267,150
=============
CLASS A:
Net asset value per share ($708,606,967 / 60,722,505 shares outstanding)* ..................... $ 11.67
=============
Maximum offering price per share ($11.67 / 94.25%) ............................................ $ 12.38
=============
CLASS B:
Net asset value and maximum offering price per share ($1,275,889 / 109,908 shares outstanding)* $ 11.61
=============
CLASS C:
Net asset value per share ($87,057,024 / 7,556,443 shares outstanding)* ....................... $ 11.52
=============
Maximum offering price per share ($11.52 / 99.00%) ............................................ $ 11.64
=============
ADVISOR CLASS:
Net asset value and maximum offering price per share ($7,327,270 / 627,197
shares outstanding) ............................................................................ $ 11.68
=============
</TABLE>
* Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Investment income:
(net of foreign taxes of $87,360)
Dividends .......................................................................... $ 6,527,664
Interest ........................................................................... 3,568,086
------------
Total investment income ........................................................ 10,095,750
------------
Expenses:
Management fees (Note 3) ........................................................... 3,351,597
Distribution fees (Note 3)
Class A ........................................................................... 1,321,367
Class B ........................................................................... 2,243
Class C ........................................................................... 502,062
Transfer agent fees (Note 3) ....................................................... 1,055,886
Custodian fees ..................................................................... 38,135
Reports to shareholders ............................................................ 136,291
Registration and filing fees ....................................................... 90,915
Professional fees .................................................................. 46,125
Directors' fees and expenses ....................................................... 23,359
Other .............................................................................. 18,515
------------
Total expenses ................................................................. 6,586,495
------------
Net investment income .......................................................... 3,509,255
------------
Realized and unrealized gains (losses):
Net realized loss from:
Investments ....................................................................... (3,934,065)
Foreign currency transactions ..................................................... (84,831)
------------
Net realized loss ............................................................. (4,018,896)
Net unrealized appreciation on investments ......................................... 91,630,130
------------
Net realized and unrealized gain .................................................... 87,611,234
------------
Net increase in net assets resulting from operations ................................ $ 91,120,489
============
</TABLE>
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................. $ 3,509,255 $ 2,665,937
Net realized gain (loss) from investments and foreign currency transactions ....... (4,018,896) 45,956,120
Net unrealized appreciation on investments ........................................ 91,630,130 64,966,613
-----------------------------------
Net increase in net assets resulting from operations .......................... 91,120,489 113,588,670
Distributions to shareholders from:
Net investment income:
Class A .......................................................................... (3,027,697) (2,815,157)
Class B .......................................................................... (4,288) --
Class C .......................................................................... (128,642) --
Advisor Class .................................................................... (97,976) (101,907)
Net realized gains:
Class A .......................................................................... (33,108,989) (59,592,831)
Class C .......................................................................... (2,429,861) (1,764,595)
Advisor Class .................................................................... (1,147,869) (1,486,880)
-----------------------------------
Total distributions to shareholders ................................................ (39,945,322) (65,761,370)
Capital share transactions: (Note 2)
Class A .......................................................................... 50,425,565 105,330,108
Class B .......................................................................... 1,206,522 --
Class C .......................................................................... 45,833,064 24,428,866
Advisor Class .................................................................... (10,836,194) 9,460,338
-----------------------------------
Total capital share transactions ................................................... 86,628,957 139,219,312
Net increase in net assets .................................................... 137,804,124 187,046,612
Net assets:
Beginning of year .................................................................. 666,463,026 479,416,414
-----------------------------------
End of year ........................................................................ $ 804,267,150 $ 666,463,026
===================================
Undistributed net investment income included in net assets:
End of year ........................................................................ $ 185,821 $ --
===================================
</TABLE>
See notes to financial statements.
FRANKLIN EQUITY FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Equity Fund (the Fund) is registered under the Investment Company Act
of 1940 as a diversified, open-end 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 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 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 to
distribute substantially 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.
FRANKLIN EQUITY FUND
Notes to Financial Statements (continued)
2. CAPITAL STOCK
The Fund offers four classes of shares: Class A, Class B, Class C and Advisor
Class. Effective January 1, 1999, Class I and Class II were renamed Class A and
Class C, respectively, and the fund began offering a new class of shares, Class
B. Each class of shares differs by its initial sales load, distribution fees,
voting rights on matters affecting a single class and its exchange privilege.
