UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-00537
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FRANKLIN CUSTODIAN FUNDS, INC.
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 9/30
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Date of reporting period: 9/30/07
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ITEM 1. REPORTS TO STOCKHOLDERS.
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SEPTEMBER 30, 2007
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Franklin DynaTech Fund
Franklin Growth Fund
Franklin Income Fund
Franklin U.S. Government
Securities Fund
Franklin Utilities Fund
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ANNUAL REPORT AND SHAREHOLDER LETTER
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WANT TO RECEIVE
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See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE(R)
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management groups--
Franklin, Templeton and Mutual Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.
MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.
TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the annual report
Contents
SHAREHOLDER LETTER ....................................................... 1
ANNUAL REPORT
Franklin DynaTech Fund ................................................... 3
Franklin Growth Fund ..................................................... 12
Franklin Income Fund ..................................................... 22
Franklin U.S. Government Securities Fund ................................. 36
Franklin Utilities Fund .................................................. 49
Financial Highlights and Statements of Investments ...................... 60
Financial Statements ..................................................... 108
Notes to Financial Statements ............................................ 117
Report of Independent Registered Public Accounting Firm .................. 135
Tax Designation .......................................................... 136
Meeting of Shareholders .................................................. 137
Board Members and Officers ............................................... 150
Shareholder Information .................................................. 154
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Annual Report
Franklin DynaTech Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin DynaTech Fund seeks capital
appreciation by investing substantially in the equity securities of companies
emphasizing scientific or technological development or that are in fast-growing
industries.
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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We are pleased to bring you Franklin DynaTech Fund's annual report for the
fiscal year ended September 30, 2007.
PERFORMANCE OVERVIEW
Franklin DynaTech Fund - Class A posted a +25.31% cumulative total return for
the 12 months under review. For the same period, the Fund performed comparably
with its narrow benchmark, the NASDAQ 100 Index, which had a price-only return
of +26.42%, and outperformed the broader Standard & Poor's 500 Index (S&P 500),
which posted a +16.44% cumulative total return. 1 You can find the Fund's
long-term performance data in the Performance Summary beginning on page 7.
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended September 30, 2007, the U.S. economy advanced at a
moderate but uneven pace. Gross domestic product (GDP) grew an annualized 2.1%
in the fourth quarter of 2006, but slowed to an annualized 0.6% rate in the
first quarter of 2007 due in part to higher imports and lower spending for
nondurable goods. In the second quarter, however, GDP growth advanced at an
annualized 3.8% rate, supported by federal defense spending, accelerating
exports and declining imports, greater business inventory investment and
increased spending for nonresidential structures. GDP grew an
1. Source: Standard & Poor's Micropal. The NASDAQ 100 Index includes 100 of the
largest domestic and international nonfinancial companies listed on The NASDAQ
Stock Market based on market capitalization. The index reflects companies across
major industry groups including computer hardware and software,
telecommunications, retail/wholesale trade and biotechnology. It does not
contain financial companies including investment companies. The NASDAQ 100 Index
is calculated under a modified capitalization-weighted methodology. Index
returns are price-return only and do not include reinvested dividends. The S&P
500 consists of 500 stocks chosen for market size, liquidity and industry group
representation. Each stock's weight in the index is proportionate to its market
value. The S&P 500 includes reinvested dividends and is one of the most widely
used benchmarks of U.S. equity performance. The indexes are unmanaged. One
cannot invest directly in an index, nor is an index representative of the Fund's
portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 63.
Annual Report | 3
PORTFOLIO BREAKDOWN
Franklin DynaTech Fund
Based on Total Net Assets as of 9/30/07*
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Medical Specialties 10.0%
Semiconductors 8.2%
Biotechnology 7.5%
Computer Processing Hardware 7.4%
Packaged Software 6.9%
Internet Software & Services 5.9%
Telecommunications Equipment 5.5%
Wireless Communications 4.9%
Electronic Production Equipment 4.9%
Oilfield Services & Equipment 4.4%
Computer Communications 3.5%
Other Pharmaceuticals 3.3%
Information Technology Services 2.1%
Services to the Health Industry 2.1%
Major Pharmaceuticals 2.0%
Medical & Nursing Services 2.0%
Other 19.6%
* Short-term investments and other net assets = -0.2% because the Fund's
liabilities exceeded short-term investments and receivables.
estimated annualized 3.9% in the third quarter of 2007 despite a struggling
housing market that became more fragile with the abrupt unraveling of the
subprime mortgage market.
The unemployment rate increased from 4.6% at the beginning of the period to 4.7%
in September 2007. 2 Although consumer confidence in July neared a six-year
high, the pace of consumer spending slowed toward period-end as worries about
the housing slump and high gasoline prices made individuals more cautious. After
a welcome drop in energy costs during the latter half of 2006, oil prices
established a new record high in September, crossing $80 per barrel in response
to perceived tight supply and high demand for oil, refinery maintenance issues,
and ongoing geopolitical tensions in the Middle East and Africa. The core
Consumer Price Index (CPI), which excludes food and energy costs, rose 2.1% for
the 12 months ended September 30, 2007, which was lower than its 2.2% 10-year
average. 2
Liquidity and financing became difficult to obtain in some corporate credit
markets, which dampened the outlook for economic growth. In response, the
Federal Reserve Board (Fed) lowered the federal funds target rate 50 basis
points to 4.75% from 5.25% in September, which marked the first interest rate
reduction in four years. The 10-year Treasury note yield fell from 4.64% at the
beginning of the period to 4.59% on September 30, 2007.
After stock market sell-offs in late February and mid-March, markets rebounded
in the second quarter of 2007 amid generally strong first quarter corporate
earnings reports. However, volatility picked up again in the second half of July
and in August due to investor concerns about the housing market, lending
environment and mixed second quarter earnings reports. The blue chip stocks of
the Dow Jones Industrial Average posted a 12-month total return of +21.69%, the
broader S&P 500 returned +16.44%, and the technology-heavy NASDAQ Composite
Index returned +20.52%. 3 Energy, materials and telecommunication stocks
performed particularly well.
2. Source: Bureau of Labor Statistics.
3. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is price
weighted based on the average market price of 30 blue chip stocks of companies
that are generally industry leaders. Please see footnote 1 for a description of
the S&P 500. The NASDAQ Composite Index measures all NASDAQ domestic and
international based common type stocks listed on The NASDAQ Stock Market. The
index is market value weighted and includes more than 3,000 companies.
4 | Annual Report
INVESTMENT STRATEGY
Based on our independent analysis of individual companies, we search for leading
companies that we believe have a sustainable competitive advantage due to
state-of-the-art and innovative products, technologies and business models. We
consider such factors as a company's competitive positioning, patents, new
products, market share, industry growth, recent operational execution and
managerial strength. We use a conservative, bottom-up research process to buy
and hold what we consider to be undervalued companies.
MANAGER'S DISCUSSION
The most significant contributor to the Fund's performance for the year under
review was computer processing hardware manufacturer Apple. Apple rose in value
largely due to strong sales of its digital music players and services, PCs and
related computer hardware devices. Other major contributors to performance were
leading targeted advertising and Internet search solutions provider Google and
digital navigation products manufacturer Garmin.
From a sector perspective, the electronic technology sector was the largest
contributor to performance for the reporting period. 4 In addition to the
aforementioned Apple and Garmin, sector holding Varian Semiconductor Equipment
Associates, the world's top ion implantation systems producer, contributed to
Fund performance. The health technology sector also positively affected
performance as Fund holdings Stryker, Waters and Celgene performed well. 5
Despite the Fund's positive results during the fiscal year, some holdings
declined in value and hurt performance. The biggest detractor from performance
during the period was wireless and broadband communication products provider
Motorola. Motorola's share price declined due to a lack of new products combined
with increased competition, weak wireless handset sales, and price cuts for its
popular but aging RAZR line of cell phones, all of which impeded the company's
earnings and profit margins. Leading biotechnology company Amgen and financial
publishing company Moody's (sold by period-end) also hampered Fund returns.
TOP 10 HOLDINGS
Franklin DynaTech Fund 9/30/07
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COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
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Apple Inc. 4.8%
COMPUTER PROCESSING HARDWARE
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Intel Corp. 4.5%
SEMICONDUCTORS
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Google Inc., A 4.4%
INTERNET SOFTWARE & SERVICES
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Genentech Inc. 3.0%
BIOTECHNOLOGY
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Adobe Systems Inc. 2.7%
PACKAGED SOFTWARE
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Hewlett-Packard Co. 2.6%
COMPUTER PROCESSING HARDWARE
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Schlumberger Ltd. 2.6%
OILFIELD SERVICES & EQUIPMENT
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Cisco Systems Inc. 2.3%
COMPUTER COMMUNICATIONS
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Microsoft Corp. 2.3%
PACKAGED SOFTWARE
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Alcon Inc. (Switzerland) 2.2%
MEDICAL SPECIALTIES
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4. The electronic technology sector comprises computer communications, computer
peripherals, computer processing hardware, electronic equipment and instruments,
electronic production equipment, semiconductors and telecommunications equipment
in the SOI.
5. The health technology sector comprises biotechnology, medical specialties,
major pharmaceuticals and other pharmaceuticals in the SOI.
Annual Report | 5
By sector, our commercial services sector holdings hindered Fund performance
during the period largely due to our position in the aforementioned Moody's. 6
Additionally, in the retail trade sector, the Fund's performance was negatively
affected by electronics and appliance store Best Buy and natural foods grocery
chain Whole Foods, both of which we sold by period-end. 7
Thank you for your continued participation in Franklin DynaTech Fund. We look
forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
[PHOTO OMITTED] /s/ Matthew J. Moberg
Matthew J. Moberg, CPA
Portfolio Management Team
Franklin DynaTech Fund
6. The commercial services sector comprises miscellaneous commercial services in
the SOI.
7. The retail trade sector comprises apparel and footwear retail and Internet
retail in the SOI.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF SEPTEMBER 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
6 | Annual Report
Performance Summary as of 9/30/07
FRANKLIN DYNATECH FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE INFORMATION
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CLASS A (SYMBOL: FKDNX) CHANGE 9/30/07 9/30/06
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Net Asset Value (NAV) +$6.53 $ 32.33 $ 25.80
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CLASS B (SYMBOL: FDNBX) CHANGE 9/30/07 9/30/06
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Net Asset Value (NAV) +$6.03 $ 30.78 $ 24.75
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CLASS C (SYMBOL: FDYNX) CHANGE 9/30/07 9/30/06
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Net Asset Value (NAV) +$5.96 $ 30.46 $ 24.50
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PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY. THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN
SEVEN DAYS OF PURCHASE.
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CLASS A 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +25.31% +110.34% +99.37%
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Average Annual Total Return 2 +18.12% +14.66% +6.51%
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Value of $10,000 Investment 3 $11,812 $19,822 $18,788
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Total Annual Operating Expenses 4 0.97%
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CLASS B 1-YEAR 5-YEAR INCEPTION (2/1/00)
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Cumulative Total Return 1 +24.36% +102.63% +12.99%
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Average Annual Total Return 2 +20.36% +14.94% +1.61%
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Value of $10,000 Investment 3 $12,036 $20,063 $11,299
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Total Annual Operating Expenses 4 1.72%
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CLASS C 1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return 1 +24.33% +102.66% +84.55%
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Average Annual Total Return 2 +23.33% +15.17% +6.32%
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Value of $10,000 Investment 3 $12,333 $20,266 $18,455
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Total Annual Operating Expenses 4 1.71%
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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 7
Performance Summary (CONTINUED)
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 any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The indexes are unmanaged. They
differ from the Fund in composition and do not pay management fees or expenses.
One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
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CLASS A 9/30/07
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1-Year +18.12%
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5-Year +14.66%
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10-Year +6.51%
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CLASS A (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin DynaTech NASDAQ 100
Date Fund S&P 500 5 Index 5
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10/1/1997 $ 9,424 $ 10,000 $ 10,000
10/31/1997 $ 8,960 $ 9,666 $ 9,293
11/30/1997 $ 9,057 $ 10,113 $ 9,575
12/31/1997 $ 8,890 $ 10,287 $ 9,031
1/31/1998 $ 9,195 $ 10,401 $ 9,763
2/28/1998 $ 9,604 $ 11,151 $ 10,884
3/31/1998 $ 9,647 $ 11,722 $ 11,126
4/30/1998 $ 9,832 $ 11,840 $ 11,376
5/31/1998 $ 9,484 $ 11,637 $ 10,865
6/30/1998 $ 9,947 $ 12,109 $ 12,189
7/31/1998 $ 9,996 $ 11,980 $ 12,553
8/31/1998 $ 9,081 $ 10,248 $ 10,393
9/30/1998 $ 9,713 $ 10,905 $ 12,263
10/31/1998 $ 9,979 $ 11,792 $ 12,765
11/30/1998 $ 10,594 $ 12,506 $ 14,200
12/31/1998 $ 11,321 $ 13,227 $ 16,734
1/31/1999 $ 12,203 $ 13,780 $ 19,388
2/28/1999 $ 11,641 $ 13,352 $ 17,548
3/31/1999 $ 12,021 $ 13,886 $ 19,198
4/30/1999 $ 12,054 $ 14,424 $ 19,472
5/31/1999 $ 11,856 $ 14,083 $ 19,046
6/30/1999 $ 12,462 $ 14,865 $ 20,934
7/31/1999 $ 12,451 $ 14,401 $ 20,698
8/31/1999 $ 12,798 $ 14,329 $ 21,846
9/30/1999 $ 12,738 $ 13,937 $ 21,946
10/31/1999 $ 13,256 $ 14,819 $ 24,039
11/30/1999 $ 14,039 $ 15,120 $ 27,040
12/31/1999 $ 15,531 $ 16,010 $ 33,794
1/31/2000 $ 15,688 $ 15,206 $ 32,539
2/29/2000 $ 17,069 $ 14,918 $ 38,890
3/31/2000 $ 17,243 $ 16,377 $ 40,083
4/30/2000 $ 16,309 $ 15,885 $ 34,390
5/31/2000 $ 15,526 $ 15,559 $ 30,297
6/30/2000 $ 16,482 $ 15,942 $ 34,305
7/31/2000 $ 16,191 $ 15,693 $ 32,897
8/31/2000 $ 17,366 $ 16,668 $ 37,165
9/30/2000 $ 15,995 $ 15,788 $ 32,544
10/31/2000 $ 15,587 $ 15,721 $ 29,916
11/30/2000 $ 13,926 $ 14,482 $ 22,846
12/31/2000 $ 13,631 $ 14,553 $ 21,343
1/31/2001 $ 14,318 $ 15,069 $ 23,633
2/28/2001 $ 12,589 $ 13,695 $ 17,393
3/31/2001 $ 11,850 $ 12,827 $ 14,339
4/30/2001 $ 12,623 $ 13,824 $ 16,909
5/31/2001 $ 12,428 $ 13,917 $ 16,405
6/30/2001 $ 12,337 $ 13,578 $ 16,704
7/31/2001 $ 11,948 $ 13,444 $ 15,345
8/31/2001 $ 11,461 $ 12,603 $ 13,395
9/30/2001 $ 10,740 $ 11,585 $ 10,649
10/31/2001 $ 11,232 $ 11,806 $ 12,439
11/30/2001 $ 11,930 $ 12,712 $ 14,547
12/31/2001 $ 11,843 $ 12,823 $ 14,374
1/31/2002 $ 11,750 $ 12,636 $ 14,129
2/28/2002 $ 11,198 $ 12,392 $ 12,388
3/31/2002 $ 11,541 $ 12,858 $ 13,241
4/30/2002 $ 10,919 $ 12,079 $ 11,640
5/31/2002 $ 10,780 $ 11,990 $ 11,013
6/30/2002 $ 10,112 $ 11,136 $ 9,583
7/31/2002 $ 9,589 $ 10,268 $ 8,769
8/31/2002 $ 9,548 $ 10,335 $ 8,589
9/30/2002 $ 8,932 $ 9,212 $ 7,588
10/31/2002 $ 9,687 $ 10,023 $ 9,019
11/30/2002 $ 10,286 $ 10,612 $ 10,173
12/31/2002 $ 9,490 $ 9,989 $ 8,972
1/31/2003 $ 9,385 $ 9,727 $ 8,960
2/28/2003 $ 9,478 $ 9,581 $ 9,203
3/31/2003 $ 9,560 $ 9,674 $ 9,284
4/30/2003 $ 10,193 $ 10,471 $ 10,081
5/31/2003 $ 10,948 $ 11,023 $ 10,918
6/30/2003 $ 11,134 $ 11,164 $ 10,953
7/31/2003 $ 11,535 $ 11,360 $ 11,638
8/31/2003 $ 11,960 $ 11,582 $ 12,224
9/30/2003 $ 11,721 $ 11,459 $ 11,882
10/31/2003 $ 12,523 $ 12,107 $ 12,909
11/30/2003 $ 12,756 $ 12,214 $ 12,981
12/31/2003 $ 13,157 $ 12,854 $ 13,379
1/31/2004 $ 13,441 $ 13,090 $ 13,608
2/29/2004 $ 13,296 $ 13,272 $ 13,402
3/31/2004 $ 13,221 $ 13,072 $ 13,110
4/30/2004 $ 13,000 $ 12,867 $ 12,772
5/31/2004 $ 13,529 $ 13,043 $ 13,364
6/30/2004 $ 13,680 $ 13,297 $ 13,823
7/31/2004 $ 12,547 $ 12,857 $ 12,764
8/31/2004 $ 12,320 $ 12,909 $ 12,475
9/30/2004 $ 12,791 $ 13,049 $ 12,876
10/31/2004 $ 13,064 $ 13,248 $ 13,550
11/30/2004 $ 13,651 $ 13,784 $ 14,323
12/31/2004 $ 14,168 $ 14,253 $ 14,775
1/31/2005 $ 13,325 $ 13,906 $ 13,850
2/28/2005 $ 13,500 $ 14,198 $ 13,772
3/31/2005 $ 13,203 $ 13,947 $ 13,512
4/30/2005 $ 12,971 $ 13,682 $ 12,950
5/31/2005 $ 13,872 $ 14,118 $ 14,060
6/30/2005 $ 13,732 $ 14,138 $ 13,612
7/31/2005 $ 14,435 $ 14,664 $ 14,630
8/31/2005 $ 14,540 $ 14,530 $ 14,416
9/30/2005 $ 14,517 $ 14,647 $ 14,598
10/31/2005 $ 14,400 $ 14,403 $ 14,393
11/30/2005 $ 15,324 $ 14,948 $ 15,244
12/31/2005 $ 15,185 $ 14,953 $ 14,995
1/31/2006 $ 15,795 $ 15,349 $ 15,592
2/28/2006 $ 15,487 $ 15,391 $ 15,226
3/31/2006 $ 15,586 $ 15,582 $ 15,528
4/30/2006 $ 15,493 $ 15,792 $ 15,501
5/31/2006 $ 14,482 $ 15,337 $ 14,397
6/30/2006 $ 14,592 $ 15,358 $ 14,357
7/31/2006 $ 14,139 $ 15,453 $ 13,757
8/31/2006 $ 14,668 $ 15,820 $ 14,398
9/30/2006 $ 14,993 $ 16,228 $ 15,076
10/31/2006 $ 15,342 $ 16,757 $ 15,791
11/30/2006 $ 15,702 $ 17,075 $ 16,326
12/31/2006 $ 15,586 $ 17,315 $ 16,013
1/31/2007 $ 15,946 $ 17,577 $ 16,335
2/28/2007 $ 15,679 $ 17,233 $ 16,056
3/31/2007 $ 15,801 $ 17,426 $ 16,154
4/30/2007 $ 16,539 $ 18,198 $ 17,023
5/31/2007 $ 17,039 $ 18,833 $ 17,574
6/30/2007 $ 16,928 $ 18,520 $ 17,628
7/31/2007 $ 16,986 $ 17,946 $ 17,609
8/31/2007 $ 17,567 $ 18,215 $ 18,126
9/30/2007 $ 18,788 $ 18,896 $ 19,059
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B 9/30/07
- -----------------------------------
1-Year +20.36%
- -----------------------------------
5-Year +14.94%
- -----------------------------------
Since Inception (2/1/00) +1.61%
- -----------------------------------
CLASS B (2/1/00-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin DynaTech NASDAQ 100
Date Fund S&P 500 5 Index 5
- -------------------------------------------------------------------------
2/1/2000 $ 10,000 $ 10,000 $ 10,000
2/29/2000 $ 10,870 $ 9,811 $ 11,952
3/31/2000 $ 10,973 $ 10,770 $ 12,319
4/30/2000 $ 10,374 $ 10,446 $ 10,569
5/31/2000 $ 9,868 $ 10,232 $ 9,311
6/30/2000 $ 10,471 $ 10,484 $ 10,543
7/31/2000 $ 10,278 $ 10,320 $ 10,110
8/31/2000 $ 11,020 $ 10,961 $ 11,422
9/30/2000 $ 10,146 $ 10,383 $ 10,002
10/31/2000 $ 9,879 $ 10,339 $ 9,194
11/30/2000 $ 8,824 $ 9,524 $ 7,021
12/31/2000 $ 8,624 $ 9,570 $ 6,559
1/31/2001 $ 9,053 $ 9,910 $ 7,263
2/28/2001 $ 7,958 $ 9,006 $ 5,345
3/31/2001 $ 7,488 $ 8,436 $ 4,407
4/30/2001 $ 7,968 $ 9,091 $ 5,196
5/31/2001 $ 7,841 $ 9,152 $ 5,042
6/30/2001 $ 7,779 $ 8,929 $ 5,134
7/31/2001 $ 7,528 $ 8,842 $ 4,716
8/31/2001 $ 7,219 $ 8,288 $ 4,117
9/30/2001 $ 6,760 $ 7,619 $ 3,273
10/31/2001 $ 7,062 $ 7,764 $ 3,823
11/30/2001 $ 7,499 $ 8,360 $ 4,471
12/31/2001 $ 7,437 $ 8,433 $ 4,417
1/31/2002 $ 7,378 $ 8,310 $ 4,342
2/28/2002 $ 7,026 $ 8,150 $ 3,807
3/31/2002 $ 7,239 $ 8,456 $ 4,069
4/30/2002 $ 6,842 $ 7,943 $ 3,577
5/31/2002 $ 6,751 $ 7,885 $ 3,385
6/30/2002 $ 6,329 $ 7,323 $ 2,945
7/31/2002 $ 5,995 $ 6,752 $ 2,695
8/31/2002 $ 5,969 $ 6,797 $ 2,640
9/30/2002 $ 5,576 $ 6,058 $ 2,332
10/31/2002 $ 6,046 $ 6,591 $ 2,772
11/30/2002 $ 6,413 $ 6,979 $ 3,126
12/31/2002 $ 5,917 $ 6,569 $ 2,757
1/31/2003 $ 5,848 $ 6,397 $ 2,754
2/28/2003 $ 5,903 $ 6,301 $ 2,828
3/31/2003 $ 5,947 $ 6,362 $ 2,853
4/30/2003 $ 6,340 $ 6,886 $ 3,098
5/31/2003 $ 6,806 $ 7,249 $ 3,355
6/30/2003 $ 6,916 $ 7,342 $ 3,366
7/31/2003 $ 7,158 $ 7,471 $ 3,577
8/31/2003 $ 7,419 $ 7,617 $ 3,757
9/30/2003 $ 7,268 $ 7,536 $ 3,652
10/31/2003 $ 7,760 $ 7,962 $ 3,967
11/30/2003 $ 7,896 $ 8,032 $ 3,989
12/31/2003 $ 8,142 $ 8,454 $ 4,112
1/31/2004 $ 8,311 $ 8,609 $ 4,182
2/29/2004 $ 8,215 $ 8,728 $ 4,119
3/31/2004 $ 8,164 $ 8,597 $ 4,029
4/30/2004 $ 8,025 $ 8,462 $ 3,925
5/31/2004 $ 8,344 $ 8,578 $ 4,107
6/30/2004 $ 8,432 $ 8,745 $ 4,248
7/31/2004 $ 7,727 $ 8,455 $ 3,923
8/31/2004 $ 7,584 $ 8,489 $ 3,834
9/30/2004 $ 7,867 $ 8,581 $ 3,957
10/31/2004 $ 8,028 $ 8,712 $ 4,164
11/30/2004 $ 8,388 $ 9,065 $ 4,402
12/31/2004 $ 8,696 $ 9,373 $ 4,541
1/31/2005 $ 8,179 $ 9,145 $ 4,257
2/28/2005 $ 8,278 $ 9,337 $ 4,232
3/31/2005 $ 8,091 $ 9,172 $ 4,153
4/30/2005 $ 7,944 $ 8,998 $ 3,980
5/31/2005 $ 8,491 $ 9,284 $ 4,321
6/30/2005 $ 8,399 $ 9,298 $ 4,183
7/31/2005 $ 8,825 $ 9,643 $ 4,496
8/31/2005 $ 8,880 $ 9,555 $ 4,430
9/30/2005 $ 8,865 $ 9,633 $ 4,486
10/31/2005 $ 8,784 $ 9,472 $ 4,423
11/30/2005 $ 9,342 $ 9,830 $ 4,685
12/31/2005 $ 9,254 $ 9,834 $ 4,608
1/31/2006 $ 9,621 $ 10,094 $ 4,792
2/28/2006 $ 9,423 $ 10,122 $ 4,679
3/31/2006 $ 9,478 $ 10,248 $ 4,772
4/30/2006 $ 9,416 $ 10,385 $ 4,764
5/31/2006 $ 8,795 $ 10,086 $ 4,425
6/30/2006 $ 8,858 $ 10,100 $ 4,412
7/31/2006 $ 8,579 $ 10,162 $ 4,228
8/31/2006 $ 8,895 $ 10,404 $ 4,425
9/30/2006 $ 9,085 $ 10,672 $ 4,633
10/31/2006 $ 9,291 $ 11,020 $ 4,853
11/30/2006 $ 9,504 $ 11,230 $ 5,017
12/31/2006 $ 9,427 $ 11,387 $ 4,921
1/31/2007 $ 9,640 $ 11,559 $ 5,020
2/28/2007 $ 9,471 $ 11,333 $ 4,935
3/31/2007 $ 9,541 $ 11,460 $ 4,965
4/30/2007 $ 9,977 $ 11,968 $ 5,232
5/31/2007 $ 10,271 $ 12,385 $ 5,401
6/30/2007 $ 10,201 $ 12,179 $ 5,418
7/31/2007 $ 10,231 $ 11,802 $ 5,412
8/31/2007 $ 10,572 $ 11,979 $ 5,571
9/30/2007 $ 11,299 $ 12,427 $ 5,857
8 | Annual Report
Performance Summary (CONTINUED)
CLASS C (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin DynaTech NASDAQ 100
Date Fund S&P 500 5 Index 5
- -------------------------------------------------------------------------
10/1/1997 $ 10,000 $ 10,000 $ 10,000
10/31/1997 $ 9,503 $ 9,666 $ 9,293
11/30/1997 $ 9,596 $ 10,113 $ 9,575
12/31/1997 $ 9,411 $ 10,287 $ 9,031
1/31/1998 $ 9,714 $ 10,401 $ 9,763
2/28/1998 $ 10,139 $ 11,151 $ 10,884
3/31/1998 $ 10,180 $ 11,722 $ 11,126
4/30/1998 $ 10,372 $ 11,840 $ 11,376
5/31/1998 $ 9,994 $ 11,637 $ 10,865
6/30/1998 $ 10,477 $ 12,109 $ 12,189
7/31/1998 $ 10,517 $ 11,980 $ 12,553
8/31/1998 $ 9,551 $ 10,248 $ 10,393
9/30/1998 $ 10,203 $ 10,905 $ 12,263
10/31/1998 $ 10,477 $ 11,792 $ 12,765
11/30/1998 $ 11,117 $ 12,506 $ 14,200
12/31/1998 $ 11,870 $ 13,227 $ 16,734
1/31/1999 $ 12,785 $ 13,780 $ 19,388
2/28/1999 $ 12,193 $ 13,352 $ 17,548
3/31/1999 $ 12,580 $ 13,886 $ 19,198
4/30/1999 $ 12,609 $ 14,424 $ 19,472
5/31/1999 $ 12,398 $ 14,083 $ 19,046
6/30/1999 $ 13,020 $ 14,865 $ 20,934
7/31/1999 $ 13,002 $ 14,401 $ 20,698
8/31/1999 $ 13,354 $ 14,329 $ 21,846
9/30/1999 $ 13,284 $ 13,937 $ 21,946
10/31/1999 $ 13,812 $ 14,819 $ 24,039
11/30/1999 $ 14,622 $ 15,120 $ 27,040
12/31/1999 $ 16,167 $ 16,010 $ 33,794
1/31/2000 $ 16,321 $ 15,206 $ 32,539
2/29/2000 $ 17,749 $ 14,918 $ 38,890
3/31/2000 $ 17,915 $ 16,377 $ 40,083
4/30/2000 $ 16,937 $ 15,885 $ 34,390
5/31/2000 $ 16,108 $ 15,559 $ 30,297
6/30/2000 $ 17,097 $ 15,942 $ 34,305
7/31/2000 $ 16,783 $ 15,693 $ 32,897
8/31/2000 $ 17,986 $ 16,668 $ 37,165
9/30/2000 $ 16,558 $ 15,788 $ 32,544
10/31/2000 $ 16,126 $ 15,721 $ 29,916
11/30/2000 $ 14,402 $ 14,482 $ 22,846
12/31/2000 $ 14,079 $ 14,553 $ 21,343
1/31/2001 $ 14,783 $ 15,069 $ 23,633
2/28/2001 $ 12,990 $ 13,695 $ 17,393
3/31/2001 $ 12,226 $ 12,827 $ 14,339
4/30/2001 $ 13,014 $ 13,824 $ 16,909
5/31/2001 $ 12,804 $ 13,917 $ 16,405
6/30/2001 $ 12,702 $ 13,578 $ 16,704
7/31/2001 $ 12,292 $ 13,444 $ 15,345
8/31/2001 $ 11,781 $ 12,603 $ 13,395
9/30/2001 $ 11,035 $ 11,585 $ 10,649
10/31/2001 $ 11,534 $ 11,806 $ 12,439
11/30/2001 $ 12,244 $ 12,712 $ 14,547
12/31/2001 $ 12,142 $ 12,823 $ 14,374
1/31/2002 $ 12,045 $ 12,636 $ 14,129
2/28/2002 $ 11,475 $ 12,392 $ 12,388
3/31/2002 $ 11,815 $ 12,858 $ 13,241
4/30/2002 $ 11,173 $ 12,079 $ 11,640
5/31/2002 $ 11,021 $ 11,990 $ 11,013
6/30/2002 $ 10,330 $ 11,136 $ 9,583
7/31/2002 $ 9,791 $ 10,268 $ 8,769
8/31/2002 $ 9,743 $ 10,335 $ 8,589
9/30/2002 $ 9,106 $ 9,212 $ 7,588
10/31/2002 $ 9,876 $ 10,023 $ 9,019
11/30/2002 $ 10,476 $ 10,612 $ 10,173
12/31/2002 $ 9,664 $ 9,989 $ 8,972
1/31/2003 $ 9,549 $ 9,727 $ 8,960
2/28/2003 $ 9,640 $ 9,581 $ 9,203
3/31/2003 $ 9,712 $ 9,674 $ 9,284
4/30/2003 $ 10,355 $ 10,471 $ 10,081
5/31/2003 $ 11,112 $ 11,023 $ 10,918
6/30/2003 $ 11,294 $ 11,164 $ 10,953
7/31/2003 $ 11,694 $ 11,360 $ 11,638
8/31/2003 $ 12,118 $ 11,582 $ 12,224
9/30/2003 $ 11,869 $ 11,459 $ 11,882
10/31/2003 $ 12,675 $ 12,107 $ 12,909
11/30/2003 $ 12,899 $ 12,214 $ 12,981
12/31/2003 $ 13,299 $ 12,854 $ 13,379
1/31/2004 $ 13,578 $ 13,090 $ 13,608
2/29/2004 $ 13,420 $ 13,272 $ 13,402
3/31/2004 $ 13,336 $ 13,072 $ 13,110
4/30/2004 $ 13,105 $ 12,867 $ 12,772
5/31/2004 $ 13,626 $ 13,043 $ 13,364
6/30/2004 $ 13,772 $ 13,297 $ 13,823
7/31/2004 $ 12,621 $ 12,857 $ 12,764
8/31/2004 $ 12,390 $ 12,909 $ 12,475
9/30/2004 $ 12,851 $ 13,049 $ 12,876
10/31/2004 $ 13,117 $ 13,248 $ 13,550
11/30/2004 $ 13,699 $ 13,784 $ 14,323
12/31/2004 $ 14,202 $ 14,253 $ 14,775
1/31/2005 $ 13,360 $ 13,906 $ 13,850
2/28/2005 $ 13,523 $ 14,198 $ 13,772
3/31/2005 $ 13,214 $ 13,947 $ 13,512
4/30/2005 $ 12,972 $ 13,682 $ 12,950
5/31/2005 $ 13,869 $ 14,118 $ 14,060
6/30/2005 $ 13,717 $ 14,138 $ 13,612
7/31/2005 $ 14,414 $ 14,664 $ 14,630
8/31/2005 $ 14,505 $ 14,530 $ 14,416
9/30/2005 $ 14,481 $ 14,647 $ 14,598
10/31/2005 $ 14,353 $ 14,403 $ 14,393
11/30/2005 $ 15,262 $ 14,948 $ 15,244
12/31/2005 $ 15,117 $ 14,953 $ 14,995
1/31/2006 $ 15,711 $ 15,349 $ 15,592
2/28/2006 $ 15,396 $ 15,391 $ 15,226
3/31/2006 $ 15,486 $ 15,582 $ 15,528
4/30/2006 $ 15,383 $ 15,792 $ 15,501
5/31/2006 $ 14,372 $ 15,337 $ 14,397
6/30/2006 $ 14,469 $ 15,358 $ 14,357
7/31/2006 $ 14,014 $ 15,453 $ 13,757
8/31/2006 $ 14,529 $ 15,820 $ 14,398
9/30/2006 $ 14,844 $ 16,228 $ 15,076
10/31/2006 $ 15,177 $ 16,757 $ 15,791
11/30/2006 $ 15,523 $ 17,075 $ 16,326
12/31/2006 $ 15,402 $ 17,315 $ 16,013
1/31/2007 $ 15,741 $ 17,577 $ 16,335
2/28/2007 $ 15,474 $ 17,233 $ 16,056
3/31/2007 $ 15,583 $ 17,426 $ 16,154
4/30/2007 $ 16,298 $ 18,198 $ 17,023
5/31/2007 $ 16,777 $ 18,833 $ 17,574
6/30/2007 $ 16,662 $ 18,520 $ 17,628
7/31/2007 $ 16,710 $ 17,946 $ 17,609
8/31/2007 $ 17,274 $ 18,215 $ 18,126
9/30/2007 $ 18,455 $ 18,896 $ 19,059
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 9/30/07
- -----------------------------------
1-Year +23.33%
- -----------------------------------
5-Year +15.17%
- -----------------------------------
10-Year +6.32%
- -----------------------------------
ENDNOTES
THE FUND'S INVESTMENTS IN FAST-GROWING INDUSTRIES, INCLUDING THE TECHNOLOGY AND
TELECOMMUNICATIONS SECTORS (WHICH HAVE HISTORICALLY BEEN VOLATILE) COULD RESULT
IN INCREASED PRICE FLUCTUATION, ESPECIALLY OVER THE SHORT TERM, DUE TO THE RAPID
PACE OF PRODUCT CHANGE AND DEVELOPMENT AND CHANGES IN GOVERNMENT REGULATION OF
COMPANIES EMPHASIZING SCIENTIFIC OR TECHNOLOGICAL ADVANCEMENT. THE FUND MAY ALSO
INVEST IN SMALL-CAPITALIZATION COMPANIES, WHICH INVOLVES SPECIAL RISKS SUCH AS
RELATIVELY SMALL REVENUES, LIMITED PRODUCT LINES AND MODEST MARKET SHARE. THE
PRICES OF THESE SECURITIES CAN BE VOLATILE, ESPECIALLY OVER THE SHORT TERM, AND
INVESTORS SHOULD EXPECT FLUCTUATION IN THE VALUE OF THEIR INVESTMENT. THE FUND'S
PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial sales
charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These shares
have higher annual fees and expenses than Class A shares.
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. Figures are as stated in the Fund's prospectus current as of the date of this
report.
5. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 includes
reinvested dividends and is one of the most widely used benchmarks of U.S.
equity performance. The NASDAQ 100 Index includes 100 of the largest domestic
and international nonfinancial companies listed on The NASDAQ Stock Market based
on market capitalization. The index reflects companies across major industry
groups including computer hardware and software, telecommunications,
retail/wholesale trade and biotechnology. It does not contain financial
companies including investment companies. The NASDAQ 100 Index is calculated
under a modified capitalization-weighted methodology. Index returns are
price-return only and do not include reinvested dividends.
Annual Report | 9
Your Fund's Expenses
FRANKLIN DYNATECH FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period.
" IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
10 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 4/1/07 VALUE 9/30/07 PERIOD* 4/1/07-9/30/07
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,189.00 $5.10
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.41 $4.71
- ------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,184.30 $9.25
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.60 $8.54
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,184.30 $9.20
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.65 $8.49
- ------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.93%; B: 1.69%; and C: 1.68%), multiplied by the
average account value over the period, multiplied by 183/365 to reflect the
one-half year period.
Annual Report | 11
Franklin Growth Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Growth Fund seeks capital
appreciation by investing substantially in equity securities of companies that
are leaders in their industries.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Growth Fund's annual report for the fiscal
year ended September 30, 2007.
PERFORMANCE OVERVIEW
Franklin Growth Fund - Class A posted a cumulative total return of +18.87% for
the 12 months under review. The Fund outperformed its benchmark, the Standard &
Poor's 500 Index (S&P 500), which returned +16.44% for the same period. 1 You
can find the Fund's long-term performance data in the Performance Summary
beginning on page 15.
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended September 30, 2007, the U.S. economy advanced at a
moderate but uneven pace. Gross domestic product (GDP) grew an annualized 2.1%
in the fourth quarter of 2006, but slowed to an annualized 0.6% rate in the
first quarter of 2007 due in part to higher imports and lower spending for
nondurable goods. In the second quarter, however, GDP growth advanced at an
annualized 3.8% rate, supported by federal defense spending, accelerating
exports and declining imports, greater business inventory investment and
increased spending for nonresidential structures. GDP grew an estimated
annualized 3.9% in the third quarter of 2007 despite a struggling housing market
that became more fragile with the abrupt unraveling of the subprime mortgage
market.
The unemployment rate increased from 4.6% at the beginning of the period to 4.7%
in September 2007. 2 Although consumer confidence in July neared a six-year
high, the pace of consumer spending slowed toward period-end as worries about
the housing slump and high gasoline prices made individuals more
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The index is
unmanaged and includes reinvested dividends. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
2. Source: Bureau of Labor Statistics.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 72.
12 | Annual Report
cautious. After a welcome drop in energy costs during the latter half of 2006,
oil prices established a new record high in September, crossing $80 per barrel
in response to perceived tight supply and high demand for oil, refinery
maintenance issues, and ongoing geopolitical tensions in the Middle East and
Africa. The core Consumer Price Index (CPI), which excludes food and energy
costs, rose 2.1% for the 12 months ended September 30, 2007, which was lower
than its 2.2% 10-year average. 2
Liquidity and financing became difficult to obtain in some corporate credit
markets, which dampened the outlook for economic growth. In response, the
Federal Reserve Board (Fed) lowered the federal funds target rate 50 basis
points to 4.75% from 5.25% in September, which marked the first interest rate
reduction in four years. The 10-year Treasury note yield fell from 4.64% at the
beginning of the period to 4.59% on September 30, 2007.
After stock market sell-offs in late February and mid-March, markets rebounded
in the second quarter of 2007 amid generally strong first quarter corporate
earnings reports. However, volatility picked up again in the second half of July
and in August due to investor concerns about the housing market, lending
environment and mixed second quarter earnings reports. The blue chip stocks of
the Dow Jones Industrial Average posted a 12-month total return of +21.69%, the
broader S&P 500 returned +16.44%, and the technology-heavy NASDAQ Composite
Index returned +20.52%. 3 Energy, materials and telecommunication stocks
performed particularly well.
INVESTMENT STRATEGY
We seek to invest in companies that have qualities such as strong management
teams, financials and industry leadership. The Fund looks for opportunities in
new and rapidly growing businesses and in businesses selling at depressed prices
but offering favorable recovery possibilities. We analyze securities
individually and buy stocks of large and small companies in our effort to
maintain a solid and diversified portfolio.
PORTFOLIO BREAKDOWN
Franklin Growth Fund
Based on Total Net Assets as of 9/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Electronic Technology* 26.2%
Health Technology* 19.1%
Producer Manufacturing 18.4%
Technology Services* 8.8%
Transportation 5.2%
Consumer Services 4.3%
Distribution Services 2.9%
Consumer Non-Durables 2.4%
Process Industries 2.3%
Energy Minerals 2.2%
Commercial Services 2.1%
Other 5.3%
Short-Term Investments & Other Net Assets 0.8%
* Significant exposure to a single sector may result in greater volatility for
the Fund than a more broadly diversified portfolio. There are specific risks to
investing in technology company stocks, which can be subject to abrupt or
erratic price movements and have been volatile, especially over the short term.
3. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is price
weighted based on the average market price of 30 blue chip stocks of companies
that are generally industry leaders. Please see footnote 1 for a description of
the S&P 500. The NASDAQ Composite Index measures all NASDAQ domestic and
international based common type stocks listed on The NASDAQ Stock Market. The
index is market value weighted and includes more than 3,000 companies.
Annual Report | 13
TOP 10 HOLDINGS
Franklin Growth Fund
9/30/07
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Apple Inc. 5.2%
ELECTRONIC TECHNOLOGY
- --------------------------------------------------------------------------------
The Boeing Co. 3.6%
ELECTRONIC TECHNOLOGY
- --------------------------------------------------------------------------------
General Dynamics Corp. 2.8%
ELECTRONIC TECHNOLOGY
- --------------------------------------------------------------------------------
3M Co. 2.7%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
Genentech Inc. 2.6%
HEALTH TECHNOLOGY
- --------------------------------------------------------------------------------
Northrop Grumman Corp. 2.6%
ELECTRONIC TECHNOLOGY
- --------------------------------------------------------------------------------
Johnson & Johnson 2.4%
HEALTH TECHNOLOGY
- --------------------------------------------------------------------------------
United Technologies Corp. 2.3%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
International Business Machines Corp. 2.3%
TECHNOLOGY SERVICES
- --------------------------------------------------------------------------------
Textron Inc. 2.2%
PRODUCER MANUFACTURING
- --------------------------------------------------------------------------------
MANAGER'S DISCUSSION
Franklin Growth Fund owned 128 companies at period-end. We continue to invest in
a broad array of companies of all sizes and in varied industries.
During the Fund's fiscal year, performance was largely driven by the robust
returns of several of the Fund's electronic technology sector holdings. Among
the Fund's top contributing sector investments were Apple and Hewlett-Packard.
Apple designs and makes personal computers, portable media players, computer
software and hardware and hardware accessories. At the beginning of the calendar
year, Apple formally dropped "Computer" from its name and is now simply referred
to as "Apple." Hewlett-Packard is among the world's largest information
technology companies and makes printers, personal computers, high-end servers
and network management software. Major aerospace and defense company Boeing was
another key sector contributor to performance during the review period.
The Fund also benefited from several of its producer manufacturing holdings such
as industrial conglomerates Textron and Ingersoll-Rand. Global supplier of
heating, ventilation, and air-conditioning equipment and services Johnson
Controls was also a notable contributor to Fund results.
The Fund had some detractors from performance during the fiscal year under
review. Our position in biotechnology giant Amgen was a significant detractor
from performance. Financial publishing and credit services company Moody's and
Alaska Air Group, the parent company of Alaska Airlines and Horizon Air
Industries, also weighed on Fund returns during the review period.
Thank you for your continued participation in Franklin Growth Fund. We look
forward to serving your future investment needs.
