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 stock.
Dear Shareholder:
We are pleased to bring you this semiannual report for Franklin Equity Fund,
which covers the six months ended December 31, 1999. During this time, many
Asian countries recovered from recent economic crises, Europe experienced
renewed economic growth and the U.S. economy continued to move ahead at an
unparalleled pace. Although the U.S. Federal Reserve Board (the Fed) raised
interest rates in August and November on concerns about future inflation, the
U.S. market continued its upward march. The Standard & Poor's(R) S&P 500(R) and
Dow Jones(R) Industrial Average provided returns of 7.71% and 5.59%,
respectively, for the reporting period. Within this environment, Franklin Equity
Fund - Class A delivered a +35.11% six-month cumulative total return, as shown
in the Performance Summary on page 4. The fund's benchmark index, the Russell
1000, posted a 8.40% total return for the same period.(1)
CONTENTS
<TABLE>
<S> <C>
Shareholder Letter ......... 1
Performance Summary ........ 4
Financial Highlights &
Statement of Investments ... 6
Financial Statements ....... 15
Notes to
Financial Statements ....... 18
</TABLE>
1. Source: Standard & Poor's Micropal. The index is unmanaged and includes
reinvested returns; one cannot invest directly in an index.
You will find a complete listing of portfolio holdings, including dollar value
and number of shares or principal amount, beginning on page 10 of this report.
[FUND CATEGORY PYRAMID GRAPHIC NOT SHOWN]
<PAGE>
PORTFOLIO BREAKDOWN
Based on Total Net Assets
12/31/99
<TABLE>
<S> <C>
Electronic Technology 26.69%
Technology Services 15.50%
Health Technology 8.87%
Finance 7.40%
Telecommunications 6.23%
Consumer Non-Durables 3.75%
Consumer Services 3.52%
Transportation 3.35%
Utilities 3.20%
Other Sectors 13.74%
Cash & Equivalents 7.75%
</TABLE>
The fund's strong relative performance can be attributed, in large part, to its
overweight position in the technology sector, whose strength overshadowed
weakness in other parts of the market. Although, this sector provided superior
growth opportunities, it included companies that normally pay minimal dividends,
resulting in a lower yield for the fund during the past six months. In addition
to its technology positions, the fund benefited from its holdings in the small-
and mid-cap sectors, which performed well during the six months under review. As
of December 31, 1999, roughly 20% of the fund's assets were in small- and
mid-cap stocks.
Fund technology holdings that performed well included JDS Uniphase Corp., a
leading fiber-optic components player benefiting from the telecommunications
infrastructure expansion, i2 Technologies Inc., a leading supply chain
management and business process optimization software company, and VERITAS
Software Corp., a data storage management software manufacturer. Our
biotechnology holdings, Amgen Inc. and Genentech Inc., also contributed to the
fund's positive performance, as both these companies outperformed the overall
market during the six months under review.
However, not all sectors demonstrated upward momentum during the review period.
The financial sector continued to underperform the market due to rising interest
rates and fears about future interest-rate hikes. Fortunately, our underweight
position in financial stocks relative to the Russell 1000, somewhat mitigated
the impact of their disappointing performance.
Many energy, pharmaceutical, health technology and telecommunications stocks
also delivered disappointing performances. Meanwhile, believing that the
telecommunications and health technology sectors possess exciting long-term
growth prospects, we took advantage of their weakness during the reporting
period, and selectively added to some of our positions. For example, we
initiated a position in Genentech, a leading biotechnology company, and added to
our holdings of MCI WorldCom, a company we believe is ideally positioned to
benefit from the deregulation of international telecommunications markets and
the enormous growth in data traffic.
Looking forward, we remain optimistic about prospects for domestic equity
markets, despite the possibility of interest-rate tightening by the Fed. In
light of the revolutionary changes in computing and telecommunications that are
underpinning the knowledge-based "New Economy," we believe the technology
sector's long-term growth trends continue to be very attractive. Accordingly, we
expect to maintain an overweight position in this sector, as well as in the
health care sector, where we expect significant growth due to aging population
demographics.
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
December 31, 1999, the end of the reporting period. 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.
