UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-00537
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FRANKLIN CUSTODIAN FUNDS
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
------------------------------------------------
(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
----
Date of reporting period: 3/31/09
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ITEM 1. REPORTS TO STOCKHOLDERS.
MARCH 31, 2009
SEMIANNUAL REPORT
AND SHAREHOLDER LETTER
Franklin DynaTech Fund
Franklin Growth Fund
Franklin Income Fund
Franklin U.S. Government Securities Fund
Franklin Utilities Fund
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FRANKLIN - Templeton - 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.
MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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Not part of the semiannual report
Contents
SHAREHOLDER LETTER .................................... 1
SEMIANNUAL REPORT
Economic and Market Overview .......................... 3
Franklin DynaTech Fund ................................ 5
Franklin Growth Fund .................................. 13
Franklin Income Fund .................................. 21
Franklin U.S. Government Securities Fund .............. 31
Franklin Utilities Fund ............................... 40
Financial Highlights and Statements of Investments .... 47
Financial Statements .................................. 98
Notes to Financial Statements ......................... 107
Shareholder Information ............................... 128
Shareholder Letter
Dear Shareholder:
The six-month period ended March 31, 2009, was an extraordinary and
stressful time for investors and those of us who have worked in
financial markets for many years. During this turbulent period, the
U.S. recession deepened, the unemployment rate surged and consumer
spending fell. Most stocks suffered major losses as investors
worried about an uncertain future. With a new president, Barack
Obama, the country and the financial markets were eager to see how
effectively the government could address these problems. Although
this environment is bound to provoke great concern, we think it is
important to put short-term market developments in perspective. Keep
in mind that as daunting as current conditions may be, we have
navigated through other periods of high market volatility, such as
the U.S. stock market's severe decline of 1987 and the bursting of
the technology bubble in 2000. We remain committed to our long-term
perspective and our disciplined investment philosophy. Therefore, we
view recent declines as potential opportunities to find bargains
that we believe may be well positioned to become eventual winners.
Although conditions remain challenging, our experience gives us
ample reason to be optimistic about future market stabilization and
recovery.
Franklin Custodian Funds' semiannual report goes into greater detail
about prevailing conditions during the period under review. In
addition, the portfolio managers discuss investment management
decisions and Fund performance for the period. You will also find
performance data and financial information. Please remember that all
securities markets fluctuate, as do mutual fund share prices.
NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE
Not part of the semiannual report | 1
If you would like more frequent updates, FRANKLINTEMPLETON.COM
provides daily prices, monthly performance figures, portfolio
holdings and other information. You can also access your account,
buy and sell shares, read timely articles, and find helpful
financial planning tools. We hope you will take advantage of these
online services.
Although market conditions are constantly changing, we remain
committed to our disciplined strategy as we manage the Funds. As
always, we recommend investors consult their financial advisors and
review their portfolios to design a long-term strategy and portfolio
allocation that meet their individual needs, goals and risk
tolerance. We firmly believe that most people benefit from
professional advice, and that advice is invaluable as investors
navigate changing market environments.
We thank you for investing with Franklin Templeton, welcome your
questions and comments, and look forward to serving your investment
needs in the years ahead.
Sincerely,
-s- Charles B. Johnson
Charles B. Johnson
President and Chief Executive Officer - Investment Management
Franklin Custodian Funds
THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF MARCH 31, 2009.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY
MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT ARE
FROM SOURCES CONSIDERED RELIABLE.
2 | Not part of the semiannual report
Semiannual Report
Economic and Market Overview
During the six-month period ended March 31, 2009, economic
conditions generally deteriorated. In February 2009, The Conference
Board's Consumer Confidence Index fell to an all-time low since it
began in 1967 as the U.S. economy faltered and stock markets
declined. The government's abrupt conservatorship of Fannie Mae and
Freddie Mac in early September 2008 and the failure of several blue
chip banks and financial institutions roiled equity markets during
the period. Despite government interventions and massive emergency
funding, the nation's economic troubles were exacerbated as
manufacturing activity weakened at its fastest pace in nearly 30
years and as home prices continued to fall in early 2009. Jobless
claims mounted and the unemployment rate rose to 8.5% by
period-end.(1) Although home sales declined for most of the period,
they increased near period-end. Reflecting a broad-based contraction
in consumer spending, falling corporate profits and slowing exports,
economic growth, as measured by gross domestic product (GDP), fell
an annualized 6.3% in the fourth quarter of 2008. In 2009's first
quarter, GDP declined at an estimated 6.1% annualized rate.