[PHOTO OMITTED] /s/ V. Jerry Palmieri
V. Jerry Palmieri
Portfolio Manager
Franklin Growth Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF SEPTEMBER 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
14 | Annual Report
Performance Summary as of 9/30/07
FRANKLIN GROWTH FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ----------------------------------------------------------------------------------------------------
CLASS A (SYMBOL: FKGRX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$7.26 $46.36 $39.10
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.1064
- ----------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: FKGBX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$6.77 $44.42 $37.65
- ----------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FRGSX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$6.71 $44.03 $37.32
- ----------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: FGSRX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$7.19 $45.99 $38.80
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.0072
- ----------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FCGAX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$7.28 $46.45 $39.17
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.2006
- ----------------------------------------------------------------------------------------------------
Annual Report | 15
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 5.75%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- ---------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------
Cumulative Total Return 1 +18.87% +112.58% +97.17%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return 2 +12.02% +14.91% +6.39%
- ---------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,202 $20,038 $18,585
- ---------------------------------------------------------------------------------------------
Total Annual Operating Expenses 4 0.91%
- ---------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- ---------------------------------------------------------------------------------------------
Cumulative Total Return 1 +17.98% +104.79% +52.76%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return 2 +13.98% +15.19% +4.96%
- ---------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,398 $20,279 $15,276
- ---------------------------------------------------------------------------------------------
Total Annual Operating Expenses 4 1.67%
- ---------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------
Cumulative Total Return 1 +17.98% +104.70% +82.83%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return 2 +16.98% +15.40% +6.22%
- ---------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,698 $20,470 $18,283
- ---------------------------------------------------------------------------------------------
Total Annual Operating Expenses 4 1.66%
- ---------------------------------------------------------------------------------------------
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ---------------------------------------------------------------------------------------------
Cumulative Total Return 1 +18.55% +109.83% +46.00%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return 2 +18.55% +15.98% +6.81%
- ---------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,855 $20,983 $14,600
- ---------------------------------------------------------------------------------------------
Total Annual Operating Expenses 4 1.17%
- ---------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ---------------------------------------------------------------------------------------------
Cumulative Total Return 1 +19.16% +115.19% +102.01%
- ---------------------------------------------------------------------------------------------
Average Annual Total Return 2 +19.16% +16.56% +7.28%
- ---------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,916 $21,519 $20,201
- ---------------------------------------------------------------------------------------------
Total Annual Operating Expenses 4 0.67%
- ---------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
16 | Annual Report
Performance Summary (CONTINUED)
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 any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
CLASS A (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Growth
Date Fund S&P 500 5
- -----------------------------------------------------------------
10/1/1997 $ 9,426 $ 10,000
10/31/1997 $ 9,346 $ 9,666
11/30/1997 $ 9,558 $ 10,113
12/31/1997 $ 9,669 $ 10,287
1/31/1998 $ 9,769 $ 10,401
2/28/1998 $ 10,179 $ 11,151
3/31/1998 $ 10,401 $ 11,722
4/30/1998 $ 10,540 $ 11,840
5/31/1998 $ 10,390 $ 11,637
6/30/1998 $ 10,586 $ 12,109
7/31/1998 $ 10,547 $ 11,980
8/31/1998 $ 9,658 $ 10,248
9/30/1998 $ 10,201 $ 10,905
10/31/1998 $ 10,829 $ 11,792
11/30/1998 $ 11,218 $ 12,506
12/31/1998 $ 11,460 $ 13,227
1/31/1999 $ 11,660 $ 13,780
2/28/1999 $ 11,537 $ 13,352
3/31/1999 $ 11,850 $ 13,886
4/30/1999 $ 12,236 $ 14,424
5/31/1999 $ 12,087 $ 14,083
6/30/1999 $ 12,593 $ 14,865
7/31/1999 $ 12,389 $ 14,401
8/31/1999 $ 12,440 $ 14,329
9/30/1999 $ 12,101 $ 13,937
10/31/1999 $ 12,298 $ 14,819
11/30/1999 $ 12,455 $ 15,120
12/31/1999 $ 12,857 $ 16,010
1/31/2000 $ 12,749 $ 15,206
2/29/2000 $ 12,451 $ 14,918
3/31/2000 $ 13,534 $ 16,377
4/30/2000 $ 13,694 $ 15,885
5/31/2000 $ 13,750 $ 15,559
6/30/2000 $ 13,944 $ 15,942
7/31/2000 $ 13,728 $ 15,693
8/31/2000 $ 14,331 $ 16,668
9/30/2000 $ 13,739 $ 15,788
10/31/2000 $ 13,921 $ 15,721
11/30/2000 $ 13,560 $ 14,482
12/31/2000 $ 13,825 $ 14,553
1/31/2001 $ 14,085 $ 15,069
2/28/2001 $ 13,379 $ 13,695
3/31/2001 $ 12,388 $ 12,827
4/30/2001 $ 13,387 $ 13,824
5/31/2001 $ 13,592 $ 13,917
6/30/2001 $ 12,968 $ 13,578
7/31/2001 $ 12,937 $ 13,444
8/31/2001 $ 12,349 $ 12,603
9/30/2001 $ 10,975 $ 11,585
10/31/2001 $ 11,342 $ 11,806
11/30/2001 $ 12,420 $ 12,712
12/31/2001 $ 12,516 $ 12,823
1/31/2002 $ 12,337 $ 12,636
2/28/2002 $ 12,250 $ 12,392
3/31/2002 $ 12,675 $ 12,858
4/30/2002 $ 11,872 $ 12,079
5/31/2002 $ 11,638 $ 11,990
6/30/2002 $ 10,760 $ 11,136
7/31/2002 $ 9,791 $ 10,268
8/31/2002 $ 9,811 $ 10,335
9/30/2002 $ 8,742 $ 9,212
10/31/2002 $ 9,350 $ 10,023
11/30/2002 $ 9,990 $ 10,612
12/31/2002 $ 9,468 $ 9,989
1/31/2003 $ 9,106 $ 9,727
2/28/2003 $ 8,899 $ 9,581
3/31/2003 $ 8,899 $ 9,674
4/30/2003 $ 9,548 $ 10,471
5/31/2003 $ 10,172 $ 11,023
6/30/2003 $ 10,474 $ 11,164
7/31/2003 $ 10,785 $ 11,360
8/31/2003 $ 11,023 $ 11,582
9/30/2003 $ 10,689 $ 11,459
10/31/2003 $ 11,322 $ 12,107
11/30/2003 $ 11,465 $ 12,214
12/31/2003 $ 12,121 $ 12,854
1/31/2004 $ 12,305 $ 13,090
2/29/2004 $ 12,360 $ 13,272
3/31/2004 $ 12,074 $ 13,072
4/30/2004 $ 12,082 $ 12,867
5/31/2004 $ 12,277 $ 13,043
6/30/2004 $ 12,779 $ 13,297
7/31/2004 $ 12,106 $ 12,857
8/31/2004 $ 12,002 $ 12,909
9/30/2004 $ 12,177 $ 13,049
10/31/2004 $ 12,325 $ 13,248
11/30/2004 $ 13,045 $ 13,784
12/31/2004 $ 13,491 $ 14,253
1/31/2005 $ 13,028 $ 13,906
2/28/2005 $ 13,256 $ 14,198
3/31/2005 $ 13,240 $ 13,947
4/30/2005 $ 12,925 $ 13,682
5/31/2005 $ 13,435 $ 14,118
6/30/2005 $ 13,288 $ 14,138
7/31/2005 $ 13,982 $ 14,664
8/31/2005 $ 13,930 $ 14,530
9/30/2005 $ 13,902 $ 14,647
10/31/2005 $ 13,795 $ 14,403
11/30/2005 $ 14,465 $ 14,948
12/31/2005 $ 14,619 $ 14,953
1/31/2006 $ 14,767 $ 15,349
2/28/2006 $ 14,966 $ 15,391
3/31/2006 $ 15,318 $ 15,582
4/30/2006 $ 15,438 $ 15,792
5/31/2006 $ 15,102 $ 15,337
6/30/2006 $ 15,014 $ 15,358
7/31/2006 $ 14,838 $ 15,453
8/31/2006 $ 15,190 $ 15,820
9/30/2006 $ 15,634 $ 16,228
10/31/2006 $ 16,274 $ 16,757
11/30/2006 $ 16,698 $ 17,075
12/31/2006 $ 16,688 $ 17,315
1/31/2007 $ 17,218 $ 17,577
2/28/2007 $ 16,901 $ 17,233
3/31/2007 $ 16,873 $ 17,426
4/30/2007 $ 17,554 $ 18,198
5/31/2007 $ 18,272 $ 18,833
6/30/2007 $ 18,104 $ 18,520
7/31/2007 $ 17,747 $ 17,946
8/31/2007 $ 17,939 $ 18,215
9/30/2007 $ 18,585 $ 18,896
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS A 9/30/07
- -----------------------------------
1-Year +12.02%
- -----------------------------------
5-Year +14.91%
- -----------------------------------
10-Year +6.39%
- -----------------------------------
CLASS B (1/1/99-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin Growth
Date Fund S&P 500 5
- -----------------------------------------------------------------
1/1/1999 $ 10,000 $ 10,000
1/31/1999 $ 10,172 $ 10,418
2/28/1999 $ 10,057 $ 10,094
3/31/1999 $ 10,324 $ 10,498
4/30/1999 $ 10,655 $ 10,905
5/31/1999 $ 10,515 $ 10,647
6/30/1999 $ 10,951 $ 11,238
7/31/1999 $ 10,766 $ 10,887
8/31/1999 $ 10,804 $ 10,833
9/30/1999 $ 10,502 $ 10,536
10/31/1999 $ 10,668 $ 11,203
11/30/1999 $ 10,792 $ 11,431
12/31/1999 $ 11,134 $ 12,104
1/31/2000 $ 11,031 $ 11,496
2/29/2000 $ 10,771 $ 11,278
3/31/2000 $ 11,698 $ 12,382
4/30/2000 $ 11,831 $ 12,009
5/31/2000 $ 11,873 $ 11,763
6/30/2000 $ 12,031 $ 12,053
7/31/2000 $ 11,837 $ 11,864
8/31/2000 $ 12,352 $ 12,601
9/30/2000 $ 11,834 $ 11,936
10/31/2000 $ 11,983 $ 11,886
11/30/2000 $ 11,665 $ 10,949
12/31/2000 $ 11,883 $ 11,002
1/31/2001 $ 12,102 $ 11,392
2/28/2001 $ 11,491 $ 10,354
3/31/2001 $ 10,630 $ 9,698
4/30/2001 $ 11,477 $ 10,451
5/31/2001 $ 11,648 $ 10,521
6/30/2001 $ 11,108 $ 10,265
7/31/2001 $ 11,070 $ 10,164
8/31/2001 $ 10,565 $ 9,528
9/30/2001 $ 9,380 $ 8,759
10/31/2001 $ 9,687 $ 8,926
11/30/2001 $ 10,609 $ 9,610
12/31/2001 $ 10,683 $ 9,694
1/31/2002 $ 10,522 $ 9,553
2/28/2002 $ 10,444 $ 9,369
3/31/2002 $ 10,796 $ 9,721
4/30/2002 $ 10,108 $ 9,132
5/31/2002 $ 9,903 $ 9,064
6/30/2002 $ 9,147 $ 8,419
7/31/2002 $ 8,319 $ 7,763
8/31/2002 $ 8,333 $ 7,813
9/30/2002 $ 7,420 $ 6,964
10/31/2002 $ 7,929 $ 7,577
11/30/2002 $ 8,470 $ 8,023
12/31/2002 $ 8,018 $ 7,552
1/31/2003 $ 7,710 $ 7,354
2/28/2003 $ 7,529 $ 7,244
3/31/2003 $ 7,526 $ 7,314
4/30/2003 $ 8,070 $ 7,917
5/31/2003 $ 8,590 $ 8,334
6/30/2003 $ 8,839 $ 8,440
7/31/2003 $ 9,096 $ 8,589
8/31/2003 $ 9,291 $ 8,756
9/30/2003 $ 9,003 $ 8,663
10/31/2003 $ 9,530 $ 9,153
11/30/2003 $ 9,647 $ 9,234
12/31/2003 $ 10,190 $ 9,718
1/31/2004 $ 10,338 $ 9,897
2/29/2004 $ 10,382 $ 10,034
3/31/2004 $ 10,132 $ 9,883
4/30/2004 $ 10,136 $ 9,728
5/31/2004 $ 10,293 $ 9,861
6/30/2004 $ 10,707 $ 10,053
7/31/2004 $ 10,132 $ 9,720
8/31/2004 $ 10,043 $ 9,759
9/30/2004 $ 10,184 $ 9,865
10/31/2004 $ 10,300 $ 10,016
11/30/2004 $ 10,895 $ 10,421
12/31/2004 $ 11,258 $ 10,776
1/31/2005 $ 10,868 $ 10,513
2/28/2005 $ 11,049 $ 10,734
3/31/2005 $ 11,032 $ 10,544
4/30/2005 $ 10,762 $ 10,344
5/31/2005 $ 11,179 $ 10,673
6/30/2005 $ 11,049 $ 10,689
7/31/2005 $ 11,617 $ 11,086
8/31/2005 $ 11,569 $ 10,985
9/30/2005 $ 11,538 $ 11,074
10/31/2005 $ 11,439 $ 10,889
11/30/2005 $ 11,990 $ 11,301
12/31/2005 $ 12,109 $ 11,305
1/31/2006 $ 12,226 $ 11,604
2/28/2006 $ 12,383 $ 11,636
3/31/2006 $ 12,667 $ 11,781
4/30/2006 $ 12,756 $ 11,939
5/31/2006 $ 12,469 $ 11,595
6/30/2006 $ 12,393 $ 11,611
7/31/2006 $ 12,239 $ 11,683
8/31/2006 $ 12,523 $ 11,961
9/30/2006 $ 12,879 $ 12,269
10/31/2006 $ 13,396 $ 12,669
11/30/2006 $ 13,738 $ 12,909
12/31/2006 $ 13,717 $ 13,091
1/31/2007 $ 14,152 $ 13,289
2/28/2007 $ 13,891 $ 13,029
3/31/2007 $ 13,868 $ 13,174
4/30/2007 $ 14,428 $ 13,758
5/31/2007 $ 15,018 $ 14,238
6/30/2007 $ 14,880 $ 14,001
7/31/2007 $ 14,587 $ 13,567
8/31/2007 $ 14,744 $ 13,771
9/30/2007 $ 15,276 $ 14,286
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B 9/30/07
- -----------------------------------
1-Year +13.98%
- -----------------------------------
5-Year +15.19%
- -----------------------------------
Since Inception (1/1/99) +4.96%
- -----------------------------------
Annual Report | 17
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 9/30/07
- -----------------------------------
1-Year +16.98%
- -----------------------------------
5-Year +15.40%
- -----------------------------------
10-Year +6.22%
- -----------------------------------
CLASS C (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Franklin Growth Fund S&P 500 5
- -------------------------------------------------
10/1/1997 $10,000 $10,000
10/31/1997 $ 9,910 $ 9,666
11/30/1997 $10,127 $10,113
12/31/1997 $10,238 $10,287
1/31/1998 $10,338 $10,401
2/28/1998 $10,766 $11,151
3/31/1998 $10,991 $11,722
4/30/1998 $11,132 $11,840
5/31/1998 $10,968 $11,637
6/30/1998 $11,167 $12,109
7/31/1998 $11,117 $11,980
8/31/1998 $10,177 $10,248
9/30/1998 $10,739 $10,905
10/31/1998 $11,396 $11,792
11/30/1998 $11,793 $12,506
12/31/1998 $12,043 $13,227
1/31/1999 $12,245 $13,780
2/28/1999 $12,105 $13,352
3/31/1999 $12,423 $13,886
4/30/1999 $12,823 $14,424
5/31/1999 $12,660 $14,083
6/30/1999 $13,184 $14,865
7/31/1999 $12,959 $14,401
8/31/1999 $13,005 $14,329
9/30/1999 $12,641 $13,937
10/31/1999 $12,839 $14,819
11/30/1999 $12,994 $15,120
12/31/1999 $13,409 $16,010
1/31/2000 $13,283 $15,206
2/29/2000 $12,968 $14,918
3/31/2000 $14,086 $16,377
4/30/2000 $14,239 $15,885
5/31/2000 $14,291 $15,559
6/30/2000 $14,483 $15,942
7/31/2000 $14,251 $15,693
8/31/2000 $14,869 $16,668
9/30/2000 $14,247 $15,788
10/31/2000 $14,428 $15,721
11/30/2000 $14,043 $14,482
12/31/2000 $14,309 $14,553
1/31/2001 $14,566 $15,069
2/28/2001 $13,832 $13,695
3/31/2001 $12,796 $12,827
4/30/2001 $13,820 $13,824
5/31/2001 $14,023 $13,917
6/30/2001 $13,372 $13,578
7/31/2001 $13,326 $13,444
8/31/2001 $12,717 $12,603
9/30/2001 $11,295 $11,585
10/31/2001 $11,664 $11,806
11/30/2001 $12,767 $12,712
12/31/2001 $12,856 $12,823
1/31/2002 $12,665 $12,636
2/28/2002 $12,570 $12,392
3/31/2002 $12,993 $12,858
4/30/2002 $12,167 $12,079
5/31/2002 $11,918 $11,990
6/30/2002 $11,012 $11,136
7/31/2002 $10,012 $10,268
8/31/2002 $10,028 $10,335
9/30/2002 $ 8,932 $ 9,212
10/31/2002 $ 9,547 $10,023
11/30/2002 $10,194 $10,612
12/31/2002 $ 9,654 $ 9,989
1/31/2003 $ 9,281 $ 9,727
2/28/2003 $ 9,061 $ 9,581
3/31/2003 $ 9,057 $ 9,674
4/30/2003 $ 9,713 $10,471
5/31/2003 $10,340 $11,023
6/30/2003 $10,639 $11,164
7/31/2003 $10,950 $11,360
8/31/2003 $11,183 $11,582
9/30/2003 $10,838 $11,459
10/31/2003 $11,469 $12,107
11/30/2003 $11,606 $12,214
12/31/2003 $12,266 $12,854
1/31/2004 $12,441 $13,090
2/29/2004 $12,495 $13,272
3/31/2004 $12,196 $13,072
4/30/2004 $12,196 $12,867
5/31/2004 $12,387 $13,043
6/30/2004 $12,885 $13,297
7/31/2004 $12,196 $12,857
8/31/2004 $12,084 $12,909
9/30/2004 $12,254 $13,049
10/31/2004 $12,395 $13,248
11/30/2004 $13,109 $13,784
12/31/2004 $13,549 $14,253
1/31/2005 $13,076 $13,906
2/28/2005 $13,296 $14,198
3/31/2005 $13,275 $13,947
4/30/2005 $12,947 $13,682
5/31/2005 $13,450 $14,118
6/30/2005 $13,296 $14,138
7/31/2005 $13,981 $14,664
8/31/2005 $13,923 $14,530
9/30/2005 $13,886 $14,647
10/31/2005 $13,765 $14,403
11/30/2005 $14,426 $14,948
12/31/2005 $14,571 $14,953
1/31/2006 $14,712 $15,349
2/28/2006 $14,899 $15,391
3/31/2006 $15,244 $15,582
4/30/2006 $15,352 $15,792
5/31/2006 $15,007 $15,337
6/30/2006 $14,912 $15,358
7/31/2006 $14,729 $15,453
8/31/2006 $15,069 $15,820
9/30/2006 $15,497 $16,228
10/31/2006 $16,120 $16,757
11/30/2006 $16,531 $17,075
12/31/2006 $16,510 $17,315
1/31/2007 $17,021 $17,577
2/28/2007 $16,701 $17,233
3/31/2007 $16,664 $17,426
4/30/2007 $17,324 $18,198
5/31/2007 $18,022 $18,833
6/30/2007 $17,843 $18,520
7/31/2007 $17,482 $17,946
8/31/2007 $17,660 $18,215
9/30/2007 $18,283 $18,896
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 9/30/07
- -----------------------------------
1-Year +18.55%
- -----------------------------------
5-Year +15.98%
- -----------------------------------
Since Inception (1/1/02) +6.81%
- -----------------------------------
CLASS R (1/1/02-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Franklin Growth Fund S&P 500 5
- ------------------------------------------------
1/1/2002 $10,000 $10,000
1/31/2002 $ 9,832 $ 9,854
2/28/2002 $ 9,759 $ 9,664
3/31/2002 $10,098 $10,027
4/30/2002 $ 9,455 $ 9,420
5/31/2002 $ 9,265 $ 9,350
6/30/2002 $ 8,566 $ 8,684
7/31/2002 $ 7,793 $ 8,007
8/31/2002 $ 7,806 $ 8,060
9/30/2002 $ 6,957 $ 7,184
10/31/2002 $ 7,436 $ 7,816
11/30/2002 $ 7,946 $ 8,276
12/31/2002 $ 7,528 $ 7,790
1/31/2003 $ 7,240 $ 7,586
2/28/2003 $ 7,071 $ 7,472
3/31/2003 $ 7,071 $ 7,545
4/30/2003 $ 7,586 $ 8,166
5/31/2003 $ 8,080 $ 8,596
6/30/2003 $ 8,318 $ 8,706
7/31/2003 $ 8,562 $ 8,859
8/31/2003 $ 8,750 $ 9,032
9/30/2003 $ 8,483 $ 8,936
10/31/2003 $ 8,984 $ 9,442
11/30/2003 $ 9,095 $ 9,525
12/31/2003 $ 9,613 $10,024
1/31/2004 $ 9,755 $10,208
2/29/2004 $ 9,799 $10,350
3/31/2004 $ 9,571 $10,194
4/30/2004 $ 9,575 $10,034
5/31/2004 $ 9,730 $10,172
6/30/2004 $10,123 $10,370
7/31/2004 $ 9,587 $10,026
8/31/2004 $ 9,505 $10,067
9/30/2004 $ 9,640 $10,176
10/31/2004 $ 9,755 $10,332
11/30/2004 $10,323 $10,750
12/31/2004 $10,674 $11,115
1/31/2005 $10,306 $10,844
2/28/2005 $10,483 $11,073
3/31/2005 $10,467 $10,877
4/30/2005 $10,217 $10,670
5/31/2005 $10,620 $11,010
6/30/2005 $10,499 $11,025
7/31/2005 $11,045 $11,435
8/31/2005 $11,004 $11,331
9/30/2005 $10,978 $11,423
10/31/2005 $10,889 $11,232
11/30/2005 $11,416 $11,657
12/31/2005 $11,534 $11,661
1/31/2006 $11,651 $11,970
2/28/2006 $11,804 $12,003
3/31/2006 $12,083 $12,152
4/30/2006 $12,172 $12,315
5/31/2006 $11,906 $11,961
6/30/2006 $11,836 $11,977
7/31/2006 $11,693 $12,051
8/31/2006 $11,969 $12,338
9/30/2006 $12,315 $12,655
10/31/2006 $12,813 $13,068
11/30/2006 $13,147 $13,316
12/31/2006 $13,136 $13,503
1/31/2007 $13,549 $13,707
2/28/2007 $13,295 $13,439
3/31/2007 $13,272 $13,590
4/30/2007 $13,806 $14,192
5/31/2007 $14,364 $14,687
6/30/2007 $14,231 $14,443
7/31/2007 $13,949 $13,995
8/31/2007 $14,095 $14,205
9/30/2007 $14,600 $14,736
18 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Date Franklin Growth Fund S&P 500 5
- ------------------------------------------------
10/1/1997 $10,000 $10,000
10/31/1997 $ 9,915 $ 9,666
11/30/1997 $10,147 $10,113
12/31/1997 $10,264 $10,287
1/31/1998 $10,374 $10,401
2/28/1998 $10,810 $11,151
3/31/1998 $11,048 $11,722
4/30/1998 $11,196 $11,840
5/31/1998 $11,041 $11,637
6/30/1998 $11,249 $12,109
7/31/1998 $11,211 $11,980
8/31/1998 $10,268 $10,248
9/30/1998 $10,847 $10,905
10/31/1998 $11,518 $11,792
11/30/1998 $11,935 $12,506
12/31/1998 $12,195 $13,227
1/31/1999 $12,412 $13,780
2/28/1999 $12,281 $13,352
3/31/1999 $12,614 $13,886
4/30/1999 $13,025 $14,424
5/31/1999 $12,874 $14,083
6/30/1999 $13,416 $14,865
7/31/1999 $13,199 $14,401
8/31/1999 $13,257 $14,329
9/30/1999 $12,897 $13,937
10/31/1999 $13,110 $14,819
11/30/1999 $13,281 $15,120
12/31/1999 $13,713 $16,010
1/31/2000 $13,598 $15,206
2/29/2000 $13,285 $14,918
3/31/2000 $14,444 $16,377
4/30/2000 $14,614 $15,885
5/31/2000 $14,678 $15,559
6/30/2000 $14,892 $15,942
7/31/2000 $14,662 $15,693
8/31/2000 $15,309 $16,668
9/30/2000 $14,682 $15,788
10/31/2000 $14,880 $15,721
11/30/2000 $14,495 $14,482
12/31/2000 $14,779 $14,553
1/31/2001 $15,062 $15,069
2/28/2001 $14,311 $13,695
3/31/2001 $13,252 $12,827
4/30/2001 $14,324 $13,824
5/31/2001 $14,547 $13,917
6/30/2001 $13,881 $13,578
7/31/2001 $13,851 $13,444
8/31/2001 $13,227 $12,603
9/30/2001 $11,754 $11,585
10/31/2001 $12,151 $11,806
11/30/2001 $13,311 $12,712
12/31/2001 $13,415 $12,823
1/31/2002 $13,223 $12,636
2/28/2002 $13,134 $12,392
3/31/2002 $13,594 $12,858
4/30/2002 $12,734 $12,079
5/31/2002 $12,487 $11,990
6/30/2002 $11,546 $11,136
7/31/2002 $10,507 $10,268
8/31/2002 $10,533 $10,335
9/30/2002 $ 9,387 $ 9,212
10/31/2002 $10,043 $10,023
11/30/2002 $10,733 $10,612
12/31/2002 $10,172 $ 9,989
1/31/2003 $ 9,788 $ 9,727
2/28/2003 $ 9,565 $ 9,581
3/31/2003 $ 9,570 $ 9,674
4/30/2003 $10,267 $10,471
5/31/2003 $10,942 $11,023
6/30/2003 $11,267 $11,164
7/31/2003 $11,605 $11,360
8/31/2003 $11,861 $11,582
9/30/2003 $11,507 $11,459
10/31/2003 $12,191 $12,107
11/30/2003 $12,345 $12,214
12/31/2003 $13,058 $12,854
1/31/2004 $13,255 $13,090
2/29/2004 $13,320 $13,272
3/31/2004 $13,011 $13,072
4/30/2004 $13,024 $12,867
5/31/2004 $13,238 $13,043
6/30/2004 $13,779 $13,297
7/31/2004 $13,058 $12,857
8/31/2004 $12,947 $12,909
9/30/2004 $13,140 $13,049
10/31/2004 $13,303 $13,248
11/30/2004 $14,083 $13,784
12/31/2004 $14,564 $14,253
1/31/2005 $14,069 $13,906
2/28/2005 $14,319 $14,198
3/31/2005 $14,306 $13,947
4/30/2005 $13,965 $13,682
5/31/2005 $14,521 $14,118
6/30/2005 $14,366 $14,138
7/31/2005 $15,116 $14,664
8/31/2005 $15,069 $14,530
9/30/2005 $15,038 $14,647
10/31/2005 $14,926 $14,403
11/30/2005 $15,651 $14,948
12/31/2005 $15,823 $14,953
1/31/2006 $15,988 $15,349
2/28/2006 $16,204 $15,391
3/31/2006 $16,594 $15,582
4/30/2006 $16,724 $15,792
5/31/2006 $16,360 $15,337
6/30/2006 $16,274 $15,358
7/31/2006 $16,087 $15,453
8/31/2006 $16,473 $15,820
9/30/2006 $16,953 $16,228
10/31/2006 $17,650 $16,757
11/30/2006 $18,113 $17,075
12/31/2006 $18,105 $17,315
1/31/2007 $18,683 $17,577
2/28/2007 $18,344 $17,233
3/31/2007 $18,318 $17,426
4/30/2007 $19,062 $18,198
5/31/2007 $19,844 $18,833
6/30/2007 $19,666 $18,520
7/31/2007 $19,283 $17,946
8/31/2007 $19,497 $18,215
9/30/2007 $20,201 $18,896
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
ADVISOR CLASS 9/30/07
- -----------------------------------
1-Year +19.16%
- -----------------------------------
5-Year +16.56%
- -----------------------------------
10-Year +7.28%
- -----------------------------------
ENDNOTES
HISTORICALLY, THE FUND HAS FOCUSED ON LARGER COMPANIES. THE FUND MAY ALSO INVEST
IN SMALL, RELATIVELY NEW AND/OR UNSEASONED COMPANIES, WHICH INVOLVES ADDITIONAL
RISKS, AS THE PRICES OF THESE SECURITIES CAN BE VOLATILE, PARTICULARLY OVER THE
SHORT TERM. IN ADDITION, THE FUND MAY INVEST UP TO 40% OF ITS NET ASSETS IN
STOCKS OF FOREIGN COMPANIES, WHICH INVOLVE SPECIAL RISKS, INCLUDING CURRENCY
VOLATILITY AND POLITICAL, ECONOMIC AND REGULATORY UNCERTAINTY. THE FUND'S
PORTFOLIO INCLUDES INVESTMENTS IN TECHNOLOGY, WHICH HAS BEEN AMONG THE MARKET'S
MOST VOLATILE SECTORS. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE
MAIN INVESTMENT RISKS.
CLASS A: Prior to 8/3/98, these shares were offered at a lower initial
sales charge; thus actual total returns may differ.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. Figures are as stated in the Funds prospectus current as of the date of this
report.
5. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
Annual Report | 19
Your Fund's Expenses
FRANKLIN GROWTH FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
20 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 4/1/07 VALUE 9/30/07 PERIOD* 4/1/07-9/30/07
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,101.40 $4.74
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.56 $4.56
- ------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,097.60 $8.68
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.80 $8.34
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,097.20 $8.67
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,016.80 $8.34
- ------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,100.00 $6.05
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.30 $5.82
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,102.80 $3.43
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.81 $3.29
- ------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.90%; B: 1.65%; C: 1.65%; R: 1.15%; and Advisor:
0.65%) multiplied by the average account value over the period, multiplied by
183/365 to reflect the one-half year period.
Annual Report | 21
Franklin Income Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Income Fund seeks to maximize
income while maintaining prospects for capital appreciation through a
diversified portfolio of securities.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin Income Fund covers the fiscal year ended
September 30, 2007.
PERFORMANCE OVERVIEW
Franklin Income Fund - Class A posted a +14.14% cumulative total return for the
12 months under review. The Fund underperformed the equity benchmark, the
Standard & Poor's 500 Index (S&P 500), which returned +16.44%; outperformed the
fixed income benchmark, the Lehman Brothers (LB) U.S. Aggregate Index, which
returned +5.14%; and outperformed its peers as measured by the Lipper
Mixed-Asset Target Allocation Moderate Funds Classification Average, which
returned +11.68%, for the same period. 1 You can find the Fund's long-term
performance data in the Performance Summary beginning on page 27.
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended September 30, 2007, the U.S. economy advanced at a
moderate but uneven pace. Gross domestic product (GDP) grew an annualized 2.1%
in the fourth quarter of 2006, but slowed to an annualized 0.6% rate in the
first quarter of 2007 due in part to higher imports and lower spending for
nondurable goods. In the second quarter, however, GDP growth
1. Sources: Standard & Poor's Micropal; Lipper Inc. The S&P 500 consists of 500
stocks chosen for market size, liquidity and industry group representation. Each
stock's weight in the index is proportionate to its market value. The S&P 500 is
one of the most widely used benchmarks of U.S. equity performance. The LB U.S.
Aggregate Index represents securities that are SEC-registered, taxable and
dollar denominated. The index covers the U.S. investment grade fixed-rate bond
market, with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and noncon-vertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The Lipper Mixed-Asset
Target Allocation Moderate Funds Classification Average is calculated by
averaging the total returns of all funds within the Lipper Mixed-Asset Target
Allocation Moderate Funds classification in the Lipper Open-End underlying funds
universe. Lipper Mixed-Asset Target Allocation Moderate Funds are defined as
funds that, by portfolio practice, maintain a mix of between 40%-60% equity
securities, with the remainder invested in bonds, cash and cash equivalents. For
the 12-month period ended 9/30/07, there were 442 funds in this category. Lipper
calculations do not include sales charges or expense subsidization by a fund's
manager. The Fund's performance relative to the average may have differed if
these and other factors had been considered. Past performance does not guarantee
future results. The indexes are unmanaged and include reinvestment of any income
or distributions. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 82.
22 | Annual Report
advanced at an annualized 3.8% rate, supported by federal defense spending,
accelerating exports and declining imports, greater business inventory
investment and increased spending for nonresidential structures. GDP grew an
estimated annualized 3.9% in the third quarter of 2007 despite a struggling
housing market that became more fragile with the abrupt unraveling of the
subprime mortgage market.
The unemployment rate increased from 4.6% at the beginning of the period to 4.7%
in September 2007. 2 Although consumer confidence in July neared a six-year
high, the pace of consumer spending slowed toward period-end as worries about
the housing slump and high gasoline prices made individuals more cautious. After
a welcome drop in energy costs during the latter half of 2006, oil prices
established a new record high in September, crossing $80 per barrel in response
to perceived tight supply and high demand for oil, refinery maintenance issues,
and ongoing geopolitical tensions in the Middle East and Africa. The core
Consumer Price Index (CPI), which excludes food and energy costs, rose 2.1% for
the 12 months ended September 30, 2007, which was lower than its 2.2% 10-year
average. 2
Liquidity and financing became difficult to obtain in some corporate credit
markets, which dampened the outlook for economic growth. In response, the
Federal Reserve Board (Fed) lowered the federal funds target rate 50 basis
points to 4.75% from 5.25% in September, which marked the first interest rate
reduction in four years. The 10-year Treasury note yield fell from 4.64% at the
beginning of the period to 4.59% on September 30, 2007.
After stock market sell-offs in late February and mid-March, markets rebounded
in the second quarter of 2007 amid generally strong first quarter corporate
earnings reports. However, volatility picked up again in the second half of July
and in August due to investor concerns about the housing market, lending
environment and mixed second quarter earnings reports. The blue chip stocks of
the Dow Jones Industrial Average posted a 12-month total return of +21.69%, the
broader S&P 500 returned +16.44%, and the technology-heavy NASDAQ Composite
Index returned +20.52%. 3 Energy, materials and telecommunication stocks
performed particularly well.
2. Source: Bureau of Labor Statistics.
3. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is price
weighted based on the average market price of 30 blue chip stocks of companies
that are generally industry leaders. See footnote 1 for a description of the S&P
500. The NASDAQ Composite Index measures all NASDAQ domestic and international
based common type stocks listed on The NASDAQ Stock Market. The index is market
value weighted and includes more than 3,000 companies.
Annual Report | 23
PORTFOLIO BREAKDOWN
Franklin Income Fund
Based on Total Net Assets as of 9/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Corporate Straight Bonds 41.3%
Electric Utilities Stocks 15.5%
Energy Minerals Stocks 6.7%
Health Technology Stocks 6.5%
Finance Stocks 5.3%
Mortgage-Backed Securities 4.0%
Communications Stocks 3.2%
Non-Energy Minerals Stocks 1.6%
Senior Floating Rate Interests 1.6%
Corporate Convertible Bonds 1.4%
Industrial Services Stocks 1.1%
Producer Manufacturing Stocks 1.0%
Commercial Banks Stocks 1.0%
Other 3.3%
Short-Term Investments & Other Net Assets 6.5%
DIVIDEND DISTRIBUTIONS*
Franklin Income Fund
10/1/06-9/30/07
- -------------------------------------------------------------------------------
DIVIDEND PER SHARE (CENTS)
--------------------------------------------------------------
MONTH CLASS A CLASS B CLASS B1** CLASS C CLASS R ADVISOR CLASS
- -------------------------------------------------------------------------------
October 2006 1.20 1.03 1.09 1.09 1.13 1.23
- -------------------------------------------------------------------------------
November 2006 1.20 1.03 1.09 1.09 1.13 1.23
- -------------------------------------------------------------------------------
December 2006 1.20 1.01 1.09 1.10 1.12 1.23
- -------------------------------------------------------------------------------
January 2007 1.20 1.01 1.09 1.10 1.12 1.23
- -------------------------------------------------------------------------------
February 2007 1.20 1.01 1.09 1.10 1.12 1.23
- -------------------------------------------------------------------------------
March 2007 1.20 1.01 1.08 1.08 1.13 1.23
- -------------------------------------------------------------------------------
April 2007 1.20 1.01 1.08 1.08 1.13 1.23
- -------------------------------------------------------------------------------
May 2007 1.20 1.01 1.08 1.08 1.13 1.23
- -------------------------------------------------------------------------------
June 2007 1.20 1.00 1.09 1.08 1.12 1.23
- -------------------------------------------------------------------------------
July 2007 1.20 1.00 1.09 1.08 1.12 1.23
- -------------------------------------------------------------------------------
August 2007 1.20 1.00 1.09 1.08 1.12 1.23
- -------------------------------------------------------------------------------
September 2007 1.20 1.01 1.09 1.09 1.12 1.24
===============================================================================
TOTAL 14.40 12.13 13.05 13.05 13.49 14.77
- -------------------------------------------------------------------------------
* All Fund distributions will vary depending upon current market conditions, and
past distributions are not indicative of future trends.
** On November 1, 2001, the Fund closed Class B to new investors and changed the
name to Class B1; a new Class B became available to investors.
INVESTMENT STRATEGY
Based on our independent analysis of debt, convertible and equity securities, we
search for undervalued or out-of-favor securities we believe offer opportunities
for income today and significant growth tomorrow. We consider such factors as a
company's experience and managerial strength; its responsiveness to changes in
interest rates and business conditions; debt maturity schedules and borrowing
requirements; a company's changing financial condition and market recognition of
the change; and a security's relative value based on such factors as anticipated
cash flow, interest or dividend coverage, asset coverage and earnings.
MANAGER'S DISCUSSION
Within equity markets, the Fund's holdings in electric utility stocks drove
performance as the S&P 500 Utilities Index posted a 12-month gain of +21.15%. 4
4. Source: Standard & Poor's Micropal. The S&P 500 Utilities Index is a market
capitalization-weighted index that includes utility stocks in the S&P 500.
24 | Annual Report
Attractive dividend yields and improving fundamentals for electric utilities,
such as rising power prices, improved supply and demand expectations, and rate
base growth opportunities, contributed to the sector's solid returns. Leading
contributors to Fund performance in the electric utilities sector included
Public Service Enterprise Group, TXU, FirstEnergy and FPL Group. Energy minerals
stocks also benefited the Fund as Chevron, Canadian Oil Sands Trust and
ConocoPhillips performed well. Additionally, AT&T and Verizon Communications in
the communications sector, and pharmaceutical makers Merck and Schering-Plough
in health technology, boosted returns.
Despite the Fund's solid performance, some equity holdings did not perform up to
expectations. For example, Pfizer in the health technology sector, and Spectra
Energy in the gas distributors industry, negatively impacted performance.
Several finance sector holdings including Washington Mutual, E*TRADE Financial
and Fifth Third Bancorp also lost value. In addition, our exposure to the
consumer durables sector, primarily in homebuilders D.R. Horton, KB Home and
M.D.C. Holdings, hampered the Fund.
Within fixed income markets, volatile interest rates and credit spreads impacted
results, but these markets ended the reporting period close to where they began.
The benchmark 10-year U.S. Treasury yielded 4.64% on September 30, 2006, and
declined to 4.59% on September 30, 2007. However, volatility during the period
due to concerns regarding the pace of economic growth, inflation expectations
and U.S. dollar weakness drove the yield sharply higher during the second
quarter of 2007, to a peak of 5.26% on June 12, 2007. Worries regarding subprime
mortgage market contagion and the ensuing credit crisis caused spreads to widen
and Treasury securities to rally as investors focused on the quality and
liquidity of U.S. government debt securities. Yield spreads over Treasuries for
the broader fixed income market, as represented by the LB U.S. Aggregate Index,
rose during the period from 67 basis points to 100 basis points, reflecting the
higher return required for credit risk. 5 Furthermore, credit spreads for
non-investment grade corporate bonds, as represented by the LB U.S. High Yield
Index, rose from 352 basis points to 436 basis points. 6
The Fund's fixed income holdings overall contributed to Fund returns. Our
emphasis on select corporate bond investments from several sectors drove
results. Significant contributors included Calpine and Dynegy Holdings in the
alternative power generation industry, CCH I Holdings (Charter
TOP 5 EQUITY HOLDINGS
Franklin Income Fund
9/30/07
- -----------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- -----------------------------------------------------------------
AT&T Inc. 2.4%
COMMUNICATIONS
- -----------------------------------------------------------------
Pfizer Inc. 2.4%
HEALTH TECHNOLOGY
- -----------------------------------------------------------------
TXU Corp. 1.9%
ELECTRIC UTILITIES
- -----------------------------------------------------------------
Public Service Enterprise Group Inc. 1.9%
ELECTRIC UTILITIES
- -----------------------------------------------------------------
Merck & Co. Inc. 1.7%
HEALTH TECHNOLOGY
- -----------------------------------------------------------------
TOP 5 BOND HOLDINGS*
Franklin Income Fund
9/30/07
- -----------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- -----------------------------------------------------------------
GMAC LLC 3.4%
FINANCE
- -----------------------------------------------------------------
Ford Motor Credit Co. LLC 3.3%
CONSUMER DURABLES
- -----------------------------------------------------------------
Tenet Healthcare Corp. 2.0%
HEALTH SERVICES
- -----------------------------------------------------------------
Allied Waste North America Inc. 1.7%
INDUSTRIAL SERVICES
- -----------------------------------------------------------------
Freescale Semiconductor Inc. 1.4%
ELECTRONIC TECHNOLOGY
- -----------------------------------------------------------------
* Does not include convertible bonds.
5. Source: Standard & Poor's Micropal. See footnote 1 for a description of the
LB U.S. Aggregate Index.
6. Source: Standard & Poor's Micropal. The LB U.S. High Yield Index covers the
universe of fixed rate, non-investment grade debt. The index includes both
corporate and non-corporate sectors.
Annual Report | 25
Communications) in consumer services, Ford Motor Credit in consumer durables and
Allied Waste North America in industrial services.
Some of the Fund's fixed income detractors included electric utility TXU, Clear
Channel Communications (sold by period-end) in consumer services, Residential
Capital in consumer finance and Beazer Homes USA in consumer durables. TXU and
Clear Channel corporate bonds were negatively impacted by private equity-led
leveraged buyouts of those companies. Deteriorating fundamentals in the housing
sector weighed on Residential Capital and Beazer Homes.
Thank you for your continued participation in Franklin Income Fund. We look
forward to serving your future investment needs.
[PHOTO OMITTED] /s/ Edward Perks
Edward Perks, CFA
[PHOTO OMITTED] /s/ Charles B. Johnson
Charles B. Johnson
Portfolio Management Team
Franklin Income Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF SEPTEMBER 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
26 | Annual Report
Performance Summary as of 9/30/07
FRANKLIN INCOME FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ----------------------------------------------------------------------------------------------------
CLASS A (SYMBOL: FKINX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.17 $2.74 $2.57
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.1440
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0192
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0197
- ----------------------------------------------------------------------------------------------------
TOTAL $0.1829
- ----------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: FBICX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.17 $2.73 $2.56
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.1213
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0192
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0197
- ----------------------------------------------------------------------------------------------------
TOTAL $0.1602
- ----------------------------------------------------------------------------------------------------
CLASS B1 (SYMBOL: FICBX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.17 $2.74 $2.57
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.1305
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0192
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0197
- ----------------------------------------------------------------------------------------------------
TOTAL $0.1694
- ----------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FCISX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.17 $2.76 $2.59
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.1305
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0192
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0197
- ----------------------------------------------------------------------------------------------------
TOTAL $0.1694
- ----------------------------------------------------------------------------------------------------
Annual Report | 27
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
- ----------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: FISRX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.16 $2.71 $2.55
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.1349
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0192
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0197
- ----------------------------------------------------------------------------------------------------
TOTAL $0.1738
- ----------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FRIAX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$0.17 $2.73 $2.56
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.1477
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0192
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.0197
- ----------------------------------------------------------------------------------------------------
TOTAL $0.1866
- ----------------------------------------------------------------------------------------------------
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25%
MAXIMUM INITIAL SALES CHARGE; CLASS B/B1: CONTINGENT DEFERRED SALES CHARGE
(CDSC) DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS
C: 1% CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND
MAY CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +14.14% +104.70% +140.56%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +9.45% +14.46% +8.70%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,945 $19,643 $23,039
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 5.03%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 5.62%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 0.64%
- --------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (11/1/01)
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +13.23% +95.83% +84.81%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +9.23% +14.15% +10.84%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,923 $19,383 $18,381
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.44%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 5.03%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.49%
- --------------------------------------------------------------------------------------------------------------
CLASS B1 1-YEAR 5-YEAR INCEPTION (1/1/99)
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +13.57% +99.63% +118.91%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +9.57% +14.60% +9.37%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $10,957 $19,763 $21,891
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.77%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 5.38%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.14%
- --------------------------------------------------------------------------------------------------------------
28 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE (CONTINUED)
- --------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +13.47% +99.73% +129.74%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +12.47% +14.84% +8.67%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,247 $19,973 $22,974
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.74%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 5.37%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.14%
- --------------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +13.47% +100.68% +83.95%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +13.47% +14.95% +11.20%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,347 $20,068 $18,395
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 4.96%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 5.53%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 0.99%
- --------------------------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +14.36% +106.85% +144.95%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +14.36% +15.65% +9.37%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,436 $20,685 $24,495
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 5.45%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 6.01%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 0.49%
- --------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 29
Performance Summary (CONTINUED)
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 any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS A 9/30/07
- -----------------------------------
1-Year +9.45%
- -----------------------------------
5-Year +14.46%
- -----------------------------------
10-Year +8.70%
- -----------------------------------
CLASS A (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lipper Mixed-Asset Target
Lehman Brothers U.S. Allocation Moderate Funds
Date Franklin Income Fund Aggregate Index 7 S&p 500 7 Classification Average 7
- --------------------------------------------------------------------------------------------------
10/1/1997 $ 9,577 $10,000 $10,000 $10,000
10/31/1997 $ 9,441 $10,145 $ 9,666 $ 9,824
11/30/1997 $ 9,733 $10,192 $10,113 $ 9,976
12/31/1997 $10,021 $10,294 $10,287 $10,126
1/31/1998 $ 9,921 $10,427 $10,401 $10,168
2/28/1998 $10,061 $10,419 $11,151 $10,554
3/31/1998 $10,364 $10,455 $11,722 $10,854
4/30/1998 $10,222 $10,509 $11,840 $10,902
5/31/1998 $10,120 $10,609 $11,637 $10,811
6/30/1998 $10,140 $10,699 $12,109 $10,939
7/31/1998 $ 9,954 $10,722 $11,980 $10,802
8/31/1998 $ 9,310 $10,896 $10,248 $ 9,892
9/30/1998 $ 9,790 $11,151 $10,905 $10,251
10/31/1998 $ 9,812 $11,092 $11,792 $10,613
11/30/1998 $10,129 $11,155 $12,506 $10,981
12/31/1998 $10,117 $11,189 $13,227 $11,310
1/31/1999 $ 9,965 $11,269 $13,780 $11,440
2/28/1999 $ 9,683 $11,072 $13,352 $11,151
3/31/1999 $ 9,836 $11,133 $13,886 $11,376
4/30/1999 $10,342 $11,168 $14,424 $11,739
5/31/1999 $10,408 $11,071 $14,083 $11,586
6/30/1999 $10,387 $11,035 $14,865 $11,854
7/31/1999 $10,274 $10,988 $14,401 $11,678
8/31/1999 $10,297 $10,983 $14,329 $11,558
9/30/1999 $10,184 $11,110 $13,937 $11,434
10/31/1999 $10,161 $11,151 $14,819 $11,734
11/30/1999 $10,000 $11,150 $15,120 $11,889
12/31/1999 $10,042 $11,097 $16,010 $12,286
1/31/2000 $10,113 $11,060 $15,206 $11,977
2/29/2000 $ 9,948 $11,194 $14,918 $12,050
3/31/2000 $10,114 $11,342 $16,377 $12,608
4/30/2000 $10,474 $11,309 $15,885 $12,373
5/31/2000 $10,643 $11,304 $15,559 $12,255
6/30/2000 $10,716 $11,539 $15,942 $12,498
7/31/2000 $10,838 $11,644 $15,693 $12,443
8/31/2000 $11,455 $11,813 $16,668 $12,983
9/30/2000 $11,678 $11,887 $15,788 $12,720
10/31/2000 $11,503 $11,966 $15,721 $12,644
11/30/2000 $11,427 $12,161 $14,482 $12,148
12/31/2000 $12,109 $12,387 $14,553 $12,487
1/31/2001 $12,085 $12,589 $15,069 $12,735
2/28/2001 $12,318 $12,699 $13,695 $12,225
3/31/2001 $12,135 $12,763 $12,827 $11,812
4/30/2001 $12,372 $12,710 $13,824 $12,313
5/31/2001 $12,610 $12,786 $13,917 $12,379
6/30/2001 $12,317 $12,835 $13,578 $12,222
7/31/2001 $12,182 $13,122 $13,444 $12,176
8/31/2001 $12,317 $13,272 $12,603 $11,866
9/30/2001 $11,746 $13,427 $11,585 $11,226
10/31/2001 $11,828 $13,708 $11,806 $11,450
