SHAREHOLDER LETTER
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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 stock.
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Dear Shareholder:
We are pleased to bring you this annual report of Franklin Equity Fund, which
covers the fiscal year ended June 30, 2000. During this period, the U.S. economy
grew at a brisk pace with low unemployment and minimal inflation. However,
concerned that an extremely tight labor market might lead to inflation, the U.S.
Federal Reserve Board (the Fed) raised short-term interest rates six times
during the reporting period. U.S. equity markets rose significantly, reaching
record-breaking highs until April 2000, when the Dow Jones(R) Industrial
Average, the S&P 500(R) and the Nasdaq(R) suffered severe declines.(1) The
Nasdaq was particularly hard hit, and by the end of the period, there were signs
that the Fed may have achieved its goal of slowing down economic growth, and
many of these stocks rebounded. Within this environment,
CONTENTS
Shareholder Letter ................. 1
Performance Summary ................ 6
Financial Highlights &
Statement of Investments ........... 10
Financial Statements ............... 19
Notes to
Financial Statements ............... 22
Independent
Auditors' Report ................... 25
Tax Designation .................... 26
[FUND CATEGORY PYRAMID]
(1). The Dow Jones Industrial Average is price-weighted based on the average
market price of 30 blue chip (NYSE) stocks. The Standard & Poor's (S&P) 500
Index consists of 500 stocks chosen for market size, liquidity, and industry
group representation. It is a market-value weighted index (stock price times
number of shares outstanding), with each stock's weight in the index
proportionate to its market value. The Nasdaq Composite index measures all
Nasdaq domestic and non-U.S. based common stocks listed on the Nasdaq Stock
Market(R). The index is market-value weighted and includes over 5,000 companies
(as of 6/30/00).
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 14.
<PAGE>
PORTFOLIO BREAKDOWN
Based on Total Net Assets
6/30/00
Electronic Technology 33.4%
Technology Services 11.6%
Health Technology 8.5%
Finance 7.1%
Telecommunications 6.6%
Energy Minerals 3.0%
Transportation 2.9%
Consumer Non-Durables 2.9%
Utilities 2.8%
Consumer Services 2.4%
Process Industries 2.3%
Other Services 9.6%
Short Term Investments
& Other Net Assets 6.9%
Franklin Equity Fund - Class A delivered a +52.09% cumulative total return as
shown in the Performance Summary on page 6. The Russell(R) 1000 Index, the
Fund's benchmark, provided a return of 9.25% for the same time.(2)
During the 12 months under review, we focused on companies with strong growth
trends, market-leading technologies, high barriers to entry and a keen eye on
their profit model. Because of our emphasis on profitable business models, we
escaped many of the pitfalls experienced by some technology investors in the
first half of 2000.
The Fund's strongest performing areas were the technology and biotech sectors,
along with energy, transportation and telecommunications. In fact, the most
significant reason for our market-beating returns was our overweighting of the
technology sector, relative to the Russell 1000 Index. For example, we benefited
from the strong performance of Cisco Systems, the nation's leading
telecommunications switch and router manufacturer. Our largest holding, JDS
Uniphase, a leading fiber-optic component manufacturer, also contributed to the
Fund's solid performance. Intel and Applied Micro Circuits provided particularly
outstanding returns, as well.
(2). Source: Standard & Poor's Micropal. The Russell 1000 Index measures the
performance of the 1,000 largest companies in the Russell 3000 Index, which
represents approximately 89% of the total market capitalization of the Russell
3000 Index. The index is unmanaged and includes reinvested returns; one cannot
invest directly in an index.
Of course, as might be expected, not every sector performed well. Downward
earnings expectations negatively impacted consumer non-durables companies;
rising interest rates hurt financial service firms; and uncertainties about
potential government legislation, which would give prescription drug benefits to
Medicare recipients, adversely affected pharmaceutical stocks. Taking advantage
of lower stock prices in these sectors, we initiated a position in Warner
Lambert/Pfizer, a market leader possessing what we believed to be attractive
growth prospects. We also initiated positions in retailers, Wal-Mart Stores and
The Gap.
Looking forward, we will continue to focus on leading companies in sectors with
strong growth trends. Believing that the technology revolution is still in its
infancy, we expect to maintain our overweighted position in this sector. We are
also optimistic about growth opportunities for the biotech and pharmaceutical
industries, as well as freight forwarders, who stand to benefit from expanding
global commerce. Although investor concerns about rising interest rates may lead
to severe volatility in the equity markets, we hope to use this to our
advantage, as we search for great companies with strong growth prospects at
attractive valuations.