Oil prices stood at $101 per barrel at the beginning of the period,
but retreated dramatically to $50 by period-end. Many other
commodities such as agricultural products and base metals followed
similar trends. Partially as a result of the steep price
corrections, inflation declined significantly during the period, and
March's inflation rate was an annualized -0.4%.1 Core inflation,
which excludes food and energy costs, rose at a 1.8% annual rate,
which was within the Federal Reserve Board's (Fed's) informal target
range of 1.5%-2.0%.1
A slowing economy and decelerating inflation prompted policymakers
to further lower interest rates and enact stimulus plans. During the
six months under review, the Fed lowered the federal funds target
rate to a range of 0% to 0.25% from 2.00% at the start of the
period. The Fed and U.S. Treasury Department introduced new programs
intended to enhance market liquidity. The government also outlined
details of its Public-Private Investment Program, with an objective
of removing devalued real estate-related assets from banks' balance
sheets.
Treasury prices rose for the first half of the period but began to
decline in the latter half. Investors drove the yield on the
three-month Treasury bill to a multi-decade low. Fixed income
spreads were generally wide relative to Treasury yields over the
period due to heightened market turbulence and risk aversion.
1. Source: Bureau of Labor Statistics.
Semiannual Report | 3
The yield spread between the two-year and the 10-year Treasury
yields rose slightly to 190 basis points (100 basis points equal one
percentage point) at the end of March from 185 basis points at the
beginning of the reporting period. The two-year Treasury bill yield
fell from 2.00% to 0.81% over the six-month period. Over the same
period, the 10-year Treasury note yield fell from 3.85% to 2.71%.
Market volatility intensified during the reporting period as stocks
fluctuated wildly. Near period-end, stock markets rebounded somewhat
from severely depressed levels, but still declined significantly
over the period. For the six months under review, the blue chip
stocks of the Dow Jones Industrial Average had a total return of
-28.57%, the broader Standard & Poor's 500 Index (S&P 500) a -30.54%
total return, and the technology-heavy NASDAQ Composite Index a
-26.50% total return.(2) All sectors lost value, and the financials,
materials and industrials sectors had the largest declines.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF
MARCH 31, 2009. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY
ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND.
STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE.
2. Source: (C) 2009 Morningstar. All Rights Reserved. The
information contained herein: (1) is proprietary to Morningstar
and/or its content providers; (2) may not be copied or distributed;
and (3) is not warranted to be accurate, complete or timely. Neither
Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. Past
performance is no guarantee of future results. 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. 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
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 | Semiannual Report
Franklin DynaTech Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin DynaTech Fund seeks capital
appreciation by investing substantially in equity securities of companies
emphasizing scientific or technological development or that are in fast-growing
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin DynaTech Fund covers the period ended March
31, 2009.
PERFORMANCE OVERVIEW
Franklin DynaTech Fund - Class A had a -23.54% cumulative total return for the
six 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
- -22.43%, and performed better than the broader Standard & Poor's 500 Index (S&P
500), which had a -30.54% total return.(1) You can find the Fund's long-term
performance data in the Performance Summary beginning on page 8.
INVESTMENT STRATEGY
We are research-driven, fundamental investors pursuing a growth strategy. As
"bottom-up" investors we focus primarily on finding individual securities that
meet our criteria for growth potential, quality and valuation. We search for
high-quality companies that have identifiable drivers of future earnings growth.
We rely on our team of analysts to help provide in-depth industry expertise and
use both qualitative and quantitative analysis to evaluate companies. Our
analysts identify each company's market opportunity, competitive position,
management and financial strength, business and financial risks, and valuation.
We choose to invest in those companies that, in our opinion, offer the best
trade-off between growth opportunity, business and financial risk, and
valuation.
1. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. 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 52.