11/30/2001 $12,076 $13,519 $12,712 $11,856
12/31/2001 $12,188 $13,433 $12,823 $11,940
1/31/2002 $12,272 $13,541 $12,636 $11,833
2/28/2002 $12,357 $13,673 $12,392 $11,738
3/31/2002 $12,727 $13,445 $12,858 $11,993
4/30/2002 $12,802 $13,706 $12,079 $11,792
5/31/2002 $12,761 $13,822 $11,990 $11,755
6/30/2002 $11,965 $13,942 $11,136 $11,276
7/31/2002 $11,399 $14,110 $10,268 $10,728
8/31/2002 $11,770 $14,348 $10,335 $10,836
9/30/2002 $11,255 $14,581 $ 9,212 $10,249
10/31/2002 $11,332 $14,514 $10,023 $10,595
11/30/2002 $11,950 $14,511 $10,612 $10,975
12/31/2002 $12,059 $14,810 $ 9,989 $10,751
1/31/2003 $12,137 $14,823 $ 9,727 $10,612
2/28/2003 $11,971 $15,028 $ 9,581 $10,553
3/31/2003 $12,236 $15,016 $ 9,674 $10,596
4/30/2003 $13,001 $15,140 $10,471 $11,126
5/31/2003 $13,708 $15,423 $11,023 $11,597
6/30/2003 $13,978 $15,392 $11,164 $11,696
7/31/2003 $13,807 $14,875 $11,360 $11,687
8/31/2003 $14,017 $14,973 $11,582 $11,859
9/30/2003 $14,420 $15,370 $11,459 $11,928
10/31/2003 $14,826 $15,226 $12,107 $12,275
11/30/2003 $15,040 $15,263 $12,214 $12,398
12/31/2003 $15,792 $15,418 $12,854 $12,805
1/31/2004 $16,009 $15,542 $13,090 $12,970
2/29/2004 $16,029 $15,710 $13,272 $13,127
3/31/2004 $16,048 $15,828 $13,072 $13,094
4/30/2004 $15,801 $15,416 $12,867 $12,798
5/31/2004 $15,753 $15,354 $13,043 $12,837
6/30/2004 $15,977 $15,441 $13,297 $13,015
7/31/2004 $16,065 $15,594 $12,857 $12,799
8/31/2004 $16,428 $15,892 $12,909 $12,913
9/30/2004 $16,655 $15,935 $13,049 $13,060
10/31/2004 $16,883 $16,069 $13,248 $13,222
11/30/2004 $17,252 $15,940 $13,784 $13,557
12/31/2004 $17,715 $16,087 $14,253 $13,871
1/31/2005 $17,384 $16,188 $13,906 $13,702
2/28/2005 $17,827 $16,093 $14,198 $13,884
3/31/2005 $17,488 $16,010 $13,947 $13,699
4/30/2005 $17,219 $16,227 $13,682 $13,565
5/31/2005 $17,598 $16,402 $14,118 $13,826
6/30/2005 $18,123 $16,492 $14,138 $13,942
7/31/2005 $18,505 $16,341 $14,664 $14,218
8/31/2005 $18,450 $16,551 $14,530 $14,248
9/30/2005 $18,395 $16,380 $14,647 $14,305
10/31/2005 $17,822 $16,251 $14,403 $14,076
11/30/2005 $17,766 $16,323 $14,948 $14,360
12/31/2005 $18,043 $16,478 $14,953 $14,485
1/31/2006 $18,590 $16,479 $15,349 $14,833
2/28/2006 $18,757 $16,533 $15,391 $14,843
3/31/2006 $18,848 $16,371 $15,582 $14,962
4/30/2006 $19,093 $16,342 $15,792 $15,119
5/31/2006 $19,032 $16,324 $15,337 $14,817
6/30/2006 $19,202 $16,359 $15,358 $14,822
7/31/2006 $19,684 $16,580 $15,453 $14,913
8/31/2006 $20,013 $16,834 $15,820 $15,160
9/30/2006 $20,185 $16,982 $16,228 $15,362
10/31/2006 $20,674 $17,094 $16,757 $15,694
11/30/2006 $21,245 $17,292 $17,075 $15,972
12/31/2006 $21,493 $17,192 $17,315 $16,091
1/31/2007 $21,671 $17,185 $17,577 $16,252
2/28/2007 $21,932 $17,450 $17,233 $16,220
3/31/2007 $22,194 $17,450 $17,426 $16,350
4/30/2007 $22,868 $17,544 $18,198 $16,744
5/31/2007 $23,215 $17,411 $18,833 $17,035
6/30/2007 $22,733 $17,360 $18,520 $16,861
7/31/2007 $22,166 $17,505 $17,946 $16,568
8/31/2007 $22,350 $17,719 $18,215 $16,699
9/30/2007 $23,039 $17,854 $18,896 $17,151
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B 9/30/07
- -----------------------------------
1-Year +9.23%
- -----------------------------------
5-Year +14.15%
- -----------------------------------
Since Inception (11/1/01) +10.84%
- -----------------------------------
CLASS B (11/1/01-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lipper Mixed-Asset Target
Lehman Brothers U.S. Allocation Moderate Funds
Date Franklin Income Fund Aggregate Index 7 S&p 500 7 Classification Average 7
- --------------------------------------------------------------------------------------------------
11/1/2001 $10,000 $10,000 $10,000 $10,000
11/30/2001 $10,186 $ 9,862 $10,767 $10,354
12/31/2001 $10,229 $ 9,799 $10,861 $10,428
1/31/2002 $10,344 $ 9,879 $10,703 $10,335
2/28/2002 $10,411 $ 9,975 $10,496 $10,251
3/31/2002 $10,671 $ 9,809 $10,891 $10,474
4/30/2002 $10,774 $ 9,999 $10,231 $10,298
5/31/2002 $10,731 $10,084 $10,156 $10,267
6/30/2002 $10,006 $10,171 $ 9,432 $ 9,848
7/31/2002 $ 9,571 $10,294 $ 8,697 $ 9,369
8/31/2002 $ 9,875 $10,468 $ 8,754 $ 9,464
9/30/2002 $ 9,437 $10,637 $ 7,803 $ 8,951
10/31/2002 $ 9,445 $10,589 $ 8,489 $ 9,253
11/30/2002 $ 9,955 $10,586 $ 8,989 $ 9,585
12/31/2002 $10,091 $10,804 $ 8,461 $ 9,389
1/31/2003 $10,098 $10,814 $ 8,239 $ 9,268
2/28/2003 $10,004 $10,963 $ 8,116 $ 9,216
3/31/2003 $10,167 $10,955 $ 8,194 $ 9,254
4/30/2003 $10,851 $11,045 $ 8,869 $ 9,717
5/31/2003 $11,382 $11,251 $ 9,337 $10,129
6/30/2003 $11,653 $11,229 $ 9,456 $10,215
7/31/2003 $11,502 $10,851 $ 9,623 $10,206
8/31/2003 $11,671 $10,923 $ 9,810 $10,357
9/30/2003 $11,944 $11,213 $ 9,706 $10,418
10/31/2003 $12,273 $11,108 $10,255 $10,721
11/30/2003 $12,496 $11,135 $10,345 $10,828
12/31/2003 $13,057 $11,248 $10,888 $11,183
1/31/2004 $13,228 $11,338 $11,088 $11,327
2/29/2004 $13,290 $11,461 $11,242 $11,464
3/31/2004 $13,242 $11,547 $11,072 $11,436
4/30/2004 $13,082 $11,247 $10,899 $11,177
5/31/2004 $12,979 $11,201 $11,048 $11,211
6/30/2004 $13,210 $11,265 $11,263 $11,367
7/31/2004 $13,219 $11,376 $10,890 $11,178
8/31/2004 $13,508 $11,593 $10,934 $11,277
9/30/2004 $13,687 $11,625 $11,053 $11,406
10/31/2004 $13,866 $11,722 $11,221 $11,547
11/30/2004 $14,160 $11,629 $11,675 $11,840
12/31/2004 $14,531 $11,736 $12,073 $12,114
1/31/2005 $14,306 $11,810 $11,779 $11,966
2/28/2005 $14,602 $11,740 $12,026 $12,126
3/31/2005 $14,313 $11,680 $11,813 $11,964
4/30/2005 $14,082 $11,838 $11,589 $11,847
5/31/2005 $14,381 $11,966 $11,958 $12,075
6/30/2005 $14,803 $12,031 $11,975 $12,176
7/31/2005 $15,107 $11,921 $12,420 $12,417
8/31/2005 $15,053 $12,074 $12,307 $12,443
9/30/2005 $14,996 $11,950 $12,407 $12,493
10/31/2005 $14,516 $11,855 $12,200 $12,293
11/30/2005 $14,459 $11,908 $12,661 $12,541
12/31/2005 $14,675 $12,021 $12,666 $12,650
1/31/2006 $15,111 $12,022 $13,001 $12,954
2/28/2006 $15,236 $12,062 $13,036 $12,963
3/31/2006 $15,300 $11,943 $13,199 $13,067
4/30/2006 $15,488 $11,922 $13,376 $13,204
5/31/2006 $15,427 $11,909 $12,991 $12,940
6/30/2006 $15,555 $11,934 $13,009 $12,945
7/31/2006 $15,936 $12,095 $13,089 $13,024
8/31/2006 $16,191 $12,281 $13,400 $13,240
9/30/2006 $16,320 $12,388 $13,746 $13,416
10/31/2006 $16,706 $12,470 $14,193 $13,706
11/30/2006 $17,157 $12,615 $14,463 $13,949
12/31/2006 $17,346 $12,542 $14,666 $14,053
1/31/2007 $17,479 $12,537 $14,888 $14,194
2/28/2007 $17,677 $12,730 $14,597 $14,166
3/31/2007 $17,875 $12,730 $14,760 $14,279
4/30/2007 $18,408 $12,799 $15,414 $14,623
5/31/2007 $18,675 $12,702 $15,952 $14,877
6/30/2007 $18,273 $12,664 $15,687 $14,726
7/31/2007 $17,803 $12,770 $15,200 $14,469
8/31/2007 $17,938 $12,927 $15,428 $14,584
9/30/2007 $18,381 $13,025 $16,005 $14,979
30 | Annual Report
Performance Summary (CONTINUED)
CLASS B1 (1/1/99-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lipper Mixed-Asset Target
Lehman Brothers U.S. Allocation Moderate Funds
Date Franklin Income Fund Aggregate Index 7 S&p 500 7 Classification Average 7
- --------------------------------------------------------------------------------------------------
1/1/1999 $10,000 $10,000 $10,000 $10,000
1/31/1999 $ 9,851 $10,071 $10,418 $10,115
2/28/1999 $ 9,568 $ 9,896 $10,094 $ 9,860
3/31/1999 $ 9,717 $ 9,950 $10,498 $10,058
4/30/1999 $10,213 $ 9,982 $10,905 $10,379
5/31/1999 $10,230 $ 9,894 $10,647 $10,244
6/30/1999 $10,248 $ 9,863 $11,238 $10,481
7/31/1999 $10,133 $ 9,821 $10,887 $10,326
8/31/1999 $10,150 $ 9,816 $10,833 $10,219
9/30/1999 $10,035 $ 9,930 $10,536 $10,110
10/31/1999 $10,009 $ 9,967 $11,203 $10,375
11/30/1999 $ 9,845 $ 9,966 $11,431 $10,512
12/31/1999 $ 9,883 $ 9,918 $12,104 $10,863
1/31/2000 $ 9,949 $ 9,885 $11,496 $10,590
2/29/2000 $ 9,782 $10,005 $11,278 $10,655
3/31/2000 $ 9,941 $10,137 $12,382 $11,148
4/30/2000 $10,290 $10,108 $12,009 $10,940
5/31/2000 $10,452 $10,103 $11,763 $10,836
6/30/2000 $10,519 $10,313 $12,053 $11,050
7/31/2000 $10,633 $10,407 $11,864 $11,002
8/31/2000 $11,233 $10,558 $12,601 $11,479
9/30/2000 $11,448 $10,624 $11,936 $11,247
10/31/2000 $11,271 $10,694 $11,886 $11,180
11/30/2000 $11,242 $10,869 $10,949 $10,742
12/31/2000 $11,856 $11,071 $11,002 $11,041
1/31/2001 $11,827 $11,252 $11,392 $11,260
2/28/2001 $12,051 $11,350 $10,354 $10,810
3/31/2001 $11,867 $11,407 $ 9,698 $10,444
4/30/2001 $12,093 $11,360 $10,451 $10,887
5/31/2001 $12,321 $11,428 $10,521 $10,946
6/30/2001 $12,030 $11,471 $10,265 $10,807
7/31/2001 $11,894 $11,728 $10,164 $10,766
8/31/2001 $12,021 $11,862 $ 9,528 $10,492
9/30/2001 $11,460 $12,000 $ 8,759 $ 9,926
10/31/2001 $11,535 $12,251 $ 8,926 $10,124
11/30/2001 $11,772 $12,082 $ 9,610 $10,483
12/31/2001 $11,877 $12,006 $ 9,694 $10,557
1/31/2002 $11,954 $12,103 $ 9,553 $10,463
2/28/2002 $12,031 $12,220 $ 9,369 $10,378
3/31/2002 $12,388 $12,017 $ 9,721 $10,605
4/30/2002 $12,455 $12,250 $ 9,132 $10,426
5/31/2002 $12,410 $12,354 $ 9,064 $10,394
6/30/2002 $11,630 $12,461 $ 8,419 $ 9,970
7/31/2002 $11,074 $12,611 $ 7,763 $ 9,485
8/31/2002 $11,429 $12,824 $ 7,813 $ 9,581
9/30/2002 $10,925 $13,032 $ 6,964 $ 9,062
10/31/2002 $10,995 $12,972 $ 7,577 $ 9,368
11/30/2002 $11,590 $12,969 $ 8,023 $ 9,704
12/31/2002 $11,690 $13,237 $ 7,552 $ 9,506
1/31/2003 $11,762 $13,248 $ 7,354 $ 9,383
2/28/2003 $11,597 $13,431 $ 7,244 $ 9,331
3/31/2003 $11,849 $13,421 $ 7,314 $ 9,369
4/30/2003 $12,583 $13,532 $ 7,917 $ 9,837
5/31/2003 $13,261 $13,784 $ 8,334 $10,254
6/30/2003 $13,517 $13,757 $ 8,440 $10,341
7/31/2003 $13,347 $13,294 $ 8,589 $10,333
8/31/2003 $13,546 $13,383 $ 8,756 $10,486
9/30/2003 $13,929 $13,737 $ 8,663 $10,547
10/31/2003 $14,314 $13,609 $ 9,153 $10,854
11/30/2003 $14,514 $13,641 $ 9,234 $10,962
12/31/2003 $15,234 $13,780 $ 9,718 $11,322
1/31/2004 $15,437 $13,891 $ 9,897 $11,468
2/29/2004 $15,514 $14,041 $10,034 $11,607
3/31/2004 $15,461 $14,147 $ 9,883 $11,578
4/30/2004 $15,215 $13,778 $ 9,728 $11,316
5/31/2004 $15,162 $13,723 $ 9,861 $11,350
6/30/2004 $15,371 $13,801 $10,053 $11,508
7/31/2004 $15,450 $13,938 $ 9,720 $11,317
8/31/2004 $15,793 $14,203 $ 9,759 $11,418
9/30/2004 $16,004 $14,242 $ 9,865 $11,548
10/31/2004 $16,217 $14,361 $10,016 $11,691
11/30/2004 $16,564 $14,247 $10,421 $11,987
12/31/2004 $17,001 $14,378 $10,776 $12,265
1/31/2005 $16,743 $14,468 $10,513 $12,115
2/28/2005 $17,093 $14,383 $10,734 $12,276
3/31/2005 $16,761 $14,309 $10,544 $12,113
4/30/2005 $16,497 $14,503 $10,344 $11,994
5/31/2005 $16,851 $14,660 $10,673 $12,225
6/30/2005 $17,347 $14,739 $10,689 $12,327
7/31/2005 $17,706 $14,605 $11,086 $12,571
8/31/2005 $17,647 $14,793 $10,985 $12,598
9/30/2005 $17,587 $14,640 $11,074 $12,648
10/31/2005 $17,032 $14,524 $10,889 $12,446
11/30/2005 $16,970 $14,589 $11,301 $12,697
12/31/2005 $17,228 $14,727 $11,305 $12,808
1/31/2006 $17,743 $14,728 $11,604 $13,115
2/28/2006 $17,896 $14,777 $11,636 $13,124
3/31/2006 $17,975 $14,632 $11,781 $13,229
4/30/2006 $18,201 $14,605 $11,939 $13,368
5/31/2006 $18,134 $14,590 $11,595 $13,101
6/30/2006 $18,288 $14,621 $11,611 $13,106
7/31/2006 $18,740 $14,818 $11,683 $13,186
8/31/2006 $19,045 $15,045 $11,961 $13,405
9/30/2006 $19,201 $15,177 $12,269 $13,583
10/31/2006 $19,733 $15,278 $12,669 $13,876
11/30/2006 $20,193 $15,455 $12,909 $14,122
12/31/2006 $20,421 $15,365 $13,091 $14,228
1/31/2007 $20,591 $15,359 $13,289 $14,370
2/28/2007 $20,838 $15,596 $13,029 $14,342
3/31/2007 $21,086 $15,596 $13,174 $14,456
4/30/2007 $21,727 $15,681 $13,758 $14,805
5/31/2007 $22,057 $15,562 $14,238 $15,062
6/30/2007 $21,600 $15,516 $14,001 $14,909
7/31/2007 $21,060 $15,645 $13,567 $14,649
8/31/2007 $21,235 $15,837 $13,771 $14,765
9/30/2007 $21,891 $15,957 $14,286 $15,165
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B1 9/30/07
- -----------------------------------
1-Year +9.57%
- -----------------------------------
5-Year +14.60%
- -----------------------------------
Since Inception (1/1/99) +9.37%
- -----------------------------------
CLASS C (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lipper Mixed-Asset Target
Lehman Brothers U.S. Allocation Moderate Funds
Date Franklin Income Fund Aggregate Index 7 S&p 500 7 Classification Average 7
- --------------------------------------------------------------------------------------------------
10/1/1997 $10,000 $10,000 $10,000 $10,000
10/31/1997 $ 9,894 $10,145 $ 9,666 $ 9,824
11/30/1997 $10,153 $10,192 $10,113 $ 9,976
12/31/1997 $10,450 $10,294 $10,287 $10,126
1/31/1998 $10,341 $10,427 $10,401 $10,168
2/28/1998 $10,483 $10,419 $11,151 $10,554
3/31/1998 $10,793 $10,455 $11,722 $10,854
4/30/1998 $10,683 $10,509 $11,840 $10,902
5/31/1998 $10,531 $10,609 $11,637 $10,811
6/30/1998 $10,590 $10,699 $12,109 $10,939
7/31/1998 $10,392 $10,722 $11,980 $10,802
8/31/1998 $ 9,718 $10,896 $10,248 $ 9,892
9/30/1998 $10,170 $11,151 $10,905 $10,251
10/31/1998 $10,231 $11,092 $11,792 $10,613
11/30/1998 $10,557 $11,155 $12,506 $10,981
12/31/1998 $10,495 $11,189 $13,227 $11,310
1/31/1999 $10,378 $11,269 $13,780 $11,440
2/28/1999 $10,081 $11,072 $13,352 $11,151
3/31/1999 $10,235 $11,133 $13,886 $11,376
4/30/1999 $10,755 $11,168 $14,424 $11,739
5/31/1999 $10,773 $11,071 $14,083 $11,586
6/30/1999 $10,792 $11,035 $14,865 $11,854
7/31/1999 $10,671 $10,988 $14,401 $11,678
8/31/1999 $10,644 $10,983 $14,329 $11,558
9/30/1999 $10,522 $11,110 $13,937 $11,434
10/31/1999 $10,541 $11,151 $14,819 $11,734
11/30/1999 $10,371 $11,150 $15,120 $11,889
12/31/1999 $10,409 $11,097 $16,010 $12,286
1/31/2000 $10,430 $11,060 $15,206 $11,977
2/29/2000 $10,303 $11,194 $14,918 $12,050
3/31/2000 $10,470 $11,342 $16,377 $12,608
4/30/2000 $10,836 $11,309 $15,885 $12,373
5/31/2000 $10,956 $11,304 $15,559 $12,255
6/30/2000 $11,026 $11,539 $15,942 $12,498
7/31/2000 $11,197 $11,644 $15,693 $12,443
8/31/2000 $11,827 $11,813 $16,668 $12,983
9/30/2000 $12,052 $11,887 $15,788 $12,720
10/31/2000 $11,867 $11,966 $15,721 $12,644
11/30/2000 $11,785 $12,161 $14,482 $12,148
12/31/2000 $12,480 $12,387 $14,553 $12,487
1/31/2001 $12,449 $12,589 $15,069 $12,735
2/28/2001 $12,683 $12,699 $13,695 $12,225
3/31/2001 $12,490 $12,763 $12,827 $11,812
4/30/2001 $12,728 $12,710 $13,824 $12,313
5/31/2001 $12,966 $12,786 $13,917 $12,379
6/30/2001 $12,661 $12,835 $13,578 $12,222
7/31/2001 $12,519 $13,122 $13,444 $12,176
8/31/2001 $12,652 $13,272 $12,603 $11,866
9/30/2001 $12,062 $13,427 $11,585 $11,226
10/31/2001 $12,141 $13,708 $11,806 $11,450
11/30/2001 $12,388 $13,519 $12,712 $11,856
12/31/2001 $12,497 $13,433 $12,823 $11,940
1/31/2002 $12,578 $13,541 $12,636 $11,833
2/28/2002 $12,659 $13,673 $12,392 $11,738
3/31/2002 $13,031 $13,445 $12,858 $11,993
4/30/2002 $13,102 $13,706 $12,079 $11,792
5/31/2002 $13,056 $13,822 $11,990 $11,755
6/30/2002 $12,240 $13,942 $11,136 $11,276
7/31/2002 $11,658 $14,110 $10,268 $10,728
8/31/2002 $12,030 $14,348 $10,335 $10,836
9/30/2002 $11,502 $14,581 $ 9,212 $10,249
10/31/2002 $11,576 $14,514 $10,023 $10,595
11/30/2002 $12,199 $14,511 $10,612 $10,975
12/31/2002 $12,305 $14,810 $ 9,989 $10,751
1/31/2003 $12,319 $14,823 $ 9,727 $10,612
2/28/2003 $12,209 $15,028 $ 9,581 $10,553
3/31/2003 $12,472 $15,016 $ 9,674 $10,596
4/30/2003 $13,242 $15,140 $10,471 $11,126
5/31/2003 $13,952 $15,423 $11,023 $11,597
6/30/2003 $14,221 $15,392 $11,164 $11,696
7/31/2003 $14,042 $14,875 $11,360 $11,687
8/31/2003 $14,249 $14,973 $11,582 $11,859
9/30/2003 $14,650 $15,370 $11,459 $11,928
10/31/2003 $15,053 $15,226 $12,107 $12,275
11/30/2003 $15,262 $15,263 $12,214 $12,398
12/31/2003 $16,017 $15,418 $12,854 $12,805
1/31/2004 $16,229 $15,542 $13,090 $12,970
2/29/2004 $16,311 $15,710 $13,272 $13,127
3/31/2004 $16,256 $15,828 $13,072 $13,094
4/30/2004 $16,066 $15,416 $12,867 $12,798
5/31/2004 $15,943 $15,354 $13,043 $12,837
6/30/2004 $16,231 $15,441 $13,297 $13,015
7/31/2004 $16,245 $15,594 $12,857 $12,799
8/31/2004 $16,604 $15,892 $12,909 $12,913
9/30/2004 $16,825 $15,935 $13,049 $13,060
10/31/2004 $17,047 $16,069 $13,248 $13,222
11/30/2004 $17,411 $15,940 $13,784 $13,557
12/31/2004 $17,869 $16,087 $14,253 $13,871
1/31/2005 $17,599 $16,188 $13,906 $13,702
2/28/2005 $17,965 $16,093 $14,198 $13,884
3/31/2005 $17,617 $16,010 $13,947 $13,699
4/30/2005 $17,340 $16,227 $13,682 $13,565
5/31/2005 $17,712 $16,402 $14,118 $13,826
6/30/2005 $18,303 $16,492 $14,138 $13,942
7/31/2005 $18,606 $16,341 $14,664 $14,218
8/31/2005 $18,544 $16,551 $14,530 $14,248
9/30/2005 $18,480 $16,380 $14,647 $14,305
10/31/2005 $17,898 $16,251 $14,403 $14,076
11/30/2005 $17,835 $16,323 $14,948 $14,360
12/31/2005 $18,104 $16,478 $14,953 $14,485
1/31/2006 $18,642 $16,479 $15,349 $14,833
2/28/2006 $18,801 $16,533 $15,391 $14,843
3/31/2006 $18,884 $16,371 $15,582 $14,962
4/30/2006 $19,121 $16,342 $15,792 $15,119
5/31/2006 $19,052 $16,324 $15,337 $14,817
6/30/2006 $19,214 $16,359 $15,358 $14,822
7/31/2006 $19,764 $16,580 $15,453 $14,913
8/31/2006 $20,083 $16,834 $15,820 $15,160
9/30/2006 $20,246 $16,982 $16,228 $15,362
10/31/2006 $20,724 $17,094 $16,757 $15,694
11/30/2006 $21,204 $17,292 $17,075 $15,972
12/31/2006 $21,523 $17,192 $17,315 $16,091
1/31/2007 $21,693 $17,185 $17,577 $16,252
2/28/2007 $21,943 $17,450 $17,233 $16,220
3/31/2007 $22,194 $17,450 $17,426 $16,350
4/30/2007 $22,771 $17,544 $18,198 $16,744
5/31/2007 $23,187 $17,411 $18,833 $17,035
6/30/2007 $22,700 $17,360 $18,520 $16,861
7/31/2007 $22,129 $17,505 $17,946 $16,568
8/31/2007 $22,301 $17,719 $18,215 $16,699
9/30/2007 $22,974 $17,854 $18,896 $17,151
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 9/30/07
- -----------------------------------
1-Year +12.47%
- -----------------------------------
5-Year +14.84%
- -----------------------------------
10-Year +8.67%
- -----------------------------------
Annual Report | 31
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 9/30/07
- -----------------------------------
1-Year +13.47%
- -----------------------------------
5-Year +14.95%
- -----------------------------------
Since Inception (1/1/02) +11.20%
- -----------------------------------
CLASS R (1/1/02-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lipper Mixed-Asset Target
Lehman Brothers U.S. Allocation Moderate Funds
Date Franklin Income Fund Aggregate Index 7 S&p 500 7 Classification Average 7
- --------------------------------------------------------------------------------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000
1/31/2002 $10,069 $10,081 $ 9,854 $ 9,911
2/28/2002 $10,136 $10,179 $ 9,664 $ 9,831
3/31/2002 $10,390 $10,009 $10,027 $10,045
4/30/2002 $10,448 $10,203 $ 9,420 $ 9,876
5/31/2002 $10,412 $10,290 $ 9,350 $ 9,846
6/30/2002 $ 9,709 $10,379 $ 8,684 $ 9,444
7/31/2002 $ 9,289 $10,504 $ 8,007 $ 8,985
8/31/2002 $ 9,590 $10,682 $ 8,060 $ 9,076
9/30/2002 $ 9,166 $10,855 $ 7,184 $ 8,584
10/31/2002 $ 9,178 $10,805 $ 7,816 $ 8,874
11/30/2002 $ 9,681 $10,802 $ 8,276 $ 9,192
12/31/2002 $ 9,817 $11,025 $ 7,790 $ 9,004
1/31/2003 $ 9,829 $11,035 $ 7,586 $ 8,888
2/28/2003 $ 9,741 $11,188 $ 7,472 $ 8,838
3/31/2003 $ 9,905 $11,179 $ 7,545 $ 8,874
4/30/2003 $10,577 $11,271 $ 8,166 $ 9,318
5/31/2003 $11,102 $11,481 $ 8,596 $ 9,713
6/30/2003 $11,319 $11,459 $ 8,706 $ 9,796
7/31/2003 $11,227 $11,073 $ 8,859 $ 9,788
8/31/2003 $11,344 $11,147 $ 9,032 $ 9,933
9/30/2003 $11,670 $11,442 $ 8,936 $ 9,990
10/31/2003 $11,997 $11,335 $ 9,442 $10,281
11/30/2003 $12,168 $11,362 $ 9,525 $10,384
12/31/2003 $12,779 $11,478 $10,024 $10,725
1/31/2004 $12,953 $11,570 $10,208 $10,863
2/29/2004 $12,966 $11,696 $10,350 $10,994
3/31/2004 $12,978 $11,783 $10,194 $10,967
4/30/2004 $12,772 $11,477 $10,034 $10,719
5/31/2004 $12,730 $11,431 $10,172 $10,751
6/30/2004 $12,908 $11,495 $10,370 $10,901
7/31/2004 $12,977 $11,609 $10,026 $10,720
8/31/2004 $13,268 $11,831 $10,067 $10,815
9/30/2004 $13,449 $11,863 $10,176 $10,938
10/31/2004 $13,631 $11,962 $10,332 $11,074
11/30/2004 $13,927 $11,867 $10,750 $11,354
12/31/2004 $14,299 $11,976 $11,115 $11,618
1/31/2005 $14,026 $12,051 $10,844 $11,476
2/28/2005 $14,383 $11,980 $11,073 $11,629
3/31/2005 $14,102 $11,919 $10,877 $11,474
4/30/2005 $13,879 $12,080 $10,670 $11,361
5/31/2005 $14,182 $12,211 $11,010 $11,580
6/30/2005 $14,605 $12,277 $11,025 $11,677
7/31/2005 $14,912 $12,165 $11,435 $11,908
8/31/2005 $14,864 $12,321 $11,331 $11,933
9/30/2005 $14,814 $12,194 $11,423 $11,981
10/31/2005 $14,344 $12,098 $11,232 $11,789
11/30/2005 $14,295 $12,151 $11,657 $12,027
12/31/2005 $14,516 $12,267 $11,661 $12,132
1/31/2006 $14,955 $12,268 $11,970 $12,423
2/28/2006 $15,087 $12,308 $12,003 $12,432
3/31/2006 $15,156 $12,188 $12,152 $12,531
4/30/2006 $15,350 $12,165 $12,315 $12,663
5/31/2006 $15,233 $12,152 $11,961 $12,409
6/30/2006 $15,366 $12,178 $11,977 $12,414
7/31/2006 $15,815 $12,343 $12,051 $12,490
8/31/2006 $16,077 $12,532 $12,338 $12,697
9/30/2006 $16,212 $12,642 $12,655 $12,866
10/31/2006 $16,603 $12,726 $13,068 $13,144
11/30/2006 $16,997 $12,873 $13,316 $13,377
12/31/2006 $17,192 $12,798 $13,503 $13,477
1/31/2007 $17,397 $12,793 $13,707 $13,612
2/28/2007 $17,536 $12,990 $13,439 $13,585
3/31/2007 $17,810 $12,991 $13,590 $13,693
4/30/2007 $18,284 $13,061 $14,192 $14,024
5/31/2007 $18,626 $12,962 $14,687 $14,268
6/30/2007 $18,232 $12,924 $14,443 $14,122
7/31/2007 $17,702 $13,031 $13,995 $13,876
8/31/2007 $17,912 $13,191 $14,205 $13,986
9/30/2007 $18,395 $13,291 $14,736 $14,365
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
ADVISOR CLASS 9/30/07
- -----------------------------------
1-Year +14.36%
- -----------------------------------
5-Year +15.65%
- -----------------------------------
10-Year +9.37%
- -----------------------------------
ADVISOR CLASS (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Lipper Mixed-Asset Target
Lehman Brothers U.S. Allocation Moderate Funds
Date Franklin Income Fund Aggregate Index 7 S&p 500 7 Classification Average 7
- --------------------------------------------------------------------------------------------------
10/1/1997 $10,000 $10,000 $10,000 $10,000
10/31/1997 $ 9,899 $10,145 $ 9,666 $ 9,824
11/30/1997 $10,166 $10,192 $10,113 $ 9,976
12/31/1997 $10,511 $10,294 $10,287 $10,126
1/31/1998 $10,366 $10,427 $10,401 $10,168
2/28/1998 $10,515 $10,419 $11,151 $10,554
3/31/1998 $10,833 $10,455 $11,722 $10,854
4/30/1998 $10,728 $10,509 $11,840 $10,902
5/31/1998 $10,580 $10,609 $11,637 $10,811
6/30/1998 $10,645 $10,699 $12,109 $10,939
7/31/1998 $10,451 $10,722 $11,980 $10,802
8/31/1998 $ 9,776 $10,896 $10,248 $ 9,892
9/30/1998 $10,282 $11,151 $10,905 $10,251
10/31/1998 $10,306 $11,092 $11,792 $10,613
11/30/1998 $10,641 $11,155 $12,506 $10,981
12/31/1998 $10,629 $11,189 $13,227 $11,310
1/31/1999 $10,471 $11,269 $13,780 $11,440
2/28/1999 $10,176 $11,072 $13,352 $11,151
3/31/1999 $10,338 $11,133 $13,886 $11,376
4/30/1999 $10,872 $11,168 $14,424 $11,739
5/31/1999 $10,896 $11,071 $14,083 $11,586
6/30/1999 $10,921 $11,035 $14,865 $11,854
7/31/1999 $10,804 $10,988 $14,401 $11,678
8/31/1999 $10,782 $10,983 $14,329 $11,558
9/30/1999 $10,664 $11,110 $13,937 $11,434
10/31/1999 $10,689 $11,151 $14,819 $11,734
11/30/1999 $10,521 $11,150 $15,120 $11,889
12/31/1999 $10,567 $11,097 $16,010 $12,286
1/31/2000 $10,594 $11,060 $15,206 $11,977
2/29/2000 $10,470 $11,194 $14,918 $12,050
3/31/2000 $10,648 $11,342 $16,377 $12,608
4/30/2000 $10,978 $11,309 $15,885 $12,373
5/31/2000 $11,156 $11,304 $15,559 $12,255
6/30/2000 $11,235 $11,539 $15,942 $12,498
7/31/2000 $11,364 $11,644 $15,693 $12,443
8/31/2000 $12,015 $11,813 $16,668 $12,983
9/30/2000 $12,252 $11,887 $15,788 $12,720
10/31/2000 $12,069 $11,966 $15,721 $12,644
11/30/2000 $12,044 $12,161 $14,482 $12,148
12/31/2000 $12,711 $12,387 $14,553 $12,487
1/31/2001 $12,741 $12,589 $15,069 $12,735
2/28/2001 $12,990 $12,699 $13,695 $12,225
3/31/2001 $12,743 $12,763 $12,827 $11,812
4/30/2001 $13,050 $12,710 $13,824 $12,313
5/31/2001 $13,248 $12,786 $13,917 $12,379
6/30/2001 $12,940 $12,835 $13,578 $12,222
7/31/2001 $12,800 $13,122 $13,444 $12,176
8/31/2001 $12,944 $13,272 $12,603 $11,866
9/30/2001 $12,400 $13,427 $11,585 $11,226
10/31/2001 $12,430 $13,708 $11,806 $11,450
11/30/2001 $12,694 $13,519 $12,712 $11,856
12/31/2001 $12,814 $13,433 $12,823 $11,940
1/31/2002 $12,963 $13,541 $12,636 $11,833
2/28/2002 $13,054 $13,673 $12,392 $11,738
3/31/2002 $13,388 $13,445 $12,858 $11,993
4/30/2002 $13,529 $13,706 $12,079 $11,792
5/31/2002 $13,488 $13,822 $11,990 $11,755
6/30/2002 $12,588 $13,942 $11,136 $11,276
7/31/2002 $12,052 $14,110 $10,268 $10,728
8/31/2002 $12,384 $14,348 $10,335 $10,836
9/30/2002 $11,841 $14,581 $ 9,212 $10,249
10/31/2002 $11,924 $14,514 $10,023 $10,595
11/30/2002 $12,579 $14,511 $10,612 $10,975
12/31/2002 $12,695 $14,810 $ 9,989 $10,751
1/31/2003 $12,780 $14,823 $ 9,727 $10,612
2/28/2003 $12,671 $15,028 $ 9,581 $10,553
3/31/2003 $12,888 $15,016 $ 9,674 $10,596
4/30/2003 $13,699 $15,140 $10,471 $11,126
5/31/2003 $14,449 $15,423 $11,023 $11,597
6/30/2003 $14,737 $15,392 $11,164 $11,696
7/31/2003 $14,558 $14,875 $11,360 $11,687
8/31/2003 $14,783 $14,973 $11,582 $11,859
9/30/2003 $15,212 $15,370 $11,459 $11,928
10/31/2003 $15,643 $15,226 $12,107 $12,275
11/30/2003 $15,872 $15,263 $12,214 $12,398
12/31/2003 $16,671 $15,418 $12,854 $12,805
1/31/2004 $16,903 $15,542 $13,090 $12,970
2/29/2004 $16,997 $15,710 $13,272 $13,127
3/31/2004 $16,949 $15,828 $13,072 $13,094
4/30/2004 $16,688 $15,416 $12,867 $12,798
5/31/2004 $16,640 $15,354 $13,043 $12,837
6/30/2004 $16,880 $15,441 $13,297 $13,015
7/31/2004 $16,976 $15,594 $12,857 $12,799
8/31/2004 $17,363 $15,892 $12,909 $12,913
9/30/2004 $17,606 $15,935 $13,049 $13,060
10/31/2004 $17,850 $16,069 $13,248 $13,222
11/30/2004 $18,244 $15,940 $13,784 $13,557
12/31/2004 $18,738 $16,087 $14,253 $13,871
1/31/2005 $18,388 $16,188 $13,906 $13,702
2/28/2005 $18,862 $16,093 $14,198 $13,884
3/31/2005 $18,504 $16,010 $13,947 $13,699
4/30/2005 $18,220 $16,227 $13,682 $13,565
5/31/2005 $18,625 $16,402 $14,118 $13,826
6/30/2005 $19,185 $16,492 $14,138 $13,942
7/31/2005 $19,594 $16,341 $14,664 $14,218
8/31/2005 $19,538 $16,551 $14,530 $14,248
9/30/2005 $19,482 $16,380 $14,647 $14,305
10/31/2005 $18,874 $16,251 $14,403 $14,076
11/30/2005 $18,818 $16,323 $14,948 $14,360
12/31/2005 $19,115 $16,478 $14,953 $14,485
1/31/2006 $19,699 $16,479 $15,349 $14,833
2/28/2006 $19,879 $16,533 $15,391 $14,843
3/31/2006 $19,979 $16,371 $15,582 $14,962
4/30/2006 $20,243 $16,342 $15,792 $15,119
5/31/2006 $20,098 $16,324 $15,337 $14,817
6/30/2006 $20,281 $16,359 $15,358 $14,822
7/31/2006 $20,880 $16,580 $15,453 $14,913
8/31/2006 $21,232 $16,834 $15,820 $15,160
9/30/2006 $21,418 $16,982 $16,228 $15,362
10/31/2006 $21,942 $17,094 $16,757 $15,694
11/30/2006 $22,553 $17,292 $17,075 $15,972
12/31/2006 $22,821 $17,192 $17,315 $16,091
1/31/2007 $23,014 $17,185 $17,577 $16,252
2/28/2007 $23,294 $17,450 $17,233 $16,220
3/31/2007 $23,576 $17,450 $17,426 $16,350
4/30/2007 $24,210 $17,544 $18,198 $16,744
5/31/2007 $24,671 $17,411 $18,833 $17,035
6/30/2007 $24,160 $17,360 $18,520 $16,861
7/31/2007 $23,557 $17,505 $17,946 $16,568
8/31/2007 $23,757 $17,719 $18,215 $16,699
9/30/2007 $24,495 $17,854 $18,896 $17,151
32 | Annual Report
Performance Summary (CONTINUED)
ENDNOTES
THE FUND'S PORTFOLIO INCLUDES A SUBSTANTIAL PORTION OF HIGHER-YIELDING,
LOWER-RATED CORPORATE BONDS BECAUSE OF THE RELATIVELY HIGHER YIELDS THEY OFFER.
THESE SECURITIES CARRY A GREATER DEGREE OF CREDIT RISK RELATIVE TO INVESTMENT
GRADE SECURITIES. THE FUND'S SHARE PRICE AND YIELD WILL BE AFFECTED BY INTEREST
RATE MOVEMENTS. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN
THE OPPOSITE DIRECTION OF INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND
ADJUST TO A RISE IN INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. THE
FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than
Class A shares.
CLASS B1
(formerly Class B): These shares have higher annual fees and expenses than
Class A shares. Effective 11/1/01, closed to new
investors.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have
differed. These shares have higher annual fees and
expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as
described in the prospectus. These shares have higher
annual fees and expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as
described in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. Distribution rate is based on an annualization of the respective class's
September dividend and the maximum offering price (NAV for Classes B, B1, C, R
and Advisor) per share on 9/30/07.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 9/30/07.
6. Figures are as stated in the Fund's prospectus current as of the date of this
report.
7. Sources: Standard & Poor's Micropal; Lipper Inc. The S&P 500 consists of 500
stocks chosen for market size, liquidity and industry group representation. Each
stock's weight in the index is proportionate to its market value. The S&P 500 is
one of the most widely used benchmarks of U.S. equity performance. The LB U.S.
Aggregate Index represents securities that are SEC-registered, taxable and
dollar denominated. The index covers the U.S. investment grade fixed-rate bond
market, with index components for government and corporate securities, mortgage
pass-through securities and asset-backed securities. All issues included must
have at least one year to final maturity and must be rated investment grade
(Baa3 or better) by Moody's Investors Service. They must also be dollar
denominated and nonconvertible. Total return includes price
appreciation/depreciation and income as a percentage of the original investment.
The index is rebalanced monthly by market capitalization. The Lipper Mixed-Asset
Target Allocation Moderate Funds Classification Average is calculated by
averaging the total returns of all funds within the Lipper Mixed-Asset Target
Allocation Moderate Funds classification in the Lipper Open-End underlying funds
universe. Lipper Mixed-Asset Target Allocation Moderate Funds are defined as
funds that, by portfolio practice, maintain a mix of between 40%-60% equity
securities, with the remainder invested in bonds, cash and cash equivalents. For
the 12-month period ended 9/30/07, there were 442 funds in this category. Lipper
calculations do not include sales charges or expense subsidization by a fund's
manager. The Fund's performance relative to the average may have differed if
these or other factors had been considered.
Annual Report | 33
Your Fund's Expenses
FRANKLIN INCOME FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
34 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- ------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 4/1/07 VALUE 9/30/07 PERIOD* 4/1/07-9/30/07
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,038.10 $3.17
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.96 $3.14
- ------------------------------------------------------------------------------------------------------
CLASS B
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,033.80 $7.44
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,017.75 $7.38
- ------------------------------------------------------------------------------------------------------
CLASS B1
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,035.50 $5.72
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.45 $5.67
- ------------------------------------------------------------------------------------------------------
CLASS C
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,035.10 $5.71
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.45 $5.67
- ------------------------------------------------------------------------------------------------------
CLASS R
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,032.90 $4.94
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,020.21 $4.91
- ------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- ------------------------------------------------------------------------------------------------------
Actual $1,000 $1,039.00 $2.40
- ------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.71 $2.38
- ------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.62%; B: 1.46%; B1; 1.12%; C: 1.12%; R: 0.97%;
and Advisor: 0.47%), multiplied by the average account value over the period,
multiplied by 183/365 to reflect the one-half year period.
Annual Report | 35
Franklin U.S. Government Securities Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin U.S. Government Securities Fund
seeks income by investing at least 80% of its net assets in U.S. government
securities. The Fund presently invests substantially all of its assets in
Government National Mortgage Association obligations (Ginnie Maes).
- --------------------------------------------------------------------------------
Since 1983, the Fund has invested substantially in Ginnie Mae securities, which
carry a guarantee backed by the full faith and credit of the U.S. government as
to the timely payment of interest and principal.1 Issued by the Government
National Mortgage Association (GNMA), Ginnie Maes have been among the highest
yielding U.S. government obligations available.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO BREAKDOWN
Franklin U.S. Government Securities Fund
Based on Total Net Assets as of 9/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
GNMA .................................................................. 95.9%
Short-Term Investments & Other Net Assets ............................. 4.1%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
This annual report for Franklin U.S. Government Securities Fund covers the
fiscal year ended September 30, 2007.
PERFORMANCE OVERVIEW
Franklin U.S. Government Securities Fund - Class A posted a +4.63% cumulative
total return for the 12 months under review. The Fund performed comparably to
the +4.52% total return of its peers as measured by the Lipper
1. Securities owned by the Fund, but not shares of the Fund, are guaranteed by
the U.S. government, its agencies or instrumentalities as to timely payment of
principal and interest. The Fund's yield and share price are not guaranteed and
will vary with market conditions.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 98.
36 | Annual Report
GNMA Funds Classification Average. 2 In comparison, the Lehman Brothers (LB)
U.S. Government: Intermediate Index, returned +5.88% for the same period. 3 The
Fund's return reflects the effect of management fees and expenses, while the LB
U.S. Government: Intermediate Index does not have such costs. You can find the
Fund's long-term performance data in the Performance Summary beginning on page
42.
ECONOMIC AND MARKET OVERVIEW
The U.S. economy grew at a moderate but uneven pace for the 12-month period
ended September 30, 2007. After ending 2006 with fourth quarter gross domestic
product (GDP) growth of 2.1% annualized, the economy decelerated to a
surprisingly weak first quarter 2007 annualized growth rate of 0.6%. A surge in
exports fueled second quarter 2007 growth to 3.8% annualized. In the third
quarter, GDP growth advanced at an estimated 3.9% annualized rate, the fastest
pace in over a year. Over the reporting period, consumer spending and personal
income remained positive contributors to economic expansion, while a declining
housing market, softening employment environment and tighter credit conditions
weighed on overall economic growth.
Oil prices exhibited volatility, reaching a historical high in September. Core
inflation, which excludes food and energy costs, remained modest. For September
2007, the core consumer price index (CPI) had a 12-month increase of 2.1%. 4 The
Federal Reserve Board's (Fed's) preferred measure of inflation, core personal
consumption expenditures reported a 12-month increase of 1.8%. 5 These current
levels of inflation, generally within the Fed's target range of 1% to 2%,
lessened near-term concerns and provided the Fed with more flexibility to
respond to ongoing economic pressures resulting from tightening credit
conditions.
2. Source: Lipper Inc. The Lipper GNMA Funds Classification Average is
calculated by averaging the total return for all funds within the Lipper GNMA
Funds classification in the Lipper Open-End underlying funds universe for the
period indicated. Lipper GNMA Funds are defined as funds that invest primarily
in GNMA securities. For the 12-month period ended 9/30/07, there were 59 funds
in this category. Lipper calculations do not include sales charges or expense
subsidization by a fund's manager. The Fund's performance relative to the
average may have differed if these or other factors had been considered. Past
performance does not guarantee future results. The index is unmanaged and
includes reinvestment of any income or distributions. One cannot invest directly
in an index, nor is an index representative of the Fund's portfolio.
3. Source: Standard & Poor's Micropal. The LB U.S. Government: Intermediate
Index includes fixed-rate debt issues rated investment grade or higher by
Moody's, S&P or Fitch, in that order. All issues have at least one year to
maturity and an outstanding par value of at least $100 million for U.S.
government issues. All returns are market value weighted inclusive of accrued
interest. The index includes issues of the U.S. government or any agency
thereof. It includes only issues with a remaining term to maturity of less than
10 years. Total return includes price appreciation/depreciation and income as a
percentage of the original investment. The total return index is rebalanced
monthly by market capitalization. The index is unmanaged and includes
reinvestment of any income or distributions. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.
4. Source: Bureau of Labor Statistics.
5. Source: Bureau of Economic Analysis.
Annual Report | 37
DIVIDEND DISTRIBUTIONS*
Franklin U.S. Government Securities Fund
10/1/06-9/30/07
- ---------------------------------------------------------------------------
DIVIDEND PER SHARE (CENTS)
------------------------------------------------------
MONTH CLASS A CLASS B CLASS C CLASS R ADVISOR CLASS
- ---------------------------------------------------------------------------
October 2006 2.73 2.47 2.47 2.54 2.81
- ---------------------------------------------------------------------------
November 2006 2.73 2.47 2.47 2.54 2.81
- ---------------------------------------------------------------------------
December 2006** 3.08 2.81 2.81 2.89 3.14
- ---------------------------------------------------------------------------
January 2007 2.73 2.46 2.46 2.54 2.79
- ---------------------------------------------------------------------------
February 2007 2.73 2.46 2.46 2.54 2.79
- ---------------------------------------------------------------------------
March 2007 2.73 2.43 2.43 2.51 2.77
- ---------------------------------------------------------------------------
April 2007 2.73 2.43 2.43 2.51 2.77
- ---------------------------------------------------------------------------
May 2007 2.73 2.43 2.43 2.51 2.77
- ---------------------------------------------------------------------------
June 2007 2.73 2.47 2.47 2.55 2.82
- ---------------------------------------------------------------------------
July 2007 2.69 2.43 2.43 2.51 2.78
- ---------------------------------------------------------------------------
August 2007 2.69 2.43 2.43 2.51 2.78
- ---------------------------------------------------------------------------
September 2007 2.69 2.41 2.41 2.49 2.75
===========================================================================
TOTAL 32.99 29.70 29.70 30.64 33.78
- ---------------------------------------------------------------------------
*All Fund distributions will vary depending upon current market conditions, and
past distributions are not indicative of future trends.
**Includes an additional 0.35 cent per share distribution to meet excise tax
requirements.
In August, the Fed cut the discount rate (the Fed's interest rate charged to
member banks) from 6.25% to 5.75% and followed up in September with a further
cut of 50 basis points, bringing the rate to 5.25%. After remaining on hold
since June 2006, the Fed lowered the federal funds target rate 50 basis points
to 4.75% at its September meeting, citing increased uncertainty surrounding the
economic outlook due to significant dislocations in parts of the credit markets.
The committee noted that "some inflation risks remain, and it will continue to
monitor inflation developments carefully." The Fed stated it will continue to
act as necessary to restore stability as the potential of increased distress
from a housing correction threatens to "restrain economic growth more
generally."
Over the period, investors sought relative safety in short-term U.S. Treasuries,
Treasury yields declined and the yield curve steepened. Short-term, two- and
five-year yields declined substantially, with the two-year bill yielding 3.97%
at the end of September, down from 4.71% a year earlier. The 10-year U.S.
Treasury note ended September yielding 4.59%, compared with 4.64% at the
beginning of the period.
38 | Annual Report
INVESTMENT STRATEGY
We seek to invest predominantly in GNMA (Ginnie Mae) obligations. We analyze
securities using proprietary models to help us identify attractive investment
opportunities. The Fund's short-term investments may include short-term
government securities and cash or cash equivalents.
MANAGER'S DISCUSSION
During the 12 months under review, we were pleased with the Fund's performance
versus its peers as measured by the Lipper Funds Classification Average.
Although the fixed income market environment was marked by increased volatility
and uncertainty, investors' appetite for risk was generally robust for most of
the review period due to abundant liquidity and continued solid economic
environment. Against this backdrop, Ginnie Mae (GNMA) mortgage-backed securities
(MBS) outperformed comparable high credit-quality U.S. Treasuries for the first
half of the period under review.
The trend, however, reversed in the latter half of the period. Increased
delinquency and default activity in the lower credit-quality, subprime mortgage
market created a challenging environment across much of the fixed income markets
and investors exhibited a sudden, rapid shift in risk appetite. It is important
to note that Franklin U.S. Government Securities Fund did not have any exposure
to subprime MBS and invests only in GNMA mortgage pass-through securities, which
are guaranteed by the full faith and credit of the U.S. government and carry a
different credit profile than those mortgage issuers recently in the news. 1
During this period of heightened risk aversion, 30-year GNMA MBS generally
outperformed their conventional Fannie Mae (FNMA) and Freddie Mac (FHLMC) MBS
counterparts as investors sought the safety of U.S. government guaranteed
securities.
Mortgage prepayments across all coupons and program types fell as credit
standards tightened and housing and refinancing activity retracted. Prepayment
risk, the uncertain cash flows caused by prepayments in the pools' underlying
mortgages, is the primary risk confronting the GNMA market. Lower prepayment
risk during the reporting period improved the attractiveness of MBS and GNMAs to
investors worried about cash-flow uncertainty.
Consistent with our investment strategy, we believe income will continue to
drive performance within the GNMA markets. As a result, we generally look for
opportunities in 30-year collateral bonds as opposed to their 15-year
counterparts. At period-end, the Fund's GNMA assets were allocated between the
GNMA I (comprising single-issuer pools) and GNMA II (comprising multiple-issuer
pools) programs, as they have been in the past. However, over the
Annual Report | 39
reporting period, we made minor adjustments to the portfolio's allocation
and trimmed our exposure to GNMA II securities relative to our GNMA I holdings
as yield spreads between sectors neared historically tight levels. We also
increased our allocation to higher coupon GNMAs, as we believed prepayment risk
would continue to wane. Although we remained slightly overweighted in lower
coupon securities than in past periods, we reduced our exposure.
Thank you for your continued participation in Franklin U.S. Government
Securities Fund. We welcome your comments and questions and look forward to
serving your investment needs in the years ahead.
[PHOTO OMITTED] /s/ Jack Lemein
Jack Lemein
[PHOTO OMITTED] /s/ Roger A. Bayston
Roger A. Bayston, CFA
[PHOTO OMITTED] /s/ Paul Varunok
Paul Varunok
Portfolio Management Team
Franklin U.S. Government Securities Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF SEPTEMBER 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
40 | Annual Report
- --------------------------------------------------------------------------------
PAUL VARUNOK is a vice president and portfolio manager in the Franklin Templeton
Fixed Income Group. Mr. Varunok specializes in the mortgage-backed securities
(MBS), asset-backed securities (ABS), commercial mortgage-backed securities
(CMBS) and collateralized mortgage obligation (CMO) markets.
Prior to joining Franklin Templeton Investments in 2001, Mr. Varunok spent eight
years as a fixed-income analyst for Prudential Securities, Inc. in New York
City. At Prudential, Mr. Varunok held research positions in both the MBS and ABS
markets. Mr. Varunok started his career at Prudential as a reverse-engineer of
both ABS and MBS transactions and subsequently moved into the structuring of
those products. From 1996-2000, Mr. Varunok concentrated his efforts in the ABS
market where he was an ABS researcher and market strategist.
Mr. Varunok earned his B.S. in finance from New York University.
- --------------------------------------------------------------------------------
Annual Report | 41
Performance Summary as of 9/30/07
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
- ----------------------------------------------------------------------------------------------------
CLASS A (SYMBOL: FKUSX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.04 $6.39 $6.43
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.3299
- ----------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: FUGBX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.04 $6.38 $6.42
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.2970
- ----------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FRUGX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.04 $6.36 $6.40
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.2970
- ----------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: FUSRX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.04 $6.39 $6.43
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.3064
- ----------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FUSAX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) -$0.04 $6.41 $6.45
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.3378
- ----------------------------------------------------------------------------------------------------
42 | Annual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN
INCLUDES MAXIMUM SALES CHARGES. CLASS A: 4.25% MAXIMUM INITIAL SALES CHARGE;
CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC) DECLINING FROM 4% TO 1% OVER
SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1% CDSC IN FIRST YEAR ONLY; CLASS
R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY CHARGE A 2% FEE ON REDEMPTIONS
MADE WITHIN SEVEN DAYS OF PURCHASE.