<TABLE>
<CAPTION>
TOP 10 HOLDINGS
6/30/00
COMPANY % OF TOTAL
SECTOR NET ASSETS
-------------------------------------------------------------------------------
<S> <C>
JDS Uniphase Corp. 3.5%
Electronic Technology
Cisco Systems Inc. 3.5%
Electronic Technology
Intel Corp. 2.2%
Electronic Technology
Enron Corp. 2.1%
Utilities
VERITAS Software Corp. 2.1%
Technology Services
Nokia Corp., ADR 2.0%
Electronic Technology
Oracle Corp. 1.8%
Technology Services
Genentech Inc. 1.8%
Health Technology
Applied Materials Inc. 1.6%
Electronic Technology
Linear Technology Corp. 1.6%
Electronic Technology
</TABLE>
We think it is wise to maintain a healthy respect for the past history of the
U.S. economy's business cycles, and for realistic limits to uninterrupted growth
of America's fastest growing companies. Last year's strong portfolio gains
reflect an extended period of unusually high earnings growth and returns on
capital of leading technology companies. Our allocation at period's end of
almost 50% of the Fund's assets to technology stocks presented both risks and
rewards to the Fund. Overweighting this, or any, sector means that its good or
disappointing performance will have a significant impact on the Fund. The
volatility in the market that we have seen in March and April may be a precursor
of a return to traditional price/earnings and book value analysis -- or it may
be a temporary bump in the road. However, one thing is clear. We cannot expect
the valuations and performance of these stocks to continue in this manner
indefinitely. We will try our hardest to deliver positive performance every year
-- but no one should expect that to be the case for this, or any mutual fund.
Sincerely,
/s/ Serena Perin Vinton
------------------------
Serena Perin Vinton, CFA
Portfolio Manager
Franklin Equity Fund
This discussion reflects our views, opinions and portfolio holdings as of June
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
CLASS A: Subject to the current, maximum 5.75% initial sales charge. Prior to
8/3/98, Fund shares were offered at a lower initial sales charge; thus actual
total returns may differ. Effective 5/1/94, the Fund implemented a Rule 12b-1
plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C: Subject to 1% initial sales charge and 1% CDSC for shares redeemed
within 18 months of investment. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a
limited class of investors.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 6/30/00
One-year total return does not include sales charges. Distributions will vary
based on earnings of the Fund's portfolio and any profits realized from the sale
of the portfolio's securities, as well as the level of operating expenses for
each class. Past distributions are not indicative of future trends. All total
returns include reinvested distributions at net asset value.
<TABLE>
<CAPTION>
CLASS A
<S> <C> <C>
One-Year Total Return +52.09%
Net Asset Value (NAV) $17.01 (6/30/00) $11.67 (6/30/99)
Change in NAV +$5.34
Distributions (7/1/99-6/30/00) Dividend Income $0.0048
Long-Term Capital Gain $0.5642
-------------------------------------------
Total $0.5690
CLASS B
One-Year Total Return +50.90%
Net Asset Value (NAV) $16.79 (6/30/00) $11.61 (6/30/99)
Change in NAV +$5.18
Distributions (7/1/99-6/30/00) Long-Term Capital Gain $0.5642
CLASS C
One-Year Total Return +50.86%
Net Asset Value (NAV) $16.65 (6/30/00) $11.52 (6/30/99)
Change in NAV +$5.13
Distributions (7/1/99-6/30/00) Long-Term Capital Gain $0.5642
ADVISOR CLASS
One-Year Total Return +52.52%
Net Asset Value (NAV) $17.05 (6/30/00) $11.68 (6/30/99)
Change in NAV +$5.37
Distributions (7/1/99-6/30/00) Dividend Income $0.0232
Long-Term Capital Gain $0.5642
-------------------------------------------
Total $0.5874
</TABLE>
Franklin Equity Fund paid distributions derived from long-term capital gains of
56.42 cents ($0.5642) per share in December 1999. The Fund hereby designates
such distributions as capital gain dividends per Internal Revenue Code Section
852 (b)(3).
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF 6/30/00
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (1/1/33)
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +52.09% +233.54% +402.72% +191,769.78%
Average Annual Total Return(2) +43.37% +25.75% +16.83% +11.75%
Value of $10,000 Investment(3) $14,337 $31,443 $47,365 $18,046,128
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +50.90% +69.35%
Average Annual Total Return(2) +46.90% +39.96%
Value of $10,000 Investment(3) $14,690 $16,535
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 5-YEAR (5/1/95)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +50.86% +220.32% +251.00%
Average Annual Total Return(2) +48.32% +25.97% +27.25%
Value of $10,000 Investment(3) $14,832 $31,726 $34,734
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (1/1/33)
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +52.52% +240.15% +412.68% +195,569.27%
Average Annual Total Return(2) +52.52% +27.74% +17.76% +11.88%
Value of $10,000 Investment(3) $15,252 $34,015 $51,268 $19,566,927
</TABLE>
(1). Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current,
applicable, maximum sales charge(s) for that class.