PORTFOLIO BREAKDOWN
Based on Total Net Assets
12/31/99
<TABLE>
<CAPTION>
% OF TOTAL
SECTOR NET ASSETS
<S> <C>
Electronic Technology 26.69%
Technology Services 15.50%
Health Technology 8.87%
Finance 7.40%
Telecommunications 6.23%
Consumer Non-Durables 3.75%
Consumer Services 3.52%
Transportation 3.35%
Utilities 3.20%
Other Sectors 13.74%
Cash & Equivalents 7.75%
</TABLE>
TOP 10 HOLDINGS
12/31/99
<TABLE>
<CAPTION>
COMPANY, % OF TOTAL
INDUSTRY NET ASSETS
- ----------------------------------
<S> <C>
JDS Uniphase Corp. 3.90%
Electronic Technology
Cisco Systems Inc. 3.73%
Electronic Technology
i2 Technologies Inc. 2.54%
Technology Services
Nokia Corp., ADR, A 2.47%
Electronic Technology
Oracle Corp. 2.34%
Technology Services
VERITAS Software Co. 2.26%
Technology Services
Genentech Inc. 2.00%
Health Technology
Sapient Corp. 1.96%
Technology Services
Enron Corp. 1.86%
Utilities
Intel Corp. 1.72%
Electronic Technology
</TABLE>
CLASS A (formerly Class I): Subject to the current, maximum 5.75% initial sales
charge. Prior to August 3, 1998, fund shares were offered at a lower initial
sales charge; thus actual total returns may differ. Effective May 1, 1994, the
fund implemented a Rule 12b-1 plan, which affects subsequent performance.
CLASS B: Subject to no initial sales charge, but subject to a contingent
deferred sales charge (CDSC) declining from 4% to 0% over six years. These
shares have higher annual fees and expenses than Class A shares.
CLASS C (formerly Class II): Subject to 1% initial sales charge and 1% CDSC for
shares redeemed within 18 months of investment. These shares have higher annual
fees and expenses than Class A shares.
ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a
limited class of investors.
SIX-MONTH PERFORMANCE SUMMARY AS OF 12/31/99
Six-month total return does not include sales charges. Distributions will vary
based on earnings of the fund's portfolio and any profits realized from the sale
of the portfolio's securities. Past distributions are not indicative of future
trends. All total returns include reinvested distributions at net asset value.
<TABLE>
<S> <C> <C> <C>
CLASS A
Six-Month Total Return +35.11%
Net Asset Value (NAV) (12/31/99) $15.11 (6/30/99) $11.67
Change in NAV +$3.44
Distributions (7/1/99-12/31/99) Dividend Income $0.0048
Long-Term Capital Gain $0.5642
------------------------------------------
Total $0.5690
CLASS B
Six-Month Total Return +34.54%
Net Asset Value (NAV) (12/31/99) $14.97 (6/30/99) $11.61
Change in NAV +$3.36
Distributions (7/1/99-12/31/99) Long-Term Capital Gain $0.5642
CLASS C
Six-Month Total Return +34.55%
Net Asset Value (NAV) (12/31/99) $14.85 (6/30/99) $11.52
Change in NAV +$3.33
Distributions (7/1/99-12/31/99) Long-Term Capital Gain $0.5642
ADVISOR CLASS
Six-Month Total Return +35.26%
Net Asset Value (NAV) (12/31/99) $15.12 (6/30/99) $11.68
Change in NAV +$3.44
Distributions (7/1/99-12/31/99) Dividend Income $0.0232
Long-Term Capital Gain $0.5642
-----------------------------------------
Total $0.5874
</TABLE>
Past performance does not guarantee future results.
ADDITIONAL PERFORMANCE
AS OF QUARTER ENDED 12/31/99
<TABLE>
<CAPTION>
INCEPTION
CLASS A 1-YEAR 5-YEAR 10-YEAR (1/1/33)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cumulative Total Return(1) +52.44% +257.15% +356.82% +170,338.11%
Average Annual Total Return(2) +43.73% +27.47% +15.72% +11.64%
Value of $10,000 Investment(3) $14,373 $33,654 $43,070 $16,030,394
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS B 1-YEAR (1/1/99)
- --------------------------------------------------------------------------------
<S> <C> <C>
Cumulative Total Return(1) +50.99% +50.99%
Average Annual Total Return(2) +46.99% +46.99%
Value of $10,000 Investment(3) $14,699 $14,699
</TABLE>
<TABLE>
<CAPTION>
INCEPTION
CLASS C 1-YEAR 3-YEAR (5/1/95)
- -----------------------------------------------------------------
<S> <C> <C> <C>
Cumulative Total Return(1) +51.16% +113.63% +213.05%
Average Annual Total Return(2) +48.72% +28.35% +27.39%
Value of $10,000 Investment(3) $14,872 $21,144 $30,979
</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) +52.76% +263.61% +365.08% +173,420.19%
Average Annual Total Return(2) +52.76% +29.46% +16.61% +11.78%
Value of $10,000 Investment(3) $15,276 $36,361 $46,508 $17,352,019
</TABLE>
For updated performance figures, see "Prices and Performance" on the Internet at
www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
(1). Cumulative total return represents the change in value of an investment
over the periods indicated and does not include sales charges.