At June 30, 1999, there were 5 billion shares authorized (no par value), of
which 2 billion shares were designated as Class A, 100 million shares as Class
B, 1.9 billion shares as Class C and 1 billion shares as Advisor Class.
Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------------------
1999 1998
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold .................................. 39,060,389 $ 408,867,476 22,473,770 $ 238,141,732
Shares issued in reinvestment of distributions 3,384,894 33,127,015 5,802,636 57,378,546
Shares issued on merger (Note 6) ............. 406,853 4,532,342 -- --
Shares redeemed .............................. (37,961,690) (396,101,268) (17,998,114) (190,190,170)
------------------------------------------------------------------
Net increase ................................. 4,890,446 $ 50,425,565 10,278,292 $ 105,330,108
==================================================================
CLASS B SHARES:*
Shares sold .................................. 113,713 $ 1,249,302
Shares issued in reinvestment of distributions 373 4,043
Shares redeemed .............................. (4,178) (46,823)
------------------------------
Net increase ................................. 109,908 $ 1,206,522
==============================
CLASS C SHARES:
Shares sold .................................. 3,780,337 $ 38,707,315 3,076,695 $ 32,410,808
Shares issued in reinvestment of distributions 245,306 2,364,853 162,921 1,603,453
Shares issued on merger (Note 6) ............. 2,972,886 32,642,288 -- --
Shares redeemed .............................. (2,715,651) (27,881,392) (910,495) (9,585,395)
------------------------------------------------------------------
Net increase ................................. 4,282,878 $ 45,833,064 2,329,121 $ 24,428,866
==================================================================
ADVISOR CLASS SHARES:
Shares sold .................................. 2,069,848 $ 21,245,839 1,602,804 $ 17,239,578
Shares issued in reinvestment of distributions 126,162 1,235,476 160,504 1,588,337
Shares redeemed .............................. (3,106,375) (33,317,509) (903,282) (9,367,577)
------------------------------------------------------------------
Net increase (decrease) ...................... (910,365) $ (10,836,194) 860,026 $ 9,460,338
==================================================================
</TABLE>
*For the period January 1, 1999 (effective date) to June 30, 1999.
FRANKLIN EQUITY FUND
Notes to Financial Statements (continued)
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 net assets
of the Fund as follows:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE MONTH-END NET ASSETS
- -----------------------------------------------------------------------
<S> <C>
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
</TABLE>
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.
The Fund reimburses Distributors up to .25%, 1.00% and 1.00% per year of its
average daily net assets of Class A, Class B and Class C, 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 $432,295 and $53,038,
respectively.
4. INCOME TAXES
At June 30, 1999, the Fund has deferred currency losses occurring subsequent to
October 31, 1998 of $118,463. For tax purposes, such losses will be reflected in
the year ending June 30, 2000.
At June 30, 1999, the Fund has tax basis capital losses of $2,472,743 which may
be carried over to offset future capital gains. Such losses expire in 2007.
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.
At June 30, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $505,897,637 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation ................ $ 317,707,733
Unrealized depreciation ................ (19,732,901)
-------------
Net unrealized appreciation ............ $ 297,974,832
=============
</TABLE>
FRANKLIN EQUITY FUND
Notes to Financial Statements (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended June 30, 1999 aggregated $290,632,304 and $286,621,336, respectively.
6. MERGER WITH TEMPLETON AMERICAN TRUST, INC.
On April 15, 1999, the Fund acquired the net assets of Templeton American Trust,
Inc. pursuant to a plan of reorganization approved by Templeton American Trust,
Inc.'s shareholders. The merger was accomplished by a tax-free exchange of
406,853 Class A shares and 2,972,886 Class B shares of the Fund (valued at
$11.14 and $10.98, respectively) for the net assets of the Templeton American
Trust, Inc. which aggregated $37,174,638, including $8,111,916 of unrealized
appreciation. The merger was accounted for as a pooling-of-interests without
restatement for financial reporting purposes. The combined net assets of the
Fund immediately after the merger were $776,916,624.
FRANKLIN EQUITY FUND
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
FRANKLIN EQUITY FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Equity Fund (the "Fund")
at June 30, 1999, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 5, 1999
FRANKLIN EQUITY FUND
Tax Information
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 38.64% of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended June 30,1999.