(3). These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
(4). Effective 1/1/97, the Fund began offering Advisor Class shares, which do
not have sales charges or Rule 12b-1 plans. Performance quotations for this
class reflect the following methods of calculation: (a) For periods prior to
1/1/97, a restated figure is used based upon the Fund's Class A performance,
excluding the effect of Class A's maximum initial sales charge and including the
effect of the Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, an
actual Advisor Class figure is used reflecting a deduction of all charges and
fees applicable to that class. Since 1/2/97 (commencement of sales), the
cumulative and average annual total returns of Advisor Class shares were
+150.83% and +30.09%, respectively.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
TOTAL RETURN INDEX COMPARISON
FOR HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes the current, applicable, maximum sales charge(s), Fund
expenses, account fees and reinvested distributions. The unmanaged indexes
differ from the Fund in composition, do not pay management fees or expenses and
include reinvested dividends. One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
6/30/00
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------
<S> <C>
1-Year +43.37%
5-Year +25.75%
10-Year +16.83%
Since Inception (1/1/33) +11.75%
</TABLE>
[CLASS A (7/1/90-6/30/00) LINE GRAPH]
AVERAGE ANNUAL TOTAL RETURN
6/30/00
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------
<S> <C>
1-Year +46.90%
Since Inception (1/1/99) +39.96%
</TABLE>
[CLASS B (1/1/99-6/30/00) LINE GRAPH]
Past performance does not guarantee future results.
AVERAGE ANNUAL TOTAL RETURN
6/30/00
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------------------------
<S> <C>
1-Year +48.32%
5-Year +25.97%
Since Inception (5/1/95) +27.25%
</TABLE>
[CLASS C LINE GRAPH]
AVERAGE ANNUAL TOTAL RETURN
6/30/00
<TABLE>
<CAPTION>
ADVISOR CLASS(**)
-------------------------------------------------------------------------------
<S> <C>
1-Year +52.52%
5-Year +27.74%
10-Year +17.76%
Since Inception (1/1/33) +11.88%
</TABLE>
[ADVISOR CLASS LINE GRAPH]
(*) Source: Standard and Poor's Micropal.
(**) Effective 1/1/97, the Fund began offering Advisor Class shares, which do
not have sales charges or Rule 12b-1 plans. Performance quotations for this
class reflect the following methods of calculation: (a) For periods prior to
1/1/97, a restated figure is used based upon the Fund's Class A performance,
excluding the effect of Class A's maximum initial sales charge and including the
effect of the Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, an
actual Advisor Class figure is used reflecting a deduction of all charges and
fees applicable to that class.
Past performance does not guarantee future results.
FRANKLIN EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------
YEAR ENDED JUNE 30,
--------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............... $11.67 $10.99 $10.16 $ 8.26 $7.24
--------------------------------------------------------------
Income from investment operations:
Net investment income(b) ........................ .01 .06 .05 .05 .06
Net realized and unrealized gains ............... 5.90 1.25 2.08 2.34 1.48
--------------------------------------------------------------
Total from investment operations ................. 5.91 1.31 2.13 2.39 1.54
Less distributions from:
--------------------------------------------------------------
Net investment income ........................... (.01) (.05) (.05) (.06) (.06)
Net realized gains .............................. (.57) (.58) (1.25) (.43) (.46)
--------------------------------------------------------------
Total distributions .............................. (.58) (.63) (1.30) (.49) (.52)
--------------------------------------------------------------
Net asset value, end of year ..................... $17.00 $11.67 $10.99 $10.16 $8.26
==============================================================
Total return(a) .................................. 52.09% 13.01% 22.43% 29.75% 22.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $1,165,175 $708,607 $613,835 $462,972 $366,602
Ratios to average net assets:
Expenses ........................................ .91% .92% .90% .91% .95%
Net investment income ........................... .06% .57% .48% .61% .72%
Portfolio turnover rate .......................... 49.30% 45.99% 38.00% 53.67% 59.86%
</TABLE>
(a) Total return does not reflect sales commissions or contingent deferred sales
charge, and is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended June 30, 1999.