(2). Average annual total return represents the average annual change in value
of an investment over the periods indicated and includes the current,
applicable, maximum sales charge(s) for that class.
(3). These figures represent the value of a hypothetical $10,000 investment in
the fund over the periods indicated and include the current, applicable, maximum
sales charge(s) for that class.
(4). On January 2, 1997, the fund began selling Advisor Class shares to certain
eligible investors as described in the prospectus. This share class does not
have sales charges or a Rule 12b-1 plan. Performance quotations have been
calculated as follows: (a) For periods prior to January 2, 1997, figures reflect
Class A performance, excluding the effect of the Class A sales charge, but
including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for
periods after January 1, 1997, figures reflect actual Advisor Class performance,
including the deduction of all fees and expenses applicable only to that class.
Since January 2, 1997 (commencement of sales), the cumulative and average annual
total returns of Advisor Class shares were +122.44% and +30.54% respectively.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, and you may have a gain or loss when you
sell your shares.
FRANKLIN EQUITY FUND
Financial Highlights
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, 1999 -------------------------------------------------------------
(UNAUDITED)(1) 1999(1) 1998 1997 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 11.67 $ 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 ............ 4.01 1.25 2.08 2.34 1.48 1.33
---------------------------------------------------------------------------------
Total from investment operations .............. 4.01 1.31 2.13 2.39 1.54 1.41
---------------------------------------------------------------------------------
Less distributions from:
Net investment income ........................ (.01) (.05) (.05) (.06) (.06) (.08)
Net realized gains ........................... (.56) (.58) (1.25) (.43) (.46) (.62)
---------------------------------------------------------------------------------
Total distributions ........................... (.57) (.63) (1.30) (.49) (.52) (.70)
---------------------------------------------------------------------------------
Net asset value, end of period ................ $ 15.11 $ 11.67 $ 10.99 $ 10.16 $ 8.26 $ 7.24
---------------------------------------------------------------------------------
Total return* ................................. 35.11% 13.01% 22.43% 29.75% 22.16% 23.78%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $ 940,840 $708,607 $613,835 $462,972 $366,602 $317,463
Ratios to average net assets:
Expenses ..................................... .93%** .92% .90% .91% .95% .95%
Net investment income ........................ .02%** .57% .48% .61% .72% 1.21%
Portfolio turnover rate ....................... 26.51% 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) Based on average shares outstanding.
FRANKLIN EQUITY FUND
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CLASS B(1)
--------------------------------------
SIX MONTHS ENDED
DECEMBER 31, 1999 YEAR ENDED
(UNAUDITED) JUNE 30, 1999(2)
--------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 11.61 $ 10.39
-----------------------------------
Income from investment operations:
Net investment loss ............... (.05) (.01)
Net realized and unrealized gains . 3.97 1.28
-----------------------------------
Total from investment operations ... 3.92 1.27
-----------------------------------
Less distributions from:
Net investment income ............. -- (.05)
Net realized gains ................ (.56) --
-----------------------------------
Total distributions ................ (.56) (.05)
-----------------------------------
Net asset value, end of period ..... $ 14.97 $ 11.61
-----------------------------------
Total return* ...................... 34.54% 12.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $ 4,327 $ 1,276
Ratios to average net assets:
Expenses .......................... 1.70%** 1.56%**
Net investment loss ............... (.74%)** (.32%)**
Portfolio turnover rate ............ 26.51% 45.99%
</TABLE>
* Total return does not reflect contingent deferred sales charge, and is
not annualized for periods less than one year.
** Annualized.
(1) Based on average shares outstanding.
(2) For the period January 1, 1999 (effective date) to June 30, 1999.