- -----------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +4.63% +17.98% +64.98%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +0.12% +2.47% +4.67%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate 3 4.84%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 4 4.64%
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 0.74%
- -----------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +4.10% +14.96% +45.21%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +0.13% +2.50% +4.36%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate 3 4.53%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 4 4.32%
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 1.26%
- -----------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +4.12% +14.84% +56.50%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +3.12% +2.81% +4.58%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate 3 4.55%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 4 4.32%
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 1.25%
- -----------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +4.25% +15.83% +23.97%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.25% +2.98% +3.81%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate 3 4.68%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 4 4.48%
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 1.11%
- -----------------------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- -----------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +4.75% +18.69% +67.05%
- -----------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +4.75% +3.49% +5.27%
- -----------------------------------------------------------------------------------------------------------
Distribution Rate 3 5.15%
- -----------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 4 4.98%
- -----------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 5 0.61%
- -----------------------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
Annual Report | 43
Performance Summary (CONTINUED)
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 any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS A 9/30/07
- -----------------------------------
1-Year +0.12%
- -----------------------------------
5-Year +2.47%
- -----------------------------------
10-Year +4.67%
- -----------------------------------
CLASS A (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin U.S. LB U.S. Lipper GNMA
Government Government: Funds Classification
Date Securities Fund Intermediate Index 6 CPI 6 Average 6
10/1/1997 $ 9,569 $10,000 $10,000 $10,000
10/31/1997 $ 9,666 $10,117 $10,025 $10,102
11/30/1997 $ 9,678 $10,139 $10,019 $10,126
12/31/1997 $ 9,776 $10,221 $10,006 $10,225
1/31/1998 $ 9,874 $10,355 $10,025 $10,329
2/28/1998 $ 9,872 $10,344 $10,043 $10,338
3/31/1998 $ 9,914 $10,376 $10,062 $10,373
4/30/1998 $ 9,985 $10,425 $10,081 $10,429
5/31/1998 $10,053 $10,497 $10,099 $10,511
6/30/1998 $10,092 $10,568 $10,112 $10,560
7/31/1998 $10,147 $10,608 $10,124 $10,603
8/31/1998 $10,245 $10,809 $10,136 $10,714
9/30/1998 $10,375 $11,061 $10,149 $10,854
10/31/1998 $10,325 $11,080 $10,174 $10,799
11/30/1998 $10,381 $11,046 $10,174 $10,857
12/31/1998 $10,422 $11,089 $10,167 $10,897
1/31/1999 $10,493 $11,138 $10,192 $10,961
2/28/1999 $10,427 $10,985 $10,205 $10,873
3/31/1999 $10,484 $11,058 $10,236 $10,940
4/30/1999 $10,526 $11,088 $10,310 $10,981
5/31/1999 $10,444 $11,020 $10,310 $10,908
6/30/1999 $10,392 $11,036 $10,310 $10,847
7/31/1999 $10,309 $11,038 $10,341 $10,783
8/31/1999 $10,317 $11,053 $10,366 $10,769
9/30/1999 $10,484 $11,148 $10,416 $10,936
10/31/1999 $10,539 $11,170 $10,434 $10,973
11/30/1999 $10,547 $11,178 $10,440 $10,981
12/31/1999 $10,507 $11,143 $10,440 $10,929
1/31/2000 $10,419 $11,105 $10,471 $10,845
2/29/2000 $10,540 $11,197 $10,533 $10,970
3/31/2000 $10,696 $11,325 $10,620 $11,135
4/30/2000 $10,671 $11,320 $10,627 $11,116
5/31/2000 $10,714 $11,351 $10,639 $11,156
6/30/2000 $10,890 $11,531 $10,695 $11,350
7/31/2000 $10,950 $11,608 $10,720 $11,400
8/31/2000 $11,112 $11,738 $10,720 $11,562
9/30/2000 $11,207 $11,840 $10,775 $11,663
10/31/2000 $11,286 $11,921 $10,794 $11,734
11/30/2000 $11,451 $12,096 $10,800 $11,905
12/31/2000 $11,617 $12,310 $10,794 $12,079
1/31/2001 $11,783 $12,473 $10,862 $12,266
2/28/2001 $11,847 $12,588 $10,906 $12,342
3/31/2001 $11,911 $12,679 $10,931 $12,414
4/30/2001 $11,922 $12,639 $10,974 $12,394
5/31/2001 $12,004 $12,692 $11,024 $12,473
6/30/2001 $12,033 $12,732 $11,042 $12,513
7/31/2001 $12,259 $12,970 $11,011 $12,760
8/31/2001 $12,342 $13,085 $11,011 $12,854
9/30/2001 $12,498 $13,364 $11,061 $13,037
10/31/2001 $12,671 $13,573 $11,024 $13,215
11/30/2001 $12,553 $13,411 $11,005 $13,077
12/31/2001 $12,508 $13,346 $10,962 $13,006
1/31/2002 $12,607 $13,403 $10,986 $13,133
2/28/2002 $12,762 $13,514 $11,030 $13,274
3/31/2002 $12,602 $13,311 $11,092 $13,109
4/30/2002 $12,833 $13,560 $11,154 $13,356
5/31/2002 $12,915 $13,654 $11,154 $13,444
6/30/2002 $13,017 $13,825 $11,160 $13,556
7/31/2002 $13,157 $14,085 $11,172 $13,714
8/31/2002 $13,278 $14,246 $11,210 $13,828
9/30/2002 $13,381 $14,491 $11,228 $13,951
10/31/2002 $13,427 $14,481 $11,247 $13,969
11/30/2002 $13,427 $14,367 $11,247 $13,962
12/31/2002 $13,581 $14,632 $11,222 $14,116
1/31/2003 $13,620 $14,600 $11,272 $14,145
2/28/2003 $13,678 $14,765 $11,359 $14,228
3/31/2003 $13,678 $14,768 $11,427 $14,219
4/30/2003 $13,717 $14,809 $11,402 $14,253
5/31/2003 $13,717 $15,042 $11,383 $14,287
6/30/2003 $13,756 $15,017 $11,396 $14,314
7/31/2003 $13,436 $14,653 $11,408 $14,007
8/31/2003 $13,536 $14,679 $11,452 $14,101
9/30/2003 $13,737 $14,997 $11,489 $14,335
10/31/2003 $13,676 $14,850 $11,476 $14,263
11/30/2003 $13,737 $14,851 $11,445 $14,306
12/31/2003 $13,823 $14,967 $11,433 $14,404
1/31/2004 $13,905 $15,048 $11,489 $14,476
2/29/2004 $13,987 $15,191 $11,551 $14,569
3/31/2004 $14,029 $15,297 $11,625 $14,617
4/30/2004 $13,799 $14,955 $11,663 $14,375
5/31/2004 $13,773 $14,907 $11,731 $14,334
6/30/2004 $13,895 $14,945 $11,768 $14,445
7/31/2004 $14,017 $15,053 $11,749 $14,553
8/31/2004 $14,203 $15,277 $11,756 $14,744
9/30/2004 $14,212 $15,283 $11,780 $14,753
10/31/2004 $14,314 $15,376 $11,842 $14,848
11/30/2004 $14,288 $15,233 $11,849 $14,801
12/31/2004 $14,348 $15,316 $11,805 $14,873
1/31/2005 $14,430 $15,336 $11,830 $14,946
2/28/2005 $14,382 $15,250 $11,898 $14,894
3/31/2005 $14,355 $15,212 $11,991 $14,858
4/30/2005 $14,482 $15,390 $12,072 $14,995
5/31/2005 $14,583 $15,513 $12,060 $15,082
6/30/2005 $14,596 $15,564 $12,066 $15,115
7/31/2005 $14,543 $15,431 $12,122 $15,052
8/31/2005 $14,668 $15,602 $12,184 $15,171
9/30/2005 $14,591 $15,482 $12,333 $15,090
10/31/2005 $14,538 $15,417 $12,357 $15,013
11/30/2005 $14,574 $15,480 $12,258 $15,052
12/31/2005 $14,746 $15,574 $12,208 $15,213
1/31/2006 $14,782 $15,573 $12,301 $15,245
2/28/2006 $14,796 $15,576 $12,326 $15,271
3/31/2006 $14,695 $15,528 $12,395 $15,176
4/30/2006 $14,640 $15,542 $12,500 $15,125
5/31/2006 $14,586 $15,547 $12,562 $15,082
6/30/2006 $14,600 $15,575 $12,587 $15,079
7/31/2006 $14,778 $15,738 $12,624 $15,271
8/31/2006 $14,980 $15,915 $12,649 $15,482
9/30/2006 $15,088 $16,030 $12,587 $15,582
10/31/2006 $15,176 $16,106 $12,519 $15,677
11/30/2006 $15,335 $16,235 $12,500 $15,814
12/31/2006 $15,289 $16,173 $12,519 $15,787
1/31/2007 $15,283 $16,175 $12,557 $15,777
2/28/2007 $15,468 $16,378 $12,624 $15,957
3/31/2007 $15,485 $16,420 $12,739 $15,988
4/30/2007 $15,576 $16,493 $12,822 $16,060
5/31/2007 $15,472 $16,399 $12,900 $15,963
6/30/2007 $15,392 $16,421 $12,925 $15,880
7/31/2007 $15,532 $16,623 $12,922 $16,006
8/31/2007 $15,696 $16,857 $12,898 $16,167
9/30/2007 $15,787 $16,972 $12,934 $16,285
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B 9/30/07
- -----------------------------------
1-Year +0.13%
- -----------------------------------
5-Year +2.50%
- -----------------------------------
Since Inception (1/1/99) +4.36%
- -----------------------------------
CLASS B (1/1/99-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin U.S. LB U.S. Lipper GNMA
Government Government: Funds Classification
Date Securities Fund Intermediate Index 6 CPI 6 Average 6
1/1/1999 $10,000 $10,000 $10,000 $10,000
1/31/1999 $10,068 $10,045 $10,024 $10,059
2/28/1999 $ 9,986 $ 9,907 $10,037 $ 9,978
3/31/1999 $10,051 $ 9,973 $10,067 $10,039
4/30/1999 $10,087 $10,000 $10,140 $10,078
5/31/1999 $10,005 $ 9,938 $10,140 $10,010
6/30/1999 $ 9,936 $ 9,953 $10,140 $ 9,954
7/31/1999 $ 9,868 $ 9,954 $10,171 $ 9,895
8/31/1999 $ 9,856 $ 9,968 $10,195 $ 9,882
9/30/1999 $10,025 $10,053 $10,244 $10,036
10/31/1999 $10,074 $10,073 $10,262 $10,070
11/30/1999 $10,062 $10,080 $10,268 $10,077
12/31/1999 $10,019 $10,049 $10,268 $10,029
1/31/2000 $ 9,946 $10,015 $10,299 $ 9,952
2/29/2000 $10,042 $10,098 $10,360 $10,067
3/31/2000 $10,186 $10,213 $10,445 $10,219
4/30/2000 $10,174 $10,209 $10,451 $10,201
5/31/2000 $10,210 $10,236 $10,464 $10,238
6/30/2000 $10,373 $10,399 $10,519 $10,416
7/31/2000 $10,410 $10,468 $10,543 $10,462
8/31/2000 $10,560 $10,585 $10,543 $10,610
9/30/2000 $10,662 $10,678 $10,598 $10,703
10/31/2000 $10,717 $10,751 $10,616 $10,768
11/30/2000 $10,869 $10,909 $10,622 $10,925
12/31/2000 $11,021 $11,101 $10,616 $11,085
1/31/2001 $11,191 $11,249 $10,683 $11,257
2/28/2001 $11,230 $11,352 $10,726 $11,326
3/31/2001 $11,302 $11,434 $10,750 $11,392
4/30/2001 $11,291 $11,398 $10,793 $11,374
5/31/2001 $11,364 $11,446 $10,842 $11,447
6/30/2001 $11,403 $11,482 $10,860 $11,483
7/31/2001 $11,595 $11,696 $10,830 $11,709
8/31/2001 $11,669 $11,800 $10,830 $11,796
9/30/2001 $11,829 $12,052 $10,879 $11,964
10/31/2001 $11,970 $12,240 $10,842 $12,128
11/30/2001 $11,871 $12,094 $10,824 $12,000
12/31/2001 $11,806 $12,035 $10,781 $11,935
1/31/2002 $11,912 $12,087 $10,805 $12,052
2/28/2002 $12,035 $12,187 $10,848 $12,181
3/31/2002 $11,879 $12,004 $10,909 $12,030
4/30/2002 $12,092 $12,228 $10,970 $12,256
5/31/2002 $12,164 $12,314 $10,970 $12,337
6/30/2002 $12,254 $12,468 $10,976 $12,440
7/31/2002 $12,381 $12,703 $10,988 $12,585
8/31/2002 $12,490 $12,848 $11,025 $12,690
9/30/2002 $12,582 $13,068 $11,043 $12,803
10/31/2002 $12,620 $13,059 $11,062 $12,819
11/30/2002 $12,614 $12,956 $11,062 $12,813
12/31/2002 $12,754 $13,196 $11,037 $12,954
1/31/2003 $12,785 $13,166 $11,086 $12,981
2/28/2003 $12,834 $13,315 $11,171 $13,056
3/31/2003 $12,828 $13,318 $11,239 $13,049
4/30/2003 $12,859 $13,355 $11,214 $13,080
5/31/2003 $12,871 $13,565 $11,196 $13,111
6/30/2003 $12,884 $13,543 $11,208 $13,136
7/31/2003 $12,578 $13,214 $11,220 $12,854
8/31/2003 $12,667 $13,238 $11,263 $12,940
9/30/2003 $12,850 $13,525 $11,300 $13,155
10/31/2003 $12,788 $13,392 $11,287 $13,089
11/30/2003 $12,839 $13,393 $11,257 $13,128
12/31/2003 $12,914 $13,497 $11,245 $13,219
1/31/2004 $12,985 $13,571 $11,300 $13,285
2/29/2004 $13,056 $13,700 $11,361 $13,370
3/31/2004 $13,089 $13,795 $11,434 $13,414
4/30/2004 $12,868 $13,487 $11,470 $13,191
5/31/2004 $12,839 $13,444 $11,538 $13,154
6/30/2004 $12,946 $13,478 $11,574 $13,256
7/31/2004 $13,054 $13,575 $11,556 $13,355
8/31/2004 $13,222 $13,777 $11,562 $13,530
9/30/2004 $13,225 $13,782 $11,586 $13,538
10/31/2004 $13,315 $13,867 $11,647 $13,626
11/30/2004 $13,285 $13,738 $11,653 $13,583
12/31/2004 $13,334 $13,812 $11,611 $13,649
1/31/2005 $13,404 $13,830 $11,635 $13,716
2/28/2005 $13,354 $13,753 $11,702 $13,668
3/31/2005 $13,323 $13,719 $11,794 $13,635
4/30/2005 $13,435 $13,879 $11,873 $13,761
5/31/2005 $13,523 $13,990 $11,861 $13,840
6/30/2005 $13,549 $14,036 $11,867 $13,871
7/31/2005 $13,474 $13,916 $11,922 $13,813
8/31/2005 $13,583 $14,070 $11,983 $13,922
9/30/2005 $13,507 $13,962 $12,129 $13,848
10/31/2005 $13,451 $13,904 $12,154 $13,777
11/30/2005 $13,478 $13,961 $12,056 $13,813
12/31/2005 $13,632 $14,045 $12,007 $13,961
1/31/2006 $13,659 $14,044 $12,099 $13,990
2/28/2006 $13,666 $14,047 $12,123 $14,014
3/31/2006 $13,567 $14,003 $12,190 $13,927
4/30/2006 $13,510 $14,016 $12,294 $13,880
5/31/2006 $13,454 $14,021 $12,355 $13,841
6/30/2006 $13,462 $14,046 $12,379 $13,838
7/31/2006 $13,620 $14,193 $12,416 $14,014
8/31/2006 $13,800 $14,352 $12,441 $14,207
9/30/2006 $13,894 $14,456 $12,379 $14,300
10/31/2006 $13,970 $14,525 $12,312 $14,387
11/30/2006 $14,111 $14,641 $12,294 $14,512
12/31/2006 $14,063 $14,585 $12,312 $14,487
1/31/2007 $14,057 $14,587 $12,350 $14,479
2/28/2007 $14,227 $14,770 $12,416 $14,644
3/31/2007 $14,243 $14,808 $12,529 $14,672
4/30/2007 $14,326 $14,873 $12,610 $14,738
5/31/2007 $14,230 $14,789 $12,688 $14,649
6/30/2007 $14,157 $14,809 $12,712 $14,573
7/31/2007 $14,286 $14,991 $12,709 $14,688
8/31/2007 $14,437 $15,202 $12,686 $14,836
9/30/2007 $14,521 $15,306 $12,721 $14,945
44 | Annual Report
Performance Summary (CONTINUED)
CLASS C (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin U.S. LB U.S. Lipper GNMA
Government Government: Funds Classification
Date Securities Fund Intermediate Index 6 CPI 6 Average 6
10/1/1997 $10,000 $10,000 $10,000 $10,000
10/31/1997 $10,096 $10,117 $10,025 $10,102
11/30/1997 $10,105 $10,139 $10,019 $10,126
12/31/1997 $10,202 $10,221 $10,006 $10,225
1/31/1998 $10,299 $10,355 $10,025 $10,329
2/28/1998 $10,293 $10,344 $10,043 $10,338
3/31/1998 $10,332 $10,376 $10,062 $10,373
4/30/1998 $10,401 $10,425 $10,081 $10,429
5/31/1998 $10,468 $10,497 $10,099 $10,511
6/30/1998 $10,504 $10,568 $10,112 $10,560
7/31/1998 $10,556 $10,608 $10,124 $10,603
8/31/1998 $10,655 $10,809 $10,136 $10,714
9/30/1998 $10,785 $11,061 $10,149 $10,854
10/31/1998 $10,713 $11,080 $10,174 $10,799
11/30/1998 $10,781 $11,046 $10,174 $10,857
12/31/1998 $10,819 $11,089 $10,167 $10,897
1/31/1999 $10,888 $11,138 $10,192 $10,961
2/28/1999 $10,815 $10,985 $10,205 $10,873
3/31/1999 $10,869 $11,058 $10,236 $10,940
4/30/1999 $10,907 $11,088 $10,310 $10,981
5/31/1999 $10,817 $11,020 $10,310 $10,908
6/30/1999 $10,759 $11,036 $10,310 $10,847
7/31/1999 $10,668 $11,038 $10,341 $10,783
8/31/1999 $10,672 $11,053 $10,366 $10,769
9/30/1999 $10,839 $11,148 $10,416 $10,936
10/31/1999 $10,892 $11,170 $10,434 $10,973
11/30/1999 $10,895 $11,178 $10,440 $10,981
12/31/1999 $10,849 $11,143 $10,440 $10,929
1/31/2000 $10,753 $11,105 $10,471 $10,845
2/29/2000 $10,874 $11,197 $10,533 $10,970
3/31/2000 $11,030 $11,325 $10,620 $11,135
4/30/2000 $10,999 $11,320 $10,627 $11,116
5/31/2000 $11,038 $11,351 $10,639 $11,156
6/30/2000 $11,215 $11,531 $10,695 $11,350
7/31/2000 $11,255 $11,608 $10,720 $11,400
8/31/2000 $11,418 $11,738 $10,720 $11,562
9/30/2000 $11,528 $11,840 $10,775 $11,663
10/31/2000 $11,604 $11,921 $10,794 $11,734
11/30/2000 $11,751 $12,096 $10,800 $11,905
12/31/2000 $11,917 $12,310 $10,794 $12,079
1/31/2001 $12,101 $12,473 $10,862 $12,266
2/28/2001 $12,143 $12,588 $10,906 $12,342
3/31/2001 $12,221 $12,679 $10,931 $12,414
4/30/2001 $12,227 $12,639 $10,974 $12,394
5/31/2001 $12,288 $12,692 $11,024 $12,473
6/30/2001 $12,331 $12,732 $11,042 $12,513
7/31/2001 $12,539 $12,970 $11,011 $12,760
8/31/2001 $12,619 $13,085 $11,011 $12,854
9/30/2001 $12,792 $13,364 $11,061 $13,037
10/31/2001 $12,945 $13,573 $11,024 $13,215
11/30/2001 $12,837 $13,411 $11,005 $13,077
12/31/2001 $12,766 $13,346 $10,962 $13,006
1/31/2002 $12,881 $13,403 $10,986 $13,133
2/28/2002 $13,015 $13,514 $11,030 $13,274
3/31/2002 $12,845 $13,311 $11,092 $13,109
4/30/2002 $13,076 $13,560 $11,154 $13,356
5/31/2002 $13,154 $13,654 $11,154 $13,444
6/30/2002 $13,253 $13,825 $11,160 $13,556
7/31/2002 $13,390 $14,085 $11,172 $13,714
8/31/2002 $13,509 $14,246 $11,210 $13,828
9/30/2002 $13,628 $14,491 $11,228 $13,951
10/31/2002 $13,649 $14,481 $11,247 $13,969
11/30/2002 $13,643 $14,367 $11,247 $13,962
12/31/2002 $13,795 $14,632 $11,222 $14,116
1/31/2003 $13,828 $14,600 $11,272 $14,145
2/28/2003 $13,902 $14,765 $11,359 $14,228
3/31/2003 $13,876 $14,768 $11,427 $14,219
4/30/2003 $13,910 $14,809 $11,402 $14,253
5/31/2003 $13,904 $15,042 $11,383 $14,287
6/30/2003 $13,938 $15,017 $11,396 $14,314
7/31/2003 $13,606 $14,653 $11,408 $14,007
8/31/2003 $13,701 $14,679 $11,452 $14,101
9/30/2003 $13,900 $14,997 $11,489 $14,335
10/31/2003 $13,831 $14,850 $11,476 $14,263
11/30/2003 $13,886 $14,851 $11,445 $14,306
12/31/2003 $13,968 $14,967 $11,433 $14,404
1/31/2004 $14,045 $15,048 $11,489 $14,476
2/29/2004 $14,122 $15,191 $11,551 $14,569
3/31/2004 $14,157 $15,297 $11,625 $14,617
4/30/2004 $13,918 $14,955 $11,663 $14,375
5/31/2004 $13,886 $14,907 $11,731 $14,334
6/30/2004 $14,024 $14,945 $11,768 $14,445
7/31/2004 $14,120 $15,053 $11,749 $14,553
8/31/2004 $14,302 $15,277 $11,756 $14,744
9/30/2004 $14,305 $15,283 $11,780 $14,753
10/31/2004 $14,402 $15,376 $11,842 $14,848
11/30/2004 $14,369 $15,233 $11,849 $14,801
12/31/2004 $14,423 $15,316 $11,805 $14,873
1/31/2005 $14,499 $15,336 $11,830 $14,946
2/28/2005 $14,444 $15,250 $11,898 $14,894
3/31/2005 $14,410 $15,212 $11,991 $14,858
4/30/2005 $14,532 $15,390 $12,072 $14,995
5/31/2005 $14,627 $15,513 $12,060 $15,082
6/30/2005 $14,656 $15,564 $12,066 $15,115
7/31/2005 $14,574 $15,431 $12,122 $15,052
8/31/2005 $14,694 $15,602 $12,184 $15,171
9/30/2005 $14,611 $15,482 $12,333 $15,090
10/31/2005 $14,550 $15,417 $12,357 $15,013
11/30/2005 $14,580 $15,480 $12,258 $15,052
12/31/2005 $14,746 $15,574 $12,208 $15,213
1/31/2006 $14,776 $15,573 $12,301 $15,245
2/28/2006 $14,783 $15,576 $12,326 $15,271
3/31/2006 $14,675 $15,528 $12,395 $15,176
4/30/2006 $14,614 $15,542 $12,500 $15,125
5/31/2006 $14,553 $15,547 $12,562 $15,082
6/30/2006 $14,561 $15,575 $12,587 $15,079
7/31/2006 $14,733 $15,738 $12,624 $15,271
8/31/2006 $14,929 $15,915 $12,649 $15,482
9/30/2006 $15,031 $16,030 $12,587 $15,582
10/31/2006 $15,113 $16,106 $12,519 $15,677
11/30/2006 $15,266 $16,235 $12,500 $15,814
12/31/2006 $15,214 $16,173 $12,519 $15,787
1/31/2007 $15,201 $16,175 $12,557 $15,777
2/28/2007 $15,379 $16,378 $12,624 $15,957
3/31/2007 $15,390 $16,420 $12,739 $15,988
4/30/2007 $15,472 $16,493 $12,822 $16,060
5/31/2007 $15,362 $16,399 $12,900 $15,963
6/30/2007 $15,276 $16,421 $12,925 $15,880
7/31/2007 $15,408 $16,623 $12,922 $16,006
8/31/2007 $15,566 $16,857 $12,898 $16,167
9/30/2007 $15,650 $16,972 $12,934 $16,285
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 9/30/07
- -----------------------------------
1-Year +3.12%
- -----------------------------------
5-Year +2.81%
- -----------------------------------
10-Year +4.58%
- -----------------------------------
CLASS R (1/1/02-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin U.S. LB U.S. Lipper GNMA
Government Government: Funds Classification
Date Securities Fund Intermediate Index 6 CPI 6 Average 6
1/1/2002 $10,000 $10,000 $10,000 $10,000
1/31/2002 $10,109 $10,043 $10,023 $10,098
2/28/2002 $10,215 $10,126 $10,062 $10,206
3/31/2002 $10,098 $ 9,974 $10,119 $10,079
4/30/2002 $10,281 $10,160 $10,175 $10,269
5/31/2002 $10,343 $10,231 $10,175 $10,337
6/30/2002 $10,421 $10,359 $10,181 $10,423
7/31/2002 $10,530 $10,554 $10,192 $10,545
8/31/2002 $10,625 $10,675 $10,226 $10,632
9/30/2002 $10,704 $10,858 $10,243 $10,727
10/31/2002 $10,722 $10,851 $10,260 $10,741
11/30/2002 $10,733 $10,765 $10,260 $10,735
12/31/2002 $10,854 $10,964 $10,238 $10,853
1/31/2003 $10,866 $10,940 $10,283 $10,876
2/28/2003 $10,924 $11,063 $10,362 $10,939
3/31/2003 $10,921 $11,066 $10,424 $10,933
4/30/2003 $10,948 $11,097 $10,402 $10,959
5/31/2003 $10,945 $11,271 $10,385 $10,985
6/30/2003 $10,958 $11,252 $10,396 $11,006
7/31/2003 $10,715 $10,979 $10,407 $10,769
8/31/2003 $10,791 $10,999 $10,447 $10,842
9/30/2003 $10,948 $11,237 $10,481 $11,022
10/31/2003 $10,897 $11,127 $10,470 $10,966
11/30/2003 $10,926 $11,128 $10,441 $10,999
12/31/2003 $11,008 $11,215 $10,430 $11,075
1/31/2004 $11,053 $11,276 $10,481 $11,131
2/29/2004 $11,115 $11,383 $10,538 $11,202
3/31/2004 $11,160 $11,462 $10,606 $11,239
4/30/2004 $10,975 $11,206 $10,640 $11,052
5/31/2004 $10,950 $11,170 $10,702 $11,021
6/30/2004 $11,044 $11,198 $10,736 $11,106
7/31/2004 $11,121 $11,280 $10,719 $11,189
8/31/2004 $11,265 $11,447 $10,724 $11,336
9/30/2004 $11,286 $11,452 $10,747 $11,343
10/31/2004 $11,364 $11,522 $10,804 $11,417
11/30/2004 $11,323 $11,414 $10,809 $11,380
12/31/2004 $11,384 $11,476 $10,770 $11,436
1/31/2005 $11,445 $11,491 $10,792 $11,492
2/28/2005 $11,386 $11,427 $10,855 $11,452
3/31/2005 $11,361 $11,399 $10,939 $11,424
4/30/2005 $11,475 $11,532 $11,013 $11,529
5/31/2005 $11,534 $11,624 $11,002 $11,596
6/30/2005 $11,559 $11,662 $11,007 $11,622
7/31/2005 $11,513 $11,562 $11,058 $11,573
8/31/2005 $11,590 $11,691 $11,115 $11,664
9/30/2005 $11,544 $11,601 $11,251 $11,602
10/31/2005 $11,481 $11,552 $11,273 $11,543
11/30/2005 $11,505 $11,599 $11,183 $11,573
12/31/2005 $11,638 $11,670 $11,138 $11,697
1/31/2006 $11,663 $11,669 $11,222 $11,722
2/28/2006 $11,670 $11,671 $11,245 $11,742
3/31/2006 $11,604 $11,635 $11,307 $11,669
4/30/2006 $11,539 $11,646 $11,404 $11,629
5/31/2006 $11,510 $11,649 $11,460 $11,597
6/30/2006 $11,500 $11,670 $11,483 $11,594
7/31/2006 $11,655 $11,793 $11,517 $11,741
8/31/2006 $11,810 $11,925 $11,539 $11,903
9/30/2006 $11,892 $12,011 $11,483 $11,981
10/31/2006 $11,957 $12,068 $11,420 $12,054
11/30/2006 $12,061 $12,165 $11,404 $12,159
12/31/2006 $12,040 $12,118 $11,420 $12,138
1/31/2007 $12,031 $12,120 $11,455 $12,131
2/28/2007 $12,173 $12,272 $11,517 $12,269
3/31/2007 $12,183 $12,304 $11,622 $12,292
4/30/2007 $12,230 $12,358 $11,697 $12,348
5/31/2007 $12,164 $12,288 $11,768 $12,274
6/30/2007 $12,079 $12,304 $11,791 $12,210
7/31/2007 $12,185 $12,456 $11,788 $12,306
8/31/2007 $12,311 $12,631 $11,767 $12,431
9/30/2007 $12,397 $12,717 $11,799 $12,521
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 9/30/07
- -----------------------------------
1-Year +4.25%
- -----------------------------------
5-Year +2.98%
- -----------------------------------
Since Inception (1/1/02) +3.81%
- -----------------------------------
Annual Report | 45
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
ADVISOR CLASS 9/30/07
- -----------------------------------
1-Year +4.75%
- -----------------------------------
5-Year +3.49%
- -----------------------------------
10-Year +5.27%
- -----------------------------------
ADVISOR CLASS (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin U.S. LB U.S. Lipper GNMA
Government Government: Funds Classification
Date Securities Fund Intermediate Index 6 CPI 6 Average 6
10/1/1997 $10,000 $10,000 $10,000 $10,000
10/31/1997 $10,087 $10,117 $10,025 $10,102
11/30/1997 $10,116 $10,139 $10,019 $10,126
12/31/1997 $10,218 $10,221 $10,006 $10,225
1/31/1998 $10,306 $10,355 $10,025 $10,329
2/28/1998 $10,321 $10,344 $10,043 $10,338
3/31/1998 $10,365 $10,376 $10,062 $10,373
4/30/1998 $10,425 $10,425 $10,081 $10,429
5/31/1998 $10,512 $10,497 $10,099 $10,511
6/30/1998 $10,554 $10,568 $10,112 $10,560
7/31/1998 $10,596 $10,608 $10,124 $10,603
8/31/1998 $10,700 $10,809 $10,136 $10,714
9/30/1998 $10,851 $11,061 $10,149 $10,854
10/31/1998 $10,785 $11,080 $10,174 $10,799
11/30/1998 $10,859 $11,046 $10,174 $10,857
12/31/1998 $10,903 $11,089 $10,167 $10,897
1/31/1999 $10,978 $11,138 $10,192 $10,961
2/28/1999 $10,895 $10,985 $10,205 $10,873
3/31/1999 $10,955 $11,058 $10,236 $10,940
4/30/1999 $11,016 $11,088 $10,310 $10,981
5/31/1999 $10,931 $11,020 $10,310 $10,908
6/30/1999 $10,862 $11,036 $10,310 $10,847
7/31/1999 $10,793 $11,038 $10,341 $10,783
8/31/1999 $10,786 $11,053 $10,366 $10,769
9/30/1999 $10,977 $11,148 $10,416 $10,936
10/31/1999 $11,037 $11,170 $10,434 $10,973
11/30/1999 $11,029 $11,178 $10,440 $10,981
12/31/1999 $10,988 $11,143 $10,440 $10,929
1/31/2000 $10,914 $11,105 $10,471 $10,845
2/29/2000 $11,025 $11,197 $10,533 $10,970
3/31/2000 $11,189 $11,325 $10,620 $11,135
4/30/2000 $11,181 $11,320 $10,627 $11,116
5/31/2000 $11,227 $11,351 $10,639 $11,156
6/30/2000 $11,412 $11,531 $10,695 $11,350
7/31/2000 $11,458 $11,608 $10,720 $11,400
8/31/2000 $11,629 $11,738 $10,720 $11,562
9/30/2000 $11,748 $11,840 $10,775 $11,663
10/31/2000 $11,831 $11,921 $10,794 $11,734
11/30/2000 $11,987 $12,096 $10,800 $11,905
12/31/2000 $12,180 $12,310 $10,794 $12,079
1/31/2001 $12,355 $12,473 $10,862 $12,266
2/28/2001 $12,405 $12,588 $10,906 $12,342
3/31/2001 $12,491 $12,679 $10,931 $12,414
4/30/2001 $12,504 $12,639 $10,974 $12,394
5/31/2001 $12,572 $12,692 $11,024 $12,473
6/30/2001 $12,641 $12,732 $11,042 $12,513
7/31/2001 $12,860 $12,970 $11,011 $12,760
8/31/2001 $12,949 $13,085 $11,011 $12,854
9/30/2001 $13,114 $13,364 $11,061 $13,037
10/31/2001 $13,296 $13,573 $11,024 $13,215
11/30/2001 $13,193 $13,411 $11,005 $13,077
12/31/2001 $13,127 $13,346 $10,962 $13,006
1/31/2002 $13,233 $13,403 $10,986 $13,133
2/28/2002 $13,396 $13,514 $11,030 $13,274
3/31/2002 $13,230 $13,311 $11,092 $13,109
4/30/2002 $13,473 $13,560 $11,154 $13,356
5/31/2002 $13,561 $13,654 $11,154 $13,444
6/30/2002 $13,669 $13,825 $11,160 $13,556
7/31/2002 $13,817 $14,085 $11,172 $13,714
8/31/2002 $13,945 $14,246 $11,210 $13,828
9/30/2002 $14,075 $14,491 $11,228 $13,951
10/31/2002 $14,104 $14,481 $11,247 $13,969
11/30/2002 $14,105 $14,367 $11,247 $13,962
12/31/2002 $14,269 $14,632 $11,222 $14,116
1/31/2003 $14,311 $14,600 $11,272 $14,145
2/28/2003 $14,394 $14,765 $11,359 $14,228
3/31/2003 $14,395 $14,768 $11,427 $14,219
4/30/2003 $14,417 $14,809 $11,402 $14,253
5/31/2003 $14,439 $15,042 $11,383 $14,287
6/30/2003 $14,461 $15,017 $11,396 $14,314
7/31/2003 $14,126 $14,653 $11,408 $14,007
8/31/2003 $14,233 $14,679 $11,452 $14,101
9/30/2003 $14,467 $14,997 $11,489 $14,335
10/31/2003 $14,405 $14,850 $11,476 $14,263
11/30/2003 $14,449 $14,851 $11,445 $14,306
12/31/2003 $14,541 $14,967 $11,433 $14,404
1/31/2004 $14,628 $15,048 $11,489 $14,476
2/29/2004 $14,716 $15,191 $11,551 $14,569
3/31/2004 $14,761 $15,297 $11,625 $14,617
4/30/2004 $14,521 $14,955 $11,663 $14,375
5/31/2004 $14,518 $14,907 $11,731 $14,334
6/30/2004 $14,647 $14,945 $11,768 $14,445
7/31/2004 $14,754 $15,053 $11,749 $14,553
8/31/2004 $14,952 $15,277 $11,756 $14,744
9/30/2004 $14,962 $15,283 $11,780 $14,753
10/31/2004 $15,094 $15,376 $11,842 $14,848
11/30/2004 $15,045 $15,233 $11,849 $14,801
12/31/2004 $15,133 $15,316 $11,805 $14,873
1/31/2005 $15,220 $15,336 $11,830 $14,946
2/28/2005 $15,148 $15,250 $11,898 $14,894
3/31/2005 $15,122 $15,212 $11,991 $14,858
4/30/2005 $15,256 $15,390 $12,072 $14,995
5/31/2005 $15,364 $15,513 $12,060 $15,082
6/30/2005 $15,403 $15,564 $12,066 $15,115
7/31/2005 $15,349 $15,431 $12,122 $15,052
8/31/2005 $15,458 $15,602 $12,184 $15,171
9/30/2005 $15,403 $15,482 $12,333 $15,090
10/31/2005 $15,325 $15,417 $12,357 $15,013
11/30/2005 $15,364 $15,480 $12,258 $15,052
12/31/2005 $15,547 $15,574 $12,208 $15,213
1/31/2006 $15,587 $15,573 $12,301 $15,245
2/28/2006 $15,603 $15,576 $12,326 $15,271
3/31/2006 $15,498 $15,528 $12,395 $15,176
4/30/2006 $15,442 $15,542 $12,500 $15,125
5/31/2006 $15,410 $15,547 $12,562 $15,082
6/30/2006 $15,403 $15,575 $12,587 $15,079
7/31/2006 $15,616 $15,738 $12,624 $15,271
8/31/2006 $15,831 $15,915 $12,649 $15,482
9/30/2006 $15,947 $16,030 $12,587 $15,582
10/31/2006 $16,042 $16,106 $12,519 $15,677
11/30/2006 $16,186 $16,235 $12,500 $15,814
12/31/2006 $16,165 $16,173 $12,519 $15,787
1/31/2007 $16,159 $16,175 $12,557 $15,777
2/28/2007 $16,356 $16,378 $12,624 $15,957
3/31/2007 $16,376 $16,420 $12,739 $15,988
4/30/2007 $16,446 $16,493 $12,822 $16,060
5/31/2007 $16,364 $16,399 $12,900 $15,963
6/30/2007 $16,256 $16,421 $12,925 $15,880
7/31/2007 $16,405 $16,623 $12,922 $16,006
8/31/2007 $16,581 $16,857 $12,898 $16,167
9/30/2007 $16,705 $16,972 $12,934 $16,285
ENDNOTES
THE FUND'S SHARE PRICE AND YIELD WILL BE AFFECTED BY INTEREST RATE MOVEMENTS AND
MORTGAGE PREPAYMENTS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF
INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN
INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as
described in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. Distribution rate is based on an annualization of the respective class's
September dividend and the maximum offering price (NAV for Classes B, C, R and
Advisor) per share on 9/30/07.
4. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 9/30/07.
5. Figures are as stated in the Fund's prospectus current as of the date of this
report.
6. Sources: Standard & Poor's Micropal; Lipper Inc. The LB U.S. Government:
Intermediate Index includes fixed-rate debt issues rated investment grade or
higher by Moody's, S&P or Fitch, in that order. All issues have at least one
year to maturity and an outstanding par value of at least $100 million for U.S.
government issues. All returns are market value weighted inclusive of accrued
interest. The index includes issues of the U.S. government or any agency
thereof. It includes only issues with a remaining term to maturity of less than
10 years. Total return includes price appreciation/depreciation and income as a
percentage of the original investment. The total return index is rebalanced
monthly by market capitalization. The Lipper GNMA Funds Classification Average
is calculated by averaging the total return for all funds within the Lipper GNMA
Funds classification in the Lipper Open-End underlying funds universe for the
period indicated. Lipper GNMA Funds are defined as funds that invest primarily
in GNMA securities. For the 12-month period ended 9/30/07, there were 59 funds
in this category. Lipper calculations do not include sales charges or expense
subsidization by a fund's manager. The Fund's performance relative to the
average may have differed if these or other factors had been considered. The
Consumer Price Index (CPI), calculated by the U.S. Bureau of Labor Statistics,
is a commonly used measure of the inflation rate.
46 | Annual Report
Your Fund's Expenses
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
Annual Report | 47
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- -------------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 4/1/07 VALUE 9/30/07 PERIOD* 4/1/07-9/30/07
- -------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,019.50 $3.54
- -------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,021.56 $3.55
- -------------------------------------------------------------------------------------------------------------
CLASS B
- -------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,016.90 $6.22
- -------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.23
- -------------------------------------------------------------------------------------------------------------
CLASS C
- -------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,016.90 $6.22
- -------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,018.90 $6.23
- -------------------------------------------------------------------------------------------------------------
CLASS R
- -------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,017.60 $5.46
- -------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,019.65 $5.47
- -------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- -------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,020.10 $2.94
- -------------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $1,000 $1,022.16 $2.94
- -------------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.70%; B: 1.23%; C: 1.23%; R: 1.08%; and Advisor:
0.58%), multiplied by the average account value over the period, multiplied by
183/365 to reflect the one-half year period.
48 | Annual Report
Franklin Utilities Fund
YOUR FUND'S GOALS AND MAIN INVESTMENTS: Franklin Utilities Fund seeks both
capital appreciation and current income by investing at least 80% of its net
assets in public utility company securities.
- --------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
- --------------------------------------------------------------------------------
We are pleased to bring you Franklin Utilities Fund's annual report for the
fiscal year ended September 30, 2007.
PERFORMANCE OVERVIEW
Franklin Utilities Fund - Class A posted a +20.32% cumulative total return for
the 12 months under review. The Fund outperformed its broad benchmark, the
Standard & Poor's 500 Index (S&P 500), which returned +16.44% for the same
period.1 The Fund performed comparably with its narrow benchmark, the S&P 500
Utilities Index, which returned +21.15%. 2 You can find the Fund's long-term
performance data in the Performance Summary beginning on page 53.
ECONOMIC AND MARKET OVERVIEW
During the 12 months ended September 30, 2007, the U.S. economy advanced at a
moderate but uneven pace. Gross domestic product (GDP) grew an annualized 2.1%
in the fourth quarter of 2006, but slowed to an annualized 0.6% rate in the
first quarter of 2007 due in part to higher imports and lower spending for
nondurable goods. In the second quarter, however, GDP growth advanced at an
annualized 3.8% rate, supported by federal defense spending, accelerating
exports and declining imports, greater business inventory investment and
increased spending for nonresidential structures. GDP grew an estimated
annualized 3.9% in the third quarter of 2007 despite a struggling housing market
that became more fragile with the abrupt unraveling of the subprime mortgage
market.
1. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks for U.S. equity performance.
2. Source: Standard & Poor's Micropal. The S&P 500 Utilities Index is a market
capitalization-weighted index that includes electric utility stocks in the S&P
500.
The indexes are unmanaged and include reinvested dividends. One cannot invest
directly in an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 105.
Annual Report | 49
PORTFOLIO BREAKDOWN
Franklin Utilities Fund
Based on Total Net Assets as of 9/30/07
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Electric Utilities 49.2%
Multi-Utilities 32.4%
Independent Power Producers & Energy Traders 6.1%
Oil, Gas & Consumable Fuels 3.5%
Diversified Telecommunication Services 3.4%
Gas Utilities 2.4%
Water Utilities 1.9%
Short-Term Investments & Other Net Assets 1.1%
The unemployment rate increased from 4.6% at the beginning of the period to 4.7%
in September 2007. 3 Although consumer confidence in July neared a six-year
high, the pace of consumer spending slowed toward period-end as worries about
the housing slump and high gasoline prices made individuals more cautious. After
a welcome drop in energy costs during the latter half of 2006, oil prices
established a new record high in September, crossing $80 per barrel in response
to perceived tight supply and high demand for oil, refinery maintenance issues,
and ongoing geopolitical tensions in the Middle East and Africa. The core
Consumer Price Index (CPI), which excludes food and energy costs, rose 2.1% for
the 12 months ended September 30, 2007, which was lower than its 2.2% 10-year
average. 3
Liquidity and financing became difficult to obtain in some corporate credit
markets, which dampened the outlook for economic growth. In response, the
Federal Reserve Board (Fed) lowered the federal funds target rate 50 basis
points to 4.75% from 5.25% in September, which marked the first interest rate
reduction in four years. The 10-year Treasury note yield fell from 4.64% at the
beginning of the period to 4.59% on September 30, 2007.
After stock market sell-offs in late February and mid-March, markets rebounded
in the second quarter of 2007 amid generally strong first quarter corporate
earnings reports. However, volatility picked up again in the second half of July
and in August due to investor concerns about the housing market, lending
environment and mixed second quarter earnings reports. The blue chip stocks of
the Dow Jones Industrial Average posted a 12-month total return of +21.69%, the
broader S&P 500 returned +16.44%, and the technology-heavy NASDAQ Composite
Index returned +20.52%. 4 Energy, materials and telecommunication stocks
performed particularly well.
INVESTMENT STRATEGY
We search for the best return opportunities available in the global utilities
arena with a specific focus on the U.S. electricity sector. Generally, we look
for companies producing a high percentage of earnings from regulated utility
franchise operations.
3. Source: Bureau of Labor Statistics.
4. Source: Standard & Poor's Micropal. The Dow Jones Industrial Average is price
weighted based on the average market price of 30 blue chip stocks of companies
that are generally industry leaders. See footnote 1 for a description of the S&P
500. The NASDAQ Composite Index measures all NASDAQ domestic and international
based common type stocks listed on The NASDAQ Stock Market. The index is market
value weighted and includes more than 3,000 companies.
50 | Annual Report
MANAGER'S DISCUSSION
Utility companies increased their capital spending as they searched for
solutions to keep pace with the world's growing energy needs with greater
efficiency and fewer emissions due to pressures from policymakers in the U.S.
and abroad. In many regards, this has created growth opportunities for utilities
sector companies.
During the Fund's fiscal year, the majority of the Fund's holdings generated
positive returns and contributed to absolute Fund performance. The Fund's
investment in Entergy, the second-largest nuclear generator in the U.S., was
among the Fund's major contributors. Entergy's fleet of power plants produces
energy at a low relative cost compared with other types of fuel companies.
Recently, public opinion of nuclear energy has improved as environmental
awareness and concerns about global warming have become mainstream. Nuclear
energy is considered a viable environmentally friendly alternative to
traditional fossil fuels because it does not produce any carbon dioxide
emissions. Another notable holding that performed well and benefited from
similar trends was Florida-based FPL Group, which in addition to its core
utility franchise in south Florida is a significant wind developer in the U.S.
Wind power has gained acceptance as a renewable energy source in recent years as
many states have adopted minimum renewable portfolio standards for utility
companies.
Despite the Fund's solid returns, the Fund had some detractors from performance.
Underachievers during the period were primarily highly regulated companies.
Natural gas distributor Spectra Energy, which was spun-off from Duke Energy in
late 2006, was one example. Spectra's earnings are highly dependent upon fair
treatment from regulators, which have been under pressure to reduce utility
returns on capital to help offset inflationary costs from energy, pensions and
other areas. Hawaiian Electric Industries and PNM Resources, both of which are
highly regulated, also weighed on Fund returns during the review period.
Consistent with our investment strategy, we focused on opportunities within the
utilities sector that we believe are best positioned to benefit from secular
growth trends.
TOP 10 EQUITY HOLDINGS
Franklin Utilities Fund
9/30/07
- --------------------------------------------------------------------------------
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------------------------------------------------------------------------
Entergy Corp. 6.7%
ELECTRIC UTILITIES
- --------------------------------------------------------------------------------
Exelon Corp. 5.8%
ELECTRIC UTILITIES
- --------------------------------------------------------------------------------
Edison International 4.3%
ELECTRIC UTILITIES
- --------------------------------------------------------------------------------
FirstEnergy Corp. 4.2%
ELECTRIC UTILITIES
- --------------------------------------------------------------------------------
PPL Corp. 3.8%
ELECTRIC UTILITIES
- --------------------------------------------------------------------------------
FPL Group Inc. 3.6%
ELECTRIC UTILITIES
- --------------------------------------------------------------------------------
Dominion Resources Inc. 3.5%
MULTI-UTILITIES
- --------------------------------------------------------------------------------
Public Services Enterprise Group Inc. 3.4%
MULTI-UTILITIES
- --------------------------------------------------------------------------------
PG&E Corp. 3.4%
MULTI-UTILITIES
- --------------------------------------------------------------------------------
The Southern Co. 3.2%
ELECTRIC UTILITIES
- --------------------------------------------------------------------------------
Annual Report | 51
Thank you for your continued participation in Franklin Utilities Fund. We look
forward to serving your future investment needs.
[PHOTO OMITTED] /s/ John C. Kohli
John C. Kohli, CFA
Portfolio Manager
Franklin Utilities Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF SEPTEMBER 30, 2007, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT
OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
52 | Annual Report
Performance Summary as of 9/30/07
FRANKLIN UTILITIES FUND
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses of each
class. Capital gain distributions are net profits realized from the sale of
portfolio securities. The performance table and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKUTX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.69 $14.58 $12.89
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.4027
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0923
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3730
- ----------------------------------------------------------------------------------------------------
TOTAL $0.8680
- ----------------------------------------------------------------------------------------------------
CLASS B (SYMBOL: FRUBX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.68 $14.56 $12.88
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.3305
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0923
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3730
- ----------------------------------------------------------------------------------------------------
TOTAL $0.7958
- ----------------------------------------------------------------------------------------------------
CLASS C (SYMBOL: FRUSX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.68 $14.53 $12.85
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.3327
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0923
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3730
- ----------------------------------------------------------------------------------------------------
TOTAL $0.7980
- ----------------------------------------------------------------------------------------------------
CLASS R (SYMBOL: FRURX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.68 $14.54 $12.86
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.3583
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0923
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3730
- ----------------------------------------------------------------------------------------------------
TOTAL $0.8236
- ----------------------------------------------------------------------------------------------------
ADVISOR CLASS (SYMBOL: FRUAX) CHANGE 9/30/07 9/30/06
- ----------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.69 $14.64 $12.95
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS (10/1/06-9/30/07)
- ----------------------------------------------------------------------------------------------------
Dividend Income $0.4267
- ----------------------------------------------------------------------------------------------------
Short-Term Capital Gain $0.0923
- ----------------------------------------------------------------------------------------------------
Long-Term Capital Gain $0.3730
- ----------------------------------------------------------------------------------------------------
TOTAL $0.8920
- ----------------------------------------------------------------------------------------------------
Annual Report | 53
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AVERAGE ANNUAL TOTAL RETURN AND
VALUE OF $10,000 INVESTMENT INCLUDE MAXIMUM SALES CHARGES. CLASS A: 4.25%
MAXIMUM INITIAL SALES CHARGE; CLASS B: CONTINGENT DEFERRED SALES CHARGE (CDSC)
DECLINING FROM 4% TO 1% OVER SIX YEARS, AND ELIMINATED THEREAFTER; CLASS C: 1%
CDSC IN FIRST YEAR ONLY; CLASS R/ADVISOR CLASS: NO SALES CHARGES. THE FUND MAY
CHARGE A 2% FEE ON REDEMPTIONS MADE WITHIN SEVEN DAYS OF PURCHASE.
- --------------------------------------------------------------------------------------------------------------
CLASS A 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +20.32% +131.72% +169.19%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +15.23% +17.29% +9.93%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,523 $22,196 $25,764
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 1.95%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 2.64%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 0.76%
- --------------------------------------------------------------------------------------------------------------
CLASS B 1-YEAR 5-YEAR INCEPTION (1/1/99)
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +19.66% +125.93% +109.15%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +15.66% +17.50% +8.80%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,566 $22,393 $20,915
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 1.54%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 2.26%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.26%
- --------------------------------------------------------------------------------------------------------------
CLASS C 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +19.72% +125.92% +156.18%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +18.72% +17.70% +9.86%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,872 $22,592 $25,618
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 1.57%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 2.26%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.25%
- --------------------------------------------------------------------------------------------------------------
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +19.92% +127.67% +91.23%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +19.92% +17.89% +11.95%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $11,992 $22,767 $19,123
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 1.76%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 2.41%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 1.11%
- --------------------------------------------------------------------------------------------------------------
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1 +20.43% +133.28% +173.71%
- --------------------------------------------------------------------------------------------------------------
Average Annual Total Return 2 +20.43% +18.46% +10.59%
- --------------------------------------------------------------------------------------------------------------
Value of $10,000 Investment 3 $12,043 $23,328 $27,371
- --------------------------------------------------------------------------------------------------------------
Distribution Rate 4 2.16%
- --------------------------------------------------------------------------------------------------------------
30-Day Standardized Yield 5 2.90%
- --------------------------------------------------------------------------------------------------------------
Total Annual Operating Expenses 6 0.61%
- --------------------------------------------------------------------------------------------------------------
PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE
A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. FOR MOST RECENT MONTH-END PERFORMANCE, SEE "FUNDS AND
PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236.