FRANKLIN EQUITY FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS B
----------------------------
YEAR ENDED JUNE 30,
----------------------------
2000 1999(d)
----------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .......................................... $11.61 $10.39
----------------------------
Income from investment operations:
Net investment loss(b) ..................................................... (.10) (.01)
Net realized and unrealized gains .......................................... 5.84 1.28
----------------------------
Total from investment operations ............................................ 5.74 1.27
----------------------------
Less distributions from:
Net investment income ...................................................... -- (.05)
Net realized gains ......................................................... (.57) --
----------------------------
Total distributions ......................................................... (.57) (.05)
----------------------------
Net asset value, end of year ................................................ $16.78 $11.61
============================
Total return(a) ............................................................. 50.90% 12.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................................. $15,229 $1,276
Ratios to average net assets:
Expenses ................................................................... 1.67% 1.56%(c)
Net investment loss ........................................................ (.65%) (.32%)(c)
Portfolio turnover rate ..................................................... 49.30% 45.99%
</TABLE>
(a) Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
(b) Based on average shares outstanding.
(c) Annualized
(d) For the period January 1, 1999 (effective date) to June 30, 1999.
FRANKLIN EQUITY FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.52 $ 10.91 $ 10.12 $ 8.23 $ 7.24
-----------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(b)................ (.10) (.02) (.01) (.02) .02
Net realized and unrealized gains ............. 5.80 1.23 2.05 2.34 1.45
-----------------------------------------------------------------------------
Total from investment operations ............... 5.70 1.21 2.04 2.32 1.47
-----------------------------------------------------------------------------
Less distributions from:
Net investment income ......................... -- (.02) -- -- (.02)
Net realized gains ............................ (.57) (.58) (1.25) (.43) (.46)
-----------------------------------------------------------------------------
Total distributions ............................ (.57) (.60) (1.25) (.43) (.48)
-----------------------------------------------------------------------------
Net asset value, end of year ................... $ 16.65 $ 11.52 $ 10.91 $ 10.12 $ 8.23
=============================================================================
Total return(a)................................. 50.86% 12.11% 21.47% 28.93% 20.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 181,087 $ 87,057 $ 35,717 $ 9,554 $ 4,208
Ratios to average net assets:
Expenses ...................................... 1.67% 1.68% 1.69% 1.72% 1.77%
Net investment loss ........................... (.69%) (.25%) (.28%) (.22%) (.10%)
Portfolio turnover rate ........................ 49.30% 45.99% 38.00% 53.67% 59.86%
</TABLE>
(a) Total return does not reflect sales commissions or contingent deferred sales
charge, and is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended June 30,1999.
FRANKLIN EQUITY FUND
Financial Highlights (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------------
2000 1999 1998 1997(d)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............. $ 11.68 $ 11.00 $ 10.17 $ 8.62
---------------------------------------------------------------------
Income from investment operations:
Net investment income(b) ...................... .04 .08 .07 .03
Net realized and unrealized gains ............. 5.91 1.25 2.08 1.56
---------------------------------------------------------------------
Total from investment operations ............... 5.95 1.33 2.15 1.59
---------------------------------------------------------------------
Less distributions from:
Net investment income ......................... (.02) (.07) (.07) (.04)
Net realized gains ............................ (.57) (.58) (1.25) --
---------------------------------------------------------------------
Total distributions ............................ (.59) (.65) (1.32) (.04)
---------------------------------------------------------------------
Net asset value, end of year ................... $ 17.04 $ 11.68 $ 11.00 $ 10.17
=====================================================================
Total return(a) ................................ 52.52% 13.22% 22.61% 18.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................ $ 12,603 $ 7,327 $ 16,911 $ 6,890
Ratios to average net assets:
Expenses ...................................... .67% .70% .69% .72%(c)
Net investment income ......................... .30% .80% .71% .79%(c)
Portfolio turnover rate ........................ 49.30% 45.99% 38.00% 53.67%
</TABLE>
(a) Total return is not annualized for periods less than one year.
(b) Based on average shares outstanding effective year ended June 30, 1999.
(c) Annualized
(d) For the period January 2, 1997 (effective date) to June 30, 1997.
See notes to financial statements.