FRANKLIN EQUITY FUND
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, 1999 -----------------------------------------------------------
(UNAUDITED)(1) 1999(1) 1998 1997 1996 1995(2)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $11.52 $10.91 $10.12 $ 8.23 $7.24 $6.65
----------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.05) (.02) (.01) (.02) .02 .01
Net realized and unrealized gains 3.94 1.23 2.05 2.34 1.45 .62
----------------------------------------------------------------------
Total from investment operations 3.89 1.21 2.04 2.32 1.47 .63
----------------------------------------------------------------------
Less distributions from:
Net investment income -- (.02) -- -- (.02) (.04)
Net realized gains (.56) (.58) (1.25) (.43) (.46) --
----------------------------------------------------------------------
Total distributions (.56) (.60) (1.25) (.43) (.48) (.04)
----------------------------------------------------------------------
Net asset value, end of period $14.85 $11.52 $10.91 $10.12 $8.23 $7.24
----------------------------------------------------------------------
Total return* 34.55% 12.11% 21.47% 28.93% 20.94% 9.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $121,397 $87,057 $35,717 $9,554 $4,208 $342
Ratios to average net assets:
Expenses 1.70%** 1.68% 1.69% 1.72% 1.77% 1.77%**
Net investment income (loss) (.76%)** (.25%) (.28%) (.22%) (.10%) .74%**
Portfolio turnover rate 26.51% 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) Based on average shares outstanding.
(2) For the period May 1, 1995 (effective date) to June 30, 1995.
FRANKLIN EQUITY FUND
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
ADVISOR CLASS
---------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, 1999 ---------------------------------
(UNAUDITED)(1) 1999(1) 1998 1997(2)
---------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 11.68 $ 11.00 $ 10.17 $ 8.62
---------------------------------------------------
Income from investment operations:
Net investment income ............. .01 .08 .07 .03
Net realized and unrealized gains . 4.01 1.25 2.08 1.56
---------------------------------------------------
Total from investment operations ... 4.02 1.33 2.15 1.59
---------------------------------------------------
Less distributions from:
Net investment income ............. (.02) (.07) (.07) (.04)
Net realized gains ................ (.56) (.58) (1.25) --
---------------------------------------------------
Total distributions ................ (.58) (.65) (1.32) (.04)
---------------------------------------------------
Net asset value, end of period ..... $ 15.12 $ 11.68 $ 11.00 $ 10.17
---------------------------------------------------
Total return* ...................... 35.26% 13.22% 22.61% 18.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $ 10,148 $ 7,327 $ 16,911 $ 6,890
Ratios to average net assets:
Expenses .......................... .70%** .70% .69% .72%**
Net investment income ............. .24%** .80% .71% .79%**
Portfolio turnover rate ............ 26.51% 45.99% 38.00% 53.67%
</TABLE>
* Total return is not annualized for periods less than one year.
** Annualized.
(1) Based on average shares outstanding.
(2) For the period January 2, 1997 (effective date) to June 30, 1997.
See notes to financial statements.
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS 90.2%
<S> <C> <C> <C>
a COMMERCIAL SERVICES 1.0%
Concord EFS Inc. ........................................ United States 321,600 $ 8,281,200
FreeMarkets Inc. ........................................ United States 8,800 3,003,550
-----------
11,284,750
-----------
a CONSUMER DURABLES .8%
Electronic Arts Inc. .................................... United States 100,000 8,400,000
-----------
CONSUMER NON-DURABLES 3.8%
Gillette Co. ............................................ United States 130,000 5,354,375
Nike Inc., B ............................................ United States 115,000 5,699,688
PepsiCo Inc. ............................................ United States 150,000 5,287,500
Philip Morris Cos. Inc. ................................. United States 170,000 3,941,875
Procter & Gamble Co. .................................... United States 100,000 10,956,250
Wm. Wrigley Jr. Co. ..................................... United States 110,000 9,123,125
-----------
40,362,813
-----------
CONSUMER SERVICES 3.5%
a Apollo Group Inc., A ................................... United States 150,000 3,009,375
a Clear Channel Communications Inc. ...................... United States 115,000 10,263,750