54 | Annual Report
Performance Summary (CONTINUED)
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 any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
CLASS A (10/1/97-9/30/07)
Franklin S&P 500
Utilities Utilities
Date Fund S&P 500 7 Index 7
- ---------- --------- --------- ---------
10/1/1997 $ 9,571 $10,000 $10,000
10/31/1997 $ 9,619 $ 9,666 $10,095
11/30/1997 $10,257 $10,113 $10,854
12/31/1997 $11,009 $10,287 $11,677
1/31/1998 $10,583 $10,401 $11,203
2/28/1998 $10,752 $11,151 $11,582
3/31/1998 $11,423 $11,722 $12,336
4/30/1998 $11,013 $11,840 $12,051
5/31/1998 $10,873 $11,637 $12,007
6/30/1998 $11,134 $12,109 $12,466
7/31/1998 $10,729 $11,980 $11,836
8/31/1998 $11,094 $10,248 $12,113
9/30/1998 $11,649 $10,905 $13,072
10/31/1998 $11,433 $11,792 $12,821
11/30/1998 $11,556 $12,506 $13,011
12/31/1998 $11,842 $13,227 $13,409
1/31/1999 $11,212 $13,780 $12,822
2/28/1999 $10,677 $13,352 $12,333
3/31/1999 $10,495 $13,886 $12,138
4/30/1999 $11,155 $14,424 $13,177
5/31/1999 $11,665 $14,083 $14,009
6/30/1999 $11,250 $14,865 $13,518
7/31/1999 $11,086 $14,401 $13,352
8/31/1999 $11,064 $14,329 $13,489
9/30/1999 $10,654 $13,937 $12,841
10/31/1999 $10,842 $14,819 $13,026
11/30/1999 $10,209 $15,120 $12,059
12/31/1999 $10,065 $16,010 $12,177
1/31/2000 $10,640 $15,206 $13,499
2/29/2000 $9,855 $14,918 $12,666
3/31/2000 $10,190 $16,377 $13,088
4/30/2000 $10,795 $15,885 $14,107
5/31/2000 $10,938 $15,559 $14,724
6/30/2000 $10,447 $15,942 $13,847
7/31/2000 $10,880 $15,693 $14,829
8/31/2000 $12,034 $16,668 $16,858
9/30/2000 $13,239 $15,788 $18,407
10/31/2000 $13,178 $15,721 $17,698
11/30/2000 $13,652 $14,482 $17,495
12/31/2000 $14,254 $14,553 $19,142
1/31/2001 $12,791 $15,069 $17,282
2/28/2001 $13,541 $13,695 $17,910
3/31/2001 $13,717 $12,827 $17,790
4/30/2001 $14,288 $13,824 $18,825
5/31/2001 $14,363 $13,917 $18,224
6/30/2001 $13,639 $13,578 $16,772
7/31/2001 $13,162 $13,444 $15,999
8/31/2001 $13,338 $12,603 $15,564
9/30/2001 $12,705 $11,585 $13,762
10/31/2001 $12,718 $11,806 $13,713
11/30/2001 $12,604 $12,712 $12,976
12/31/2001 $13,101 $12,823 $13,315
1/31/2002 $12,940 $12,636 $12,548
2/28/2002 $12,900 $12,392 $12,272
3/31/2002 $13,636 $12,858 $13,765
4/30/2002 $13,541 $12,079 $13,509
5/31/2002 $13,214 $11,990 $12,310
6/30/2002 $12,627 $11,136 $11,436
7/31/2002 $11,538 $10,268 $ 9,837
8/31/2002 $11,992 $10,335 $10,207
9/30/2002 $11,119 $ 9,212 $ 8,888
10/31/2002 $11,119 $10,023 $ 8,727
11/30/2002 $11,342 $10,612 $ 8,957
12/31/2002 $11,729 $ 9,989 $ 9,322
1/31/2003 $11,247 $ 9,727 $ 9,036
2/28/2003 $10,935 $ 9,581 $ 8,608
3/31/2003 $11,325 $ 9,674 $ 9,029
4/30/2003 $11,943 $10,471 $ 9,811
5/31/2003 $12,993 $11,023 $10,834
6/30/2003 $13,037 $11,164 $10,957
7/31/2003 $12,441 $11,360 $10,242
8/31/2003 $12,455 $11,582 $10,437
9/30/2003 $12,940 $11,459 $10,903
10/31/2003 $13,175 $12,107 $11,018
11/30/2003 $13,308 $12,214 $11,029
12/31/2003 $13,992 $12,854 $11,769
1/31/2004 $14,230 $13,090 $12,019
2/29/2004 $14,602 $13,272 $12,254
3/31/2004 $14,707 $13,072 $12,376
4/30/2004 $14,272 $12,867 $11,920
5/31/2004 $14,437 $13,043 $12,030
6/30/2004 $14,666 $13,297 $12,216
7/31/2004 $14,818 $12,857 $12,417
8/31/2004 $15,410 $12,909 $12,927
9/30/2004 $15,580 $13,049 $13,038
10/31/2004 $16,224 $13,248 $13,674
11/30/2004 $16,684 $13,784 $14,251
12/31/2004 $17,230 $14,253 $14,627
1/31/2005 $17,386 $13,906 $14,926
2/28/2005 $17,526 $14,198 $15,248
3/31/2005 $17,573 $13,947 $15,420
4/30/2005 $17,965 $13,682 $15,902
5/31/2005 $18,294 $14,118 $15,928
6/30/2005 $19,101 $14,138 $16,856
7/31/2005 $19,401 $14,664 $17,234
8/31/2005 $19,575 $14,530 $17,387
9/30/2005 $20,069 $14,647 $18,081
10/31/2005 $18,922 $14,403 $16,937
11/30/2005 $18,969 $14,948 $16,902
12/31/2005 $19,082 $14,953 $17,090
1/31/2006 $19,584 $15,349 $17,510
2/28/2006 $19,909 $15,391 $17,705
3/31/2006 $19,273 $15,582 $16,893
4/30/2006 $19,485 $15,792 $17,161
5/31/2006 $19,714 $15,337 $17,434
6/30/2006 $20,143 $15,358 $17,854
7/31/2006 $21,049 $15,453 $18,731
8/31/2006 $21,593 $15,820 $19,263
9/30/2006 $21,412 $16,228 $18,944
10/31/2006 $22,525 $16,757 $19,968
11/30/2006 $23,290 $17,075 $20,445
12/31/2006 $23,640 $17,315 $20,677
1/31/2007 $23,605 $17,577 $20,617
2/28/2007 $24,488 $17,233 $21,707
3/31/2007 $25,483 $17,426 $22,598
4/30/2007 $26,284 $18,198 $23,549
5/31/2007 $26,511 $18,833 $23,712
6/30/2007 $25,250 $18,520 $22,511
7/31/2007 $24,337 $17,946 $21,668
8/31/2007 $24,917 $18,215 $22,164
9/30/2007 $25,764 $18,896 $22,951
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS A 9/30/07
- -----------------------------------
1-Year +15.23%
- -----------------------------------
5-Year +17.29%
- -----------------------------------
10-Year +9.93%
- -----------------------------------
CLASS B (1/1/99-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin S&P 500
Utilities Utilities
Date Fund S&P 500 7 Index 7
- ---------- --------- --------- ---------
1/1/1999 $10,000 $10,000 $10,000
1/31/1999 $ 9,468 $10,418 $ 9,562
2/28/1999 $ 9,016 $10,094 $ 9,198
3/31/1999 $ 8,859 $10,498 $ 9,052
4/30/1999 $ 9,416 $10,905 $ 9,827
5/31/1999 $ 9,845 $10,647 $10,448
6/30/1999 $ 9,487 $11,238 $10,081
7/31/1999 $ 9,339 $10,887 $ 9,958
8/31/1999 $ 9,321 $10,833 $10,060
9/30/1999 $ 8,964 $10,536 $ 9,576
10/31/1999 $ 9,133 $11,203 $ 9,714
11/30/1999 $ 8,600 $11,431 $ 8,993
12/31/1999 $ 8,479 $12,104 $ 9,082
1/31/2000 $ 8,961 $11,496 $10,067
2/29/2000 $ 8,282 $11,278 $ 9,446
3/31/2000 $ 8,572 $12,382 $ 9,760
4/30/2000 $ 9,071 $12,009 $10,520
5/31/2000 $ 9,190 $11,763 $10,981
6/30/2000 $ 8,768 $12,053 $10,327
7/31/2000 $ 9,131 $11,864 $11,059
8/31/2000 $10,088 $12,601 $12,573
9/30/2000 $11,097 $11,936 $13,727
10/31/2000 $11,035 $11,886 $13,199
11/30/2000 $11,433 $10,949 $13,047
12/31/2000 $11,932 $11,002 $14,276
1/31/2001 $10,708 $11,392 $12,888
2/28/2001 $11,325 $10,354 $13,357
3/31/2001 $11,468 $9,698 $13,267
4/30/2001 $11,936 $10,451 $14,039
5/31/2001 $11,998 $10,521 $13,591
6/30/2001 $11,390 $10,265 $12,508
7/31/2001 $10,982 $10,164 $11,932
8/31/2001 $11,128 $ 9,528 $11,607
9/30/2001 $10,588 $ 8,759 $10,263
10/31/2001 $10,599 $ 8,926 $10,227
11/30/2001 $10,504 $ 9,610 $ 9,677
12/31/2001 $10,916 $ 9,694 $ 9,930
1/31/2002 $10,770 $ 9,553 $ 9,358
2/28/2002 $10,737 $ 9,369 $ 9,152
3/31/2002 $11,336 $ 9,721 $10,266
4/30/2002 $11,257 $ 9,132 $10,075
5/31/2002 $10,985 $ 9,064 $ 9,181
6/30/2002 $10,498 $ 8,419 $ 8,529
7/31/2002 $ 9,570 $ 7,763 $ 7,336
8/31/2002 $ 9,948 $ 7,813 $ 7,612
9/30/2002 $ 9,225 $ 6,964 $ 6,629
10/31/2002 $ 9,225 $ 7,577 $ 6,508
11/30/2002 $ 9,410 $ 8,023 $ 6,680
12/31/2002 $ 9,719 $ 7,552 $ 6,952
1/31/2003 $ 9,320 $ 7,354 $ 6,739
2/28/2003 $ 9,062 $ 7,244 $ 6,420
3/31/2003 $ 9,375 $ 7,314 $ 6,734
4/30/2003 $ 9,875 $ 7,917 $ 7,317
5/31/2003 $10,743 $ 8,334 $ 8,080
6/30/2003 $10,782 $ 8,440 $ 8,172
7/31/2003 $10,289 $ 8,589 $ 7,638
8/31/2003 $10,289 $ 8,756 $ 7,784
9/30/2003 $10,690 $ 8,663 $ 8,131
10/31/2003 $10,873 $ 9,153 $ 8,217
11/30/2003 $10,982 $ 9,234 $ 8,225
12/31/2003 $11,533 $ 9,718 $ 8,777
1/31/2004 $11,730 $ 9,897 $ 8,963
2/29/2004 $12,036 $10,034 $ 9,139
3/31/2004 $12,122 $ 9,883 $ 9,230
4/30/2004 $11,750 $ 9,728 $ 8,890
5/31/2004 $11,874 $ 9,861 $ 8,972
6/30/2004 $12,061 $10,053 $ 9,111
7/31/2004 $12,186 $ 9,720 $ 9,261
8/31/2004 $12,674 $ 9,759 $ 9,641
9/30/2004 $12,798 $ 9,865 $ 9,724
10/31/2004 $13,327 $10,016 $10,198
11/30/2004 $13,693 $10,421 $10,628
12/31/2004 $14,146 $10,776 $10,908
1/31/2005 $14,261 $10,513 $11,131
2/28/2005 $14,375 $10,734 $11,371
3/31/2005 $14,408 $10,544 $11,500
4/30/2005 $14,716 $10,344 $11,860
5/31/2005 $14,973 $10,673 $11,879
6/30/2005 $15,635 $10,689 $12,571
7/31/2005 $15,881 $11,086 $12,853
8/31/2005 $16,010 $10,985 $12,967
9/30/2005 $16,395 $11,074 $13,484
10/31/2005 $15,469 $10,889 $12,631
11/30/2005 $15,495 $11,301 $12,605
12/31/2005 $15,580 $11,305 $12,746
1/31/2006 $15,991 $11,604 $13,059
2/28/2006 $16,243 $11,636 $13,204
3/31/2006 $15,717 $11,781 $12,598
4/30/2006 $15,890 $11,939 $12,798
5/31/2006 $16,063 $11,595 $13,002
6/30/2006 $16,393 $11,611 $13,315
7/31/2006 $17,132 $11,683 $13,969
8/31/2006 $17,575 $11,961 $14,366
9/30/2006 $17,419 $12,269 $14,128
10/31/2006 $18,312 $12,669 $14,892
11/30/2006 $18,934 $12,909 $15,247
12/31/2006 $19,195 $13,091 $15,421
1/31/2007 $19,166 $13,289 $15,375
2/28/2007 $19,883 $13,029 $16,188
3/31/2007 $20,690 $13,174 $16,853
4/30/2007 $21,342 $13,758 $17,562
5/31/2007 $21,526 $14,238 $17,684
6/30/2007 $20,501 $14,001 $16,789
7/31/2007 $19,761 $13,567 $16,159
8/31/2007 $20,231 $13,771 $16,529
9/30/2007 $20,915 $14,286 $17,116
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS B 9/30/07
- -----------------------------------
1-Year +15.66%
- -----------------------------------
5-Year +17.50%
- -----------------------------------
Since Inception (1/1/99) +8.80%
- -----------------------------------
Annual Report | 55
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS C 9/30/07
- -----------------------------------
1-Year +18.72%
- -----------------------------------
5-Year +17.70%
- -----------------------------------
10-Year +9.86%
- -----------------------------------
CLASS C (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin S&P 500
Utilities Utilities
Date Fund S&P 500 7 Index 7
- ---------- --------- --------- ---------
10/1/1997 $10,000 $10,000 $10,000
10/31/1997 $10,050 $ 9,666 $10,095
11/30/1997 $10,709 $10,113 $10,854
12/31/1997 $11,492 $10,287 $11,677
1/31/1998 $11,048 $10,401 $11,203
2/28/1998 $11,213 $11,151 $11,582
3/31/1998 $11,909 $11,722 $12,336
4/30/1998 $11,480 $11,840 $12,051
5/31/1998 $11,324 $11,637 $12,007
6/30/1998 $11,592 $12,109 $12,466
7/31/1998 $11,170 $11,980 $11,836
8/31/1998 $11,540 $10,248 $12,113
9/30/1998 $12,124 $10,905 $13,072
10/31/1998 $11,889 $11,792 $12,821
11/30/1998 $12,007 $12,506 $13,011
12/31/1998 $12,301 $13,227 $13,409
1/31/1999 $11,645 $13,780 $12,822
2/28/1999 $11,090 $13,352 $12,333
3/31/1999 $10,898 $13,886 $12,138
4/30/1999 $11,573 $14,424 $13,177
5/31/1999 $12,102 $14,083 $14,009
6/30/1999 $11,659 $14,865 $13,518
7/31/1999 $11,477 $14,401 $13,352
8/31/1999 $11,454 $14,329 $13,489
9/30/1999 $11,025 $13,937 $12,841
10/31/1999 $11,221 $14,819 $13,026
11/30/1999 $10,553 $15,120 $12,059
12/31/1999 $10,401 $16,010 $12,177
1/31/2000 $10,995 $15,206 $13,499
2/29/2000 $10,170 $14,918 $12,666
3/31/2000 $10,527 $16,377 $13,088
4/30/2000 $11,140 $15,885 $14,107
5/31/2000 $11,287 $15,559 $14,724
6/30/2000 $10,767 $15,942 $13,847
7/31/2000 $11,214 $15,693 $14,829
8/31/2000 $12,392 $16,668 $16,858
9/30/2000 $13,633 $15,788 $18,407
10/31/2000 $13,558 $15,721 $17,698
11/30/2000 $14,046 $14,482 $17,495
12/31/2000 $14,660 $14,553 $19,142
1/31/2001 $13,153 $15,069 $17,282
2/28/2001 $13,913 $13,695 $17,910
3/31/2001 $14,090 $12,827 $17,790
4/30/2001 $14,665 $13,824 $18,825
5/31/2001 $14,741 $13,917 $18,224
6/30/2001 $13,993 $13,578 $16,772
7/31/2001 $13,490 $13,444 $15,999
8/31/2001 $13,671 $12,603 $15,564
9/30/2001 $13,019 $11,585 $13,762
10/31/2001 $13,032 $11,806 $13,713
11/30/2001 $12,902 $12,712 $12,976
12/31/2001 $13,409 $12,823 $13,315
1/31/2002 $13,243 $12,636 $12,548
2/28/2002 $13,202 $12,392 $12,272
3/31/2002 $13,939 $12,858 $13,765
4/30/2002 $13,828 $12,079 $13,509
5/31/2002 $13,493 $11,990 $12,310
6/30/2002 $12,893 $11,136 $11,436
7/31/2002 $11,766 $10,268 $ 9,837
8/31/2002 $12,231 $10,335 $10,207
9/30/2002 $11,340 $ 9,212 $ 8,888
10/31/2002 $11,325 $10,023 $ 8,727
11/30/2002 $11,568 $10,612 $ 8,957
12/31/2002 $11,949 $ 9,989 $ 9,322
1/31/2003 $11,457 $ 9,727 $ 9,036
2/28/2003 $11,139 $ 9,581 $ 8,608
3/31/2003 $11,526 $ 9,674 $ 9,029
4/30/2003 $12,142 $10,471 $ 9,811
5/31/2003 $13,211 $11,023 $10,834
6/30/2003 $13,245 $11,164 $10,957
7/31/2003 $12,638 $11,360 $10,242
8/31/2003 $12,653 $11,582 $10,437
9/30/2003 $13,129 $11,459 $10,903
10/31/2003 $13,354 $12,107 $11,018
11/30/2003 $13,503 $12,214 $11,029
12/31/2003 $14,167 $12,854 $11,769
1/31/2004 $14,409 $13,090 $12,019
2/29/2004 $14,786 $13,272 $12,254
3/31/2004 $14,892 $13,072 $12,376
4/30/2004 $14,450 $12,867 $11,920
5/31/2004 $14,587 $13,043 $12,030
6/30/2004 $14,817 $13,297 $12,216
7/31/2004 $14,971 $12,857 $12,417
8/31/2004 $15,571 $12,909 $12,927
9/30/2004 $15,724 $13,049 $13,038
10/31/2004 $16,376 $13,248 $13,674
11/30/2004 $16,826 $13,784 $14,251
12/31/2004 $17,383 $14,253 $14,627
1/31/2005 $17,525 $13,906 $14,926
2/28/2005 $17,666 $14,198 $15,248
3/31/2005 $17,705 $13,947 $15,420
4/30/2005 $18,085 $13,682 $15,902
5/31/2005 $18,402 $14,118 $15,928
6/30/2005 $19,216 $14,138 $16,856
7/31/2005 $19,503 $14,664 $17,234
8/31/2005 $19,678 $14,530 $17,387
9/30/2005 $20,152 $14,647 $18,081
10/31/2005 $18,996 $14,403 $16,937
11/30/2005 $19,044 $14,948 $16,902
12/31/2005 $19,150 $14,953 $17,090
1/31/2006 $19,640 $15,349 $17,510
2/28/2006 $19,966 $15,391 $17,705
3/31/2006 $19,318 $15,582 $16,893
4/30/2006 $19,532 $15,792 $17,161
5/31/2006 $19,729 $15,337 $17,434
6/30/2006 $20,153 $15,358 $17,854
7/31/2006 $21,063 $15,453 $18,731
8/31/2006 $21,592 $15,820 $19,263
9/30/2006 $21,400 $16,228 $18,944
10/31/2006 $22,499 $16,757 $19,968
11/30/2006 $23,265 $17,075 $20,445
12/31/2006 $23,587 $17,315 $20,677
1/31/2007 $23,553 $17,577 $20,617
2/28/2007 $24,437 $17,233 $21,707
3/31/2007 $25,403 $17,426 $22,598
4/30/2007 $26,205 $18,198 $23,549
5/31/2007 $26,414 $18,833 $23,712
6/30/2007 $25,156 $18,520 $22,511
7/31/2007 $24,227 $17,946 $21,668
8/31/2007 $24,805 $18,215 $22,164
9/30/2007 $25,618 $18,896 $22,951
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
CLASS R 9/30/07
- -----------------------------------
1-Year +19.92%
- -----------------------------------
5-Year +17.89%
- -----------------------------------
Since Inception (1/1/02) +11.95%
- -----------------------------------
CLASS R (1/1/02-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin S&P 500
Utilities Utilities
Date Fund S&P 500 7 Index 7
- ---------- --------- --------- ---------
1/1/2002 $10,000 $10,000 $10,000
1/31/2002 $ 9,796 $ 9,854 $ 9,424
2/28/2002 $ 9,766 $ 9,664 $ 9,216
3/31/2002 $10,304 $10,027 $10,338
4/30/2002 $10,231 $ 9,420 $10,146
5/31/2002 $ 9,984 $ 9,350 $ 9,245
6/30/2002 $ 9,543 $ 8,684 $ 8,589
7/31/2002 $ 8,720 $ 8,007 $ 7,388
8/31/2002 $ 9,053 $ 8,060 $ 7,666
9/30/2002 $ 8,399 $ 7,184 $ 6,675
10/31/2002 $ 8,399 $ 7,816 $ 6,554
11/30/2002 $ 8,568 $ 8,276 $ 6,727
12/31/2002 $ 8,852 $ 7,790 $ 7,001
1/31/2003 $ 8,489 $ 7,586 $ 6,786
2/28/2003 $ 8,254 $ 7,472 $ 6,465
3/31/2003 $ 8,546 $ 7,545 $ 6,781
4/30/2003 $ 9,001 $ 8,166 $ 7,368
5/31/2003 $ 9,794 $ 8,596 $ 8,137
6/30/2003 $ 9,819 $ 8,706 $ 8,229
7/31/2003 $ 9,369 $ 8,859 $ 7,692
8/31/2003 $ 9,380 $ 9,032 $ 7,839
9/30/2003 $ 9,739 $ 8,936 $ 8,188
10/31/2003 $ 9,917 $ 9,442 $ 8,275
11/30/2003 $10,017 $ 9,525 $ 8,283
12/31/2003 $10,524 $10,024 $ 8,839
1/31/2004 $10,692 $10,208 $ 9,026
2/29/2004 $10,971 $10,350 $ 9,203
3/31/2004 $11,053 $10,194 $ 9,295
4/30/2004 $10,725 $10,034 $ 8,952
5/31/2004 $10,838 $10,172 $ 9,035
6/30/2004 $11,013 $10,370 $ 9,175
7/31/2004 $11,127 $10,026 $ 9,326
8/31/2004 $11,572 $10,067 $ 9,708
9/30/2004 $11,690 $10,176 $ 9,792
10/31/2004 $12,174 $10,332 $10,270
11/30/2004 $12,508 $10,750 $10,703
12/31/2004 $12,922 $11,115 $10,985
1/31/2005 $13,028 $10,844 $11,209
2/28/2005 $13,133 $11,073 $11,451
3/31/2005 $13,163 $10,877 $11,581
4/30/2005 $13,458 $10,670 $11,943
5/31/2005 $13,693 $11,010 $11,962
6/30/2005 $14,300 $11,025 $12,659
7/31/2005 $14,513 $11,435 $12,943
8/31/2005 $14,644 $11,331 $13,058
9/30/2005 $15,003 $11,423 $13,579
10/31/2005 $14,144 $11,232 $12,720
11/30/2005 $14,168 $11,657 $12,694
12/31/2005 $14,254 $11,661 $12,835
1/31/2006 $14,618 $11,970 $13,150
2/28/2006 $14,861 $12,003 $13,297
3/31/2006 $14,387 $12,152 $12,687
4/30/2006 $14,545 $12,315 $12,888
5/31/2006 $14,704 $11,961 $13,093
6/30/2006 $15,012 $11,977 $13,408
7/31/2006 $15,690 $12,051 $14,067
8/31/2006 $16,084 $12,338 $14,467
9/30/2006 $15,947 $12,655 $14,227
10/31/2006 $16,778 $13,068 $14,996
11/30/2006 $17,348 $13,316 $15,355
12/31/2006 $17,584 $13,503 $15,529
1/31/2007 $17,559 $13,707 $15,483
2/28/2007 $18,217 $13,439 $16,302
3/31/2007 $18,944 $13,590 $16,971
4/30/2007 $19,541 $14,192 $17,685
5/31/2007 $19,698 $14,687 $17,808
6/30/2007 $18,754 $14,443 $16,906
7/31/2007 $18,074 $13,995 $16,273
8/31/2007 $18,506 $14,205 $16,645
9/30/2007 $19,123 $14,736 $17,236
56 | Annual Report
Performance Summary (CONTINUED)
ADVISOR CLASS (10/1/97-9/30/07)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Franklin S&P 500
Utilities Utilities
Date Fund S&P 500 7 Index 7
- ---------- --------- --------- ---------
10/1/1997 $10,000 $10,000 $10,000
10/31/1997 $10,040 $ 9,666 $10,095
11/30/1997 $10,707 $10,113 $10,854
12/31/1997 $11,506 $10,287 $11,677
1/31/1998 $11,062 $10,401 $11,203
2/28/1998 $11,237 $11,151 $11,582
3/31/1998 $11,943 $11,722 $12,336
4/30/1998 $11,525 $11,840 $12,051
5/31/1998 $11,368 $11,637 $12,007
6/30/1998 $11,645 $12,109 $12,466
7/31/1998 $11,221 $11,980 $11,836
8/31/1998 $11,592 $10,248 $12,113
9/30/1998 $12,220 $10,905 $13,072
10/31/1998 $11,995 $11,792 $12,821
11/30/1998 $12,123 $12,506 $13,011
12/31/1998 $12,416 $13,227 $13,409
1/31/1999 $11,767 $13,780 $12,822
2/28/1999 $11,208 $13,352 $12,333
3/31/1999 $11,021 $13,886 $12,138
4/30/1999 $11,712 $14,424 $13,177
5/31/1999 $12,245 $14,083 $14,009
6/30/1999 $11,816 $14,865 $13,518
7/31/1999 $11,632 $14,401 $13,352
8/31/1999 $11,621 $14,329 $13,489
9/30/1999 $11,183 $13,937 $12,841
10/31/1999 $11,393 $14,819 $13,026
11/30/1999 $10,718 $15,120 $12,059
12/31/1999 $10,583 $16,010 $12,177
1/31/2000 $11,185 $15,206 $13,499
2/29/2000 $10,350 $14,918 $12,666
3/31/2000 $10,717 $16,377 $13,088
4/30/2000 $11,352 $15,885 $14,107
5/31/2000 $11,502 $15,559 $14,724
6/30/2000 $10,978 $15,942 $13,847
7/31/2000 $11,444 $15,693 $14,829
8/31/2000 $12,654 $16,668 $16,858
9/30/2000 $13,923 $15,788 $18,407
10/31/2000 $13,859 $15,721 $17,698
11/30/2000 $14,369 $14,482 $17,495
12/31/2000 $14,992 $14,553 $19,142
1/31/2001 $13,457 $15,069 $17,282
2/28/2001 $14,244 $13,695 $17,910
3/31/2001 $14,433 $12,827 $17,790
4/30/2001 $15,033 $13,824 $18,825
5/31/2001 $15,124 $13,917 $18,224
6/30/2001 $14,357 $13,578 $16,772
7/31/2001 $13,856 $13,444 $15,999
8/31/2001 $14,041 $12,603 $15,564
9/30/2001 $13,382 $11,585 $13,762
10/31/2001 $13,395 $11,806 $13,713
11/30/2001 $13,275 $12,712 $12,976
12/31/2001 $13,803 $12,823 $13,315
1/31/2002 $13,633 $12,636 $12,548
2/28/2002 $13,605 $12,392 $12,272
3/31/2002 $14,369 $12,858 $13,765
4/30/2002 $14,269 $12,079 $13,509
5/31/2002 $13,940 $11,990 $12,310
6/30/2002 $13,313 $11,136 $11,436
7/31/2002 $12,155 $10,268 $ 9,837
8/31/2002 $12,647 $10,335 $10,207
9/30/2002 $11,733 $ 9,212 $ 8,888
10/31/2002 $11,733 $10,023 $ 8,727
11/30/2002 $11,983 $10,612 $ 8,957
12/31/2002 $12,379 $ 9,989 $ 9,322
1/31/2003 $11,872 $ 9,727 $ 9,036
2/28/2003 $11,544 $ 9,581 $ 8,608
3/31/2003 $11,959 $ 9,674 $ 9,029
4/30/2003 $12,609 $10,471 $ 9,811
5/31/2003 $13,728 $11,023 $10,834
6/30/2003 $13,778 $11,164 $10,957
7/31/2003 $13,151 $11,360 $10,242
8/31/2003 $13,166 $11,582 $10,437
9/30/2003 $13,682 $11,459 $10,903
10/31/2003 $13,914 $12,107 $11,018
11/30/2003 $14,069 $12,214 $11,029
12/31/2003 $14,779 $12,854 $11,769
1/31/2004 $15,029 $13,090 $12,019
2/29/2004 $15,436 $13,272 $12,254
3/31/2004 $15,553 $13,072 $12,376
4/30/2004 $15,094 $12,867 $11,920
5/31/2004 $15,252 $13,043 $12,030
6/30/2004 $15,499 $13,297 $12,216
7/31/2004 $15,675 $12,857 $12,417
8/31/2004 $16,299 $12,909 $12,927
9/30/2004 $16,484 $13,049 $13,038
10/31/2004 $17,162 $13,248 $13,674
11/30/2004 $17,647 $13,784 $14,251
12/31/2004 $18,236 $14,253 $14,627
1/31/2005 $18,399 $13,906 $14,926
2/28/2005 $18,563 $14,198 $15,248
3/31/2005 $18,604 $13,947 $15,420
4/30/2005 $19,034 $13,682 $15,902
5/31/2005 $19,365 $14,118 $15,928
6/30/2005 $20,239 $14,138 $16,856
7/31/2005 $20,556 $14,664 $17,234
8/31/2005 $20,740 $14,530 $17,387
9/30/2005 $21,264 $14,647 $18,081
10/31/2005 $20,053 $14,403 $16,937
11/30/2005 $20,104 $14,948 $16,902
12/31/2005 $20,230 $14,953 $17,090
1/31/2006 $20,761 $15,349 $17,510
2/28/2006 $21,103 $15,391 $17,705
3/31/2006 $20,439 $15,582 $16,893
4/30/2006 $20,664 $15,792 $17,161
5/31/2006 $20,905 $15,337 $17,434
6/30/2006 $21,366 $15,358 $17,854
7/31/2006 $22,324 $15,453 $18,731
8/31/2006 $22,916 $15,820 $19,263
9/30/2006 $22,727 $16,228 $18,944
10/31/2006 $23,903 $16,757 $19,968
11/30/2006 $24,728 $17,075 $20,445
12/31/2006 $25,079 $17,315 $20,677
1/31/2007 $25,061 $17,577 $20,617
2/28/2007 $25,994 $17,233 $21,707
3/31/2007 $27,054 $17,426 $22,598
4/30/2007 $27,921 $18,198 $23,549
5/31/2007 $28,142 $18,833 $23,712
6/30/2007 $26,818 $18,520 $22,511
7/31/2007 $25,853 $17,946 $21,668
8/31/2007 $26,484 $18,215 $22,164
9/30/2007 $27,371 $18,896 $22,951
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------
ADVISOR CLASS 9/30/07
- -----------------------------------
1-Year +20.43%
- -----------------------------------
5-Year +18.46%
- -----------------------------------
10-Year +10.59%
- -----------------------------------
ENDNOTES
IN ADDITION TO SENSITIVITY TO OTHER FACTORS, SECURITIES ISSUED BY UTILITY
COMPANIES HAVE BEEN HISTORICALLY SENSITIVE TO INTEREST RATE CHANGES. WHEN
INTEREST RATES FALL, UTILITY SECURITIES' PRICES, AND THUS A UTILITIES FUND'S
SHARE PRICE, TEND TO RISE; WHEN INTEREST RATES RISE, THEIR PRICES GENERALLY
FALL. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT
RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
1. Cumulative total return represents the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated.
3. These figures represent the value of a hypothetical $10,000 investment in the
Fund over the periods indicated.
4. Distribution rate is based on an annualization of the respective class's
current quarterly dividend and the maximum offering price (NAV for Classes B, C,
R and Advisor) per share on 9/30/07.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 9/30/07.
6. Figures are as stated as of the Fund's prospectus current as of the date of
this report.
7. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance. The S&P 500
Utilities Index is a market capitalization-weighted index consisting of all
utility stocks in the S&P 500 Index.
Annual Report | 57
Your Fund's Expenses
FRANKLIN UTILITIES FUND
As a Fund shareholder, you can incur two types of costs:
o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and
o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.
The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.
ACTUAL FUND EXPENSES
The first line (Actual) for each share class listed in the table provides actual
account values and expenses. The "Ending Account Value" is derived from the
Fund's actual return, which includes the effect of Fund expenses.
You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:
1. Divide your account value by $1,000.
IF AN ACCOUNT HAD AN $8,600 VALUE, THEN $8,600 / $1,000 = 8.6.
2. Multiply the result by the number under the heading "Expenses Paid During
Period."
IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS
Information in the second line (Hypothetical) for each class in the table can
help you compare ongoing costs of investing in the Fund with those of other
mutual funds. This information may not be used to estimate the actual ending
account balance or expenses you paid during the period. The hypothetical "Ending
Account Value" is based on the actual expense ratio for each class and an
assumed 5% annual rate of return before expenses, which does not represent the
Fund's actual return. The figure under the heading "Expenses Paid During Period"
shows the hypothetical expenses your account would have incurred under this
scenario. You can compare this figure with the 5% hypothetical examples that
appear in shareholder reports of other funds.
58 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line for each class is useful in
comparing ongoing costs only, and will not help you compare total costs of
owning different funds. In addition, if transaction costs were included, your
total costs would have been higher. Please refer to the Fund prospectus for
additional information on operating expenses.
- --------------------------------------------------------------------------------------------------------
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
CLASS A VALUE 4/1/07 VALUE 9/30/07 PERIOD* 4/1/07-9/30/07
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,011.00 $ 3.73
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.36 $ 3.75
- --------------------------------------------------------------------------------------------------------
CLASS B
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,008.50 $ 6.24
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.85 $ 6.28
- --------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,008.60 $ 6.24
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,018.85 $ 6.28
- --------------------------------------------------------------------------------------------------------
CLASS R
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,009.50 $ 5.49
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.60 $ 5.52
- --------------------------------------------------------------------------------------------------------
ADVISOR CLASS
- --------------------------------------------------------------------------------------------------------
Actual $ 1,000 $ 1,011.70 $ 2.98
- --------------------------------------------------------------------------------------------------------
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.11 $ 2.99
- --------------------------------------------------------------------------------------------------------
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.74%; B: 1.24%; C: 1.24%; R: 1.09%; and
Advisor: 0.59%), multiplied by the average account value over the period,
multiplied by 183/365 to reflect the one-half year period.
Annual Report | 59
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS
FRANKLIN DYNATECH FUND
----------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS A 2007 2006 2005 2004 2003
----------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................. $ 25.80 $ 24.98 $ 22.01 $ 20.17 $ 15.37
----------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b .............................. (0.08) (0.05) (0.01) (0.09) (0.06)
Net realized and unrealized gains (losses) .................. 6.61 0.87 2.98 1.93 4.86
----------------------------------------------------------------
Total from investment operations ............................... 6.53 0.82 2.97 1.84 4.80
----------------------------------------------------------------
Redemption fees ................................................ -- d -- d -- d -- d --
----------------------------------------------------------------
Net asset value, end of year ................................... $ 32.33 $ 25.80 $ 24.98 $ 22.01 $ 20.17
================================================================
Total return c ................................................. 25.31% 3.28% 13.49% 9.12% 31.23%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................................... 0.99% e 0.97% e 1.00% e 0.97% e 1.04%
Net investment income (loss) ................................... (0.30)% (0.20)% (0.02)% (0.41)% (0.40)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $ 553,347 $ 590,633 $ 628,732 $ 640,120 $ 558,687
Portfolio turnover rate ........................................ 18.03% 18.61% 17.26% 14.93% 13.68%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
60 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
--------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS B 2007 2006 2005 2004 2003
--------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 24.75 $ 24.15 $ 21.43 $ 19.79 $ 15.20
--------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ...................... (0.28) (0.23) (0.18) (0.25) (0.25)
Net realized and unrealized gains (losses) .......... 6.31 0.83 2.90 1.89 4.84
--------------------------------------------------------------------
Total from investment operations ....................... 6.03 0.60 2.72 1.64 4.59
--------------------------------------------------------------------
Redemption fees ........................................ -- d -- d -- d -- d --
--------------------------------------------------------------------
Net asset value, end of year ........................... $ 30.78 $ 24.75 $ 24.15 $ 21.43 $ 19.79
====================================================================
Total return c ......................................... 24.36% 2.48% 12.69% 8.29% 30.20%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................... 1.75% e 1.72% e 1.74% e 1.72% e 1.79%
Net investment income (loss) ........................... (1.06)% (0.95)% (0.76)% (1.16)% (1.15)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 16,625 $ 18,718 $ 19,497 $ 18,824 $ 10,406
Portfolio turnover rate ................................ 18.03% 18.61% 17.26% 14.93% 13.68%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 61
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
--------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS C 2007 2006 2005 2004 2003
--------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $ 24.50 $ 23.90 $ 21.21 $ 19.59 $ 15.04
--------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ...................... (0.28) (0.23) (0.17) (0.25) (0.25)
Net realized and unrealized gains (losses) .......... 6.24 0.83 2.86 1.87 4.80
--------------------------------------------------------------------
Total from investment operations ....................... 5.96 0.60 2.69 1.62 4.55
--------------------------------------------------------------------
Redemption fees ........................................ -- d -- d -- d -- d --
--------------------------------------------------------------------
Net asset value, end of year ........................... $ 30.46 $ 24.50 $ 23.90 $ 21.21 $ 19.59
====================================================================
Total return c ......................................... 24.33% 2.51% 12.68% 8.27% 30.25%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................... 1.74% e 1.71% e 1.74% e 1.72% e 1.79%
Net investment income (loss) ........................... (1.05)% (0.94)% (0.76)% (1.16)% (1.15)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $ 70,413 $ 69,069 $ 73,587 $ 75,642 $ 66,952
Portfolio turnover rate ................................ 18.03% 18.61% 17.26% 14.93% 13.68%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
62 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN DYNATECH FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS 100.2%
AIR FREIGHT/COURIERS 1.5%
C.H. Robinson Worldwide Inc. ............................................... United States 175,000 $ 9,500,750
------------
APPAREL/FOOTWEAR 0.4%
a Crocs Inc. ................................................................. United States 40,000 2,690,000
------------
APPAREL/FOOTWEAR RETAIL 0.5%
a Lululemon Athletica Inc. ................................................... Canada 75,000 3,152,250
------------
BEVERAGES: NON-ALCOHOLIC 0.6%
a Hansen Natural Corp. ....................................................... United States 70,000 3,967,600
------------
BIOTECHNOLOGY 7.5%
a Amgen Inc. ................................................................. United States 100,000 5,657,000
a Celgene Corp. .............................................................. United States 150,000 10,696,500
a Genentech Inc. ............................................................. United States 250,000 19,505,000
a Gilead Sciences Inc. ....................................................... United States 300,000 12,261,000
------------
48,119,500
------------
CABLE/SATELLITE TELEVISION 0.2%
a Comcast Corp., A ........................................................... United States 50,000 1,198,000
------------
CASINOS/GAMING 1.0%
International Game Technology .............................................. United States 150,000 6,465,000
------------
CHEMICALS: AGRICULTURAL 1.1%
Monsanto Co. ............................................................... United States 80,000 6,859,200
------------
CHEMICALS: SPECIALTY 1.9%
Sigma-Aldrich Corp. ........................................................ United States 250,000 12,185,000
------------
COMPUTER COMMUNICATIONS 3.5%
a Cisco Systems Inc. ......................................................... United States 450,000 14,899,500
a Juniper Networks Inc. ...................................................... United States 200,000 7,322,000
------------
22,221,500
------------
COMPUTER PERIPHERALS 0.1%
a Data Domain Inc. ........................................................... United States 16,600 513,770
------------
COMPUTER PROCESSING HARDWARE 7.4%
a Apple Inc. ................................................................. United States 200,000 30,708,000
Hewlett-Packard Co. ........................................................ United States 340,000 16,928,600
------------
47,636,600
------------
DATA PROCESSING SERVICES 0.8%
Paychex Inc. ............................................................... United States 125,000 5,125,000
------------
DIVERSIFIED TELECOMMUNICATION SERVICES 1.3%
AT&T Inc. .................................................................. United States 200,000 8,462,000
------------
ELECTRICAL PRODUCTS 1.0%
a SunPower Corp., A .......................................................... United States 80,000 6,625,600
------------
ELECTRONIC EQUIPMENT/INSTRUMENTS 1.6%
a Agilent Technologies Inc. .................................................. United States 175,000 6,454,000
a Dolby Laboratories Inc., A ................................................. United States 100,000 3,482,000
------------
9,936,000
------------
Annual Report | 63
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN DYNATECH FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
ELECTRONIC PRODUCTION EQUIPMENT 4.9%
KLA-Tencor Corp. ........................................................... United States 200,000 $ 11,156,000
a Lam Research Corp. ......................................................... United States 150,000 7,989,000
a Varian Semiconductor Equipment Associates Inc. ............................. United States 225,000 12,042,000
------------
31,187,000
------------
ELECTRONICS/APPLIANCES 0.6%
Sony Corp., ADR ............................................................ Japan 75,000 3,604,500
------------
INDUSTRIAL CONGLOMERATES 0.3%
ABB Ltd., ADR .............................................................. Switzerland 70,000 1,836,100
------------
INFORMATION TECHNOLOGY SERVICES 2.1%
a Cognizant Technology Solutions Corp., A .................................... United States 50,000 3,988,500
Infosys Technologies Ltd., ADR ............................................. India 100,000 4,839,000
a Mercadolibre Inc. .......................................................... Argentina 100,000 3,663,000
a VMware Inc., A ............................................................. United States 15,000 1,275,000
------------
13,765,500
------------
INTERNET RETAIL 0.9%
a Amazon.com Inc. ............................................................ United States 60,000 5,589,000
------------
INTERNET SOFTWARE/SERVICES 5.9%
a Baidu.com Inc., ADR ........................................................ China 25,000 7,241,250
a Google Inc., A ............................................................. United States 50,000 28,363,500
a Omniture Inc. .............................................................. United States 50,000 1,516,000
a Sohu.com Inc. .............................................................. China 20,000 754,200
------------
37,874,950
------------
INVESTMENT BANKS/BROKERS 1.4%
The Goldman Sachs Group Inc. ............................................... United States 40,000 8,669,600
------------
MAJOR PHARMACEUTICALS 2.0%
Johnson & Johnson .......................................................... United States 100,000 6,570,000
Novo-Nordisk AS, ADR ....................................................... Denmark 50,000 6,052,000
------------
12,622,000
------------
MEDICAL SPECIALTIES 10.0%
Alcon Inc. ................................................................. Switzerland 100,000 14,392,000
Medtronic Inc. ............................................................. United States 250,000 14,102,500
Stryker Corp. .............................................................. United States 200,000 13,752,000
a Waters Corp. ............................................................... United States 200,000 13,384,000
a Zimmer Holdings Inc. ....................................................... United States 100,000 8,099,000
------------
63,729,500
------------
MEDICAL/NURSING SERVICES 2.0%
a VCA Antech Inc. ............................................................ United States 300,000 12,525,000
------------
MISCELLANEOUS COMMERCIAL SERVICES 0.1%
a Concur Technologies Inc. ................................................... United States 12,200 384,544
------------
64 | Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN DYNATECH FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
OILFIELD SERVICES/EQUIPMENT 4.4%
a FMC Technologies Inc. ...................................................... United States 200,000 $ 11,532,000
Schlumberger Ltd. .......................................................... United States 160,000 16,800,000
------------
28,332,000
------------
OTHER CONSUMER SERVICES 0.9%
a eBay Inc. .................................................................. United States 150,000 5,853,000
------------
OTHER PHARMACEUTICALS 3.3%
Allergan Inc. .............................................................. United States 160,000 10,315,200
Teva Pharmaceutical Industries Ltd., ADR ................................... Israel 250,000 11,117,500
------------
21,432,700
------------
PACKAGED SOFTWARE 6.9%
a Adobe Systems Inc. ......................................................... United States 400,000 17,464,000
a Autodesk Inc. .............................................................. United States 150,000 7,495,500
a BladeLogic Inc. ............................................................ United States 16,500 423,060
Microsoft Corp. ............................................................ United States 500,000 14,730,000
a Salesforce.com Inc. ........................................................ United States 75,000 3,849,000
------------
43,961,560
------------
RECREATIONAL PRODUCTS 1.9%
a Electronic Arts Inc. ....................................................... United States 125,000 6,998,750
Nintendo Co. Ltd., ADR ..................................................... Japan 85,000 5,497,375
------------
12,496,125
------------
SEMICONDUCTORS 8.2%
a ANADIGICS Inc. ............................................................. United States 175,000 3,164,000
a Hittite Microwave Corp. .................................................... United States 40,000 1,766,000
Intel Corp. ................................................................ United States 1,125,000 29,092,500
Microchip Technology Inc. .................................................. United States 210,000 7,627,200
a NVIDIA Corp. ............................................................... United States 300,000 10,872,000
------------
52,521,700
------------
SERVICES TO THE HEALTH INDUSTRY 2.1%
a Cerner Corp. ............................................................... United States 50,000 2,990,500
Pharmaceutical Product Development Inc. .................................... United States 175,000 6,202,000
a WebMD Health Corp., A ...................................................... United States 85,000 4,428,500
------------
13,621,000
------------
SPECIALTY TELECOMMUNICATIONS 1.5%
a American Tower Corp., A .................................................... United States 225,000 9,796,500
------------
TELECOMMUNICATIONS EQUIPMENT 5.5%
Garmin Ltd. ................................................................ Cayman Islands 100,000 11,940,000
Motorola Inc. .............................................................. United States 125,000 2,316,250
Nokia Corp., ADR ........................................................... Finland 200,000 7,586,000
QUALCOMM Inc. .............................................................. United States 225,000 9,508,500
a Research In Motion Ltd. .................................................... Canada 40,000 3,942,000
------------
35,292,750
------------
Annual Report | 65
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN DYNATECH FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
WIRELESS COMMUNICATIONS 4.9%
America Movil SAB de CV, L, ADR ............................................ Mexico 200,000 $ 12,800,000
China Mobile (Hong Kong) Ltd., ADR ......................................... China 100,000 8,204,000
a NII Holdings Inc. .......................................................... United States 130,000 10,679,500
------------
31,683,500
------------
TOTAL COMMON STOCKS (COST $293,785,893) .................................... 641,436,299
------------
SHORT TERM INVESTMENT (COST $263,223) 0.0% b
MONEY MARKET FUND 0.0% b
c Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.95% ....... United States 263,223 263,223
------------
TOTAL INVESTMENTS (COST $294,049,116) 100.2% ............................... 641,699,522
OTHER ASSETS, LESS LIABILITIES (0.2)% ...................................... (1,313,741)
------------
NET ASSETS 100.0% .......................................................... $640,385,781
============
See Selected Portfolio Abbreviations on page 107.
a Non-income producing for the twelve months ended September 30, 2007.
b Rounds to less than 0.1% of net assets.
c See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
66 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS
FRANKLIN GROWTH FUND
--------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
2007 2006 2005 2004 2003
--------------------------------------------------------------------------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 39.10 $ 34.83 $ 30.58 $ 26.87 $ 22.02
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ...................... 0.16 0.12 0.13 0.06 0.08
Net realized and unrealized gains (losses) ... 7.21 4.21 4.20 3.68 4.81
--------------------------------------------------------------------------
Total from investment operations ................ 7.37 4.33 4.33 3.74 4.89
--------------------------------------------------------------------------
Less distribution from net investment income .... (0.11) (0.06) (0.08) (0.03) (0.04)
--------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d --
--------------------------------------------------------------------------
Net asset value, end of year .................... $ 46.36 $ 39.10 $ 34.83 $ 30.58 $ 26.87
==========================================================================
Total return c .................................. 18.87% 12.46% 14.17% 13.92% 22.27%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.93% e 0.91% e 0.94% e 0.98% e 1.06%
Net investment income ........................... 0.37% 0.34% 0.40% 0.20% 0.31%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 2,123,419 $1,695,802 $1,567,675 $ 1,531,871 $ 1,433,742
Portfolio turnover rate ......................... 0.37% 2.21% 1.16% 1.56% 5.12%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 67
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
2007 2006 2005 2004 2003
---------------------------------------------------------------------------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 37.65 $ 33.73 $ 29.77 $ 26.32 $ 21.70
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ............... (0.16) (0.15) (0.11) (0.16) (0.11)
Net realized and unrealized gains (losses) ... 6.93 4.07 4.07 3.61 4.73
---------------------------------------------------------------------------
Total from investment operations ................ 6.77 3.92 3.96 3.45 4.62
---------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d --
---------------------------------------------------------------------------
Net asset value, end of year .................... $ 44.42 $ 37.65 $ 33.73 $ 29.77 $ 26.32
===========================================================================
Total return c .................................. 17.98% 11.62% 13.30% 13.11% 21.29%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.69% e 1.67% e 1.69% e 1.73% e 1.81%
Net investment income (loss) .................... (0.39)% (0.42)% (0.35)% (0.55)% (0.44)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 138,640 $ 122,871 $ 123,926 $ 121,986 $ 103,499
Portfolio turnover rate ......................... 0.37% 2.21% 1.16% 1.56% 5.12%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
68 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
2007 2006 2005 2004 2003
---------------------------------------------------------------------------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 37.32 $ 33.43 $ 29.51 $ 26.09 $ 21.51
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ............... (0.16) (0.15) (0.11) (0.16) (0.11)
Net realized and unrealized gains (losses) ... 6.87 4.04 4.03 3.58 4.69
---------------------------------------------------------------------------
Total from investment operations ................ 6.71 3.89 3.92 3.42 4.58
---------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d --
---------------------------------------------------------------------------
Net asset value, end of year .................... $ 44.03 $ 37.32 $ 33.43 $ 29.51 $ 26.09
===========================================================================
Total return c .................................. 17.98% 11.60% 13.32% 13.11% 21.29%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.69% e 1.66% e 1.69% e 1.73% e 1.82%
Net investment income (loss) .................... (0.39)% (0.41)% (0.35)% (0.55)% (0.45)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 340,671 $ 273,512 $ 270,538 $ 270,131 $ 259,169
Portfolio turnover rate ......................... 0.37% 2.21% 1.16% 1.56% 5.12%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 69
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
--------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
2007 2006 2005 2004 2003
-------------------------------------------------------------------------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 38.80 $ 34.59 $ 30.39 $ 26.74 $ 21.98
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income (loss) b ............... 0.04 0.02 0.05 (0.02) --
Net realized and unrealized gains (losses) ... 7.16 4.19 4.16 3.67 4.81
--------------------------------------------------------------------------
Total from investment operations ................ 7.20 4.21 4.21 3.65 4.81
--------------------------------------------------------------------------
Less distributions from net investment income ... (0.01) -- d (0.01) -- (0.05)
--------------------------------------------------------------------------
Redemption fees ................................. -- d -- d -- d -- d --
--------------------------------------------------------------------------
Net asset value, end of year .................... $ 45.99 $ 38.80 $ 34.59 $ 30.39 $ 26.74
==========================================================================
Total return c .................................. 18.55% 12.18% 13.87% 13.65% 21.92%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 1.19% e 1.17% e 1.19% e 1.23% e 1.31%
Net investment income (loss) .................... 0.11% 0.08% 0.15% (0.05)% 0.06%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 53,134 $ 37,804 $ 27,818 $ 20,060 $ 14,755
Portfolio turnover rate ......................... 0.37% 2.21% 1.16% 1.56% 5.12%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
70 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
--------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
2007 2006 2005 2004 2003
--------------------------------------------------------------------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 39.17 $ 34.89 $ 30.63 $ 26.91 $ 22.06
--------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ...................... 0.27 0.22 0.21 0.14 0.14
Net realized and unrealized gains (losses) ... 7.21 4.21 4.21 3.67 4.82
--------------------------------------------------------------------------
Total from investment operations ................ 7.48 4.43 4.42 3.81 4.96
--------------------------------------------------------------------------
Less distributions from net investment income ... (0.20) (0.15) (0.16) (0.09) (0.11)
--------------------------------------------------------------------------
Redemption fees ................................. -- c -- c -- c -- c --
--------------------------------------------------------------------------
Net asset value, end of year .................... $ 46.45 $ 39.17 $ 34.89 $ 30.63 $ 26.91
==========================================================================
Total return .................................... 19.16% 12.73% 14.45% 14.19% 22.58%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................ 0.69% d 0.67% d 0.69% d 0.73% d 0.81%
Net investment income ........................... 0.61% 0.58% 0.65% 0.45% 0.56%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $ 363,221 $ 274,603 $ 221,752 $ 133,332 $ 41,216
Portfolio turnover rate ......................... 0.37% 2.21% 1.16% 1.56% 5.12%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Amount rounds to less than $0.01 per share.
d Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 71
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN GROWTH FUND COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS 99.2%
COMMERCIAL SERVICES 2.1%
Dun & Bradstreet Corp. ..................................................... United States 122,000 $ 12,030,420
Equifax Inc. ............................................................... United States 400,000 15,248,000
Moody's Corp. .............................................................. United States 538,000 27,115,200
Robert Half International Inc. ............................................. United States 300,000 8,958,000
---------------
63,351,620
---------------
COMMUNICATIONS 0.3%
a American Tower Corp., A .................................................... United States 115,000 5,007,100
AT&T Inc. .................................................................. United States 80,000 3,384,800
---------------
8,391,900
---------------
CONSUMER DURABLES 1.6%
D.R. Horton Inc. ........................................................... United States 170,000 2,177,700
a Ford Motor Co. ............................................................. United States 1,100,000 9,339,000
General Motors Corp. ....................................................... United States 400,000 14,680,000
Harley-Davidson Inc. ....................................................... United States 500,000 23,105,000
---------------
49,301,700
---------------
CONSUMER NON-DURABLES 2.4%
Altria Group Inc. .......................................................... United States 38,000 2,642,140
The Hershey Co. ............................................................ United States 566,400 26,286,624
The Procter & Gamble Co. ................................................... United States 35,000 2,461,900
VF Corp. ................................................................... United States 500,000 40,375,000
---------------
71,765,664
---------------
CONSUMER SERVICES 4.3%
Carnival Corp. ............................................................. United States 565,000 27,362,950
CBS Corp., A ............................................................... United States 100,000 3,151,000
CBS Corp., B ............................................................... United States 50,000 1,575,000
Citadel Broadcasting Co. ................................................... United States 86,779 361,001
Clear Channel Communications Inc. .......................................... United States 500,000 18,720,000
a Expedia Inc. ............................................................... United States 300,100 9,567,188
Time Warner Inc. ........................................................... United States 1,350,000 24,786,000
a Viacom Inc., A ............................................................. United States 100,000 3,895,000
a Viacom Inc., B ............................................................. United States 50,000 1,948,500
The Walt Disney Co. ........................................................ United States 1,130,000 38,860,700
---------------
130,227,339
---------------
DISTRIBUTION SERVICES 2.9%
Cardinal Health Inc. ....................................................... United States 300,000 18,759,000
Genuine Parts Co. .......................................................... United States 375,400 18,770,000
W.W. Grainger Inc. ......................................................... United States 550,000 50,154,500
---------------
87,683,500
---------------
ELECTRONIC TECHNOLOGY 26.2%
a Agilent Technologies Inc. .................................................. United States 400,000 14,752,000
a Apple Inc. ................................................................. United States 1,018,000 156,303,720
Applied Materials Inc. ..................................................... United States 90,000 1,863,000
The Boeing Co. ............................................................. United States 1,045,000 109,714,550
a Cisco Systems Inc. ......................................................... United States 1,545,000 51,154,950
a Dell Inc. .................................................................. United States 500,000 13,800,000
72 | Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN GROWTH FUND COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONTINUED)
ELECTRONIC TECHNOLOGY (CONTINUED)
a Dionex Corp. .............................................................. United States 250,000 $ 19,865,000
a EMC Corp. ................................................................. United States 1,000,000 20,800,000
a Entegris Inc. ............................................................. United States 376,307 3,266,345
General Dynamics Corp. .................................................... United States 1,000,000 84,470,000
Hewlett-Packard Co. ....................................................... United States 1,156,250 57,569,687
Intel Corp. ............................................................... United States 970,000 25,084,200
KLA-Tencor Corp. .......................................................... United States 35,000 1,952,300
Lockheed Martin Corp. ..................................................... United States 500,000 54,245,000
a Logitech International SA, Reg D .......................................... Switzerland 150,000 4,432,500
Northrop Grumman Corp. .................................................... United States 1,000,000 78,000,000
QUALCOMM Inc. ............................................................. United States 110,000 4,648,600
Raytheon Co. .............................................................. United States 600,000 38,292,000
Rockwell Collins Inc. ..................................................... United States 100,000 7,304,000
a Sun Microsystems Inc. ..................................................... United States 1,600,000 8,976,000
Texas Instruments Inc. .................................................... United States 515,000 18,843,850
Tyco Electronics Ltd. ..................................................... United States 387,513 13,783,837
a Verigy Ltd. ............................................................... Singapore 48,974 1,210,148
---------------
790,331,687
---------------
ENERGY MINERALS 2.2%
BP PLC, ADR ............................................................... United Kingdom 350,200 24,286,370
ConocoPhillips ............................................................ United States 35,000 3,071,950
Devon Energy Corp. ........................................................ United States 50,000 4,160,000
Exxon Mobil Corp. ......................................................... United States 70,000 6,479,200
Peabody Energy Corp. ...................................................... United States 95,000 4,547,650
Royal Dutch Shell PLC, A, ADR ............................................. Netherlands 280,000 23,010,400
---------------
65,555,570
---------------
FINANCE 0.7%
AFLAC Inc. ................................................................ United States 85,000 4,848,400
American International Group Inc. ......................................... United States 35,000 2,367,750
Capital One Financial Corp. ............................................... United States 30,000 1,992,900
a ChoicePoint Inc. .......................................................... United States 160,000 6,067,200
Freddie Mac ............................................................... United States 30,000 1,770,300
Wells Fargo & Co. ......................................................... United States 120,000 4,274,400
---------------
21,320,950
---------------
HEALTH SERVICES 1.7%
IMS Health Inc. ........................................................... United States 500,000 15,320,000
a Medco Health Solutions Inc. ............................................... United States 48,240 4,360,414
Quest Diagnostics Inc. .................................................... United States 500,000 28,885,000
a WellPoint Inc. ............................................................ United States 50,000 3,946,000
---------------
52,511,414
---------------
HEALTH TECHNOLOGY 19.1%
Abbott Laboratories ....................................................... United States 400,000 21,448,000
a Advanced Medical Optics Inc. .............................................. United States 88,888 2,719,084
Allergan Inc. ............................................................. United States 800,000 51,576,000
a Amgen Inc. ................................................................ United States 932,000 52,723,240
Baxter International Inc. ................................................. United States 400,000 22,512,000
Annual Report | 73
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN GROWTH FUND COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONTINUED)
HEALTH TECHNOLOGY (CONTINUED)
a Biogen Idec Inc. .......................................................... United States 400,000 $ 26,532,000
a Celgene Corp. ............................................................. United States 25,000 1,782,750
a Covidien Ltd. ............................................................. United States 387,513 16,081,789
a Edwards Lifesciences Corp. ................................................ United States 50,000 2,465,500
Eli Lilly and Co. ......................................................... United States 400,000 22,772,000
a Genentech Inc. ............................................................ United States 1,000,000 78,020,000
a Hospira Inc. .............................................................. United States 40,000 1,658,000
Johnson & Johnson ......................................................... United States 1,081,000 71,021,700
Medtronic Inc. ............................................................ United States 60,000 3,384,600
Merck & Co. Inc. .......................................................... United States 500,000 25,845,000
a Millipore Corp. ........................................................... United States 400,000 30,320,000
Pall Corp. ................................................................ United States 500,000 19,450,000
Pfizer Inc. ............................................................... United States 2,170,000 53,013,100
Roche Holding AG, ADR ..................................................... Switzerland 40,000 3,609,000
Schering-Plough Corp. ..................................................... United States 120,000 3,795,600
a Waters Corp. .............................................................. United States 500,000 33,460,000
Wyeth ..................................................................... United States 600,000 26,730,000
a Zimmer Holdings Inc. ...................................................... United States 64,000 5,183,360
---------------
576,102,723
---------------
INDUSTRIAL SERVICES 0.2%
GlobalSantaFe Corp. ....................................................... Cayman Islands 32,000 2,432,640
Schlumberger Ltd. ......................................................... United States 40,000 4,200,000
---------------
6,632,640
---------------
PROCESS INDUSTRIES 2.3%
Air Products and Chemicals Inc. ........................................... United States 500,000 48,880,000
Bunge Ltd. ................................................................ United States 20,000 2,149,000
Sigma-Aldrich Corp. ....................................................... United States 400,000 19,496,000
---------------
70,525,000
---------------
PRODUCER MANUFACTURING 18.4%
3M Co. .................................................................... United States 855,000 80,010,900
Avery Dennison Corp. ...................................................... United States 462,000 26,343,240
Emerson Electric Co. ...................................................... United States 1,000,000 53,220,000
General Electric Co. ...................................................... United States 70,000 2,898,000
Illinois Tool Works Inc. .................................................. United States 1,000,000 59,640,000
Ingersoll-Rand Co. Ltd., A ................................................ United States 1,002,000 54,578,940
Johnson Controls Inc. ..................................................... United States 400,000 47,244,000
a Mettler-Toledo International Inc. ......................................... Switzerland 50,000 5,100,000
Molex Inc. ................................................................ United States 146,483 3,944,787
Molex Inc., A ............................................................. United States 146,483 3,714,809
Teleflex Inc. ............................................................. United States 500,000 38,960,000
Textron Inc. .............................................................. United States 1,050,000 65,320,500
a Thomas & Betts Corp. ...................................................... United States 500,000 29,320,000
Tyco International Ltd. ................................................... United States 387,513 17,182,326
United Technologies Corp. ................................................. United States 850,000 68,408,000
---------------
555,885,502
---------------
74 | Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN GROWTH FUND COUNTRY SHARES/WARRANTS VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS (CONTINUED)
RETAIL TRADE 0.5%
CVS Caremark Corp. ........................................................ United States 126,293 $ 5,004,992
aIAC/InterActiveCorp ...................................................... United States 300,100 8,903,967
---------------
13,908,959
---------------
TECHNOLOGY SERVICES 8.8%
Automatic Data Processing Inc. ............................................ United States 800,000 36,744,000
Broadridge Financial Solutions LLC ........................................ United States 200,000 3,790,000
a Computer Sciences Corp. ................................................... United States 1,000,000 55,900,000
a Google Inc., A ............................................................ United States 21,000 11,912,670
International Business Machines Corp. ..................................... United States 580,000 68,324,000
Microsoft Corp. ........................................................... United States 1,175,000 34,615,500
a Oracle Corp. .............................................................. United States 500,000 10,825,000
Paychex Inc. .............................................................. United States 50,000 2,050,000
a Yahoo! Inc. ............................................................... United States 1,600,000 42,944,000
---------------
267,105,170
---------------
TRANSPORTATION 5.2%
Air France-KLM, ADR ....................................................... France 550,000 20,234,500
a Air France-KLM, ADR, wts., 11/05/07 ....................................... France 450,000 2,790,000
a Alaska Air Group Inc. ..................................................... United States 500,000 11,545,000
a AMR Corp. ................................................................. United States 1,080,000 24,073,200
a British Airways PLC, ADR .................................................. United Kingdom 500,000 39,025,000
a Continental Airlines Inc., B .............................................. United States 500,000 16,515,000
Expeditors International of Washington Inc. ............................... United States 80,000 3,784,000
FedEx Corp. ............................................................... United States 40,000 4,190,000
Southwest Airlines Co. .................................................... United States 65,200 964,960
Union Pacific Corp. ....................................................... United States 300,000 33,918,000
---------------
157,039,660
---------------
UTILITIES 0.3%
Exelon Corp. .............................................................. United States 50,000 3,768,000
Public Service Enterprise Group Inc. ...................................... United States 50,000 4,399,500
---------------
8,167,500
---------------
TOTAL COMMON STOCKS AND WARRANTS (COST $1,027,904,583) .................... 2,995,808,498
---------------
SHORT TERM INVESTMENT (COST $26,004,842) 0.9%
MONEY MARKET FUND 0.9%
b Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.95% ...... United States 26,004,842 26,004,842
---------------
TOTAL INVESTMENTS (COST $1,053,909,425) 100.1% ............................ 3,021,813,340
OTHER ASSETS, LESS LIABILITIES (0.1)% ..................................... (2,728,304)
---------------
NET ASSETS 100.0% ......................................................... $ 3,019,085,036
===============
See Selected Portfolio abbreviations list on page 107.
a Non-income producing for the twelve months ended September 30, 2007.
b See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 75
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS
FRANKLIN INCOME FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS A 2007 2006 2005 2004 2003
-------------------------------------------------------------- ------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 2.57 $ 2.50 $ 2.42 $ 2.25 $ 1.90
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................... 0.14 0.14 0.14 0.12 0.14
Net realized and unrealized gains (losses) ........ 0.21 0.09 0.10 0.22 0.38
---------------------------------------------------------------------------
Total from investment operations ..................... 0.35 0.23 0.24 0.34 0.52
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.14) (0.15) (0.15) (0.16) (0.16)
Net realized gains ................................ (0.04) (0.01) (0.01) (0.01) (0.01)
---------------------------------------------------------------------------
Total distributions .................................. (0.18) (0.16) (0.16) (0.17) (0.17)
---------------------------------------------------------------------------
Redemption fees ...................................... -- d -- d -- d -- d --
---------------------------------------------------------------------------
Net asset value, end of year ......................... $ 2.74 $ 2.57 $ 2.50 $ 2.42 $ 2.25
===========================================================================
Total return c ....................................... 14.14% 9.73% 10.45% 15.50% 28.12%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 0.63% e 0.64% f 0.65% f 0.68% e 0.73%
Net investment income ................................ 5.31% 5.61% 5.54% 5.11% 6.63%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $35,476,603 $26,641,398 $21,934,575 $14,743,190 $9,640,156
Portfolio turnover rate .............................. 25.45% 28.35% 28.51% 31.90% 48.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
76 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS B 2007 2006 2005 2004 2003
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 2.56 $ 2.49 $ 2.41 $ 2.24 $ 1.90
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................... 0.12 0.12 0.11 0.10 0.12
Net realized and unrealized gains (losses) ........ 0.21 0.08 0.11 0.22 0.37
---------------------------------------------------------------------------
Total from investment operations ..................... 0.33 0.20 0.22 0.32 0.49
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.12) (0.12) (0.13) (0.14) (0.14)
Net realized gains ................................ (0.04) (0.01) (0.01) (0.01) (0.01)
---------------------------------------------------------------------------
Total distributions .................................. (0.16) (0.13) (0.14) (0.15) (0.15)
---------------------------------------------------------------------------
Redemption fees ...................................... -- d -- d -- d -- d --
---------------------------------------------------------------------------
Net asset value, end of year ......................... $ 2.73 $ 2.56 $ 2.49 $ 2.41 $ 2.24
===========================================================================
Total return c ....................................... 13.23% 8.83% 9.57% 14.59% 26.58%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 1.48% e 1.49% f 1.50% f 1.53% e 1.58%
Net investment income ................................ 4.46% 4.76% 4.69% 4.26% 5.78%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $ 3,745,636 $ 3,743,374 $ 3,922,396 $ 3,486,880 $2,083,783
Portfolio turnover rate .............................. 25.45% 28.35% 28.51% 31.90% 48.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%
f Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 77
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS B1 2007 2006 2005 2004 2003
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 2.57 $ 2.50 $ 2.42 $ 2.25 $ 1.90
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................... 0.13 0.13 0.12 0.11 0.13
Net realized and unrealized gains (losses) ........ 0.21 0.08 0.11 0.21 0.38
---------------------------------------------------------------------------
Total from investment operations ..................... 0.34 0.21 0.23 0.32 0.51
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.13) (0.13) (0.14) (0.14) (0.15)
Net realized gains ................................ (0.04) (0.01) (0.01) (0.01) (0.01)
---------------------------------------------------------------------------
Total distributions .................................. (0.17) (0.14) (0.15) (0.15) (0.16)
---------------------------------------------------------------------------
Redemption fees ...................................... -- d -- d -- d -- d --
---------------------------------------------------------------------------
Net asset value, end of year ......................... $ 2.74 $ 2.57 $ 2.50 $ 2.42 $ 2.25
===========================================================================
Total return c ....................................... 13.57% 9.17% 9.90% 14.90% 27.51%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 1.13% e 1.14% f 1.15% f 1.18% e 1.23%
Net investment income ................................ 4.81% 5.11% 5.04% 4.61% 6.13%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $ 397,224 $ 459,302 $ 493,063 $ 511,471 $ 495,004
Portfolio turnover rate .............................. 25.45% 28.35% 28.51% 31.90% 48.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
78 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS C 2007 2006 2005 2004 2003
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 2.59 $ 2.51 $ 2.43 $ 2.26 $ 1.91
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b .......................... 0.13 0.13 0.13 0.11 0.13
Net realized and unrealized gains (losses) ....... 0.21 0.09 0.10 0.21 0.38
---------------------------------------------------------------------------
Total from investment operations .................... 0.34 0.22 0.23 0.32 0.51
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................ (0.13) (0.13) (0.14) (0.14) (0.15)
Net realized gains ............................... (0.04) (0.01) (0.01) (0.01) (0.01)
---------------------------------------------------------------------------
Total distributions ................................. (0.17) (0.14) (0.15) (0.15) (0.16)
---------------------------------------------------------------------------
Redemption fees ..................................... -- d -- d -- d -- d --
---------------------------------------------------------------------------
Net asset value, end of year ........................ $ 2.76 $ 2.59 $ 2.51 $ 2.43 $ 2.26
===========================================================================
Total return c ...................................... 13.47% 9.56% 9.84% 14.85% 27.37%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................ 1.13% e 1.14% f 1.15% f 1.18% e 1.24%
Net investment income ............................... 4.81% 5.11% 5.04% 4.61% 6.12%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 16,203,796 $ 12,138,969 $ 10,113,365 $ 6,616,891 $ 3,764,372
Portfolio turnover rate ............................. 25.45% 28.35% 28.51% 31.90% 48.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 79
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS R 2007 2006 2005 2004 2003
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 2.55 $ 2.48 $ 2.40 $ 2.23 $ 1.89
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b .......................... 0.13 0.13 0.13 0.11 0.13
Net realized and unrealized gains (losses) ....... 0.20 0.09 0.10 0.22 0.37
---------------------------------------------------------------------------
Total from investment operations .................... 0.33 0.22 0.23 0.33 0.50
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................ (0.13) (0.14) (0.14) (0.15) (0.15)
Net realized gains ............................... (0.04) (0.01) (0.01) (0.01) (0.01)
---------------------------------------------------------------------------
Total distributions ................................. (0.17) (0.15) (0.15) (0.16) (0.16)
---------------------------------------------------------------------------
Redemption fees ..................................... -- d -- d -- d -- d --
---------------------------------------------------------------------------
Net asset value, end of year ........................ $ 2.71 $ 2.55 $ 2.48 $ 2.40 $ 2.23
===========================================================================
Total return c ...................................... 13.47% 9.43% 10.15% 15.25% 27.31%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................ 0.98% e 0.99% f 1.00% f 1.03% e 1.08%
Net investment income ............................... 4.96% 5.26% 5.19% 4.76% 6.28%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 286,670 $ 183,609 $ 122,222 $ 73,165 $ 36,417
Portfolio turnover rate ............................. 25.45% 28.35% 28.51% 31.90% 48.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
f Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
80 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
ADVISOR CLASS 2007 2006 2005 2004 2003
---------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .................. $ 2.56 $ 2.49 $ 2.41 $ 2.24 $ 1.89
---------------------------------------------------------------------------
Income from investment operations a:
Net investment income b .......................... 0.15 0.14 0.14 0.12 0.14
Net realized and unrealized gains (losses) ....... 0.21 0.09 0.11 0.22 0.38
---------------------------------------------------------------------------
Total from investment operations .................... 0.36 0.23 0.25 0.34 0.52
---------------------------------------------------------------------------
Less distributions from:
Net investment income ............................ (0.15) (0.15) (0.16) (0.16) (0.16)
Net realized gains ............................... (0.04) (0.01) (0.01) (0.01) (0.01)
---------------------------------------------------------------------------
Total distributions ................................. (0.19) (0.16) (0.17) (0.17) (0.17)
---------------------------------------------------------------------------
Redemption fees ..................................... -- c -- c -- c -- c --
---------------------------------------------------------------------------
Net asset value, end of year ........................ $ 2.73 $ 2.56 $ 2.49 $ 2.41 $ 2.24
===========================================================================
Total return ........................................ 14.36% 9.94% 10.65% 15.74% 28.47%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................ 0.48% d 0.49% e 0.50% e 0.53% d 0.58%
Net investment income ............................... 5.46% 5.76% 5.69% 5.26% 6.78%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..................... $ 6,195,966 $ 3,786,643 $ 2,280,318 $ 901,149 $ 95,009
Portfolio turnover rate ............................. 25.45% 28.35% 28.51% 31.90% 48.36%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Amount rounds to less than $0.01 per share.
d Benefit of expense reduction rounds to less than 0.01%.
e Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 81
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 93.5%
COMMON STOCKS 38.1%
COMMERCIAL BANKS 1.0%
HSBC Holdings PLC ...................................................... United Kingdom 35,000,000 $ 647,854,881
---------------
COMMUNICATIONS 3.2%
AT&T Inc. .............................................................. United States 35,250,000 1,491,427,500
Verizon Communications Inc. ............................................ United States 11,000,000 487,080,000
---------------
1,978,507,500
---------------
CONSUMER DURABLES 0.1%
M.D.C. Holdings Inc. ................................................... United States 1,070,000 43,805,800
---------------
ELECTRIC UTILITIES 15.4%
Alliant Energy Corp. ................................................... United States 2,750,000 105,380,000
a Ameren Corp. ........................................................... United States 12,500,000 656,250,000
American Electric Power Co. Inc. ....................................... United States 8,633,800 397,845,504
CenterPoint Energy Inc. ................................................ United States 6,000,000 96,180,000
Consolidated Edison Inc. ............................................... United States 10,000,000 463,000,000
Dominion Resources Inc. ................................................ United States 10,000,000 843,000,000
DTE Energy Co. ......................................................... United States 5,270,400 255,298,176
Duke Energy Corp. ...................................................... United States 27,250,000 509,302,500
Edison International ................................................... United States 3,073,500 170,425,575
FirstEnergy Corp. ...................................................... United States 12,000,000 760,080,000
FPL Group Inc. ......................................................... United States 6,500,000 395,720,000
Hawaiian Electric Industries Inc. ...................................... United States 1,720,000 37,341,200
PG&E Corp. ............................................................. United States 12,000,000 573,600,000
a Pinnacle West Capital Corp. ............................................ United States 5,500,000 217,305,000
Portland General Electric Co. .......................................... United States 3,100,000 86,180,000
PPL Corp. .............................................................. United States 2,000,000 92,600,000
Progress Energy Inc. ................................................... United States 9,000,000 421,650,000
a Public Service Enterprise Group Inc. ................................... United States 13,500,000 1,187,865,000
a Puget Energy Inc. ...................................................... United States 7,500,000 183,525,000
The Southern Co. ....................................................... United States 22,000,000 798,160,000
TECO Energy Inc. ....................................................... United States 9,500,000 156,085,000
TXU Corp. .............................................................. United States 17,500,000 1,198,225,000
---------------
9,605,017,955
---------------
ENERGY MINERALS 4.1%
BP PLC, ADR ............................................................ United Kingdom 6,000,000 416,100,000
a Canadian Oil Sands Trust ............................................... Canada 25,770,600 855,176,027
Chevron Corp. .......................................................... United States 4,500,000 421,110,000
ConocoPhillips ......................................................... United States 5,750,000 504,677,500
Royal Dutch Shell PLC, A, ADR .......................................... Netherlands 4,000,000 328,720,000
---------------
2,525,783,527
---------------
FINANCE 4.7%
Bank of America Corp. .................................................. United States 20,000,000 1,005,400,000
Citigroup Inc. ......................................................... United States 3,000,000 140,010,000
Fifth Third Bancorp .................................................... United States 7,750,000 262,570,000
JPMorgan Chase & Co. ................................................... United States 8,000,000 366,560,000
82 | Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
FINANCE (CONTINUED)
Wachovia Corp. ......................................................... United States 3,750,000 $ 188,062,500
Washington Mutual Inc. ................................................. United States 28,000,000 988,680,000
---------------
2,951,282,500
---------------
GAS DISTRIBUTORS 0.8%
AGL Resources Inc. ..................................................... United States 500,000 19,810,000
Atmos Energy Corp. ..................................................... United States 4,000,000 113,280,000
NiSource Inc. .......................................................... United States 4,500,000 86,130,000
Spectra Energy Corp. ................................................... United States 12,394,100 303,407,568
---------------
522,627,568
---------------
HEALTH TECHNOLOGY 6.2%
Bristol-Myers Squibb Co. ............................................... United States 14,000,000 403,480,000
Johnson & Johnson ...................................................... United States 10,000,000 657,000,000
Merck & Co. Inc. ....................................................... United States 20,000,000 1,033,800,000
Pfizer Inc. ............................................................ United States 60,000,000 1,465,800,000
Schering-Plough Corp. .................................................. United States 9,195,783 290,862,616
---------------
3,850,942,616
---------------
NON-ENERGY MINERALS 0.5%
AngloGold Ashanti Ltd., ADR ............................................ South Africa 2,250,000 105,502,500
Barrick Gold Corp. ..................................................... Canada 5,550,000 223,554,000
---------------
329,056,500
---------------
PROCESS INDUSTRIES 0.9%
The Dow Chemical Co. ................................................... United States 7,122,400 306,690,544
Lyondell Chemical Co. .................................................. United States 5,000,000 231,750,000
---------------
538,440,544
---------------
PRODUCER MANUFACTURING 1.0%
3M Co. ................................................................. United States 7,000,000 655,060,000
---------------
RETAIL TRADE 0.2%
The Home Depot Inc. .................................................... United States 3,800,000 123,272,000
---------------
TOTAL COMMON STOCKS (COST $18,093,906,340) ............................. 23,771,651,391
---------------
CONVERTIBLE PREFERRED STOCKS 7.1%
CONSUMER DURABLES 0.1%
b,c,d The Goldman Sachs Group Inc. into D.R. Horton Inc., 9.00%, cvt.
pfd., 144A ........................................................... United States 4,000,000 51,986,000
---------------
CONSUMER SERVICES 0.2%
b Morgan Stanley into Starbucks Corp., 7.00%, cvt. pfd., 144A ............ United States 4,780,000 127,410,900
---------------
ELECTRIC UTILITIES 0.1%
CMS Energy Trust I, 7.75%, cvt. pfd. ................................... United States 1,508,000 75,659,527
---------------
Annual Report | 83
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CONVERTIBLE PREFERRED STOCKS (CONTINUED)
ELECTRONIC TECHNOLOGY 0.8%
Citigroup Funding into Texas Instruments Inc., 7.50%, cvt. pfd. ........ United States 5,000,000 $ 166,784,000
b The Goldman Sachs Group Inc. into KLA-Tencor Corp., 7.75%, cvt.
pfd., 144A ........................................................... United States 1,970,000 110,251,050
b Morgan Stanley into Intel Corp., 7.30%, cvt. pfd., 144A ................ United States 10,250,000 242,053,750
---------------
519,088,800
---------------
ENERGY MINERALS 2.6%
Chesapeake Energy Corp., 6.25%, cvt. pfd. .............................. United States 700,000 198,426,900
b Chesapeake Energy Corp., 5.00%, cvt. pfd., 144A ........................ United States 850,000 94,769,900
b,c Deutsche Bank AG into Chevron Corp., 8.00%, cvt. pfd., 144A ............ United States 5,000,000 455,750,000
b The Goldman Sachs Group Inc. into Peabody Energy Corp., 10.00%,
cvt. pfd., 144A ...................................................... United States 5,000,000 229,490,004
b Morgan Stanley into ConocoPhillips, 7.00%, cvt. pfd., 144A ............. United States 6,000,000 488,670,000
b Morgan Stanley into Devon Energy Corp., 8.00%, cvt. pfd., 144A ......... United States 1,700,000 122,306,500
---------------
1,589,413,304
---------------
FINANCE 0.6%
E*TRADE Financial Corp., 6.125%, cvt. pfd. ............................. United States 2,500,000 46,325,000
b,c Lehman Brothers Holdings Inc. into Merrill Lynch & Co. Inc., 8.00%,
cvt. pfd., 144A ...................................................... United States 4,500,000 333,495,000
---------------
379,820,000
---------------
HEALTH TECHNOLOGY 0.3%
b Merrill Lynch & Co. Inc. into Amgen Inc., 7.00%, cvt. pfd., 144A ....... United States 3,521,000 186,595,395
---------------
INDUSTRIAL SERVICES 1.1%
El Paso Corp., 4.99%, cvt. pfd. ........................................ United States 80,000 113,110,000
Lehman Brothers Holdings Inc. into Baker Hughes Inc., 8.00%, cvt.
pfd. ................................................................. United States 2,290,000 169,620,300
Lehman Brothers Holdings Inc. into El Paso Corp., 7.25%, cvt. pfd. ..... United States 5,927,000 98,032,580
b Morgan Stanley into Halliburton Co., 8.00%, cvt. pfd., 144A ............ United States 9,000,000 310,185,000
---------------
690,947,880
---------------
NON-ENERGY MINERALS 1.1%
b Deutsche Bank AG into Freeport-McMoRan Copper & Gold Inc.,
10.00%, cvt. pfd., 144A .............................................. United Kingdom 3,600,000 277,956,000
Freeport-McMoRan Copper & Gold Inc., 6.75%, cvt. pfd. .................. United States 1,200,000 186,120,000
b Morgan Stanley into Newmont Mining Corp., 8.50%, cvt. pfd., 144A ....... United States 4,800,000 216,216,000
---------------
680,292,000
---------------
REAL ESTATE INVESTMENT TRUSTS 0.2%
Felcor Lodging Trust Inc., 7.80%, cvt. pfd., A ......................... United States 3,000,000 70,380,000
Lexington Realty Trust, 6.50%, cvt. pfd. ............................... United States 757,500 33,326,212
---------------
103,706,212
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $4,029,078,598) ............... 4,404,920,018
---------------
84 | Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT e VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
f,g SENIOR FLOATING RATE INTERESTS 1.6%
COMMERCIAL SERVICES 0.9%
Ceva Group PLC,
Dollar Pre-Refunded L/C Commitment, 5.26%, 8/01/12 .................. United States 13,684,211 $ 13,470,189
EGL Term Loans, 8.665%, 8/01/12 ..................................... United States 116,315,789 114,496,609
d First Data Corp.,
Term Loan B-2, 9.50%, 10/01/14 ...................................... United States 225,000,000 216,528,750
Term Loan B-3, 9.50%, 10/01/14 ...................................... United States 200,000,000 194,000,000
---------------
538,495,548
---------------
CONSUMER DURABLES 0.2%
Jarden Corp., Term Loan B-3, 7.843%, 1/24/12 ........................... United States 124,687,500 123,873,291
---------------
PROCESS INDUSTRIES 0.2%
Berry Plastics Holding Corp., Senior Unsecured Term Loan, 11.97%,
6/15/14 .............................................................. United States 135,000,000 118,659,600
---------------
PRODUCER MANUFACTURING 0.3%
Allison Transmission, Term Loan B, 8.48% - 8.57%, 8/07/14 .............. United States 125,000,000 121,413,750
Rexnord Holdings Inc., PIK Interest Facility, 12.58%, 2/20/13 .......... United States 79,863,605 74,335,446
---------------
195,749,196
---------------
TOTAL SENIOR FLOATING RATE INTERESTS (COST $982,407,823) ............... 976,777,635
---------------
CORPORATE BONDS 41.3%
ALTERNATIVE POWER GENERATION 1.6%
b,h,i Calpine Corp., senior secured note, 144A, 8.50%, 7/15/10 ............... United States 125,000,000 135,625,000
Dynegy Holdings Inc., senior note,
6.875%, 4/01/11 ..................................................... United States 310,000,000 306,125,000
8.75%, 2/15/12 ...................................................... United States 260,000,000 269,750,000
8.375%, 5/01/16 ..................................................... United States 210,000,000 212,100,000
b 144A, 7.75%, 6/01/19 .............................................. United States 100,000,000 96,125,000
---------------
1,019,725,000
---------------
COMMERCIAL SERVICES 1.6%
b Ceva Group PLC, senior note, 144A, 10.00%, 9/01/14 ..................... United Kingdom 100,000,000 100,500,000
Dex Media Inc.,
senior disc. note, zero cpn. to 11/15/08, 9.00% thereafter,
11/15/13 .......................................................... United States 60,000,000 56,700,000
zero cpn. to 11/15/08, 9.00% thereafter, 11/15/13 ................... United States 210,000,000 198,450,000
JohnsonDiversey Holdings Inc., senior disc. note, 10.67%, 5/15/13 ...... United States 158,000,000 160,370,000
JohnsonDiversey Inc., senior sub. note, B, 9.625%, 5/15/12 ............. United States 125,000,000 127,500,000
R.H. Donnelley Corp.,
6.875%, 1/15/13 ..................................................... United States 26,300,000 24,985,000
senior discount note, 6.875%, 1/15/13 ............................... United States 94,400,000 89,680,000
senior note, 8.875%, 1/15/16 ........................................ United States 55,000,000 56,306,250
b,d senior note, 144A, 8.875%, 10/15/17 ................................. United States 155,300,000 158,406,000
---------------
972,897,250
---------------
Annual Report | 85
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT e VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
COMMUNICATIONS 1.5%
b Digicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 ................. Jamaica 140,000,000 $ 131,950,000
Qwest Capital Funding Inc.,
7.00%, 8/03/09 ...................................................... United States 280,000,000 282,800,000
7.25%, 2/15/11 ...................................................... United States 365,000,000 368,650,000
Qwest Communications International Inc., senior note,
7.50%, 2/15/14 ...................................................... United States 40,000,000 40,700,000
B, 7.50%, 2/15/14 ................................................... United States 140,000,000 142,450,000
---------------
966,550,000
---------------
CONSUMER DURABLES 5.7%
Beazer Homes USA Inc., senior note,
8.625%, 5/15/11 ..................................................... United States 10,000,000 7,950,000
6.875%, 7/15/15 ..................................................... United States 59,000,000 43,955,000
8.125%, 6/15/16 ..................................................... United States 91,000,000 71,435,000
D.R. Horton Inc.,
5.625%, 1/15/16 ..................................................... United States 35,000,000 29,456,875
senior note, 6.50%, 4/15/16 ......................................... United States 50,000,000 43,863,700
Ford Motor Co., 7.45%, 7/16/31 ......................................... United States 600,000,000 474,000,000
Ford Motor Credit Co. LLC,
7.375%, 10/28/09 .................................................... United States 750,000,000 735,762,750
7.875%, 6/15/10 ..................................................... United States 510,000,000 498,834,060
7.375%, 2/01/11 ..................................................... United States 450,000,000 431,510,850
7.00%, 10/01/13 ..................................................... United States 100,000,000 90,476,700
senior note, 9.75%, 9/15/10 ......................................... United States 105,000,000 107,187,150
senior note, 9.875%, 8/10/11 ........................................ United States 75,000,000 76,025,100
senior note, 7.25%, 10/25/11 ........................................ United States 155,000,000 145,376,670
j General Motors Corp., senior deb., 8.375%, 7/15/33 ..................... United States 510,000,000 449,437,500
K Hovnanian Enterprises Inc., senior note, 7.50%, 5/15/16 .............. United States 60,000,000 48,000,000
KB Home, senior note,
6.375%, 8/15/11 ..................................................... United States 40,000,000 37,000,000
5.75%, 2/01/14 ...................................................... United States 75,000,000 63,750,000
j 6.25%, 6/15/15 ...................................................... United States 100,000,000 85,875,000
7.25%, 6/15/18 ...................................................... United States 70,500,000 61,687,500
Visant Holding Corp., senior note, 8.75%, 12/01/13 ..................... United States 50,000,000 51,375,000
---------------
3,552,958,855
---------------
CONSUMER NON-DURABLES 0.2%
Reynolds American Inc., senior secured note, 7.25%, 6/01/13 ............ United States 90,000,000 95,463,720
---------------
CONSUMER SERVICES 5.9%
Cablevision Systems Corp., senior note, B, 8.00%, 4/15/12 .............. United States 457,775,000 446,330,625
CCH I Holdings LLC, senior note,
13.50%, 1/15/14 ..................................................... United States 345,000,000 339,825,000
9.92%, 4/01/14 ...................................................... United States 117,380,000 101,533,700
11.75%, 5/15/14 ..................................................... United States 280,000,000 260,400,000
CCH I LLC, senior secured note, 11.00%, 10/01/15 ....................... United States 725,000,000 737,687,500
CCH II LLC, senior note, 10.25%, 9/15/10 ............................... United States 80,000,000 82,200,000
CSC Holdings Inc., senior note, B, 7.625%, 4/01/11 ..................... United States 200,000,000 201,500,000
86 | Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT e VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
CONSUMER SERVICES (CONTINUED)
EchoStar DBS Corp., senior note, 7.125%, 2/01/16 ...................... United States 360,000,000 $ 371,700,000
Liberty Media Corp., senior note, 5.70%, 5/15/13 ...................... United States 148,000,000 139,005,892
MGM MIRAGE, senior note,
6.75%, 4/01/13 ..................................................... United States 70,000,000 68,775,000
6.625%, 7/15/15 .................................................... United States 120,000,000 114,450,000
7.625%, 1/15/17 .................................................... United States 250,000,000 248,750,000
b Univision Communications Inc., senior note, 144A, PIK, 9.75%,
3/15/15 ............................................................. United States 320,000,000 313,600,000
Viacom Inc., senior note, 6.25%, 4/30/16 .............................. United States 100,000,000 100,428,100
XM Satellite Radio Inc., senior note, 9.75%, 5/01/14 .................. United States 127,000,000 127,952,500
---------------
3,654,138,317
---------------
ELECTRIC UTILITIES 1.9%
Aquila Inc., senior note, 14.875%, 7/01/12 ............................ United States 95,400,000 120,681,000
NRG Energy Inc., senior note,
7.25%, 2/01/14 ..................................................... United States 60,000,000 60,300,000
7.375%, 2/01/16 .................................................... United States 80,000,000 80,400,000
Reliant Energy Inc., senior note,
7.625%, 6/15/14 .................................................... United States 175,000,000 177,187,500
7.875%, 6/15/17 .................................................... United States 153,100,000 154,822,375
TXU Corp., senior note,
P, 5.55%, 11/15/14 ................................................. United States 350,000,000 284,028,500
Q, 6.50%, 11/15/24 ................................................. United States 310,000,000 250,015,000
R, 6.55%, 11/15/34 ................................................. United States 100,000,000 78,926,300
---------------
1,206,360,675
---------------
ELECTRONIC TECHNOLOGY 2.7%
DRS Technologies Inc., senior note, 6.625%, 2/01/16 ................... United States 55,000,000 54,587,500
Flextronics International Ltd., senior sub. note, 6.25%, 11/15/14 ..... Singapore 110,000,000 103,400,000
Freescale Semiconductor Inc., senior note,
8.875%, 12/15/14 ................................................... United States 363,000,000 352,110,000
j 10.125%, 12/15/16 .................................................. United States 575,000,000 537,625,000
L-3 Communications Corp., senior sub. note,
5.875%, 1/15/15 .................................................... United States 42,500,000 41,012,500
6.375%, 10/15/15 ................................................... United States 85,000,000 83,937,500
Lucent Technologies Inc., 6.45%, 3/15/29 .............................. United States 180,000,000 150,300,000
NXP BV/NXP Funding LLC, senior note, 9.50%, 10/15/15 .................. Netherlands 50,000,000 46,750,000
Sanmina-SCI Corp., senior sub. note,
j 6.75%, 3/01/13 ..................................................... United States 150,000,000 129,750,000
8.125%, 3/01/16 .................................................... United States 100,000,000 87,000,000
Seagate Technology HDD Holdings, senior note,
6.375%, 10/01/11 ................................................... United States 45,000,000 44,437,500
6.80%, 10/01/16 .................................................... United States 40,000,000 39,300,000
---------------
1,670,210,000
---------------
Annual Report | 87
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT e VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
ENERGY MINERALS 2.4%
Callon Petroleum Co., senior note, 9.75%, 12/08/10 .................... United States 110,000,000 $ 108,625,000
Chesapeake Energy Corp., senior note,
7.625%, 7/15/13 .................................................... United States 75,000,000 78,750,000
6.50%, 8/15/17 ..................................................... United States 138,000,000 134,895,000
6.25%, 1/15/18 ..................................................... United States 150,000,000 145,500,000
6.875%, 11/15/20 ................................................... United States 145,000,000 142,643,750
Mariner Energy Inc., senior note,
7.50%, 4/15/13 ..................................................... United States 45,000,000 43,875,000
8.00%, 5/15/17 ..................................................... United States 25,000,000 24,562,500
Massey Energy Co., senior note, 6.875%, 12/15/13 ...................... United States 44,650,000 41,859,375
Newfield Exploration Co., senior sub. note, 6.625%, 4/15/16 ........... United States 110,000,000 108,075,000
b OPTI Canada Inc., senior note, 144A, 7.875%, 12/15/14 ................. Canada 220,000,000 221,100,000
Peabody Energy Corp., senior note, 7.375%, 11/01/16 ................... United States 57,225,000 60,658,500
Pioneer Natural Resources Co., 6.875%, 5/01/18 ........................ United States 110,000,000 103,835,820
Plains Exploration & Production Co., senior note, 7.75%, 6/15/15 ...... United States 75,000,000 73,875,000
Pogo Producing Co., senior sub. note, 7.875%, 5/01/13 ................. United States 78,175,000 81,302,000
b W&T Offshore Inc., senior note, 144A, 8.25%, 6/15/14 .................. United States 100,000,000 96,750,000
---------------
1,466,306,945
---------------
FINANCE 5.2%
E*TRADE Financial Corp., senior note,
7.375%, 9/15/13 .................................................... United States 235,000,000 220,900,000
7.875%, 12/01/15 ................................................... United States 25,000,000 23,250,000
GMAC LLC,
5.625%, 5/15/09 .................................................... United States 225,000,000 219,131,775
7.75%, 1/19/10 ..................................................... United States 550,000,000 545,806,800
7.25%, 3/02/11 ..................................................... United States 175,000,000 169,773,100
6.875%, 9/15/11 .................................................... United States 800,000,000 761,973,600
6.875%, 8/28/12 .................................................... United States 300,400,000 282,055,773
6.75%, 12/01/14 .................................................... United States 125,000,000 113,452,500
Hertz Corp., senior note, 8.875%, 1/01/14 ............................. United States 100,000,000 103,500,000
Lehman Brothers Holdings Inc., senior note,
6.20%, 9/26/14 ..................................................... United States 250,000,000 251,342,000
7.00%, 9/27/27 ..................................................... United States 100,000,000 102,665,300
Residential Capital LLC, senior note,
6.375%, 6/30/10 .................................................... United States 360,000,000 298,974,600
6.50%, 6/01/12 ..................................................... United States 75,000,000 60,806,175
United Rentals Inc., senior note, 6.50%, 2/15/12 ...................... United States 35,000,000 35,612,500
United Rentals North America Inc., senior sub. note, 7.00%,
2/15/14 .............................................................. United States 45,000,000 46,125,000
---------------
3,235,369,123
---------------
HEALTH SERVICES 3.9%
b Community Health Systems Inc., senior note, 144A, 8.875%,
7/15/15 .............................................................. United States 340,000,000 351,050,000
DaVita Inc.,
senior note, 6.625%, 3/15/13 ....................................... United States 250,000,000 249,375,000
senior sub. note, 7.25%, 3/15/15 ................................... United States 110,000,000 110,825,000
88 | Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT e VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
HEALTH SERVICES (CONTINUED)
HCA Inc.,
6.375%, 1/15/15 .................................................... United States 125,000,000 $ 106,875,000
senior note, 6.95%, 5/01/12 ........................................ United States 50,000,000 46,750,000
senior note, 6.50%, 2/15/16 ........................................ United States 150,000,000 128,250,000
b senior secured note, 144A, 9.25%, 11/15/16 ......................... United States 107,000,000 113,955,000
Tenet Healthcare Corp., senior note,
6.375%, 12/01/11 ................................................... United States 527,500,000 464,200,000
6.50%, 6/01/12 ..................................................... United States 265,000,000 225,912,500
7.375%, 2/01/13 .................................................... United States 360,000,000 306,900,000
f FRN, 9.25%, 2/01/15 ................................................ United States 250,000,000 221,875,000
b,f U.S. Oncology Holdings Inc., senior note, 144A, FRN, 10.759%,
3/15/12 ............................................................ United States 70,000,000 62,650,000
Vanguard Health Holding Co. I LLC, senior disc. note, zero cpn. to
10/01/09, 11.25% thereafter, 10/01/15 .............................. United States 23,900,000 17,984,750
---------------
2,406,602,250
---------------
INDUSTRIAL SERVICES 3.6%
Allied Waste North America Inc.,
senior note, 7.25%, 3/15/15 ........................................ United States 130,000,000 133,250,000
j senior note, B, 7.375%, 4/15/14 .................................... United States 190,000,000 191,900,000
senior note, B, 7.125%, 5/15/16 .................................... United States 170,000,000 174,675,000
senior secured note, 6.50%, 11/15/10 ............................... United States 120,000,000 121,500,000
senior secured note, 6.375%, 4/15/11 ............................... United States 50,000,000 50,375,000
senior secured note, 6.125%, 2/15/14 ............................... United States 207,000,000 202,083,750
senior secured note, 6.875%, 6/01/17 ............................... United States 190,000,000 191,900,000
Browning-Ferris Industries Inc., 7.40%, 9/15/35 ....................... United States 72,500,000 68,512,500
El Paso Corp., senior note,
6.75%, 5/15/09 ..................................................... United States 230,000,000 232,324,150
MTN, 7.75%, 1/15/32 ................................................ United States 280,000,000 285,723,760
Sabine Pass LNG LP, senior secured note,
7.25%, 11/30/13 .................................................... United States 92,000,000 91,080,000
7.50%, 11/30/16 .................................................... United States 390,000,000 386,100,000
Sesi LLC, senior note, 6.875%, 6/01/14 ................................ United States 110,000,000 107,250,000
Sonat Inc., senior note, 7.625%, 7/15/11 .............................. United States 35,000,000 36,397,340
---------------
2,273,071,500
---------------
NON-ENERGY MINERALS 0.8%
Freeport-McMoRan Copper & Gold Inc., senior note,
8.25%, 4/01/15 ..................................................... United States 86,600,000 93,744,500
8.375%, 4/01/17 .................................................... United States 214,275,000 234,631,125
Novelis Inc., senior note, 7.25%, 2/15/15 ............................. Canada 190,000,000 184,300,000
---------------
512,675,625
---------------
PROCESS INDUSTRIES 1.6%
j Abitibi-Consolidated Co. of Canada, senior note, 8.375%, 4/01/15 ...... Canada 100,600,000 73,689,500
Chemtura Corp., senior note, 6.875%, 6/01/16 .......................... United States 12,800,000 12,224,000
b Ineos Group Holdings PLC, senior sub. note, 144A, 7.875%,
2/15/16 ............................................................ United Kingdom 115,000,000 EUR 154,161,410
Annual Report | 89
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT e VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CORPORATE BONDS (CONTINUED)
PROCESS INDUSTRIES (CONTINUED)
Jefferson Smurfit Corp., senior note, 8.25%, 10/01/12 .................. United States 200,000,000 $ 201,500,000
Lyondell Chemical Co., senior note,
8.00%, 9/15/14 ...................................................... United States 70,000,000 77,350,000
8.25%, 9/15/16 ...................................................... United States 33,100,000 37,485,750
Nalco Finance Holdings, senior note, zero cpn. to 8/01/09, 9.00%
thereafter, 2/01/14 ................................................. United States 380,000,000 332,500,000
Owens-Brockway Glass Container Inc., senior note, 6.75%,
12/01/14 ............................................................ United States 50,000,000 49,562,500
Stone Container Corp., senior note, 8.00%, 3/15/17 ..................... United States 68,000,000 67,150,000
---------------
1,005,623,160
---------------
PRODUCER MANUFACTURING 0.4%
Case New Holland Inc., senior note, 7.125%, 3/01/14 ................... United States 81,900,000 84,357,000
RBS Global & Rexnord Corp.,
senior note, 9.50%, 8/01/14 ........................................ United States 40,000,000 41,600,000
senior sub. note, 11.75%, 8/01/16 .................................. United States 50,000,000 53,500,000
b TRW Automotive Inc., senior note, 144A,
7.00%, 3/15/14 ..................................................... United States 22,700,000 22,132,500
7.25%, 3/15/17 ..................................................... United States 48,500,000 47,530,000
---------------
249,119,500
---------------
REAL ESTATE INVESTMENT TRUSTS 0.8%
Host Hotels & Resorts LP, senior note, 6.875%, 11/01/14 ............... United States 87,600,000 87,819,000
Host Marriott LP, senior note,
K, 7.125%, 11/01/13 ................................................ United States 50,000,000 50,625,000
O, 6.375%, 3/15/15 ................................................. United States 215,000,000 211,237,500
Q, 6.75%, 6/01/16 .................................................. United States 160,000,000 159,200,000
---------------
508,881,500
---------------
RETAIL TRADE 0.9%
b Dollar General Corp., senior note, 144A,
10.625%, 7/15/15 ................................................... United States 580,000,000 548,100,000
PIK, 11.875%, 7/15/17 .............................................. United States 35,000,000 30,625,000
---------------
578,725,000
---------------
TECHNOLOGY SERVICES 0.3%
SunGard Data Systems Inc.,
senior note, 9.125%, 8/15/13 ....................................... United States 59,300,000 61,968,500
senior sub. note, 10.25%, 8/15/15 .................................. United States 100,000,000 105,000,000
---------------
166,968,500
---------------
UTILITIES 0.3%
b Intergen NV, senior secured note, 144A, 9.00%, 6/30/17 ................ Netherlands 165,000,000 174,075,000
---------------
TOTAL CORPORATE BONDS (COST $25,597,297,525) .......................... 25,715,721,920
---------------
90 | Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT e VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
CONVERTIBLE BONDS 1.4%
ALTERNATIVE POWER GENERATION 0.5%
h,i Calpine Corp., cvt., sub. note, 7.75%, 6/01/15 ........................ United States 295,000,000 $ 303,062,350
---------------
ELECTRONIC TECHNOLOGY 0.8%
b Advanced Micro Devices Inc., cvt., senior note, 144A, 5.75%,
8/15/12 ............................................................ United States 325,000,000 334,659,000
Nortel Networks Corp., cvt., senior note, 4.25%, 9/01/08 .............. Canada 192,187,000 189,546,735
---------------
524,205,735
---------------
INDUSTRIAL SERVICES 0.1%
Hanover Compressor Co., cvt., senior note, 4.75%, 3/15/08 ............. United States 50,000,000 49,625,000
---------------
TOTAL CONVERTIBLE BONDS (COST $829,409,801) ........................... 876,893,085
MORTGAGE-BACKED SECURITIES 4.0% ---------------
FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC) FIXED RATE 1.5%
FHLMC Gold 30 Year, 5.00%, 5/01/33 - 8/01/34 .......................... United States 426,944,715 408,559,751
FHLMC Gold 30 Year, 5.50%, 8/01/35 - 11/01/35 ......................... United States 294,868,991 289,132,882
FHLMC Gold 30 Year, 6.00%, 8/01/35 - 6/01/36 .......................... United States 259,130,816 259,533,476
---------------
957,226,109
---------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) FIXED RATE 2.0%
FNMA 30 Year, 5.50%, 2/01/35 - 8/01/37 ................................ United States 624,240,650 611,835,486
FNMA 30 Year, 6.00%, 5/01/37 - 8/01/37 ................................ United States 621,804,570 622,831,821
---------------
1,234,667,307
---------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 0.5%
GNMA I SF 30 Year, 5.00%, 4/15/33 - 6/15/34 ........................... United States 329,414,542 319,197,337
---------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $2,508,802,912) ................ 2,511,090,753
---------------
TOTAL LONG TERM INVESTMENTS (COST $52,040,902,999) .................... 58,257,054,802
---------------
------------------
SHARES
------------------
SHORT TERM INVESTMENTS 6.0%
MONEY MARKET FUND (COST $210,467,939) 0.3%
k Franklin Institutional Fiduciary Trust Money Market Portfolio,
4.95% .............................................................. United States 210,467,939 210,467,939
---------------
INVESTMENTS FROM CASH COLLATERAL RECEIVED FOR LOANED SECURITIES 0.2%
MONEY MARKET FUND (COST $140,837,000) 0.2%
l Bank of New York Institutional Cash Reserve Fund, 5.48% ............... United States 140,837,000 140,837,000
---------------
Annual Report | 91
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT e VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS (CONTINUED)
REPURCHASE AGREEMENT (COST $3,405,193,421) 5.5%
m Joint Repurchase Agreement, 4.656%, 10/01/07 (Maturity Value
$3,406,514,664) ........................................................ United States 3,405,193,421 $ 3,405,193,421
ABN AMRO Bank NV, New York Branch (Maturity Value $315,715,779)
Banc of America Securities LLC (Maturity Value $315,715,779)
Barclays Capital Inc. (Maturity Value $315,715,779)
BNP Paribas Securities Corp. (Maturity Value $315,715,779)
Deutsche Bank Securities Inc. (Maturity Value $315,715,779)
Goldman, Sachs & Co. (Maturity Value $315,715,779)
Greenwich Capital Markets Inc. (Maturity Value $315,715,779)
Lehman Brothers Inc. (Maturity Value $249,356,874)
Merrill Lynch Government Securities Inc. (Maturity Value $315,715,779)
Morgan Stanley & Co. Inc. (Maturity Value $315,715,779)
UBS Securities LLC (Maturity Value $315,715,779)
Collateralized by U.S. Government Agency Securities, 2.84% - 7.25%,
10/05/07 - 8/23/12; n U.S. Government Agency Discount Notes,
10/01/07 - 3/05/08; n U.S. Treasury Bill, 12/06/07 - 3/27/08 and
U.S. Treasury Notes, 4.125% - 4.875%, 4/30/12 - 8/31/12 ----------------
TOTAL INVESTMENTS (COST $55,797,401,359) 99.5% ......................... 62,013,553,162
OTHER ASSETS, LESS LIABILITIES 0.5% .................................... 292,341,959
----------------
NET ASSETS 100.0% ...................................................... $62,305,895,121
================
See Currency and Selected Portfolio Abbreviations on page 107.
a See Note 9 regarding holdings of 5% voting securities.
b Security was purchased pursuant to Rule 144A under the Securities Act of 1933
and may be sold in transactions exempt from registration only to qualified
institutional buyers or in a public offering registered under the Securities Act
of 1933. These securities have been deemed liquid under guidelines approved by
the Fund's Board of Directors. At September 30, 2007, the aggregate value of
these securities was $6,340,129,409, representing 10.18% of net assets.
c Non-income producing for the twelve months ended September 30, 2007.
d See Note 1(d) regarding securities purchased on a when-issued or delayed
delivery basis.
e The principal amount is stated in U.S. dollars unless otherwise indicated.
f The coupon rate shown represents the rate at period end.
g See Note 1(g) regarding senior floating rate interests.
h See Note 8 regarding defaulted securities.
i See Note 10 regarding other considerations.
j A portion or all of the security is on loan as of September 30, 2007. See Note
1(f).
k See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
l The rate shown is the annualized seven-day yield at period end.
m See Note 1(c) regarding repurchase agreement.
n The security is traded on a discount basis with no stated coupon rate.