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS 90.6%
(a) COMMERCIAL SERVICES 1.4%
Concord EFS Inc. .......................................... United States 500,000 $ 13,000,000
Robert Half International Inc. ............................ United States 200,000 5,700,000
-------------
18,700,000
-------------
(a) CONSUMER DURABLES .8%
Electronic Arts Inc. ...................................... United States 150,000 10,940,625
-------------
CONSUMER NON-DURABLES 2.9%
Gillette Co. .............................................. United States 130,000 4,541,875
PepsiCo Inc. .............................................. United States 150,000 6,665,625
Philip Morris Cos. Inc. ................................... United States 600,000 15,937,500
Procter & Gamble Co. ...................................... United States 80,000 4,580,000
Wm. Wrigley Jr. Co. ....................................... United States 110,000 8,820,625
-------------
40,545,625
-------------
CONSUMER SERVICES 2.4%
(a) Clear Channel Communications Inc. ......................... United States 115,000 8,625,000
(a) Entercom Communications Corp. ............................. United States 95,200 4,641,000
(a) Fox Entertainment Group Inc., A ........................... United States 300,000 9,112,500
(a) SFX Entertainment Inc. .................................... United States 125,000 5,664,063
Time Warner Inc. .......................................... United States 60,000 4,560,000
-------------
32,602,563
-------------
ELECTRONIC TECHNOLOGY 32.9%
(a) Agilent Technologies Inc. ................................. United States 100,900 7,441,375
(a) Altera Corp. .............................................. United States 150,000 15,290,625
(a) Applied Materials Inc. .................................... United States 250,000 22,656,250
(a) Applied Micro Circuits Corp. .............................. United States 120,000 11,850,000
(a) Broadcom Corp., A ......................................... United States 40,000 8,757,500
(a) Celestica Inc. ............................................ Canada 240,500 11,934,813
(a) CIENA Corp. ............................................... United States 90,000 15,001,875
(a) Cisco Systems Inc. ........................................ United States 750,000 47,671,875
(a) Cobalt Networks Inc. ...................................... United States 98,600 5,706,475
(a) Comverse Technology Inc. .................................. United States 150,000 13,950,000
Corning Inc. .............................................. United States 61,100 16,489,363
(a) EMC Corp. ................................................. United States 280,000 21,542,500
(a) Infineon Technologies AG, ADR ............................. Germany 102,700 8,138,975
Intel Corp. ............................................... United States 225,000 30,079,688
International Business Machines Corp. ..................... United States 60,000 6,573,750
(a) Intersil Holding Corp. .................................... United States 106,200 5,741,438
(a) JDS Uniphase Corp. ........................................ United States 400,000 47,950,000
(a) Juniper Networks Inc. ..................................... United States 140,000 20,378,750
Linear Technology Corp. ................................... United States 350,000 22,378,125
Motorola Inc. ............................................. United States 375,000 10,898,438
Nokia Corp., ADR .......................................... Finland 560,000 27,965,000
Nortel Networks Corp. ..................................... Canada 280,000 19,110,000
(a) Redback Networks Inc. ..................................... United States 30,000 5,340,000
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (cont.)
ELECTRONIC TECHNOLOGY (CONT.)
(a) SDL Inc. .................................................. United States 30,000 $ 8,555,625
(a) Stratos Lightwave Inc. .................................... United States 30,600 852,975
(a) Taiwan Semiconductor Manufacturing Co, Ltd., ADR .......... Taiwan 197,600 7,669,350
Tektronix Inc. ............................................ United States 294,400 21,785,600
(a) Tellabs Inc. .............................................. United States 150,000 10,265,625
-------------
451,975,990
-------------
ENERGY MINERALS 3.0%
Devon Energy Corp. ........................................ United States 250,000 14,046,875
Exxon Mobil Corp. ......................................... United States 132,015 10,363,178
Texaco Inc. ............................................... United States 100,000 5,325,000
Union Pacific Resources Group Inc. ........................ United States 533,400 11,734,800
-------------
41,469,853
-------------
FINANCE 7.1%
American Express Co. ...................................... United States 210,000 10,946,250
American International Group Inc. ......................... United States 150,000 17,625,000
Capital One Financial Corp. ............................... United States 350,000 15,618,750
Citigroup Inc. ............................................ United States 280,000 16,870,000
Federated Investors Inc., B ............................... United States 375,000 13,148,438
Fifth Third Bancorp ....................................... United States 100,000 6,325,000
Fleet Boston Financial Corp. .............................. United States 177,660 6,040,440
Morgan Stanley Dean Witter & Co. .......................... United States 43,288 3,603,726
Providian Financial Corp. ................................. United States 80,000 7,200,000
-------------
97,377,604
-------------
HEALTH SERVICES .3%
Cardinal Health Inc. ...................................... United States 50,000 3,700,000
-------------
HEALTH TECHNOLOGY 8.5%
Abbott Laboratories ....................................... United States 250,000 11,140,625
(a) Amgen Inc. ................................................ United States 250,000 17,562,500
Baxter International Inc. ................................. United States 230,000 16,171,875
Bristol-Myers Squibb Co. .................................. United States 140,000 8,155,000
(a) Genentech Inc. ............................................ United States 140,000 24,080,000
(a) Packard BioScience Co. .................................... United States 199,100 3,384,700
Pfizer Inc. ............................................... United States 412,500 19,800,000
Roche Holding AG .......................................... Switzerland 700 6,835,988
Schering-Plough Corp. ..................................... United States 200,000 10,100,000
-------------
117,230,688
-------------
(a) INDUSTRIAL SERVICES 1.2%
AES Corp. ................................................. United States 350,000 15,968,750
-------------
NON-ENERGY MINERALS .6%
De Beers Consolidated Mines AG, ADR ....................... South Africa 325,000 7,901,563
-------------
PROCESS INDUSTRIES 2.3%
Cambrex Corp. ............................................. United States 180,000 8,100,000
Ecolab Inc. ............................................... United States 200,000 7,812,500
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (cont.)