a Entercom Communications Corp. .......................... United States 95,200 6,283,200
a Fox Entertainment Group Inc., A ........................ United States 225,000 5,610,938
a MediaOne Group Inc. .................................... United States 50,000 3,840,625
a SFX Entertainment Inc. ................................. United States 125,000 4,523,438
Time Warner Inc. ........................................ United States 60,000 4,346,250
-----------
37,877,576
-----------
ELECTRONIC TECHNOLOGY 26.7%
a Agilent Technologies Inc. .............................. United States 100,900 7,800,831
a Altera Corp. ........................................... United States 225,000 11,151,563
a Applied Materials Inc. ................................. United States 125,000 15,835,938
a Broadcom Corp., A ...................................... United States 20,000 5,447,500
a Chartered Semiconductor Manufacturing, ADR ............. Singapore 21,300 1,554,900
a CIENA Corp. ............................................ United States 75,000 4,312,500
a Cisco Systems Inc. ..................................... United States 375,000 40,171,875
a Comverse Technology Inc. ............................... United States 50,000 7,237,500
a EMC Corp. .............................................. United States 140,000 15,295,000
a General Instrument Corp. ............................... United States 105,000 8,925,000
Intel Corp. ............................................. United States 225,000 18,520,313
International Business Machines Corp. ................... United States 60,000 6,480,000
a JDS Uniphase Corp. ..................................... United States 260,000 41,941,250
Linear Technology Corp. ................................. United States 175,000 12,523,438
Lucent Technologies Inc. ................................ United States 140,000 10,473,750
Motorola Inc. ........................................... United States 94,000 13,841,500
Nokia Corp., ADR, A ..................................... Finland 140,000 26,600,000
Nortel Networks Corp. ................................... Canada 140,000 14,140,000
a Solectron Corp. ........................................ United States 75,000 7,134,375
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (UNAUDITED)(CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
<S> <C> <C> <C>
ELECTRONIC TECHNOLOGY (CONT.)
a Synopsys Inc. United States 125,000 $ 8,343,750
a Tellabs Inc. United States 150,000 9,628,125
-----------
287,359,108
-----------
ENERGY MINERALS 3.0%
Apache Corp. United States 150,000 5,540,625
Devon Energy Corp. United States 195,000 6,410,625
Exxon Mobile Corp. United States 132,015 10,635,458
Texaco Inc. United States 100,000 5,431,250
Ultramar Diamond Shamrock Corp. United States 175,000 3,970,313
-----------
31,988,271
-----------
FINANCE 7.4%
American International Group Inc. United States 150,000 16,218,750
Associates First Capital Corp., A United States 250,000 6,859,375
Capital One Financial Corp. United States 350,000 16,865,618
Citigroup Inc. United States 280,000 15,557,500
Federated Investors Inc., B United States 375,000 7,523,438
Fifth Third Bancorp United States 100,000 7,337,500
Fleet Boston Financial Corp. United States 177,660 6,184,789
Morgan Stanley, Dean Witter & Co. United States 21,644 3,089,681
-----------
79,636,651
-----------
HEALTH SERVICES .2%
Cardinal Health Inc. United States 50,000 2,393,750
-----------
HEALTH TECHNOLOGY 8.9%
Abbott Laboratories United States 190,000 6,899,375
American Home Products Corp. United States 150,000 5,915,625
a Amgen Inc. United States 250,000 15,015,625
Baxter International Inc. United States 210,000 13,190,625
a Biogen Inc. United States 100,000 8,450,000
Bristol-Myers Squibb Co. United States 140,000 8,986,250
a Genentech Inc. United States 160,000 21,520,000
Roche Holding AG Switzerland 700 8,307,692
Schering-Plough Corp. United States 170,000 7,171,875
-----------
95,457,067
-----------
a INDUSTRIAL SERVICES 1.2%
AES Corp. United States 175,000 13,081,250
-----------
NON-ENERGY MINERALS .9%
De Beers Consolidated Mines AG, ADR South Africa 325,000 9,404,688
-----------
PROCESS INDUSTRIES 1.4%
Ecolab Inc. United States 200,000 7,825,000
General Electric Co. United States 50,000 7,737,500
-----------
15,562,500
-----------
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (UNAUDITED) (CONT.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------
COMMON STOCKS (CONT.)