92 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS A 2007 2006 2005 2004 2003
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 6.43 $ 6.53 $ 6.68 $ 6.81 $ 6.99
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ......................... 0.31 0.30 0.28 0.27 0.28
Net realized and unrealized gains (losses) ...... (0.02) (0.09) (0.11) (0.04) (0.10)
----------------------------------------------------------------------------
Total from investment operations ................... 0.29 0.21 0.17 0.23 0.18
----------------------------------------------------------------------------
Less distributions from net investment income ...... (0.33) (0.31) (0.32) (0.36) (0.36)
----------------------------------------------------------------------------
Redemption fees .................................... -- d -- d -- d -- d --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 6.39 $ 6.43 $ 6.53 $ 6.68 $ 6.81
============================================================================
Total return c ..................................... 4.63% 3.40% 2.67% 3.46% 2.66%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 0.72% e 0.72% e 0.72% e 0.70% e 0.70%
Net investment income .............................. 4.78% 4.64% 4.29% 4.09% 4.11%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 5,073,449 $ 5,291,117 $ 5,901,449 $ 6,420,381 $ 7,286,317
Portfolio turnover rate ............................ 12.34% 20.54% 29.14% 41.45% 66.96%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 93
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS B 2007 2006 2005 2004 2003
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 6.42 $ 6.52 $ 6.67 $ 6.80 $ 6.98
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ......................... 0.27 0.26 0.25 0.24 0.25
Net realized and unrealized gains (losses) ...... (0.01) (0.08) (0.11) (0.05) (0.10)
----------------------------------------------------------------------------
Total from investment operations ................... 0.26 0.18 0.14 0.19 0.15
----------------------------------------------------------------------------
Less distributions from net investment income ...... (0.30) (0.28) (0.29) (0.32) (0.33)
----------------------------------------------------------------------------
Redemption fees .................................... -- d -- d -- d -- d --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 6.38 $ 6.42 $ 6.52 $ 6.67 $ 6.80
============================================================================
Total return c ..................................... 4.10% 2.87% 2.13% 2.92% 2.13%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.25% e 1.24% e 1.25% e 1.23% e 1.23%
Net investment income .............................. 4.25% 4.12% 3.76% 3.56% 3.58%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 316,720 $ 388,807 $ 478,788 $ 568,276 $ 678,814
Portfolio turnover rate ............................ 12.34% 20.54% 29.14% 41.45% 66.96%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
94 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS C 2007 2006 2005 2004 2003
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 6.40 $ 6.50 $ 6.65 $ 6.78 $ 6.97
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b .......................... 0.27 0.26 0.25 0.24 0.25
Net realized and unrealized gains (losses) ...... (0.01) (0.08) (0.11) (0.05) (0.11)
----------------------------------------------------------------------------
Total from investment operations ................... 0.26 0.18 0.14 0.19 0.14
----------------------------------------------------------------------------
Less distributions from net investment income ...... (0.30) (0.28) (0.29) (0.32) (0.33)
----------------------------------------------------------------------------
Redemption fees .................................... -- d -- d -- d -- d --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 6.36 $ 6.40 $ 6.50 $ 6.65 $ 6.78
============================================================================
Total return c ..................................... 4.12% 2.88% 2.14% 2.91% 2.00%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.25% e 1.23% e 1.25% e 1.23% e 1.23%
Net investment income .............................. 4.25% 4.13% 3.76% 3.56% 3.58%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 418,951 $ 424,462 $ 508,539 $ 597,451 $ 814,635
Portfolio turnover rate ............................ 12.34% 20.54% 29.14% 41.45% 66.96%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 95
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS R 2007 2006 2005 2004 2003
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 6.43 $ 6.53 $ 6.68 $ 6.81 $ 6.99
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ......................... 0.28 0.27 0.26 0.25 0.25
Net realized and unrealized gains (losses) ...... (0.01) (0.08) (0.11) (0.05) (0.09)
----------------------------------------------------------------------------
Total from investment operations ................... 0.27 0.19 0.15 0.20 0.16
----------------------------------------------------------------------------
Less distributions from net investment income ...... (0.31) (0.29) (0.30) (0.33) (0.34)
----------------------------------------------------------------------------
Redemption fees .................................... -- d -- d -- d -- d --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 6.39 $ 6.43 $ 6.53 $ 6.68 $ 6.81
============================================================================
Total return c ..................................... 4.25% 3.01% 2.29% 3.08% 2.29%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 1.10% e 1.09% e 1.10% e 1.08% e 1.08%
Net investment income .............................. 4.40% 4.27% 3.91% 3.71% 3.73%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 74,537 $ 71,104 $ 65,790 $ 59,431 $ 54,042
Portfolio turnover rate ............................ 12.34% 20.54% 29.14% 41.45% 66.96%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
96 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
----------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
ADVISOR CLASS 2007 2006 2005 2004 2003
----------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 6.45 $ 6.55 $ 6.69 $ 6.83 $ 7.01
----------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ......................... 0.31 0.31 0.29 0.28 0.29
Net realized and unrealized gains (losses) ...... (0.01) (0.09) (0.10) (0.06) (0.10)
----------------------------------------------------------------------------
Total from investment operations ................... 0.30 0.22 0.19 0.22 0.19
----------------------------------------------------------------------------
Less distributions from net investment income ...... (0.34) (0.32) (0.33) (0.36) (0.37)
----------------------------------------------------------------------------
Redemption fees .................................... -- c -- c -- c -- c --
----------------------------------------------------------------------------
Net asset value, end of year ....................... $ 6.41 $ 6.45 $ 6.55 $ 6.69 $ 6.83
============================================================================
Total return ....................................... 4.75% 3.53% 2.95% 3.42% 2.79%
RATIOS TO AVERAGE NET ASSETS
Expenses ........................................... 0.60% d 0.59% d 0.60% d 0.58% d 0.58%
Net investment income .............................. 4.90% 4.77% 4.41% 4.21% 4.23%
SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $ 470,751 $ 387,239 $ 334,681 $ 340,279 $ 308,411
Portfolio turnover rate ............................ 12.34% 20.54% 29.14% 41.45% 66.96%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Amount rounds to less than $0.01 per share.
d Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 97
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 95.9%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 95.9%
GNMA GP 30 Year, 8.25%, 3/15/17 - 10/15/17 ............................................. $ 115,112 $ 122,605
GNMA GP 30 Year, 9.25%, 5/15/16 - 12/15/16 ............................................. 289,479 311,127
GNMA GP 30 Year, 10.00%, 11/15/09 - 4/15/10 ............................................ 195,310 204,435
GNMA GP 30 Year, 10.25%, 5/15/20 ....................................................... 10,638 12,071
GNMA GP 30 Year, 11.00%, 1/15/10 - 12/15/10 ............................................ 407,306 435,001
GNMA GP 30 Year, 11.25%, 7/15/13 - 1/15/16 ............................................. 244,501 275,430
GNMA GP 30 Year, 11.50%, 2/15/13 - 5/15/13 ............................................. 38,769 43,508
GNMA GP 30 Year, 11.75%, 7/15/13 - 8/15/13 ............................................. 36,814 41,739
GNMA GP 30 Year, 12.00%, 3/15/11 - 12/15/12 ............................................ 17,419 19,325
GNMA GP 30 Year, 12.50%, 5/15/10 - 6/15/10 ............................................. 28,622 31,098
GNMA GP 30 Year, 12.75%, 5/15/14 ....................................................... 5,440 6,167
GNMA I SF 15 Year, 6.50%, 5/15/18 ...................................................... 2,071,700 2,122,526
GNMA I SF 15 Year, 7.00%, 10/15/09 ..................................................... 505,839 508,714
GNMA I SF 30 Year, 5.00%, 2/15/33 - 9/15/36 ............................................ 656,588,096 636,215,191
GNMA I SF 30 Year, 5.50%, 5/15/28 - 7/15/37 ............................................ 1,194,414,000 1,179,321,518
a GNMA I SF 30 Year, 6.00%, 10/15/23 - 7/15/37 ........................................... 1,126,877,800 1,135,564,103
GNMA I SF 30 Year, 6.50%, 5/15/23 - 7/15/37 ............................................ 422,317,538 432,774,410
GNMA I SF 30 Year, 6.75%, 3/15/26 - 4/15/26 ............................................ 71,221 74,144
GNMA I SF 30 Year, 7.00%, 4/15/16 - 9/15/32 ............................................ 209,731,651 219,843,087
GNMA I SF 30 Year, 7.25%, 11/15/25 - 1/15/26 ........................................... 664,545 693,373
GNMA I SF 30 Year, 7.50%, 7/15/16 - 8/15/32 ............................................ 57,185,152 59,995,952
GNMA I SF 30 Year, 7.70%, 1/15/21 - 1/15/22 ............................................ 488,464 513,944
GNMA I SF 30 Year, 8.00%, 12/15/07 - 9/15/30 ........................................... 44,528,430 47,203,339
GNMA I SF 30 Year, 8.25%, 3/15/27 - 11/15/27 ........................................... 144,291 154,608
GNMA I SF 30 Year, 8.50%, 12/15/09 - 6/15/25 ........................................... 9,991,281 10,775,848
GNMA I SF 30 Year, 9.00%, 11/15/08 - 7/15/23 ........................................... 12,284,907 13,243,315
GNMA I SF 30 Year, 9.50%, 5/15/09 - 1/15/23 ............................................ 7,609,456 8,284,226
GNMA I SF 30 Year, 10.00%, 4/15/12 - 3/15/25 ........................................... 9,678,392 10,982,360
GNMA I SF 30 Year, 10.50%, 12/15/09 - 10/15/21 ......................................... 7,283,454 8,298,967
GNMA I SF 30 Year, 11.00%, 11/15/09 - 5/15/21 .......................................... 6,269,234 7,002,779
GNMA I SF 30 Year, 11.50%, 3/15/13 - 2/15/16 ........................................... 1,612,040 1,825,842
GNMA I SF 30 Year, 12.00%, 5/15/11 - 1/15/18 ........................................... 7,678,028 8,797,684
GNMA I SF 30 Year, 12.50%, 4/15/10 - 8/15/18 ........................................... 6,537,016 7,347,957
GNMA I SF 30 Year, 13.00%, 7/15/10 - 1/15/16 ........................................... 7,120,936 8,094,119
GNMA II GP 30 Year, 8.75%, 3/20/17 - 7/20/17 ........................................... 65,518 69,858
GNMA II GP 30 Year, 11.50%, 8/20/13 .................................................... 15,174 16,971
GNMA II SF 30 Year, 4.50%, 5/20/33 - 10/20/34 .......................................... 41,577,546 38,817,216
GNMA II SF 30 Year, 5.00%, 7/20/33 - 3/20/36 ........................................... 321,946,937 309,327,855
GNMA II SF 30 Year, 5.00%, 9/20/33 ..................................................... 277,384,804 266,729,019
GNMA II SF 30 Year, 5.50%, 6/20/34 ..................................................... 72,683,414 71,519,957
GNMA II SF 30 Year, 5.50%, 7/20/34 - 6/20/36 ........................................... 364,716,970 358,725,588
GNMA II SF 30 Year, 5.50%, 12/20/34 .................................................... 220,579,913 217,049,050
GNMA II SF 30 Year, 5.50%, 1/20/35 ..................................................... 90,002,005 88,524,574
GNMA II SF 30 Year, 5.50%, 2/20/35 ..................................................... 111,047,362 109,224,460
GNMA II SF 30 Year, 5.50%, 6/20/35 ..................................................... 66,347,638 65,258,506
GNMA II SF 30 Year, 5.50%, 4/20/36 ..................................................... 64,689,866 63,595,519
GNMA II SF 30 Year, 6.00%, 10/20/23 - 5/20/37 .......................................... 420,465,516 422,881,118
98| Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES (CONTINUED)
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE (CONTINUED)
GNMA II SF 30 Year, 6.00%, 9/20/34 ..................................................... $ 70,624,795 $ 71,081,183
GNMA II SF 30 Year, 6.00%, 11/20/35 .................................................... 65,929,652 66,297,527
GNMA II SF 30 Year, 6.50%, 6/20/24 - 3/20/34 ........................................... 78,486,946 80,369,415
GNMA II SF 30 Year, 7.00%, 2/20/28 - 7/20/33 ........................................... 42,129,476 43,997,060
GNMA II SF 30 Year, 7.50%, 10/20/22 - 4/20/32 .......................................... 7,585,813 7,934,938
GNMA II SF 30 Year, 8.00%, 8/20/16 - 6/20/30 ........................................... 3,722,109 3,937,580
GNMA II SF 30 Year, 8.50%, 4/20/16 - 6/20/25 ........................................... 1,928,929 2,071,409
GNMA II SF 30 Year, 9.00%, 8/20/16 - 11/20/21 .......................................... 568,850 611,793
GNMA II SF 30 Year, 9.50%, 3/20/18 - 4/20/25 ........................................... 328,185 358,232
GNMA II SF 30 Year, 10.00%, 8/20/15 - 3/20/21 .......................................... 703,195 796,094
GNMA II SF 30 Year, 10.50%, 9/20/13 - 3/20/21 .......................................... 2,113,102 2,395,668
GNMA II SF 30 Year, 11.00%, 8/20/13 - 1/20/21 .......................................... 317,224 360,226
GNMA II SF 30 Year, 11.50%, 9/20/13 - 2/20/18 .......................................... 170,239 193,753
GNMA II SF 30 Year, 12.00%, 9/20/13 - 2/20/16 .......................................... 356,239 406,543
GNMA II SF 30 Year, 12.50%, 10/20/13 - 11/20/15 ........................................ 244,786 278,114
GNMA II SF 30 Year, 13.00%, 10/20/13 - 9/20/15 ......................................... 244,111 278,977
----------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $6,173,941,600) ................................. 6,094,248,715
----------------
----------------
SHARES
----------------
SHORT TERM INVESTMENTS 4.4%
MONEY MARKET FUND (COST $210,435,916) 3.3%
b Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.95% ................... 210,435,916 210,435,916
----------------
----------------
PRINCIPAL AMOUNT
----------------
REPURCHASE AGREEMENT (COST $66,465,000) 1.1%
c Barclays De Zoete Wedd Securities Inc., 3.90%, 10/01/07 (Maturity Value $66,486,601)
Collateralized by U.S. Treasury Note, 3.875%, 7/15/10 ................................ $ 66,465,000 66,465,000
----------------
TOTAL SHORT TERM INVESTMENTS (COST $276,900,916) ....................................... 276,900,916
----------------
TOTAL INVESTMENTS (COST $6,450,842,516) 100.3% ......................................... 6,371,149,631
OTHER ASSETS, LESS LIABILITIES (0.3)% .................................................. (16,742,063)
----------------
NET ASSETS 100.0% ...................................................................... $ 6,354,407,568
================
See Selected Portfolio Abbreviations on page 107.
a See Note 1(d) regarding securities purchased on a to-be-announced basis.
b See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
c See Note 1(c) regarding repurchase agreement.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 99
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS
FRANKLIN UTILITIES FUND
------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS A 2007 2006 2005 2004 2003
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 12.89 $ 12.59 $ 10.16 $ 8.80 $ 7.96
------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................... 0.40 0.43 0.45 0.43 0.42
Net realized and unrealized gains (losses) ........ 2.16 0.37 2.42 1.33 0.85
------------------------------------------------------------------------
Total from investment operations ..................... 2.56 0.80 2.87 1.76 1.27
------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.40) (0.41) (0.44) (0.40) (0.43)
Net realized gains ................................ (0.47) (0.09) -- -- --
------------------------------------------------------------------------
Total distributions .................................. (0.87) (0.50) (0.44) (0.40) (0.43)
------------------------------------------------------------------------
Redemption fees ...................................... -- d -- d -- d -- d --
------------------------------------------------------------------------
Net asset value, end of year ......................... $ 14.58 $ 12.89 $ 12.59 $ 10.16 $ 8.80
========================================================================
Total return c ....................................... 20.32% 6.69% 28.81% 20.40% 16.38%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 0.75% e 0.76% e 0.78% e 0.80% 0.83%
Net investment income ................................ 2.83% 3.54% 3.92% 4.49% 5.00%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $ 2,157,614 $ 1,926,732 $ 1,986,034 $ 1,450,832 $ 1,259,886
Portfolio turnover rate .............................. 10.84% 7.97% 13.53% 16.13% 25.81%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
100 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS B 2007 2006 2005 2004 2003
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................... $ 12.88 $ 12.57 $ 10.15 $ 8.80 $ 7.97
------------------------------------------------------------------------
Income from investment operations a:
Net investment income b ........................... 0.33 0.37 0.39 0.38 0.37
Net realized and unrealized gains (losses) ........ 2.15 0.38 2.42 1.33 0.85
------------------------------------------------------------------------
Total from investment operations ..................... 2.48 0.75 2.81 1.71 1.22
------------------------------------------------------------------------
Less distributions from:
Net investment income ............................. (0.33) (0.35) (0.39) (0.36) (0.39)
Net realized gains ................................ (0.47) (0.09) -- -- --
------------------------------------------------------------------------
Total distributions .................................. (0.80) (0.44) (0.39) (0.36) (0.39)
------------------------------------------------------------------------
Redemption fees ...................................... -- d -- d -- d -- d --
------------------------------------------------------------------------
Net asset value, end of year ......................... $ 14.56 $ 12.88 $ 12.57 $ 10.15 $ 8.80
========================================================================
Total return c ....................................... 19.66% 6.25% 28.11% 19.71% 15.88%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................................. 1.26% e 1.26% e 1.28% e 1.30% 1.34%
Net investment income ................................ 2.32% 3.04% 3.42% 3.99% 4.49%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ...................... $ 127,587 $ 133,824 $ 154,277 $ 127,105 $ 95,321
Portfolio turnover rate .............................. 10.84% 7.97% 13.53% 16.13% 25.81%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 101
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS C 2007 2006 2005 2004 2003
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................. $ 12.85 $ 12.55 $ 10.13 $ 8.78 $ 7.95
---------------------------------------------------------------
Income from investment operations a:
Net investment income b ..................................... 0.33 0.37 0.39 0.38 0.36
Net realized and unrealized gains (losses) .................. 2.15 0.37 2.42 1.33 0.86
---------------------------------------------------------------
Total from investment operations ............................... 2.48 0.74 2.81 1.71 1.22
---------------------------------------------------------------
Less distributions from:
Net investment income ....................................... (0.33) (0.35) (0.39) (0.36) (0.39)
Net realized gains .......................................... (0.47) (0.09) -- -- --
---------------------------------------------------------------
Total distributions ............................................ (0.80) (0.44) (0.39) (0.36) (0.39)
---------------------------------------------------------------
Redemption fees ................................................ -- d -- d -- d -- d --
---------------------------------------------------------------
Net asset value, end of year ................................... $ 14.53 $ 12.85 $ 12.55 $ 10.13 $ 8.78
===============================================================
Total return c ................................................. 19.72% 6.19% 28.16% 19.76% 15.77%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................................... 1.26% e 1.25% e 1.28% e 1.30% 1.34%
Net investment income .......................................... 2.32% 3.05% 3.42% 3.99% 4.49%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $ 424,977 $ 391,509 $ 435,714 $ 283,747 $ 222,030
Portfolio turnover rate ........................................ 10.84% 7.97% 13.53% 16.13% 25.81%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
102 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
CLASS R 2007 2006 2005 2004 2003
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................. $ 12.86 $ 12.57 $ 10.15 $ 8.79 $ 7.96
---------------------------------------------------------------
Income from investment operations a:
Net investment income b ..................................... 0.35 0.39 0.43 0.39 0.37
Net realized and unrealized gains (losses) .................. 2.16 0.36 2.40 1.34 0.86
---------------------------------------------------------------
Total from investment operations ............................... 2.51 0.75 2.83 1.73 1.23
---------------------------------------------------------------
Less distributions from:
Net investment income ....................................... (0.36) (0.37) (0.41) (0.37) (0.40)
Net realized gains .......................................... (0.47) (0.09) -- -- --
---------------------------------------------------------------
Total distributions ............................................ (0.83) (0.46) (0.41) (0.37) (0.40)
---------------------------------------------------------------
Redemption fees ................................................ -- d -- d -- d -- d --
---------------------------------------------------------------
Net asset value, end of year ................................... $ 14.54 $ 12.86 $ 12.57 $ 10.15 $ 8.79
===============================================================
Total return c ................................................. 19.92% 6.29% 28.35% 20.02% 15.96%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................................... 1.11% e 1.11% e 1.13% e 1.15% 1.19%
Net investment income .......................................... 2.47% 3.19% 3.57% 4.14% 4.64%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $ 41,845 $ 27,736 $ 14,649 $ 1,590 $ 1,142
Portfolio turnover rate ........................................ 10.84% 7.97% 13.53% 16.13% 25.81%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
d Amount rounds to less than $0.01 per share.
e Benefit of expense reduction rounds to less than 0.01%.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 103
Franklin Custodian Funds, Inc.
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
---------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
ADVISOR CLASS 2007 2006 2005 2004 2003
---------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ............................. $ 12.95 $ 12.64 $ 10.20 $ 8.84 $ 7.99
---------------------------------------------------------------
Income from investment operations a:
Net investment income b ..................................... 0.42 0.45 0.48 0.44 0.42
Net realized and unrealized gains (losses) .................. 2.17 0.38 2.42 1.34 0.87
---------------------------------------------------------------
Total from investment operations ............................... 2.59 0.83 2.90 1.78 1.29
---------------------------------------------------------------
Less distributions from:
Net investment income ....................................... (0.43) (0.43) (0.46) (0.42) (0.44)
Net realized gains .......................................... (0.47) (0.09) -- -- --
---------------------------------------------------------------
Total distributions ............................................ (0.90) (0.52) (0.46) (0.42) (0.44)
---------------------------------------------------------------
Redemption fees ................................................ -- c -- c -- c -- c --
---------------------------------------------------------------
Net asset value, end of year ................................... $ 14.64 $ 12.95 $ 12.64 $ 10.20 $ 8.84
===============================================================
Total return ................................................... 20.43% 6.88% 29.00% 20.48% 16.61%
RATIOS TO AVERAGE NET ASSETS
Expenses ....................................................... 0.61% d 0.61% d 0.63% d 0.65% 0.69%
Net investment income .......................................... 2.97% 3.69% 4.07% 4.64% 5.14%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ................................ $ 86,823 $ 103,041 $ 110,249 $ 51,586 $ 47,167
Portfolio turnover rate ........................................ 10.84% 7.97% 13.53% 16.13% 25.81%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the timing of
sales and repurchase of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
b Based on average daily shares outstanding.
c Amount rounds to less than $0.01 per share.
d Benefit of expense reduction rounds to less than 0.01%.
104 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN UTILITIES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS 98.9%
COMMON STOCKS 94.4%
DIVERSIFIED TELECOMMUNICATION SERVICES 3.4%
AT&T Inc. ........................................................... United States 1,200,000 $ 50,772,000
Verizon Communications Inc. ......................................... United States 1,000,000 44,280,000
---------------
95,052,000
---------------
ELECTRIC UTILITIES 80.6%
Alliant Energy Corp. ................................................ United States 1,300,000 49,816,000
Ameren Corp. ........................................................ United States 1,429,441 75,045,652
American Electric Power Co. Inc. .................................... United States 1,200,000 55,296,000
CenterPoint Energy Inc. ............................................. United States 1,500,000 24,045,000
Cleco Corp. ......................................................... United States 1,000,000 25,270,000
Consolidated Edison Inc. ............................................ United States 700,000 32,410,000
Constellation Energy Group .......................................... United States 600,000 51,474,000
Dominion Resources Inc. ............................................. United States 1,162,600 98,007,180
DTE Energy Co. ...................................................... United States 600,000 29,064,000
Duke Energy Corp. ................................................... United States 4,391,400 82,075,266
Edison International ................................................ United States 2,200,000 121,990,000
Entergy Corp. ....................................................... United States 1,750,000 189,507,500
Exelon Corp. ........................................................ United States 2,200,000 165,792,000
FirstEnergy Corp. ................................................... United States 1,900,000 120,346,000
FPL Group Inc. ...................................................... United States 1,700,000 103,496,000
Hawaiian Electric Industries Inc. ................................... United States 500,000 10,855,000
National Grid PLC ................................................... United Kingdom 4,987,755 80,075,412
Northeast Utilities ................................................. United States 1,000,000 28,570,000
Pepco Holdings Inc. ................................................. United States 1,400,000 37,912,000
PG&E Corp. .......................................................... United States 2,000,000 95,600,000
Pinnacle West Capital Corp. ......................................... United States 800,000 31,608,000
Portland General Electric Co. ....................................... United States 1,000,000 27,800,000
PPL Corp. ........................................................... United States 2,300,000 106,490,000
Progress Energy Inc. ................................................ United States 1,500,000 70,275,000
Public Service Enterprise Group Inc. ................................ United States 1,100,000 96,789,000
Puget Energy Inc. ................................................... United States 1,725,000 42,210,750
RWE AG .............................................................. Germany 300,000 37,666,153
SCANA Corp. ......................................................... United States 1,200,000 46,488,000
Sierra Pacific Resources ............................................ United States 3,000,000 47,190,000
The Southern Co. .................................................... United States 2,500,000 90,700,000
TECO Energy Inc. .................................................... United States 269,800 4,432,814
TXU Corp. ........................................................... United States 1,300,000 89,011,000
UIL Holdings Corp. .................................................. United States 300,000 9,450,000
Westar Energy Inc. .................................................. United States 800,000 19,648,000
Wisconsin Energy Corp. .............................................. United States 1,000,000 45,030,000
Xcel Energy Inc. .................................................... United States 2,100,000 45,234,000
---------------
2,286,669,727
---------------
GAS DISTRIBUTORS 6.9%
AGL Resources Inc. .................................................. United States 800,000 31,696,000
Atmos Energy Corp. .................................................. United States 27,100 767,472
Gaz de France ....................................................... France 700,000 36,376,959
Sempra Energy ....................................................... United States 1,000,000 58,120,000
Annual Report | 105
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------------
FRANKLIN UTILITIES FUND COUNTRY SHARES VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
LONG TERM INVESTMENTS (CONTINUED)
COMMON STOCKS (CONTINUED)
GAS DISTRIBUTORS (CONTINUED)
Spectra Energy Corp. ................................................ United States 2,195,700 $ 53,750,736
Vectren Corp. ....................................................... United States 600,000 16,374,000
---------------
197,085,167
---------------
OIL & GAS PIPELINES 1.6%
TransCanada Corp. ................................................... Canada 250,000 9,168,384
The Williams Cos. Inc. .............................................. United States 1,100,000 37,466,000
---------------
46,634,384
---------------
WATER UTILITIES 1.9%
California Water Service Group ...................................... United States 400,000 15,396,000
United Utilities PLC ................................................ United States 2,777,892 39,793,718
---------------
55,189,718
---------------
TOTAL COMMON STOCKS (COST $1,597,605,003) ........................... 2,680,630,996
---------------
CONVERTIBLE PREFERRED STOCKS 1.2%
ELECTRIC UTILITIES 1.2%
CMS Energy Trust I, 7.75%, cvt. pfd. ................................ United States 270,050 13,548,976
PNM Resources Inc., 6.75%, cvt. pfd. ................................ United States 450,000 20,081,250
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $36,440,245) ............... 33,630,226
---------------
------------------
PRINCIPAL AMOUNT a
------------------
CORPORATE BONDS 3.3%
ELECTRIC UTILITIES 3.3%
Aquila Inc., senior note,
9.95%, 2/01/11 ................................................... United States $ 6,000,000 6,565,548
8.27%, 11/15/21 .................................................. United States 6,100,000 7,130,522
CMS Energy Corp., senior note, 9.875%, 10/15/07 ..................... United States 8,500,000 8,521,250
MidAmerican Energy Holdings Co., senior note, 8.48%, 9/15/28 ........ United States 25,000,000 30,577,125
Northeast Generation Co., senior secured note, B-1, 8.812%,
10/15/26 ......................................................... United States 7,458,985 7,738,696
TXU Corp., senior note,
P, 5.55%, 11/15/14 ............................................... United States 31,300,000 25,400,263
R, 6.55%, 11/15/34 ............................................... United States 8,700,000 6,866,588
---------------
TOTAL CORPORATE BONDS (COST $86,997,892) ............................ 92,799,992
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,721,043,140) ................... 2,807,061,214
---------------
------------------
SHARES
------------------
SHORT TERM INVESTMENT (COST $30,674,876) 1.1%
MONEY MARKET FUND 1.1%
b Franklin Institutional Fiduciary Trust Money Market Portfolio, 4.95% .... United States 30,674,876 30,674,876
---------------
TOTAL INVESTMENTS (COST $1,751,718,016) 100.0% .......................... 2,837,736,090
OTHER ASSETS, LESS LIABILITIES 0.0% c ................................... 1,109,371
---------------
NET ASSETS 100.0% ....................................................... $2,838,845,461
===============
See Selected Portfolio abbreviations on page 107.
a The principal amount is stated in U.S. dollars unless otherwise indicated.
b See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
c Rounds to less than 0.1% of net assets.
106 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2007
CURRENCY ABBREVIATIONS
EUR - Euro
SELECTED PORTFOLIO ABBREVIATIONS
ADR - American Depository Receipt
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
FRN - Floating Rate Note
GNMA - Government National Mortgage Association
GP - Graduated Payment
MTN - Medium Term Note
PIK - Payment-In-Kind
SF - Single Family
Annual Report |
The accompanying notes are an integral part of these financial statements. | 107
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 2007
---------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
---------------------------------------------------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ...................................... $ 293,785,893 $ 1,027,904,583 $ 50,517,886,063
Cost - Non-controlled affiliated issuers (Note 9) ................ -- -- 1,663,853,936
Cost - Sweep Money Fund (Note 7) ................................. 263,223 26,004,842 210,467,939
Cost - Repurchase agreements ..................................... -- -- 3,405,193,421
---------------------------------------------------------
Total cost of investments ........................................ $ 294,049,116 $ 1,053,909,425 $ 55,797,401,359
=========================================================
Value - Unaffiliated issuers ..................................... $ 641,436,299 $ 2,995,808,498 $ 55,297,770,775
Value - Non-controlled affiliated issuers (Note 9) ............... -- -- 3,100,121,027
Value - Sweep Money Fund (Note 7) ................................ 263,223 26,004,842 210,467,939
Value - Repurchase agreements .................................... -- -- 3,405,193,421
---------------------------------------------------------
Total value of investments a ..................................... 641,699,522 3,021,813,340 62,013,553,162
Cash ................................................................ -- -- 323,682,455
Receivables:
Investment securities sold ....................................... 1,620,235 248,403 226,072,618
Capital shares sold .............................................. 751,457 4,311,066 153,904,468
Dividends and interest ........................................... 142,460 2,305,708 605,167,536
---------------------------------------------------------
Total assets .................................................. 644,213,674 3,028,678,517 63,322,380,239
---------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased .................................. 1,534,956 -- 715,219,201
Capital shares redeemed .......................................... 1,302,524 4,836,157 93,875,397
Affiliates ....................................................... 645,693 2,899,878 51,437,683
Payable upon return of securities loaned ............................ -- -- 140,837,000
Accrued expenses and other liabilities .............................. 344,720 1,857,446 15,115,837
---------------------------------------------------------
Total liabilities ............................................. 3,827,893 9,593,481 1,016,485,118
---------------------------------------------------------
Net assets, at value ....................................... $ 640,385,781 $ 3,019,085,036 $ 62,305,895,121
=========================================================
Net assets consist of:
Paid-in capital ..................................................... $ 294,592,033 $ 1,155,889,253 $ 54,766,374,944
Undistributed net investment income (distributions in excess of
net investment income) ............................................ -- 5,085,267 (9,898,818)
Net unrealized appreciation (depreciation) .......................... 347,650,406 1,967,903,915 6,216,337,021
Accumulated net realized gain (loss) ................................ (1,856,658) (109,793,399) 1,333,081,974
---------------------------------------------------------
Net assets, at value ....................................... $ 640,385,781 $ 3,019,085,036 $ 62,305,895,121
=========================================================
a The Franklin Income Fund includes $136,422,451 of securities loaned.
108 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
September 30, 2007
---------------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
---------------------------------------------------------
CLASS A:
Net assets, at value ................................................ $ 553,347,468 $ 2,123,418,907 $ 35,476,603,321
=========================================================
Shares outstanding .................................................. 17,116,822 45,800,434 12,956,232,046
=========================================================
Net asset value per share b ......................................... $ 32.33 $ 46.36 $ 2.74
=========================================================
Maximum offering price per share (net asset value per share / 94.25%,
94.25%, 95.75%, respectively) ..................................... $ 34.30 $ 49.19 $ 2.86
=========================================================
CLASS B:
Net assets, at value ................................................ $ 16,625,129 $ 138,640,161 $ 3,745,636,455
=========================================================
Shares outstanding .................................................. 540,150 3,121,407 1,373,242,473
=========================================================
Net asset value and maximum offering price per share b .............. $ 30.78 $ 44.42 $ 2.73
=========================================================
CLASS B1:
Net assets, at value ................................................ -- -- $ 397,223,913
=========================================================
Shares outstanding .................................................. -- -- 144,997,876
=========================================================
Net asset value and maximum offering price per share b .............. -- -- $ 2.74
=========================================================
CLASS C:
Net assets, at value ................................................ $ 70,413,184 $ 340,671,112 $ 16,203,795,576
=========================================================
Shares outstanding .................................................. 2,311,640 7,736,689 5,881,000,530
=========================================================
Net asset value and maximum offering price per share b .............. $ 30.46 $ 44.03 $ 2.76
=========================================================
CLASS R:
Net assets, at value ................................................ -- $ 53,134,189 $ 286,670,300
=========================================================
Shares outstanding .................................................. -- 1,155,269 105,739,263
=========================================================
Net asset value and maximum offering price per share b .............. -- $ 45.99 $ 2.71
=========================================================
ADVISOR CLASS:
Net assets, at value ................................................ -- $ 363,220,667 $ 6,195,965,556
=========================================================
Shares outstanding .................................................. -- 7,819,062 2,273,489,212
=========================================================
Net asset value and maximum offering price per share b .............. -- $ 46.45 $ 2.73
=========================================================
b Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 109
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
September 30, 2007
----------------------------------
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
----------------------------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ......................................... $ 6,173,941,600 $ 1,721,043,140
Cost - Sweep Money Fund (Note 7) .................................... 210,435,916 30,674,876
Cost - Repurchase agreements ........................................ 66,465,000 --
----------------------------------
Total cost of investments ........................................... $ 6,450,842,516 $ 1,751,718,016
==================================
Value - Unaffiliated issuers ........................................ $ 6,094,248,715 $ 2,807,061,214
Value - Sweep Money Fund (Note 7) ................................... 210,435,916 30,674,876
Value - Repurchase agreements ....................................... 66,465,000 --
----------------------------------
Total value of investments .......................................... 6,371,149,631 2,837,736,090
Cash ................................................................... 3,418 --
Receivables:
Investment securities sold .......................................... -- 8,113,583
Capital shares sold ................................................. 7,624,182 2,692,639
Dividends and interest .............................................. 28,331,596 7,448,727
----------------------------------
Total assets ..................................................... 6,407,108,827 2,855,991,039
----------------------------------
Liabilities:
Payables:
Investment securities purchased ..................................... 35,180,469 8,300,250
Capital shares redeemed ............................................. 10,972,128 5,502,228
Affiliates .......................................................... 4,448,218 2,287,713
Accrued expenses and other liabilities ................................. 2,100,444 1,055,387
----------------------------------
Total liabilities ................................................ 52,701,259 17,145,578
----------------------------------
Net assets, at value .......................................... $ 6,354,407,568 $ 2,838,845,461
==================================
Net assets consist of:
Paid-in capital ........................................................ $ 6,839,135,397 $ 1,645,940,883
Undistributed net investment income .................................... 4,662,479 5,263,467
Net unrealized appreciation (depreciation) ............................. (79,692,885) 1,086,018,777
Accumulated net realized gain (loss) ................................... (409,697,423) 101,622,334
----------------------------------
Net assets, at value .......................................... $ 6,354,407,568 $ 2,838,845,461
==================================
110 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
September 30, 2007
----------------------------------
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
----------------------------------
CLASS A:
Net assets, at value ....................................................... $ 5,073,449,107 $ 2,157,613,814
==================================
Shares outstanding ......................................................... 793,431,744 147,996,646
==================================
Net asset value per share a ................................................ $ 6.39 $ 14.58
==================================
Maximum offering price per share (net asset value per share / 95.75%) ...... $ 6.67 $ 15.23
==================================
CLASS B:
Net assets, at value ....................................................... $ 316,719,707 $ 127,586,574
==================================
Shares outstanding ......................................................... 49,609,415 8,760,179
==================================
Net asset value and maximum offering price per share a ..................... $ 6.38 $ 14.56
==================================
CLASS C:
Net assets, at value ....................................................... $ 418,950,970 $ 424,977,085
==================================
Shares outstanding ......................................................... 65,843,352 29,245,975
==================================
Net asset value and maximum offering price per share a ..................... $ 6.36 $ 14.53
==================================
CLASS R:
Net assets, at value ....................................................... $ 74,537,024 $ 41,845,091
==================================
Shares outstanding ......................................................... 11,665,635 2,878,169
==================================
Net asset value and maximum offering price per share a ..................... $ 6.39 $ 14.54
==================================
ADVISOR CLASS:
Net assets, at value ....................................................... $ 470,750,760 $ 86,822,897
==================================
Shares outstanding ......................................................... 73,451,369 5,930,325
==================================
Net asset value and maximum offering price per share a ..................... $ 6.41 $ 14.64
==================================
a Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable, and redemption fees retained by the Fund.
Annual Report |
The accompanying notes are an integral part of these financial statements. | 111
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended September 30, 2007
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------------------------------------------
Investment income:
Dividends:
Unaffiliated issuers ...................................................... $ 4,168,120 $ 34,382,551 $ 989,895,964
Non-controlled affiliated issuers (Note 9) ................................ -- -- 115,013,095
Sweep Money Fund (Note 7) ................................................. 151,275 851,955 9,575,526
Interest ..................................................................... -- -- 2,225,447,148
Income from securities loaned - net .......................................... 5,748 -- 1,813,847
------------------------------------------------
Total investment income ................................................ 4,325,143 35,234,506 3,341,745,580
------------------------------------------------
Expenses:
Management fees (Note 3a) .................................................... 3,041,448 12,385,803 216,732,727
Distribution fees: (Note 3c)
Class A ................................................................... 1,307,941 4,521,378 47,844,037
Class B ................................................................... 165,788 1,300,489 38,160,672
Class B1 .................................................................. -- -- 2,882,756
Class C ................................................................... 662,624 3,032,292 95,323,455
Class R ................................................................... -- 232,705 1,184,633
Transfer agent fees (Note 3e) ................................................ 1,421,452 5,476,947 44,035,234
Custodian fees (Note 4) ...................................................... 20,748 49,186 1,163,403
Reports to shareholders ...................................................... 100,129 524,806 4,963,498
Registration and filing fees ................................................. 46,080 117,697 2,168,544
Professional fees (Note 3f) .................................................. 32,209 86,504 635,121
Directors' fees and expenses ................................................. 2,512 11,649 210,787
Other ........................................................................ 8,678 112,798 1,219,545
------------------------------------------------
Total expenses ......................................................... 6,809,609 27,852,254 456,524,412
Expense reductions (Note 4) ............................................ (239) (1,669) (160,004)
------------------------------------------------
Net expenses ........................................................ 6,809,370 27,850,585 456,364,408
------------------------------------------------
Net investment income (loss) ..................................... (2,484,227) 7,383,921 2,885,381,172
------------------------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments
Unaffiliated Issuers .................................................... 54,271,520 8,038,467 1,413,294,280
Non-controlled affiliated issuers (Note 9) .............................. -- -- 60,558,457
Foreign currency transactions ............................................. (3,532) (11,158) (73,779)
------------------------------------------------
Net realized gain (loss) ......................................... 54,267,988 8,027,309 1,473,778,958
------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................................... 88,303,700 436,966,418 2,517,802,132
Translation of assets and liabilities denominated in foreign currencies ... -- -- 185,218
------------------------------------------------
Net change in unrealized appreciation (depreciation) ............. 88,303,700 436,966,418 2,517,987,350
------------------------------------------------
Net realized and unrealized gain (loss) ......................................... 142,571,688 444,993,727 3,991,766,308
------------------------------------------------
Net increase (decrease) in net assets resulting from operations ................. $ 140,087,461 $ 452,377,648 $ 6,877,147,480
================================================
112 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended September 30, 2007
---------------------------------
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
---------------------------------
Investment income:
Dividends:
Unaffiliated issuers ....................................................... $ -- $ 92,535,791
Sweep Money Fund (Note 7) .................................................. 8,729,045 725,690
Interest ...................................................................... 343,103,843 8,066,807
---------------------------------
Total investment income ................................................. 351,832,888 101,328,288
---------------------------------
Expenses:
Management fees (Note 3a) ..................................................... 28,392,090 12,952,372
Distribution fees: (Note 3c)
Class A .................................................................... 6,253,855 3,030,555
Class B .................................................................... 2,264,337 892,901
Class C .................................................................... 2,676,641 2,795,951
Class R .................................................................... 368,724 192,834
Transfer agent fees (Note 3e) ................................................. 9,119,500 3,559,121
Custodian fees (Note 4) ....................................................... 112,163 83,142
Reports to shareholders ....................................................... 532,380 405,538
Registration and filing fees .................................................. 155,237 110,922
Professional fees (Note 3f) ................................................... 116,642 114,009
Directors' fees and expenses .................................................. 25,056 10,734
Other ......................................................................... 99,135 22,846
---------------------------------
Total expenses .......................................................... 50,115,760 24,170,925
Expense reductions (Note 4) ............................................. (2,977) (5,488)
---------------------------------
Net expenses ......................................................... 50,112,783 24,165,437
---------------------------------
Net investment income ............................................. 301,720,105 77,162,851
---------------------------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ................................................................ (2,097,105) 122,881,061
Foreign currency transactions .............................................. -- (19,952)
---------------------------------
Net realized gain (loss) .......................................... (2,097,105) 122,861,109
---------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................................ (10,362,317) 304,460,860
Translation of assets and liabilities denominated in foreign currencies .... -- 703
---------------------------------
Net change in unrealized appreciation (depreciation) .............. (10,362,317) 304,461,563
---------------------------------
Net realized and unrealized gain (loss) .......................................... (12,459,422) 427,322,672
---------------------------------
Net increase (decrease) in net assets resulting from operations .................. $ 289,260,683 $ 504,485,523
=================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 113
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------------------------
FRANKLIN DYNATECH FUND FRANKLIN GROWTH FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .................... $ (2,484,227) $ (2,150,136) $ 7,383,921 $ 5,235,063
Net realized gain (loss) from investments and
foreign currency transactions ................. 54,267,988 37,234,123 8,027,309 94,169,928
Net change in unrealized appreciation
(depreciation) on investments ................. 88,303,700 (13,111,219) 436,966,418 169,320,275
---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ............................... 140,087,461 21,972,768 452,377,648 268,725,266
---------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ....................................... -- -- (4,596,420) (2,878,816)
Class R ....................................... -- -- (7,075) (1,109)
Advisor Class ................................. -- -- (1,417,769) (964,032)
---------------------------------------------------------------------------
Total distributions to shareholders ............... -- -- (6,021,264) (3,843,957)
---------------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ....................................... (159,197,616) (58,206,956) 111,946,191 (61,066,872)
Class B ....................................... (5,690,695) (1,156,433) (5,331,820) (14,734,540)
Class C ....................................... (13,236,699) (6,007,946) 18,194,989 (27,044,966)
Class R ....................................... -- -- 8,345,533 6,380,501
Advisor Class ................................. -- -- 34,972,750 24,459,918
---------------------------------------------------------------------------
Total capital share transactions .................. (178,125,010) (65,371,335) 168,127,643 (72,005,959)
---------------------------------------------------------------------------
Redemption fees ................................... 3,893 2,037 8,351 8,229
---------------------------------------------------------------------------
Net increase (decrease) in net assets ....... (38,033,656) (43,396,530) 614,492,378 192,883,579
Net assets:
Beginning of year ................................. 678,419,437 721,815,967 2,404,592,658 2,211,709,079
---------------------------------------------------------------------------
End of year ....................................... $ 640,385,781 $ 678,419,437 $ 3,019,085,036 $ 2,404,592,658
===========================================================================
Undistributed net investment income (loss) included
in net assets:
End of year ..................................... $ -- $ -- $ 5,085,267 $ 3,691,950
===========================================================================
114 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
---------------------------------------------------------------------------
FRANKLIN
FRANKLIN INCOME FUND U.S. GOVERNMENT SECURITIES FUND
---------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
2007 2006 2007 2006
---------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................... $ 2,885,381,172 $ 2,251,128,737 $ 301,720,105 $ 313,718,824
Net realized gain (loss) from investments and
foreign currency transactions ................. 1,473,778,958 708,504,197 (2,097,105) (1,705,377)
Net change in unrealized appreciation
(depreciation) on investments and translation
of assets and liabilities denominated in
foreign currencies ............................ 2,517,987,350 1,064,942,294 (10,362,317) (93,987,541)
---------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations ............................... 6,877,147,480 4,024,575,228 289,260,683 218,025,906
---------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income:
Class A ....................................... (1,687,207,815) (1,378,791,711) (264,748,989) (270,849,710)
Class B ....................................... (173,469,301) (189,035,634) (16,375,700) (18,899,716)
Class B1 ...................................... (21,754,097) (25,054,794) -- --
Class C ....................................... (694,869,015) (571,320,771) (19,237,012) (20,148,370)
Class R ....................................... (11,742,767) (8,167,468) (3,515,272) (2,989,468)
Advisor Class ................................. (280,791,335) (175,243,446) (22,110,321) (18,476,100)
Net realized gains:
Class A ....................................... (420,454,280) (140,038,105) -- --
Class B ....................................... (56,272,957) (23,629,261) -- --
Class B1 ...................................... (6,844,643) (2,953,524) -- --
Class C ....................................... (190,856,659) (63,765,145) -- --
Class R ....................................... (2,957,517) (827,485) -- --
Advisor Class ................................. (62,928,530) (15,806,072) -- --
---------------------------------------------------------------------------
Total distributions to shareholders ............... (3,610,148,916) (2,594,633,416) (325,987,294) (331,363,364)
---------------------------------------------------------------------------
Capital share transactions: (Note 2)
Class A ....................................... 6,982,490,371 3,892,312,218 (188,222,491) (518,339,020)
Class B ....................................... (237,976,392) (281,240,958) (69,804,640) (82,378,909)
Class B1 ...................................... (91,477,067) (46,251,019) -- --
Class C ....................................... 3,211,521,930 1,657,633,123 (3,037,771) (76,075,166)
Class R ....................................... 89,672,613 55,454,673 3,854,638 6,209,239
Advisor Class ................................. 2,131,138,371 1,379,240,071 85,580,325 57,275,425
---------------------------------------------------------------------------
Total capital share transactions .................. 12,085,369,826 6,657,148,108 (171,629,939) (613,308,431)
---------------------------------------------------------------------------
Redemption fees ................................... 231,167 265,535 35,787 125,755
---------------------------------------------------------------------------
Net increase (decrease) in
net assets ................................ 15,352,599,557 8,087,355,455 (208,320,763) (726,520,134)
Net assets:
Beginning of year ................................. 46,953,295,564 38,865,940,109 6,562,728,331 7,289,248,465
---------------------------------------------------------------------------
End of year ....................................... $ 62,305,895,121 $ 46,953,295,564 $ 6,354,407,568 $ 6,562,728,331
===========================================================================
Undistributed net investment income (distributions in
excess of net investment income) included in net
assets:
End of year ..................................... $ (9,898,818) $ (48,475,302) $ 4,662,479 $ 11,480,909
===========================================================================
Annual Report |
The accompanying notes are an integral part of these financial statements. | 115
Franklin Custodian Funds, Inc.
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
-----------------------------------
FRANKLIN UTILITIES FUND
-----------------------------------
YEAR ENDED SEPTEMBER 30,
2007 2006
-----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income .................................................................. $ 77,162,851 $ 86,200,184
Net realized gain (loss) from investments and foreign currency transactions ............ 122,861,109 79,469,077
Net change in unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ............................. 304,461,563 (14,294,348)
-----------------------------------
Net increase (decrease) in net assets resulting from operations .................... 504,485,523 151,374,913
-----------------------------------
Distributions to shareholders from:
Net investment income:
Class A .............................................................................. (60,045,625) (63,192,877)
Class B .............................................................................. (3,213,589) (3,961,723)
Class C .............................................................................. (10,097,373) (11,209,132)
Class R .............................................................................. (958,675) (562,410)
Advisor Class ........................................................................ (2,754,192) (3,148,388)
Net realized gains:
Class A .............................................................................. (68,750,277) (14,345,312)
Class B .............................................................................. (4,691,564) (1,090,928)
Class C .............................................................................. (14,079,324) (3,070,998)
Class R .............................................................................. (1,073,396) (117,357)
Advisor Class ........................................................................ (2,861,866) (696,993)
-----------------------------------
Total distributions to shareholders ...................................................... (168,525,881) (101,396,118)
-----------------------------------
Capital share transactions: (Note 2)
Class A .............................................................................. (21,840,975) (98,910,206)
Class B .............................................................................. (23,358,533) (22,687,061)
Class C .............................................................................. (17,678,674) (50,418,336)
Class R .............................................................................. 10,467,103 12,337,719
Advisor Class ........................................................................ (27,554,529) (8,392,780)
-----------------------------------
Total capital share transactions ......................................................... (79,965,608) (168,070,664)
-----------------------------------
Redemption fees .......................................................................... 10,165 10,894
-----------------------------------
Net increase (decrease) in net assets .............................................. 256,004,199 (118,080,975)
Net assets:
Beginning of year ........................................................................ 2,582,841,262 2,700,922,237
-----------------------------------
End of year .............................................................................. $ 2,838,845,461 $ 2,582,841,262
===================================
Undistributed net investment income included in net assets:
End of year .............................................................................. $ 5,263,467 $ 10,368,034
===================================
116 | The accompanying notes are an integral part of these financial statements.
| Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Custodian Funds, Inc. (the Custodian Funds) is registered under the
Investment Company Act of 1940, as amended, (the 1940 Act) as a diversified,
open-end investment company, consisting of five funds (the Funds). The classes
of shares offered within each of the Funds are indicated below. Each class of
shares differs by its initial sales load, contingent deferred sales charges,
distribution fees, voting rights on matters affecting a single class and its
exchange privilege.
- ----------------------------------------------------------------------------------------------------
CLASS A, CLASS B CLASS A, CLASS B, CLASS C, CLASS A, CLASS B, CLASS B1,
& CLASS C CLASS R & ADVISOR CLASS CLASS C, CLASS R & ADVISOR CLASS
- ----------------------------------------------------------------------------------------------------
Franklin DynaTech Fund Franklin Growth Fund Franklin Income Fund
Franklin U.S. Government Securities Fund
Franklin Utilities Fund
The following summarizes the Funds' significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Corporate debt securities, government securities, mortgage pass-through
securities, other mortgage-backed securities, collateralized mortgage
obligations and asset-backed securities generally trade in the over-the-counter
market rather than on a securities exchange. The Funds may utilize independent
pricing services, quotations from bond dealers, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Funds' pricing services may use valuation models or matrix
pricing which considers information with respect to comparable bond and note
transactions, quotations from bond dealers, or by reference to other securities
that are considered comparable in such characteristics as rating, interest rate
and maturity date, option adjusted spread models, prepayment projections,
interest rate spreads and yield curves, to determine current value.
Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Funds may utilize independent pricing services, quotations from
loan dealers and other financial institutions, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Funds' pricing services use independent market quotations
from loan dealers or financial institutions and may incorporate valuation
methodologies that consider multiple bond characteristics such as dealer quotes,
issuer type, coupon, maturity, weighted average maturity, interest rate spreads
and yield curves, cash flow and credit risk/quality analysis, to determine
current value.
Annual Report | 117
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Funds have procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the fund. The investment manager monitors price movements
following the close of trading in foreign stock markets through a series of
country specific market proxies (such as baskets of American Depository
Receipts, futures contracts and exchange traded funds). These price movements
are measured against established trigger thresholds for each specific market
proxy to assist in determining if an event has occurred. If such an event
occurs, the securities may be valued using fair value procedures, which may
include the use of independent pricing services. All security valuation
procedures are approved by the Custodian Funds' 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, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Custodian Funds' Board of Directors.
The Funds do not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
118 | Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION (CONTINUED)
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. REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements, which are accounted for as a
loan by the fund to the seller, collateralized by securities which are delivered
to the fund's custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the funds, with the value of the underlying securities marked to
market daily to maintain coverage of at least 100%. The Funds may also enter
into joint repurchase agreements whereby their uninvested cash balance is
deposited into a joint cash account with other funds managed by the investment
manager or an affiliate of the investment manager and is used to invest in one
or more repurchase agreements. The value and face amount of the joint repurchase
agreement are allocated to the funds based on their pro-rata interest. All
repurchase agreements held by the Funds at year end had been entered into on
September 28, 2007. Repurchase agreements are valued at cost.
D. SECURITIES PURCHASED ON A WHEN-ISSUED, DELAYED DELIVERY, OR TBA BASIS
Certain funds may purchase securities on a when-issued, delayed delivery, or
to-be-announced (TBA) basis, with payment and delivery scheduled for a future
date. These transactions are subject to market fluctuations and are subject to
the risk that the value at delivery may be more or less than the trade date
purchase price. Although the funds will generally purchase these securities with
the intention of holding the securities, they may sell the securities before the
settlement date. Sufficient assets have been segregated for these securities.
E. FOREIGN CURRENCY CONTRACTS
When the Funds purchase or sell foreign securities they may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate at a future date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities.
Annual Report | 119
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. SECURITIES LENDING
Certain funds may loan securities to certain brokers through a securities
lending agent for which they receive initial cash collateral against the loaned
securities in an amount equal to at least 102% of the market value of the loaned
securities. Collateral is maintained over the life of the loan in an amount not
less than 100% of the market value of loaned securities, as determined at the
close of fund business each day; any additional collateral required due to
changes in security values is delivered to the fund on the next business day.
The collateral is invested in short-term instruments as noted in the Statement
of Investments. The fund receives interest income from the investment of cash
collateral, adjusted by lender fees and broker rebates. The fund bears the risk
of loss with respect to the investment of the collateral and the securities
loaned. The securities lending agent has agreed to indemnify the fund in the
case of default of any securities borrower.