PROCESS INDUSTRIES (CONT.)
General Electric Co. ...................................... United States 225,000 $ 11,925,000
(a) Packaging Corp. of America ................................ United States 403,600 4,086,450
--------------
31,923,950
--------------
PRODUCER MANUFACTURING 1.8%
Avery Dennison Corp. ...................................... United States 85,000 5,705,625
Honeywell International Inc. .............................. United States 220,000 7,411,250
Tyco International Ltd. ................................... Bermuda 250,000 11,843,750
--------------
24,960,625
--------------
REAL ESTATE 1.0%
Equity Office Properties Trust ............................ United States 300,000 8,268,750
MeriStar Hospital Corp. ................................... United States 250,000 5,250,000
--------------
13,518,750
--------------
RETAIL TRADE 1.7%
GAP Inc. .................................................. United States 275,000 8,593,750
Target Corp. .............................................. United States 100,000 5,800,000
Wal-Mart Stores Inc. ...................................... United States 150,000 8,643,750
--------------
23,037,500
--------------
TECHNOLOGY SERVICES 10.7%
(a) Art Technology Group Inc. ................................. United States 75,000 7,570,313
(a) Brio Technology Inc. ...................................... United States 300,000 6,356,250
Electronic Data Systems Corp. ............................. United States 100,000 4,125,000
(a) Equant NV, N.Y. shs. ...................................... Netherlands 125,000 5,375,000
(a) i2 Technologies Inc. ...................................... United States 175,000 18,246,484
(a) InfoSpace Inc. ............................................ United States 80,000 4,420,000
(a) Microsoft Corp. ........................................... United States 50,000 4,000,000
(a) Oracle Corp. .............................................. United States 300,000 25,218,750
(a) Sapient Corp. ............................................. United States 130,000 13,901,875
(a) Siebel Systems Inc. ....................................... United States 100,000 16,356,250
(a,c)Storagenetworks Inc. ...................................... United States 84,100 7,590,025
(a) VERITAS Software Corp. .................................... United States 255,000 28,818,984
(a) Vignette Corp. ............................................ United States 100,000 5,201,563
--------------
147,180,494
--------------
TELECOMMUNICATIONS 6.3%
(a) Allegiance Telecom Inc. ................................... United States 75,000 4,800,000
AT&T Corp ................................................. United States 44,774 1,415,973
GTE Corp. ................................................. United States 125,000 7,781,250
(a) KPNQwest NV ............................................... Netherlands 75,000 2,971,875
(a) NEXTLINK Communications Inc., A ........................... United States 200,000 7,587,500
(a) Qwest Communications International Inc. ................... United States 250,000 12,421,875
Sprint Corp. (FON Group) .................................. United States 250,000 12,750,000
(a) Time Warner Telecom Inc., A ............................... United States 100,000 6,437,500
Verizon Communications .................................... United States 60,000 3,048,750
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (cont.)
TELECOMMUNICATIONS (CONT.)
Vodafone AirTouch PLC, ADR .............................. United Kingdom 285,000 $ 11,809,688
(a) VoiceStream Wireless Corp. .............................. United States 130,000 15,118,594
--------------
86,143,005
--------------
TRANSPORTATION 2.9%
C.H. Robinson Worldwide Inc. ............................ United States 250,000 12,375,000
Expeditors International of Washington Inc. ............. United States 350,000 16,625,000
Southwest Airlines Co. .................................. United States 455,625 8,628,398
United Parcel Service Inc., B ........................... United States 50,000 2,950,000
--------------
40,578,398
--------------
UTILITIES 2.8%
Enron Corp. ............................................. United States 450,000 29,025,000
Montana Power Co. ....................................... United States 275,000 9,710,932
--------------
38,735,932
--------------
TOTAL COMMON STOCKS (COST $651,597,462) ................. 1,244,491,915
--------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C> <C>
CONVERTIBLE BONDS 2.5%
COMMERCIAL SERVICES .8%
Omnicom Group Inc., cvt. sub. deb., 4.25%, 1/03/07 ...... United States $ 2,000,000 5,652,500
Omnicom Group Inc., cvt. sub. deb, 144A, 4.25%, 1/03/07 . United States 2,000,000 5,652,500
----------
11,305,000
----------
ELECTRONIC TECHNOLOGY .5%
Redback Networks Inc., cvt., 144A, 5.00%, 4/01/07 ....... United States 5,500,000 6,321,590
----------
TECHNOLOGY SERVICES .9%
BEA Systems Inc., cvt., 144A, 4.00%, 12/15/06 ........... United States 8,000,000 12,470,000
----------
TELECOMMUNICATIONS .3%
Level 3 Communications Inc., cvt., 6.00%, 3/15/10 ....... United States 5,000,000 4,600,500
----------
TOTAL CONVERTIBLE BONDS (COST $22,089,023) 34,697,090
----------
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
COUNTRY AMOUNT VALUE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b) REPURCHASE AGREEMENT 7.2%
Joint Repurchase Agreement, 6.563%, 7/3/00
(Maturity Value $98,790,410)
(COST $98,736,405) ............................ United States $ 98,736,405 $ 98,736,405
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Goldman, Sachs & Co.