<S> <C> <C> <C>
PRODUCER MANUFACTURING 1.3%
Avery Dennison Corp. United States 85,000 $ 6,194,375
Tyco International Ltd. United States 200,000 7,775,000
----------
13,969,375
----------
REAL ESTATE .8%
Equity Office Properties Trust United States 200,000 4,925,000
MeriStar Hospitality Corp. United States 250,000 4,000,000
----------
8,925,000
----------
RETAIL TRADE 1.9%J
a Abercrombie & Fitch Co., A United States 75,000 2,001,563
Dayton Hudson Corp. United States 100,000 7,343,750
GAP Inc. United States 120,000 5,520,000
a Webvan Group Inc. United States 49,900 823,350
a Williams-Sonoma Inc. United States 100,000 4,600,000
----------
20,288,663
----------
TECHNOLOGY SERVICES 14.6%
a Akamai Technologies Inc. United States 16,300 5,340,288
a Art Technology Group Inc. United States 24,000 3,075,000
a Computer Sciences Corp. United States 75,000 7,096,875
a Cybersource Corp. United States 23,800 1,231,650
a Equant NV, N.Y. shs. Netherlands 125,000 14,000,000
a HNC Software Inc. United States 50,000 5,287,500
a i2 Technologies Inc. United States 140,000 27,300,000
a Infonet Services Corp., B United States 245,200 6,436,500
InfoSpace.com Inc. United States 30,000 6,420,000
a Internet Capital Group Inc. United States 20,000 3,400,000
a Microsoft Corp. United States 20,000 2,335,000
a Oracle Corp. United States 225,000 25,214,063
a Sapient Corp. United States 150,000 21,140,625
a Siebel Systems Inc. United States 40,000 3,360,000
a VERITAS Software Corp. United States 170,000 24,331,250
a Vignette Corp. United States 10,000 1,630,000
-----------
157,598,751
-----------
TRANSPORTATION 3.4%
C.H. Robinson Worldwide Inc. United States 250,000 9,937,500
Expeditors International of Washington Inc. United States 350,000 15,334,375
Southwest Airlines Co. United States 455,625 7,375,430
United Parcel Service Inc., B United States 50,000 3,450,000
----------
36,097,305
----------
TELECOMMUNICATIONS 6.2%
a Allegiance Telecom Inc. United States 25,000 2,306,250
Bell Atlantic Corp. United States 60,000 3,693,750
GTE Corp. United States 75,000 5,292,188
a KPNQwest NV Netherlands 134,300 8,561,625
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (unaudited) (cont.)
<TABLE>
<CAPTION>
COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------
Common Stocks (cont.)
<S> <C> <C> <C>
TELECOMMUNICATIONS (CONT.)
(a)MCI WorldCom Inc. United States 150,000 $ 7,959,375
(a)Nextlink Communications Inc., A United States 70,000 5,814,375
(a)Qwest Communications International Inc. United States 200,000 8,600,000
(a)Sprint Corp. (PCS Group) United States 35,000 3,587,500
Vodafone AirTouch PLC, ADR United Kingdom 285,000 14,107,500
(a)VoiceStream Wireless Corp. United States 50,000 7,115,625
-----------
67,038,188
-----------
UTILITIES 3.2%
Edison International United States 175,000 4,582,813
Enron Corp. United States 450,000 19,968,750
Montana Power Co. United States 275,000 9,917,188
-----------
34,468,751
-----------
(a)COMPANY IN LIQUIDATION
S & C Liquidating Trust United States 8,487 --
-----------
TOTAL COMMON STOCKS (COST $477,361,787) 971,194,457
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
CONVERTIBLE BONDS 2.1%
<S> <C> <C> <C>
COMMERCIAL SERVICES 1.2%
Omnicom Group Inc., cvt. sub. deb., 4.25%, 1/03/07 United States $2,000,000 6,360,000
Omnicom Group Inc., cvt. sub. deb., 144A, 4.25%, 1/03/07 United States 2,000,000 6,360,000
----------
12,720,000
----------
TECHNOLOGY SERVICES .9%
BEA Systems Inc., cvt., 144A, 4.00%, 12/15/06 United States 8,000,000 9,320,000
----------
TOTAL CONVERTIBLE BONDS (COST $12,585,190) 22,040,000
----------
</TABLE>
FRANKLIN EQUITY FUND
STATEMENT OF INVESTMENTS, DECEMBER 31, 1999 (unaudited) (cont.)
<TABLE>
<CAPTION> PRINCIPAL
COUNTRY AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(b)REPURCHASE AGREEMENT 7.5%
Joint Repurchase Agreement, 2.583%, 1/03/00, (Maturity Value, $81,101,917)
(COST $81,084,462) United States $81,084,462 $81,084,462
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Paribas Corp.