G. SENIOR FLOATING RATE INTERESTS
Senior secured corporate loans pay interest at rates which are periodically
reset by reference to a base lending rate plus a spread. These base lending
rates are generally the prime rate offered by a designated U.S. bank or the
London InterBank Offered Rate (LIBOR). Senior secured corporate loans often
require prepayment of principal from excess cash flows or at the discretion of
the borrower. As a result, actual maturity may be substantially less than the
stated maturity.
Senior secured corporate loans in which the fund invests are generally readily
marketable, but may be subject to some restrictions on resale.
H. INCOME TAXES
No provision has been made for U.S. income taxes because it is each fund's
policy to qualify as a regulated investment company under the Internal Revenue
Code and to distribute to shareholders substantially all of its taxable income
and net realized gains.
I. 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. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Dividend income is recorded on the ex-dividend date. Distributions to
shareholders are recorded on the ex-dividend date and are determined according
to income tax regulations (tax basis). Distributable earnings determined on a
tax basis may differ from earnings recorded in accordance with accounting
principles generally accepted in the United States of America. These differences
may be permanent or temporary. Permanent differences are reclassified among
capital accounts to reflect their tax character. These reclassifications have no
impact on net assets or the results of operations. Temporary differences are not
reclassified, as they may reverse in subsequent periods.
120 | Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
Common expenses incurred by the Custodian Funds are allocated among the Funds
based on the ratio of net assets of each fund to the combined net assets of the
Custodian Funds. Fund specific expenses are charged directly to the fund that
incurred the expense.
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. Differences in per share
distributions, by class, are generally due to differences in class specific
expenses.
J. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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 expenses during the reporting period. Actual results could differ from those
estimates.
K. REDEMPTION FEES
A short term trading redemption fee will be imposed, with some exceptions, on
any fund shares that are redeemed or exchanged within seven calendar days
following their purchase date. The redemption fee is 2% of the amount redeemed.
Such fees are retained by the funds and accounted for as an addition to paid-in
capital.
L. GUARANTEES AND INDEMNIFICATIONS
Under the Custodian Funds' organizational documents, their officers and
directors are indemnified by the Custodian Funds against certain liabilities
arising out of the performance of their duties to the Custodian Funds.
Additionally, in the normal course of business, the Custodian Funds enter into
contracts with service providers that contain general indemnification clauses.
The Custodian Funds' maximum exposure under these arrangements is unknown as
this would involve future claims that may be made against the Custodian Funds
that have not yet occurred. Currently, the Custodian Funds expect the risk of
loss to be remote.
2. CAPITAL STOCK
At September 30, 2007, there were 46.2 billion shares of the Custodian Funds
authorized ($0.01 par value) and allocated to the Funds as follows (in
millions):
------------------------------------------------------------------------------
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN U.S. GOVERNMENT FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
------------------------------------------------------------------------------
1,000 3,250 30,400 8,000 3,550
Annual Report | 121
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
Shareholders approved an Amended and Restated Declaration of Trust, which
changed the authorized shares from $0.01 par value to no par value, effective
February 1, 2008. Transactions in the Funds' shares were as follows:
--------------------------------------------------------------
FRANKLIN DYNATECH FUND FRANKLIN GROWTH FUND
--------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------
CLASS A SHARES:
Year ended September 30, 2007
Shares sold .................................................... 2,290,315 $ 65,251,876 7,116,058 $ 308,077,143
Shares issued on merger (Note 11) .............................. -- -- 3,043,797 137,823,135
Shares issued in reinvestment of distributions ................. -- -- 101,412 4,209,599
Shares redeemed ................................................ (8,062,352) (224,449,492) (7,830,995) (338,163,686)
--------------------------------------------------------------
Net increase (decrease) ........................................ (5,772,037) $ (159,197,616) 2,430,272 $ 111,946,191
==============================================================
Year ended September 30, 2006
Shares sold .................................................... 7,549,106 $ 196,574,987 5,839,020 $ 216,936,848
Shares issued in reinvestment of distributions ................. -- -- 72,200 2,651,898
Shares redeemed ................................................ (9,824,846) (254,781,943) (7,553,843) (280,655,618)
--------------------------------------------------------------
Net increase (decrease) ........................................ (2,275,740) $ (58,206,956) (1,642,623) $ (61,066,872)
==============================================================
CLASS B SHARES:
Year ended September 30, 2007
Shares sold .................................................... 35,535 $ 983,338 126,580 $ 5,254,130
Shares issued on merger (Note 11) .............................. -- -- 417,038 18,128,654
Shares redeemed ................................................ (251,520) (6,674,033) (685,999) (28,714,604)
--------------------------------------------------------------
Net increase (decrease) ........................................ (215,985) $ (5,690,695) (142,381) $ (5,331,820)
==============================================================
Year ended September 30, 2006
Shares sold .................................................... 130,112 $ 3,277,620 131,693 $ 4,727,781
Shares redeemed ................................................ (181,335) (4,434,053) (542,288) (19,462,321)
--------------------------------------------------------------
Net increase (decrease) ........................................ (51,223) $ (1,156,433) (410,595) $ (14,734,540)
==============================================================
CLASS C SHARES:
Year ended September 30, 2007
Shares sold .................................................... 309,370 $ 8,310,379 908,813 $ 37,554,639
Shares issued on merger (Note 11) .............................. -- -- 716,864 30,896,850
Shares redeemed ................................................ (816,939) (21,547,078) (1,217,586) (50,256,500)
--------------------------------------------------------------
Net increase (decrease) ........................................ (507,569) $ (13,236,699) 408,091 $ 18,194,989
==============================================================
Year ended September 30, 2006
Shares sold .................................................... 544,669 $ 13,596,186 805,722 $ 28,644,387
Shares redeemed ................................................ (804,572) (19,604,132) (1,568,706) (55,689,353)
--------------------------------------------------------------
Net increase (decrease) ........................................ (259,903) $ (6,007,946) (762,984) $ (27,044,966)
==============================================================
122 | Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
-----------------------------
FRANKLIN GROWTH FUND
-----------------------------
SHARES AMOUNT
-----------------------------
CLASS R SHARES:
Year ended September 30, 2007
Shares sold ..................................................................................... 673,616 $ 29,574,369
Shares issued on merger (Note 11) ............................................................... 111,203 4,998,560
Shares issued in reinvestment of distributions .................................................. 170 7,025
Shares redeemed ................................................................................. (604,060) (26,234,421)
-----------------------------
Net increase (decrease) ......................................................................... 180,929 $ 8,345,533
=============================
Year ended September 30, 2006
Shares sold ..................................................................................... 761,379 $ 28,236,014
Shares issued in reinvestment of distributions .................................................. 30 1,108
Shares redeemed ................................................................................. (591,370) (21,856,621)
-----------------------------
Net increase (decrease) ......................................................................... 170,039 $ 6,380,501
=============================
ADVISOR CLASS SHARES:
Year ended September 30, 2007
Shares sold ..................................................................................... 1,295,736 $ 56,171,819
Shares issued in reinvestment of distributions .................................................. 30,693 1,273,761
Shares redeemed ................................................................................. (517,639) (22,472,830)
-----------------------------
Net increase (decrease) ......................................................................... 808,790 $ 34,972,750
=============================
Year ended September 30, 2006
Shares sold ..................................................................................... 1,865,004 $ 68,842,317
Shares issued in reinvestment of distributions .................................................. 23,979 880,512
Shares redeemed ................................................................................. (1,234,780) (45,262,911)
-----------------------------
Net increase (decrease) ......................................................................... 654,203 $ 24,459,918
=============================
-----------------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
-----------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------------
CLASS A SHARES:
Year ended September 30, 2007
Shares sold ........................................... 3,628,482,534 $ 9,782,378,082 89,570,006 $ 572,054,399
Shares issued in reinvestment of distributions ........ 571,568,447 1,528,060,841 27,176,503 173,586,391
Shares redeemed ....................................... (1,607,011,948) (4,327,948,552) (146,074,856) (933,863,281)
-----------------------------------------------------------------------
Net increase (decrease) ............................... 2,593,039,033 $ 6,982,490,371 (29,328,347) $ (188,222,491)
=======================================================================
Year ended September 30, 2006
Shares sold ........................................... 2,696,366,641 $ 6,638,171,639 74,108,689 $ 475,165,349
Shares issued in reinvestment of distributions ........ 419,071,279 1,027,948,938 27,302,160 174,712,964
Shares redeemed ....................................... (1,536,463,921) (3,773,808,359) (182,139,799) (1,168,217,333)
-----------------------------------------------------------------------
Net increase (decrease) ............................... 1,578,973,999 $ 3,892,312,218 (80,728,950) $ (518,339,020)
=======================================================================
Annual Report | 123
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
----------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS B SHARES:
Year ended September 30, 2007
Shares sold .................... 26,283,586 $ 70,278,655 3,616,339 $ 23,020,104
Shares issued in reinvestment
of distributions ............. 57,504,745 152,858,061 1,811,967 11,565,622
Shares redeemed ................ (171,972,882) (461,113,108) (16,362,133) (104,390,366)
----------------------------------------------------------------
Net increase (decrease) ........ (88,184,551) $ (237,976,392) (10,933,827) $ (69,804,640)
================================================================
Year ended September 30, 2006
Shares sold .................... 26,637,625 $ 65,369,671 1,981,038 $ 12,637,018
Shares issued in reinvestment
of distributions ............. 55,871,397 136,411,780 2,075,139 13,272,404
Shares redeemed ................ (197,429,792) (483,022,409) (16,913,499) (108,288,331)
----------------------------------------------------------------
Net increase (decrease) ........ (114,920,770) $ (281,240,958) (12,857,322) $ (82,378,909)
================================================================
CLASS B1 SHARES:
Year ended September 30, 2007
Shares sold .................... 899,431 $ 2,413,953
Shares issued in reinvestment
of distributions ............. 6,473,282 17,262,644
Shares redeemed ................ (40,982,281) (111,153,664)
--------------------------------
Net increase (decrease) ........ (33,609,568) $ (91,477,067)
================================
Year ended September 30, 2006
Shares sold .................... 1,061,971 $ 2,609,506
Shares issued in reinvestment
of distributions ............. 6,529,196 15,992,703
Shares redeemed ................ (26,407,031) (64,853,228)
--------------------------------
Net increase (decrease) ........ (18,815,864) $ (46,251,019)
================================
CLASS C SHARES:
Year ended September 30, 2007
Shares sold .................... 1,644,870,588 $ 4,457,040,035 15,412,013 $ 97,975,806
Shares issued in reinvestment
of distributions ............. 222,758,383 598,767,427 2,096,225 13,330,712
Shares redeemed ................ (680,795,624) (1,844,285,532) (17,971,749) (114,344,289)
----------------------------------------------------------------
Net increase (decrease) ........ 1,186,833,347 $ 3,211,521,930 (463,511) $ (3,037,771)
================================================================
Year ended September 30, 2006
Shares sold .................... 1,197,637,346 $ 2,970,142,401 9,638,095 $ 61,502,139
Shares issued in reinvestment
of distributions ............. 166,806,121 411,488,472 2,119,611 13,512,599
Shares redeemed ................ (698,120,168) (1,723,997,750) (23,652,039) (151,089,904)
----------------------------------------------------------------
Net increase (decrease) ........ 666,323,299 $ 1,657,633,123 (11,894,333) $ (76,075,166)
================================================================
124 | Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
----------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
CLASS R SHARES:
Year ended September 30, 2007
Shares sold .................... 53,585,214 $ 142,909,679 4,541,307 $ 28,992,426
Shares issued in reinvestment
of distributions ............. 5,151,276 13,638,691 540,550 3,451,439
Shares redeemed ................ (25,079,906) (66,875,757) (4,480,075) (28,589,227)
----------------------------------------------------------------
Net increase (decrease) ........ 33,656,584 $ 89,672,613 601,782 $ 3,854,638
================================================================
Year ended September 30, 2006
Shares sold .................... 35,951,956 $ 87,751,074 3,883,199 $ 24,836,010
Shares issued in reinvestment
of distributions ............. 3,434,439 8,359,852 460,538 2,944,655
Shares redeemed ................ (16,667,648) (40,656,253) (3,359,689) (21,571,426)
----------------------------------------------------------------
Net increase (decrease) ........ 22,718,747 $ 55,454,673 984,048 $ 6,209,239
================================================================
ADVISOR CLASS SHARES:
Year ended September 30, 2007
Shares sold .................... 769,652,986 $ 2,071,994,710 12,993,585 $ 83,208,714
Shares issued in reinvestment
of distributions ............. 125,446,877 334,084,120 3,251,900 20,807,294
Shares redeemed ................ (101,321,041) (274,940,459) (2,877,041) (18,435,683)
----------------------------------------------------------------
Net increase (decrease) ........ 793,778,822 $ 2,131,138,371 13,368,444 $ 85,580,325
================================================================
Year ended September 30, 2006
Shares sold .................... 536,707,405 $ 1,314,899,137 20,893,833 $ 134,424,816
Shares issued in reinvestment
of distributions ............. 75,142,358 183,808,062 2,672,825 17,119,867
Shares redeemed ................ (49,253,364) (119,467,128) (14,613,605) (94,269,258)
----------------------------------------------------------------
Net increase (decrease) ........ 562,596,399 $ 1,379,240,071 8,953,053 $ 57,275,425
================================================================
-----------------------------
FRANKLIN UTILITIES FUND
-----------------------------
SHARES AMOUNT
-----------------------------
CLASS A SHARES:
Year ended September 30, 2007
Shares sold ...................................................... 16,452,979 $ 234,790,574
Shares issued in reinvestment of distributions ................... 7,413,021 102,543,663
Shares redeemed .................................................. (25,346,996) (359,175,212)
------------------------------
Net increase (decrease) .......................................... (1,480,996) $ (21,840,975)
==============================
Year ended September 30, 2006
Shares sold ...................................................... 21,710,054 $ 263,631,372
Shares issued in reinvestment of distributions ................... 4,863,147 59,003,083
Shares redeemed .................................................. (34,893,525) (421,544,661)
------------------------------
Net increase (decrease) .......................................... (8,320,324) $ (98,910,206)
==============================
CLASS B SHARES:
Year ended September 30, 2007
Shares sold ...................................................... 350,265 $ 4,952,986
Shares issued in reinvestment of distributions ................... 336,830 4,638,541
Shares redeemed .................................................. (2,318,432) (32,950,060)
------------------------------
Net increase (decrease) .......................................... (1,631,337) $ (23,358,533)
==============================
Annual Report | 125
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. CAPITAL STOCK (CONTINUED)
------------------------------
FRANKLIN UTILITIES FUND
------------------------------
SHARES AMOUNT
------------------------------
CLASS B SHARES: (CONTINUED)
Year ended September 30, 2006
Shares sold ...................................................... 520,507 $ 6,326,393
Shares issued in reinvestment of distributions ................... 231,269 2,799,228
Shares redeemed .................................................. (2,628,864) (31,812,682)
------------------------------
Net increase (decrease) .......................................... (1,877,088) $ (22,687,061)
==============================
CLASS C SHARES:
Year ended September 30, 2007
Shares sold ...................................................... 4,165,031 $ 59,095,738
Shares issued in reinvestment of distributions ................... 944,817 12,995,547
Shares redeemed .................................................. (6,325,289) (89,769,959)
------------------------------
Net increase (decrease) .......................................... (1,215,441) $ (17,678,674)
==============================
Year ended September 30, 2006
Shares sold ...................................................... 4,480,664 $ 54,267,851
Shares issued in reinvestment of distributions ................... 576,307 6,963,061
Shares redeemed .................................................. (9,312,099) (111,649,248)
------------------------------
Net increase (decrease) .......................................... (4,255,128) $ (50,418,336)
==============================
CLASS R SHARES:
Year ended September 30, 2007
Shares sold ...................................................... 1,804,789 $ 25,896,475
Shares issued in reinvestment of distributions ................... 144,680 2,003,404
Shares redeemed .................................................. (1,227,664) (17,432,776)
------------------------------
Net increase (decrease) .......................................... 721,805 $ 10,467,103
==============================
Year ended September 30, 2006
Shares sold ...................................................... 1,759,282 $ 21,583,826
Shares issued in reinvestment of distributions ................... 54,640 665,605
Shares redeemed .................................................. (823,343) (9,911,712)
------------------------------
Net increase (decrease) .......................................... 990,579 $ 12,337,719
==============================
ADVISOR CLASS SHARES:
Year ended September 30, 2007
Shares sold ...................................................... 2,917,605 $ 42,109,228
Shares issued in reinvestment of distributions ................... 339,912 4,731,472
Shares redeemed .................................................. (5,286,535) (74,395,229)
------------------------------
Net increase (decrease) .......................................... (2,029,018) $ (27,554,529)
==============================
Year ended September 30, 2006
Shares sold ...................................................... 2,685,330 $ 33,289,067
Shares issued in reinvestment of distributions ................... 269,026 3,282,823
Shares redeemed .................................................. (3,720,560) (44,964,670)
------------------------------
Net increase (decrease) .......................................... (766,204) $ (8,392,780)
==============================
126 | Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
directors of the Custodian Funds are also officers and/or directors of the
following subsidiaries:
- -----------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- -----------------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Investment Advisory Services, LLC (Investment Advisory) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES
The Funds, except Franklin Growth Fund, pay an investment management fee to
Advisers, whereas the Franklin Growth Fund pays an investment management fee to
Investment Advisory, based on the month-end net assets of each of the funds as
follows:
- -------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- -------------------------------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% Over $20 billion, up to and including $35 billion
0.355% Over $35 billion, up to and including $50 billion
0.350% In excess of $50 billion
B. ADMINISTRATIVE FEES
Under an agreement with Advisers and Investment Advisory, FT Services provides
administrative services to the Funds. The fee is paid by Advisers and Investment
Advisory based on average daily net assets, and is not an additional expense of
the Funds.
C. DISTRIBUTION FEES
The Custodian Funds Board of Directors has adopted distribution plans for each
share class, with the exception of Advisor Class shares, pursuant to Rule 12b-1
under the 1940 Act. Under the Funds' Class A reimbursement distribution plans,
the Funds reimburse Distributors for costs incurred in connection with the
servicing, sale and distribution of each fund's shares up to the maximum annual
plan rate. Under the Class A reimbursement distribution plans, costs exceeding
the maximum for the current plan year cannot be reimbursed in subsequent
periods.
In addition, under the Funds' compensation distribution plans, the Funds pay
Distributors for costs incurred in connection with the servicing, sale and
distribution of each fund's shares up to the maximum annual plan rate for each
class.
Annual Report | 127
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES (CONTINUED)
The maximum annual plan rates, based on the average daily net assets, for each
class, are as follows:
------------------------------------------------------------
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN U.S. GOVERNMENT FRANKLIN
DYNATECH GROWTH INCOME SECURITIES UTILITIES
FUND FUND FUND FUND FUND
------------------------------------------------------------
Reimbursement Plans:
Class A ............ 0.25% 0.25% 0.15% 0.15% 0.15%
Compensation Plans:
Class B ............ 1.00% 1.00% 1.00% 0.65% 0.65%
Class B1 ........... -- -- 0.65% -- --
Class C ............ 1.00% 1.00% 0.65% 0.65% 0.65%
Class R ............ -- 0.50% 0.50% 0.50% 0.50%
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the year:
---------------------------------
FRANKLIN FRANKLIN FRANKLIN
DYNATECH GROWTH INCOME
FUND FUND FUND
---------------------------------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ...... $79,633 $803,599 $29,777,030
Contingent deferred sales charges retained .. $41,862 $134,002 $ 6,432,303
-------------------------
FRANKLIN U.S.
GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
-------------------------
Sales charges retained net of commissions
paid to unaffiliated broker/dealers ...... $729,106 $438,393
Contingent deferred sales charges retained .. $646,551 $149,316
E. TRANSFER AGENT FEES
For the year ended September 30, 2007, the Funds paid transfer agent fees as
noted in the Statements of Operations of which the following amounts were
retained by Investor Services:
-----------------------------------
FRANKLIN FRANKLIN FRANKLIN
DYNATECH GROWTH INCOME
FUND FUND FUND
-----------------------------------
Transfer agent fees ...................... $945,615 $3,283,430 $20,622,792
128 | Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES (CONTINUED)
----------------------------
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
----------------------------
Transfer agent fees ............................. $5,628,720 $1,954,890
F. OTHER AFFILIATED TRANSACTIONS
Included in professional fees are legal fees of $162,276 that were paid to a law
firm in which a partner is an officer of the Funds.
4. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an arrangement with their custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Funds' custodian expenses. During the year ended September 30, 2007, the
custodian fees were reduced as noted in the Statements of Operations.
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At September 30, 2007, the capital loss carryforwards were as
follows:
-------------------------------------------
FRANKLIN
FRANKLIN FRANKLIN U.S. GOVERNMENT
DYNATECH GROWTH SECURITIES
FUND FUND FUND
-------------------------------------------
Capital loss carryforwards expiring in:
2008 ..................................... $ -- $ -- $ 21,105,846
2009 ..................................... -- -- 46,256,951
2010 ..................................... -- -- 11,768,551
2011 ..................................... -- 70,730,110 33,556,845
2012 ..................................... -- 39,052,129 129,102,166
2013 ..................................... 1,854,237 -- 74,283,298
2014 ..................................... -- -- 47,763,112
2015 ..................................... -- -- 28,034,940
-------------------------------------------
$1,854,237 $109,782,239 $391,871,709
===========================================
During the year ended September 30, 2007, the Franklin DynaTech Fund, Franklin
Growth Fund and Franklin Income Fund utilized $53,798,142, $8,038,468, and
$2,516,775, respectively, of capital loss carryforwards.
On September 30, 2007, the Franklin U.S. Government Securities Fund had expired
capital loss carryforwards of $18,954,412, which were reclassified to paid-in
capital.
Annual Report | 129
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
For tax purposes, realized capital losses and realized currency losses occurring
subsequent to October 31, may be deferred and treated as occurring on the first
day of the following fiscal year. At September 30, 2007, the Franklin U.S.
Government Securities Fund deferred realized capital losses of $17,825,714. At
September 30, 2007, the Franklin DynaTech Fund, Franklin Growth Fund and
Franklin Income Fund deferred realized currency losses of $2,421, $11,158, and
$73,767, respectively.
The tax character of distributions paid during the years ended September 30,
2007 and 2006, was as follows:
--------------------------------------------------------------
FRANKLIN GROWTH FUND FRANKLIN INCOME FUND
--------------------------------------------------------------
2007 2006 2007 2006
--------------------------------------------------------------
Distributions paid from:
Ordinary income ............... $ 6,021,264 $ 3,843,957 $3,235,233,816 $2,449,083,601
Long term capital gain ........ -- -- 374,915,100 145,549,815
--------------------------------------------------------------
$ 6,021,264 $ 3,843,957 $3,610,148,916 $2,594,633,416
--------------------------------------------------------------
--------------------------------------------------------------
FRANKLIN U.S. GOVERNMENT
SECURITIES FUND FRANKLIN UTILITIES FUND
--------------------------------------------------------------
2007 2006 2007 2006
--------------------------------------------------------------
Distributions paid from:
Ordinary income ............... $325,987,294 $331,363,364 $ 95,172,967 $ 82,074,530
Long term capital gain ........ -- -- 73,352,914 19,321,588
--------------------------------------------------------------
$325,987,294 $331,363,364 $ 168,525,881 $ 101,396,118
==============================================================
At September 30, 2007, the cost of investments, net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
DYNATECH GROWTH INCOME
FUND FUND FUND
------------------------------------------------
Cost of investments ............................. $294,049,116 $1,056,527,539 $55,809,618,692
================================================
Unrealized appreciation ......................... $347,685,349 $1,971,541,654 $ 7,326,768,613
Unrealized depreciation ......................... (34,943) (6,255,853) (1,122,834,143)
------------------------------------------------
Net unrealized appreciation (depreciation) ...... $347,650,406 $1,965,285,801 $ 6,203,934,470
================================================
Undistributed ordinary income ................... $ -- $ 5,085,268 $ 347,418,979
Undistributed long term capital gains ........... -- -- 1,021,603,565
------------------------------------------------
Distributable earnings .......................... $ -- $ 5,085,268 $ 1,369,022,544
================================================
130 | Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
---------------------------------
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
---------------------------------
Cost of investments ........................ $ 6,450,842,516 $1,754,389,821
=================================
Unrealized appreciation .................... $ 31,902,856 $1,092,003,204
Unrealized depreciation .................... (111,595,741) (8,656,935)
---------------------------------
Net unrealized appreciation (depreciation).. $ (79,692,885) $1,083,346,269
=================================
Undistributed ordinary income .............. $ 4,662,479 $ 10,472,226
Undistributed long term capital gains ...... -- 99,227,408
---------------------------------
Distributable earnings ..................... $ 4,662,479 $ 109,699,634
=================================
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of defaulted securities, foreign currency
transactions, paydown losses and bond discounts and premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, paydown losses and bond discounts and premiums.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended September 30, 2007, were as follows:
-------------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
-------------------------------------------------
Purchases .................. $ 112,581,153 $ 9,980,277 $21,275,861,791
Sales ...................... $ 289,655,031 $ 37,141,473 $13,342,221,760
----------------------------------
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
----------------------------------
Purchases .................. $ 766,889,031 $ 302,880,463
Sales ...................... $ 1,120,074,248 $ 494,916,274
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Funds are reduced on assets invested in
the Sweep Money Fund, in an amount not to exceed the management and
administrative fees paid by the Sweep Money Fund.
Annual Report | 131
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin Income Fund has 40.9% of its portfolio invested in below investment
grade and comparable quality unrated high yield securities, which tend to be
more sensitive to economic conditions than higher rated securities. The risk of
loss due to default by the issuer may be significantly greater for the holders
of high yielding securities because such securities are generally unsecured and
are often subordinated to other creditors of the issuer.
The Franklin Income Fund held defaulted securities and/or other securities for
which the income has been deemed uncollectible. At September 30, 2007, the
aggregate value of these securities was $438,687,350, representing 0.71% of the
Fund's net assets. The Fund discontinues accruing income on securities for which
income has been deemed uncollectible and provides an estimate for losses on
interest receivable. The securities have been identified on the accompanying
Statement of Investments.
9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The 1940 Act defines "affiliated companies" to include investments in portfolio
companies in which a fund owns 5% or more of the outstanding voting securities.
Investments in "affiliated companies" for the Franklin Income Fund for the year
ended September 30, 2007, were as shown below.
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF
SHARES SHARES REALIZED
HELD AT HELD AT VALUE CAPITAL
BEGINNING GROSS GROSS END AT END INVESTMENT GAIN
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS OF YEAR OF YEAR INCOME (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
NON-CONTROLLED AFFILIATES
Ameren Corp. ........................... 11,274,400 1,225,600 -- 12,500,000 $ 656,250,000 $ 30,920,309 $ --
Canadian Oil Sands Trust ............... 25,770,600 -- -- 25,770,600 855,176,027 27,619,121 --
Pinnacle West Capital Corp. ............ 5,500,000 -- -- 5,500,000 217,305,000 11,550,000 --
Public Service Enterprise Group Inc. ... 16,500,000 1,179,600 4,179,600 13,500,000 1,187,865,000 37,423,665 60,558,457
Puget Energy Inc. ...................... 7,500,000 -- -- 7,500,000 183,525,000 7,500,000 --
------------------------------------------
TOTAL AFFILIATED SECURITIES (4.98% of Net Assets) ..................... $3,100,121,027 $115,013,095 $ 60,558,457
==========================================
10. OTHER CONSIDERATIONS
Officers, directors or employees of the Franklin Income Fund's Investment
Manager, may serve from time to time as members of bondholders' steering
committees or official creditors' committees. Such participation may result in
the possession by the Investment Manager of material non-public information
which, pursuant to the Fund's policies and the requirements of applicable
securities laws, could prevent the Fund from trading in the securities of such
companies for limited or extended periods of time.
132 | Annual Report
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. MERGER
On June 15, 2007, the Franklin Growth Fund acquired the net assets of the
Franklin Blue Chip Fund pursuant to a plan of reorganization approved by the
Franklin Blue Chip Fund's shareholders. The merger was accomplished by a
tax-free exchange of 3,043,797 shares of Class A, 417,038 shares of Class B,
716,864 shares of Class C and 111,203 shares of Class R of the Franklin Growth
Fund (valued at $45.28 for Class A, $43.47 for Class B, $43.10 for Class C and
$44.95 for Class R) for the net assets of the Franklin Blue Chip Fund which
aggregated $191,847,199, including $49,120,531 of unrealized appreciation
(depreciation). The combined net assets of the Franklin Growth Fund immediately
after the merger were $2,955,373,004.
12. REORGANIZATION TO A DELAWARE STATUTORY TRUST
On October 17, 2006, the Board of Directors approved an Agreement and Plan of
Reorganization (the Agreement) whereby the Custodian Funds would be reorganized
and their domicile changed from a Maryland corporation to a Delaware statutory
trust. On April 11, 2007, shareholders of the Custodian Funds approved the
agreement. The reorganization becomes effective on February 1, 2008.
13. REGULATORY AND LITIGATION MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission (SEC), relating to certain practices in the mutual fund industry,
including late trading, market timing and marketing support payments to
securities dealers who sell fund shares (marketing support), Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the Company), entered into
settlements with certain of those regulators and governmental entities.
Specifically, the Company entered into settlements with the SEC, among others,
concerning market timing and marketing support.
On June 6, 2007, the SEC posted for public comment the proposed plan of
distribution for the market timing settlement. Once the SEC approves the final
plan of distribution, disbursements of settlement monies will be made promptly
to individuals who were shareholders of the designated funds during the relevant
period, in accordance with the terms and conditions of the settlement and plan.
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, Company directors,
fund directors, and employees, have been named in private lawsuits (styled as
shareholder class actions, or as derivative actions on behalf of either the
named funds or Franklin Resources, Inc.). The lawsuits relate to the industry
practices referenced above.
Annual Report | 133
Franklin Custodian Funds, Inc.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. REGULATORY AND LITIGATION MATTERS (CONTINUED)
The Company and fund management believe that the claims made in each of the
private lawsuits referenced above are without merit and intend to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. If it is determined that the Company bears responsibility for any
unlawful or inappropriate conduct that caused losses to the Custodian Funds, it
is committed to making the Custodian Funds or their shareholders whole, as
appropriate.
14. NEW ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" (FIN 48), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. On December 22, 2006, the Securities and Exchange
Commission extended the implementation date to no later than the last net asset
value calculation in the first semi-annual reporting period beginning after
December 15, 2006. The Custodian Funds believe the adoption of FIN 48 will have
no material impact on their financial statements.
In September 2006, FASB issued FASB Statement No. 157, "Fair Value Measurement"
(SFAS 157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning after November 15, 2007, and interim
periods within those fiscal years. The Custodian Funds believe the adoption of
SFAS 157 will have no material impact on their financial statements.
134 | Annual Report
Franklin Custodian Funds, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF FRANKLIN CUSTODIAN FUNDS, INC.
In our opinion, the accompanying statements of assets and liabilities, including
the statements 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 DynaTech Fund, Franklin
Growth Fund, Franklin Income Fund, Franklin U.S. Government Securities Fund and
Franklin Utilities Fund, separate portfolios of Franklin Custodian Funds, Inc.
(hereafter referred to as the "Funds") at September 30, 2007, the results of
each of their operations for the year then ended, the changes in each of their
net assets for each of the two years in the period then ended and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards 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 September 30, 2007 by
correspondence with the custodian and brokers and agent banks, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
November 16, 2007
Annual Report | 135
Franklin Custodian Funds, Inc.
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividend for the fiscal year ended September 30, 2007:
-------------------------------
FRANKLIN FRANKLIN
INCOME FUND UTILITIES FUND
-------------------------------
$1,120,067,944 $107,966,791
Under Section 871(k)(2)(C) of the Code, the funds designate the maximum amount
allowable but no less than the following amounts as a short term capital gain
dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended September 30, 2007:
-------------------------------
FRANKLIN FRANKLIN
INCOME FUND UTILITIES FUND
-------------------------------
$ 323,948,301 $ 14,286,613
Under Section 854(b)(2) of the Code, the funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended September 30, 2007.
------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
GROWTH FUND INCOME FUND UTILITIES FUND
------------------------------------------
100% 23.41% 86.50%
Under Section 854(b)(2) of the Code, the funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended September 30, 2007.
------------------------------------------
FRANKLIN FRANKLIN FRANKLIN
GROWTH FUND INCOME FUND UTILITIES FUND
------------------------------------------
$34,520,254 $817,657,340 $ 90,420,245
In January 2008, shareholders will receive Form 1099-DIV which will include
their share of qualified dividends distributed during the calendar year 2007.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Under Section 871(k)(1)(C) of the Code, the funds designate the maximum amount
allowable but no less than the following amounts as interest related dividends
for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended September 30, 2007.
----------------------------------------------------------------
FRANKLIN
FRANKLIN FRANKLIN U.S. GOVERNMENT FRANKLIN
GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
----------------------------------------------------------------
$179,137 $2,079,423,422 $316,874,618 $8,770,542
136 | Annual Report
Franklin Custodian Funds, Inc.
Franklin DynaTech Fund
Franklin Growth Fund
Franklin Income Fund
Franklin U.S. Government Securities Fund
Franklin Utilities Fund
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED)
A Special Meeting of Shareholders of the Custodian Funds was held at the
Custodian Funds' offices, One Franklin Parkway, San Mateo, California on March
21, 2007 and reconvened on April 11, 2007. The purpose of the meeting was to
elect Directors of the Custodian Funds and to vote on the following Proposals
and Sub-Proposals: to approve an Agreement and Plan of Reorganization that
provides for the reorganization of the Custodian Funds from a Maryland
corporation to a Delaware statutory trust; to approve amendments to certain of
the Franklin DynaTech Fund, Franklin Growth Fund, Franklin Income Fund, Franklin
U.S. Government Securities Fund and Franklin Utilities Fund (each, a "Fund") and
to approve the elimination of certain of the Custodian Funds' fundamental
investment restrictions. At the meeting, the following persons were elected by
the shareholders to serve as Independent Directors of the Custodian Funds:
Harris J. Ashton, Robert F. Carlson, Sam Ginn, Edith E. Holiday, Frank W.T.
LaHaye, Frank A. Olson, Larry D. Thompson and John B. Wilson. Charles B. Johnson
and Rupert H. Johnson, Jr. were elected by the shareholders to serve as
Interested Directors. Shareholders also approved the Agreement and Plan of
Reorganization providing for the reorganization of the Custodian Funds from a
Maryland corporation to a Delaware statutory trust, amendments to certain of the
Custodian Funds' fundamental investment restrictions (including several
Sub-Proposals), and the elimination of certain of the Custodian Funds'
fundamental investment restrictions. No other business was transacted at the
meeting.
The results of the voting at the meeting are as follows:
Proposal 1. The Election of Trustees:
- -----------------------------------------------------------------------------------------------------------------------------------
% OF % OF % OF % OF
OUTSTANDING VOTED OUTSTANDING VOTED
NAME FOR SHARES SHARES WITHHELD SHARES SHARES
- -----------------------------------------------------------------------------------------------------------------------------------
Harris J. Ashton ............................ 13,559,580,139.838 64.527% 97.778% 308,094,509.408 1.467% 2.222%
Robert F. Carlson ........................... 13,576,387,672.321 64.607% 97.900% 291,286,976.925 1.387% 2.100%
Sam Ginn .................................... 13,577,809,678.864 64.614% 97.910% 289,864,970.382 1.380% 2.090%
Edith E. Holiday ............................ 13,561,400,010.262 64.536% 97.791% 306,274,638.984 1.458% 2.209%
Frank W.T. LaHaye ........................... 13,575,022,002.746 64.601% 97.890% 292,652,646.500 1.393% 2.110%
Frank A. Olson .............................. 13,561,035,752.592 64.534% 97.789% 306,638,896.654 1.460% 2.211%
Larry D. Thompson ........................... 13,586,263,584.807 64.654% 97.971% 281,411,064.439 1.340% 2.029%
John B. Wilson .............................. 13,587,505,180.208 64.660% 97.980% 280,169,469.038 1.334% 2.020%
Charles B. Johnson .......................... 13,576,311,514.292 64.607% 97.899% 291,363,134.954 1.387% 2.101%
Rupert H. Johnson, Jr. ...................... 13,579,838,065.652 64.624% 97.924% 287,836,583.594 1.370% 2.076%
Annual Report | 137
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED) (CONTINUED)
Proposal 2. To approve an Agreement and Plan of Reorganization that provides for
the reorganization of the Custodian Funds from a Maryland corporation to a
Delaware statutory trust:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,610,220,145.944 45.734% 69.300%
Against .......................... 236,094,071.978 1.124% 1.703%
Abstain .......................... 575,495,164.324 2.738% 4.149%
Broker Non-Votes ................. 3,445,865,267.000 16.398% 24.848%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,867,674,649.246 65.994% 100.000%
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals):
(a) To amend the Funds' fundamental investment restriction regarding borrowing:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,897,508.034 40.854% 71.535%
Against .......................... 357,134.165 1.474% 2.581%
Abstain .......................... 285,591.354 1.179% 2.064%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,179,271.483 37.393% 69.946%
Against .......................... 1,070,714.663 1.727% 3.231%
Abstain .......................... 1,283,324.255 2.071% 3.873%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,862,773,489.910 44.949% 67.803%
Against .......................... 345,294,261.271 1.751% 2.641%
Abstain .......................... 546,098,017.321 2.769% 4.178%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
138 | Annual Report
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(a) To amend the Funds' fundamental investment restriction regarding borrowing:
(CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 467,627,389.268 46.403% 75.447%
Against .......................... 23,549,700.986 2.337% 3.799%
Abstain .......................... 34,344,534.722 3.408% 5.542%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 95,163,040.233 47.083% 73.501%
Against .......................... 4,975,890.676 2.462% 3.843%
Abstain .......................... 5,909,513.905 2.924% 4.565%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
(b) To amend the Funds' fundamental investment restriction regarding
underwriting:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,950,021.073 41.070% 71.914%
Against .......................... 305,203.010 1.260% 2.206%
Abstain .......................... 285,009.470 1.177% 2.060%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,450,628.787 37.831% 70.765%
Against .......................... 780,915.389 1.260% 2.356%
Abstain .......................... 1,301,766.225 2.100% 3.929%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
Annual Report | 139
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(b) To amend the Funds' fundamental investment restriction regarding
underwriting: (CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,905,591,857.419 45.166% 68.130%
Against .......................... 282,426,928.765 1.432% 2.161%
Abstain .......................... 566,146,982.318 2.871% 4.331%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 472,016,696.007 46.839% 76.155%
Against .......................... 19,284,702.136 1.914% 3.111%
Abstain .......................... 34,220,226.833 3.395% 5.522%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 95,708,498.519 47.353% 73.923%
Against .......................... 4,208,000.233 2.082% 3.250%
Abstain .......................... 6,131,946.062 3.034% 4.736%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
(c) To amend the Funds' fundamental investment restriction regarding lending:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,939,084.584 41.025% 71.835%
Against .......................... 318,414.894 1.315% 2.302%
Abstain .......................... 282,734.075 1.167% 2.043%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
140 | Annual Report
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(c) To amend the Funds' fundamental investment restriction regarding lending:
(CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,318,782.457 37.618% 70.367%
Against .......................... 974,829.576 1.573% 2.942%
Abstain .......................... 1,239,698.368 2.000% 3.741%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,869,088,816.414 44.981% 67.851%
Against .......................... 328,356,259.181 1.665% 2.512%
Abstain .......................... 556,720,692.907 2.823% 4.259%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 469,048,814.656 46.544% 75.677%
Against .......................... 21,745,872.885 2.158% 3.508%
Abstain .......................... 34,726,937.435 3.446% 5.603%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 95,173,126.619 47.088% 73.509%
Against .......................... 4,880,914.643 2.415% 3.770%
Abstain .......................... 5,994,403.552 2.966% 4.630%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
Annual Report | 141
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED
ON APRIL 11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(d) To amend the Funds' fundamental investment restriction regarding investments
in real estate:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,970,851.564 41.156% 72.065%
Against .......................... 292,879.249 1.209% 2.117%
Abstain .......................... 276,502.740 1.142% 1.998%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,533,979.721 37.965% 71.017%
Against .......................... 786,759.532 1.269% 2.375%
Abstain .......................... 1,212,571.148 1.957% 3.658%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,905,965,997.235 45.168% 68.133%
Against .......................... 299,978,194.279 1.521% 2.295%
Abstain .......................... 548,221,576.988 2.780% 4.194%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 470,903,708.043 46.729% 75.976%
Against .......................... 20,451,808.810 2.029% 3.300%
Abstain .......................... 34,166,108.123 3.390% 5.512%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
142 | Annual Report
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED
ON APRIL 11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(d) To amend the Funds' fundamental investment restriction regarding investments
in real estate: (CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 95,544,812.853 47.272% 73.796%
Against .......................... 4,479,138.438 2.216% 3.459%
Abstain .......................... 6,024,493.523 2.981% 4.654%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
(e) To amend the Funds' fundamental investment restriction regarding investments
in commodities:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,937,637.192 41.019% 71.825%
Against .......................... 315,535.981 1.303% 2.280%
Abstain .......................... 287,060.380 1.185% 2.075%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,362,612.801 37.689% 70.500%
Against .......................... 920,535.264 1.485% 2.778%
Abstain .......................... 1,250,162.336 2.017% 3.772%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,858,194,267.184 44.925% 67.768%
Against .......................... 336,090,631.282 1.705% 2.571%
Abstain .......................... 559,880,870.036 2.839% 4.283%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
Annual Report | 143
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED
ON APRIL 11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(e) To amend the Funds' fundamental investment restriction regarding investments
in commodities: (CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 467,918,406.440 46.432% 75.494%
Against .......................... 22,628,489.901 2.246% 3.651%
Abstain .......................... 34,974,728.635 3.470% 5.643%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 95,088,326.841 47.046% 73.444%
Against .......................... 4,816,408.562 2.383% 3.720%
Abstain .......................... 6,143,709.411 3.040% 4.745%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
(f) To amend the Funds' fundamental investment restriction regarding issuing
senior securities:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,946,018.101 41.054% 71.885%
Against .......................... 299,377.303 1.236% 2.163%
Abstain .......................... 294,838.149 1.217% 2.132%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,402,734.133 37.753% 70.621%
Against .......................... 853,288.411 1.377% 2.575%
Abstain .......................... 1,277,287.857 2.061% 3.854%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
144 | Annual Report
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED
ON APRIL 11, 2007 (UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(f) To amend the Funds' fundamental investment restriction regarding issuing
senior securities: (CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,900,488,955.914 45.140% 68.091%
Against .......................... 292,918,635.801 1.485% 2.241%
Abstain .......................... 560,758,176.787 2.844% 4.290%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 471,815,006.767 46.819% 76.123%
Against .......................... 19,055,037.470 1.891% 3.075%
Abstain .......................... 34,651,580.739 3.438% 5.590%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 95,557,887.138 47.278% 73.806%
Against .......................... 4,398,936.864 2.177% 3.397%
Abstain .......................... 6,091,620.812 3.014% 4.706%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
(g) To amend the Funds' fundamental investment restriction regarding industry
concentration:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,971,611.914 41.160% 72.070%
Against .......................... 269,322.407 1.111% 1.947%
Abstain .......................... 299,299.232 1.236% 2.163%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
Annual Report | 145
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(g) To amend the Funds' fundamental investment restriction regarding industry
concentration: (CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,505,037.865 37.919% 70.929%
Against .......................... 746,589.333 1.204% 2.253%
Abstain .......................... 1,281,683.203 2.068% 3.868%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,887,685,206.706 45.075% 67.993%
Against .......................... 294,760,719.944 1.495% 2.255%
Abstain .......................... 571,719,841.852 2.899% 4.374%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 470,720,337.513 46.710% 75.946%
Against .......................... 19,619,157.857 1.947% 3.165%
Abstain .......................... 35,182,129.606 3.491% 5.677%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 95,725,035.431 47.361% 73.935%
Against .......................... 4,194,492.992 2.075% 3.239%
Abstain .......................... 6,128,916.391 3.033% 4.735%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
146 | Annual Report
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(h) To amend the Funds' fundamental investment restriction regarding
diversification of investments:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 10,042,733.209 41.453% 72.584%
Against .......................... 242,619.824 1.002% 1.753%
Abstain .......................... 254,880.520 1.052% 1.843%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,748,601.590 38.311% 71.664%
Against .......................... 657,947.326 1.062% 1.985%
Abstain .......................... 1,126,761.485 1.818% 3.401%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,960,854,568.782 45.446% 68.553%
Against .......................... 264,375,334.290 1.341% 2.023%
Abstain .......................... 528,935,865.430 2.682% 4.046%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 477,803,820.078 47.413% 77.089%
Against .......................... 16,793,836.143 1.667% 2.710%
Abstain .......................... 30,923,968.755 3.068% 4.989%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
Annual Report | 147
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED) (CONTINUED)
Proposal 3. To approve amendments to certain of the Funds' fundamental
investment restrictions (includes eight (8) Sub-Proposals): (CONTINUED)
(h) To amend the Funds' fundamental investment restriction regarding
diversification of investments: (CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 96,920,619.319 47.952% 74.859%
Against .......................... 3,624,505.480 1.794% 2.800%
Abstain .......................... 5,503,320.015 2.723% 4.250%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
Proposal 4. To approve the elimination of certain of the Funds' fundamental
investment restrictions:
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN DYNATECH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 9,897,646.073 40.854% 71.536%
Against .......................... 351,313.243 1.450% 2.539%
Abstain .......................... 291,274.237 1.203% 2.105%
Broker Non-Votes ................. 3,295,682.000 13.604% 23.820%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,835,915.553 57.111% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN GROWTH FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 23,251,305.188 37.509% 70.164%
Against .......................... 988,289.389 1.595% 2.983%
Abstain .......................... 1,293,715.824 2.087% 3.903%
Broker Non-Votes ................. 7,605,495.000 12.270% 22.950%
- --------------------------------------------------------------------------------
TOTAL ............................ 33,138,805.401 53.461% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN INCOME FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 8,790,060,920.256 44.580% 67.246%
Against .......................... 384,659,784.674 1.951% 2.943%
Abstain .......................... 579,445,063.572 2.938% 4.433%
Broker Non-Votes ................. 3,317,258,841.000 16.824% 25.378%
- --------------------------------------------------------------------------------
TOTAL ............................ 13,071,424,609.502 66.293% 100.000%
148 | Annual Report
Franklin Custodian Funds, Inc.
MEETING OF SHAREHOLDERS, MARCH 21, 2007 AND RECONVENED ON APRIL 11, 2007
(UNAUDITED) (CONTINUED)
Proposal 4. To approve the elimination of certain of the Funds' fundamental
investment restrictions: (CONTINUED)
- --------------------------------------------------------------------------------
% OF % OF
FRANKLIN U.S. GOVERNMENT OUTSTANDING VOTED
SECURITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 466,579,030.041 46.299% 75.278%
Against .......................... 23,981,506.196 2.380% 3.870%
Abstain .......................... 34,961,088.739 3.469% 5.640%
Broker Non-Votes ................. 94,283,154.000 9.356% 15.212%
- --------------------------------------------------------------------------------
TOTAL ............................ 619,804,778.976 61.504% 100.000%
- --------------------------------------------------------------------------------
% OF % OF
OUTSTANDING VOTED
FRANKLIN UTILITIES FUND SHARES VOTED SHARES SHARES
- --------------------------------------------------------------------------------
For .............................. 94,333,258.508 46.672% 72.860%
Against .......................... 5,447,930.850 2.696% 4.208%
Abstain .......................... 6,267,255.456 3.101% 4.841%
Broker Non-Votes ................. 23,422,095.000 11.589% 18.091%
- --------------------------------------------------------------------------------
TOTAL ............................ 129,470,539.814 64.058% 100.000%
Annual Report | 149
Franklin Custodian Funds, Inc.
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Director Since 1976 139 Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief
Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Director Since April 2007 120 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS);
and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and
Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
SAM GINN (1937) Director Since April 2007 120 Chevron Corporation (global energy
One Franklin Parkway company) and ICO Global
San Mateo, CA 94403-1906 Communications (Holdings) Limited
(satellite company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and Chief
Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone holding
company) (1988-1994).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Director Since 1998 139 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J.
San Mateo, CA 94403-1906 Heinz Company (processed foods and
allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of
the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
150 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Director Since April 2007 120 Center for Creative Land Recycling
One Franklin Parkway (brownfield redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Director Since 2005 139 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas) and
San Mateo, CA 94403-1906 Sentient Jet (private jet
service).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive Officer
(1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines).
- ------------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Director Since April 2007 139 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior Fellow of
The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General,
U.S. Department of Justice (2001-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Director Since April 2007 120 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit
boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer
and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Executive Vice President -
Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting
firm) (1986-1990).
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Director, Director since 139 None
One Franklin Parkway President, 1969, President
San Mateo, CA 94403-1906 Chief since 1984, Chief
Executive Executive Officer
Officer - - Investment
Investment Management
Management since 2002 and
Chairman of the
Board since
October 2007.
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton Worldwide, Inc.;
and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42
of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 151
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Director and Since 1983 55 None
One Franklin Parkway Vice President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance
Compliance since 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc. and of
46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin Resources, Inc.
(1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 28 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President
Suite 2100 and Chief
Fort Lauderdale, FL Executive
33394-3091 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 46 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
152 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 30 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner, Shearman & Sterling,
LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL Accounting
33394-3091 Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of some of the other subsidiaries of Franklin Resources, Inc. and
of 46 of the investment companies in Franklin Templeton Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc.
(1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments fund
complex. These portfolios have a common investment manager or affiliated
investment managers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be interested
persons of the Fund under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources, Inc., which
is the parent company of the Fund's investment manager and distributor.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
Note 2: Officer information is current as of October 17, 2007. It is possible
that information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF DIRECTORS HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER
OF STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2006. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD OF DIRECTORS BELIEVES THAT MR. WILSON HAS ACQUIRED AN
UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL
STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE
ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING
FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF
ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT
DIRECTOR AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE
COMMISSION RULES AND RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.
Annual Report | 153
Franklin Custodian Funds, Inc.
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures (Policies) that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
154 | Annual Report
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Literature Request
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON FUNDS
INTERNATIONAL
Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Emerging Markets Small Cap Fund
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund 1
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund 1
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small Cap Growth Fund II 2
Franklin Small-Mid Cap Growth Fund
VALUE
Franklin Balance Sheet Investment Fund 1
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 1
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund
BLEND
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio(R) Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 4
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund 5
Franklin Income Fund
Franklin Limited Maturity U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund
TAX-FREE INCOME 6
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 7
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California 8
Colorado
Connecticut
Florida 8
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 7
Michigan 7
Minnesota 7
Missouri
New Jersey
New York 8
North Carolina
Ohio 7
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust 9
1. The fund is open only to existing shareholders and select retirement plans.
2. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
3. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
4. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
5. Effective 10/1/06, Franklin's AGE High Income Fund changed its name to
Franklin High Income Fund. The fund's investment goal and strategy remained the
same.
6. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
7. The fund invests primarily in insured municipal securities.
8. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
9. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
05/07 Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?
Eligible shareholders can sign up for eDelivery at
franklintempleton.com.See inside for details.
ANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN CUSTODIAN FUNDS, INC.
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
1-800/632-2301
Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FCF A2007 11/07
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $319,991 for the fiscal year ended September 30, 2007 and $339,046 for the
fiscal year ended September 30, 2006.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $46,000 for the fiscal year ended
September 30, 2007 and $0 for the fiscal year ended September 30, 2006. The
services for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended September 30,
2007 and $30,073 for the fiscal year ended September 30, 2006. The services for
which these fees were paid included review of materials provided to the fund
Board in connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant other than
services reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year
ended September 30, 2007 and $145,788 for the fiscal year ended September 30,
2006. The services for which these fees were paid included review of materials
provided to the fund Board in connect with the investment management contract
renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the
Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to the
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $46,000 for the fiscal year ended September 30, 2007 and
$175,861 for the fiscal year ended September 30, 2006.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT
COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Directors that would require disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN CUSTODIAN FUNDS, INC.
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 27, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 27, 2007
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date November 27, 2007