Greenwich Capital Markets Inc.
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
Paine Webber Inc.
Paribas Corp.
UBS Warburg
Collateralized by U.S. Treasury Bills & Notes
---------------
TOTAL INVESTMENTS (COST $772,422,890) 100.3% ..... 1,377,925,410
OTHER ASSETS, LESS LIABILITIES (.3%) ............. (3,831,040)
---------------
NET ASSETS 100.0% ................................ $ 1,374,094,370
===============
</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, 2000, all repurchase
agreements had been entered into on that date.
(c) Sufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities:
Cost ............................................................................... $ 772,422,890
==============
Value .............................................................................. 1,377,925,410
Receivables:
Investment securities sold .......................................................... 7,872,355
Capital shares sold ................................................................. 8,092,500
Dividends and interest .............................................................. 945,822
--------------
Total assets ...................................................................... 1,394,836,087
--------------
Liabilities:
Payables:
Investment securities purchased ..................................................... 17,381,374
Capital shares redeemed ............................................................. 1,384,515
Affiliates .......................................................................... 1,458,099
Shareholders ........................................................................ 479,299
Other liabilities .................................................................... 38,430
--------------
Total liabilities ................................................................. 20,741,717
--------------
Net assets, at value ............................................................. $1,374,094,370
==============
Net assets consist of:
Net unrealized appreciation .......................................................... $ 605,502,520
Accumulated net realized gain ........................................................ 67,453,758
Capital shares ....................................................................... 701,138,092
--------------
Net assets, at value .............................................................. $1,374,094,370
==============
CLASS A:
Net assets value per share ($1,165,175,321 / 68,525,027 shares outstanding)(*) ....... $17.00
==============
Maximum offering price per share ($17.00 / 94.25%) ................................... $18.04
==============
CLASS B:
Net asset value and maximum offering price per share ($15,229,279 / 907,444
shares outstanding)* ................................................................. $16.78
==============
CLASS C:
Net asset value per share ($181,086,706 / 10,877,978 shares outstanding)* ............ $16.65
==============
Maximum offering price per share ($16.65 / 99%) ...................................... $16.82
==============
ADVISOR CLASS:
Net asset value and maximum offering price per share ($12,603,064 / 739,605
shares outstanding) .................................................................. $17.04
==============
</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, 2000
<TABLE>
<S> <C>
Investment income:
(net of foreign taxes of $61,911)
Dividends ............................................................................. $ 6,239,332
Interest .............................................................................. 3,880,166
------------
Total investment income ............................................................. 10,119,498
------------
Expenses:
Management fees (Note 3) .............................................................. 5,012,245
Distribution fees (Note 3)
Class A .............................................................................. 2,196,089
Class B .............................................................................. 58,016
Class C .............................................................................. 1,237,416
Transfer agent fees (Note 3) .......................................................... 1,481,371
Custodian fees ........................................................................ 15,845
Reports to shareholders ............................................................... 265,186
Registration and filing fees .......................................................... 118,101
Professional fees ..................................................................... 36,103
Directors' fees and expenses .......................................................... 34,217
------------
Total expenses ...................................................................... 10,454,589
------------
Net investment loss ............................................................... (335,091)
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments .......................................................................... 110,071,613
Foreign currency transactions ........................................................ (13,859)
------------
Net realized gain .................................................................. 110,057,754
Net unrealized appreciation on investments ............................................ 305,789,258
------------
Net realized and unrealized gain ....................................................... 415,847,012
------------
Net increase in net assets resulting from operations ................................... $415,511,921
============
</TABLE>
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS FOR THE
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .................................................. $ (335,091) $ 3,509,255
Net realized gain (loss) from investments and foreign currency transactions ... 110,057,754 (4,018,896)
Net unrealized appreciation on investments .................................... 305,789,258 91,630,130
--------------------------------------
Net increase in net assets resulting from operations ........................ 415,511,921 91,120,489
Distributions to shareholders from:
Net investment income:
Class A ...................................................................... (227,134) (3,027,697)
Class B ...................................................................... -- (4,288)
Class C ...................................................................... -- (128,642)
Advisor Class ................................................................ (14,870) (97,976)
Net realized gains:
Class A ...................................................................... (33,225,141) (33,108,989)
Class B ...................................................................... (127,137) --
Class C ...................................................................... (4,285,718) (2,429,861)
Advisor Class ................................................................ (361,597) (1,147,869)
--------------------------------------
Total distributions to shareholders ............................................ (38,241,597) (39,945,322)
Capital share transactions: (Note 2)
Class A ...................................................................... 127,497,357 50,425,565
Class B ...................................................................... 12,125,314 1,206,522
Class C ...................................................................... 51,389,298 45,833,064
Advisor Class ................................................................ 1,544,927 (10,836,194)
--------------------------------------
Total capital share transactions ............................................... 192,556,896 86,628,957
Net increase in net assets .................................................. 569,827,220 137,804,124
Net assets:
Beginning of year .............................................................. 804,267,150 666,463,026
--------------------------------------
End of year .................................................................... $ 1,374,094,370 $ 804,267,150
======================================
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.