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes --------------
TOTAL INVESTMENTS (COST $571,031,439) 99.8% 1,074,318,919
OTHER ASSETS, LESS LIABILITIES .2% 2,393,123
NET ASSETS 100.0% $1,076,712,042
==============
</TABLE>
(a) Non-income producing.
(b) Investment is through participation in a joint account with other funds
managed by the investment advisor. At December 31, 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
DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $571,031,439) ....................................... $ 1,074,318,919
Receivables:
Capital shares sold .......................................................................... 4,967,012
Dividends and interest ....................................................................... 654,881
---------------
Total assets ........................................................................... 1,079,940,812
---------------
Liabilities:
Payables:
Capital shares redeemed ...................................................................... 1,806,968
Affiliates ................................................................................... 1,022,915
Shareholders ................................................................................. 249,298
Distributions to shareholders ................................................................. 57,488
Other liabilities ............................................................................. 92,101
---------------
Total liabilities ...................................................................... 3,228,770
---------------
Net assets, at value .................................................................. $ 1,076,712,042
===============
Net assets consist of:
Accumulated net operating loss ................................................................ $ (395,277)
Net unrealized appreciation ................................................................... 503,287,480
Accumulated net realized gain ................................................................. 27,922,463
Capital shares ................................................................................ 545,897,376
---------------
Net assets, at value .................................................................. $ 1,076,712,042
===============
CLASS A:
Net asset value per share* ($940,839,903 / 62,285,696 shares outstanding) ..................... $ 15.11
===============
Maximum offering price per share ($15.11 / 94.25%) ............................................ $ 16.03
===============
CLASS B:
Net asset value and maximum offering price per share* ($4,326,937 / 289,068
shares outstanding) $14.97
===============
CLASS C:
Net asset value per share* ($121,397,417 / 8,174,097 shares outstanding) ...................... $ 14.85
===============
Maximum offering price per share ($14.85 / 99%) ............................................... $ 15.00
===============
ADVISOR CLASS:
Net asset value and maximum offering price per share ($10,147,785 / 671,115 shares outstanding) $ 15.12
===============
</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 SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Investment income:
(net of foreign taxes of $11,603)
<S> <C>
Dividends ........................................................... $ 2,684,116
Interest ............................................................ 1,323,585
-------------
Total investment income .............................................. 4,007,701
-------------
Expenses:
Management fees (Note 3) ............................................ 2,055,131
Distribution fees (Note 3)
Class A ............................................................ 851,309
Class B ............................................................ 11,248
Class C ............................................................ 465,206
Transfer agent fees (Note 3) ........................................ 598,579
Custodian fees ...................................................... 17,786
Reports to shareholders ............................................. 179,908
Registration and filing fees ........................................ 64,439
Professional fees ................................................... 18,453
Directors' fees and expenses ........................................ 15,649
Other ............................................................... 11,600
-------------
Total expenses ....................................................... 4,289,308
-------------
Net investment loss ................................................. (281,607)
-------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................ 70,141,117
Foreign currency transactions ...................................... (13,825)
-------------
Net realized gain ................................................... 70,127,292
Net unrealized appreciation on investments .......................... 203,574,218
-------------
Net realized and unrealized gain ..................................... 273,701,510
-------------
Net increase in net assets resulting from operations ................. $ 273,419,903
-------------
</TABLE>
See notes to financial statements.
FRANKLIN EQUITY FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 (UNAUDITED)
AND THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 1999
----------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C>
Net investment income (loss) ............................................................. $ (281,607) $ 3,509,255
Net realized gain (loss) from investments and foreign currency transactions .............. 70,127,292 (4,018,896)
Net unrealized appreciation on investments ............................................... 203,574,218 91,630,130
--------------------------------
Net increase in net assets resulting from operations ................................. 273,419,903 91,120,489
Distributions to shareholders from:
Net investment income:
Class A ................................................................................. (282,667) (3,027,697)
Class B ................................................................................. -- (4,288)
Class C ................................................................................. -- (128,642)
Advisor Class ........................................................................... (14,869) (97,976)
Net realized gains:
Class A ................................................................................. (33,225,142) (33,108,989)
Class B ................................................................................. (125,061) --
Class C ................................................................................. (4,281,855) (2,429,861)
Advisor Class ........................................................................... (361,597) (1,147,869)
--------------------------------
Total distributions to shareholders ....................................................... (38,291,191) (39,945,322)
Capital share transactions: (Note 2)
Class A ................................................................................. 26,143,281 50,425,565
Class B ................................................................................. 2,241,387 1,206,522
Class C ................................................................................. 8,364,604 45,833,064
Advisor Class ........................................................................... 566,908 (10,836,194)
--------------------------------
Total capital share transactions .......................................................... 37,316,180 86,628,957
Net increase in net assets .......................................................... 272,444,892 137,804,124
Net assets:
Beginning of period ....................................................................... 804,267,150 666,463,026
--------------------------------
End of period ............................................................................. $ 1,076,712,042 $ 804,267,150
--------------------------------
Undistributed net investment income (accumulated net operating loss) included in net assets:
End of period ............................................................................ $ (395,277) $ 185,821
--------------------------------
</TABLE>
See notes to financial statements.