On July 14, 2000, the Shareholders approved an Agreement and Plan of
Reorganization whereby the Fund would be reorganized and its domicile changed
from a California corporation to a Delaware business trust effective August 10,
2000. In connection with these changes, the Fund's name will change to Franklin
Growth and Income Fund.
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.
FRANKLIN EQUITY FUND
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
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 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, 2000, 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,
------------------------------------------------------------------
2000 1999(a)
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES:
Shares sold .................................. 42,731,775 $ 636,675,215 39,060,389 $ 408,867,476
Shares issued in reinvestment of distributions 2,350,735 30,771,000 3,384,894 33,127,015
Shares issued on merger(b).................... -- -- 406,853 4,532,342
Shares redeemed .............................. (37,279,988) (539,948,858) (37,961,690) (396,101,268)
------------------------------------------------------------------
Net increase ................................. 7,802,522 $ 127,497,357 4,890,446 $ 50,425,565
==================================================================
CLASS B SHARES:
Shares sold .................................. 897,485 $ 13,705,588 113,713 $ 1,249,302
Shares issued in reinvestment of distributions 9,243 120,043 373 4,043
Shares redeemed .............................. (109,192) (1,700,317) (4,178) (46,823)
------------------------------------------------------------------
Net increase ................................. 797,536 $ 12,125,314 109,908 $ 1,206,522
==================================================================
CLASS C SHARES:
Shares sold .................................. 7,145,650 $ 107,062,562 3,780,337 $ 38,707,315
Shares issued in reinvestment of distributions 303,332 3,906,920 245,306 2,364,853
Shares issued on merger(b).................... -- -- 2,972,886 32,642,288
Shares redeemed .............................. (4,127,447) (59,580,184) (2,715,651) (27,881,392)
------------------------------------------------------------------
Net increase ................................. 3,321,535 $ 51,389,298 4,282,878 $ 45,833,064
==================================================================
ADVISOR CLASS SHARES:
Shares sold .................................. 825,504 $ 13,657,006 2,069,848 $ 21,245,839
Shares issued in reinvestment of distributions 27,512 360,412 126,162 1,235,476
Shares redeemed .............................. (740,608) (12,472,491) (3,106,375) (33,317,509)
------------------------------------------------------------------
Net increase (decrease) ...................... 112,408 $ 1,544,927 (910,365) $ (10,836,194)
==================================================================
</TABLE>
(a) For the period January 1, 1999 (effective date) to June 30, 1999 for Class
B shares.
(b) During the year ended June 30, 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.
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 year of $635,423 and $46,820,
respectively.
The Fund paid transfer agent fees of $1,481,371 of which $1,144,206 was paid to
Investor Services.
Included in professional fees are legal fees of $13,511 that were paid to a law
firm in which a partner is an officer of the Fund.
4. INCOME TAXES
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, 2000, the net unrealized appreciation based on the cost of
investments for income tax purposes of $772,480,288 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $627,040,802
Unrealized depreciation (21,595,680)
-------------
Net unrealized appreciation $605,445,122
=============
</TABLE>
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended June 30, 2000 aggregated $583,782,636 and $482,734,965, respectively.
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, 2000, 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
accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States, 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, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 4, 2000
FRANKLIN EQUITY FUND
Tax Designation
Under Section 852(b)(3)(C) of the Internal Revenue Code, the Fund hereby
designates $82,075,356 as a capital gain dividend for the fiscal year ended June
30, 2000.
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby
designates 100% of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended June 30, 2000.