FRANKLIN EQUITY FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Equity Fund (the Fund) is registered under the Investment Company Act
of 1940 as 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.
Distributions received by the Fund from securities may be a return of capital
(ROC). Such distributions reduce the cost basis of the securities, and any
distributions in excess of the cost basis are recognized as capital gains.
FRANKLIN EQUITY FUND
Notes to Financial Statements (unaudited) (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. 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 December 31, 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>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1999 JUNE 30, 1999*
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS A SHARES:
<S> <C> <C> <C> <C>
Shares sold 16,365,865 $ 206,746,911 39,060,389 $ 408,867,476
Shares issued in reinvestment of distributions 2,350,709 30,770,651 3,384,894 33,127,015
Shares issued on merger (Note 6) -- -- 406,853 4,532,342
Shares redeemed (17,153,383) (211,374,281) (37,961,690) (396,101,268)
------------------------------------------------------------------
Net increase 1,563,191 $ 26,143,281 4,890,446 $ 50,425,565
==================================================================
CLASS B SHARES:
Shares sold 194,081 $ 2,435,170 113,713 $ 1,249,302
Shares issued in reinvestment of distributions 9,240 120,011 373 4,043
Shares redeemed (24,161) (313,794) (4,178) (46,823)
------------------------------------------------------------------
Net increase 179,160 $ 2,241,387 109,908 $ 1,206,522
==================================================================
CLASS C SHARES:
Shares sold 2,213,268 $ 28,865,872 3,780,337 $ 38,707,315
Shares issued in reinvestment of distributions 303,339 3,906,981 245,306 2,364,853
Shares issued on merger (Note 6) -- -- 2,972,886 32,642,288
Shares redeemed (1,898,953) (24,408,249) (2,715,651) (27,881,392)
------------------------------------------------------------------
Net increase 617,654 $ 8,364,604 4,282,878 $ 45,833,064
==================================================================
ADVISOR CLASS SHARES:
Shares sold 30,025 $ 371,890 2,069,848 $ 21,245,839
Shares issued in reinvestment of distributions 27,512 360,412 126,162 1,235,476
Shares redeemed (13,619) (165,394) (3,106,375) (33,317,509)
------------------------------------------------------------------
Net increase (decrease) 43,918 $ 566,908 (910,365) $ (10,836,194)
==================================================================
</TABLE>
* For the period January 1, 1999 (effective date) to June 30, 1999 for
Class B shares.
FRANKLIN EQUITY FUND
Notes to Financial Statements (unaudited) (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 $103,748 and $23,242,
respectively.
The Fund paid transfer agent fees of $598,579 of which $513,205 was paid to
Investor Services.
4. INCOME TAXES
At June 30, 1999, the Fund had 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 loss 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 December 31, 1999, the net unrealized appreciation based on the cost of
investments for income tax purposes of $571,088,837 was as follows:
<TABLE>
<S> <C>
Unrealized appreciation $520,559,831
Unrealized depreciation (17,329,749)
-----------
Net unrealized appreciation $503,230,082
===========
</TABLE>
FRANKLIN EQUITY FUND
Notes to Financial Statements (unaudited) (continued)
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended December 31, 1999 aggregated $212,699,929 and $255,122,884,
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 C 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.
7. CREDIT FACILITY
Certain Franklin Templeton Funds, including the Franklin Equity Fund, are
participants in a $750 million senior unsecured credit agreement for temporary
or emergency purposes. The termination date of the agreement is March 1, 2000.
Interest is calculated on the Fund's borrowings at market rates. At December 31,
1999, the Fund had not utilized this credit facility.