Semiannual Report | 5
PORTFOLIO BREAKDOWN
Franklin DynaTech Fund
Based on Total Net Assets as of 3/31/09
(BAR CHART)
Biotechnology 10.1
Pharmaceuticals 10.0%
Software 8.7%
Computers & Peripherals 7.6%
Semiconductors & Semiconductor Equipment 7.5%
Health Care Equipment & Supplies 6.8%
Communications Equipment 6.5%
Internet Software & Services 5.9%
IT Services 5.5%
Energy Equipment & Services 4.1%
Chemicals 3.7%
Life Sciences Tools & Services 3.6%
Wireless Telecommunication Services 3.5%
Internet & Catalog Retail 3.2%
Health Care Providers & Services 2.3%
Other 9.6%
Short-Term Investments & Other Net Assets 1.4%
MANAGER'S DISCUSSION
Unsurprisingly, the information technology sector suffered steep declines during
the six months under review, weighing heaviest on the Fund's investments in
software companies challenged by receding sales as weakening demand dynamics
took hold.(2) Within the portfolio, the negative impact was especially
noticeable among software makers such as Adobe Systems, Nintendo and Autodesk.
Stocks in the communications equipment industry also fared poorly, as the
valuations for Canadian wireless equipment and services provider Research In
Motion and networking gear giant Cisco Systems fell sharply in value. The Fund's
holdings in the health care equipment and supplies industry also recorded
substantial losses. Notable detractors included Swiss ophthalmic equipment and
pharmaceuticals maker Alcon; surgical instrument manufacturer Stryker; and
Medtronic, which specializes in implantable biomedical devices. As demand for
commodities and energy products faded with the intensifying recession, so did
the value of Fund holdings in energy equipment and services providers such as
Schlumberger and FMC Technologies.
Despite broad-based and often heavy declines across most stock types during the
period, our positions in health care and biotechnology holdings buoyed
performance. The Fund benefited from the increased wave of mergers in the
industry as it owned positions in Genentech, Schering-Plough and Wyeth, all of
which were acquired. Myriad Genetics also stood out as a top performer as its
predictive medicine products continued to show strong adoption in the
marketplace. Elsewhere, wireless telecommunication services industry holdings
SBA Communications, Leap Wireless International and Crown Castle International
also posted strong returns and supported Fund performance, partially because the
sale of Leap and Crown Castle during the period was timely. Finally, to a lesser
degree, select consumer-related holdings performed well, namely Amazon.com,
which benefited from its offering of Prime (free shipping after the customer
pays a fixed annual fee), Marketplace (allows third-party sellers to sell easily
on the site), and Kindle (wireless book reading device).
It is undeniable that global economic conditions during the reporting period
were weak and corporate profitability generally contracted. Yet we think it is
important to keep two things in mind. First, one of the largest stock declines
in history recently occurred, as the S&P 500 fell 57% from its peak through
March 31, 2009.3 This suggested that markets were pricing in very bad news, so
we think that any positive surprises should lead to higher stock prices. Second,
equity markets have historically recovered ahead of the real economy. We found
2. The information technology sector comprises communications equipment,
computers and peripherals, electronic equipment and instruments, Internet
software and services, IT services, semiconductors and semiconductor equipment,
and software in the SOI.
3. Source: (C) 2009 Morningstar. See footnote 1 for a description of the S&P
500.
6 | Semiannual Report
March 2009 encouraging because it was much more positive than the rest of the
period. Stocks, as measured by the S&P 500, hit their recent bear market low on
March 9.4 From this point until March 31, the S&P 500 was 18% higher.(4) We have
certainly seen false starts in the past, but at period-end we were particularly
encouraged that financial stocks and Asian markets were participating in and
leading this recovery. As financial markets stabilize, we believe other
industries should benefit as well.
As managers of Franklin DynaTech Fund, at period-end we were encouraged by the
relative abundance of leading science and technology companies, which we believe
have strong long-term growth prospects, trading at what we perceive to be
attractive valuations. Looking out over the longer term, we believe it is these
innovative, thought-leading companies that may lead economic advancement.
Thank you for your continued participation in Franklin DynaTech Fund. We look
forward to serving your future investment needs.
[PHOTO OF RUPERT H. JOHNSON, JR.]
- -s- Rupert H. Johnson, Jr.
Rupert H. Johnson, Jr.
(PHOTO OF MATTHEW J. MOBERG)
- -s- Matthew J. Moberg
Matthew J. Moberg, CPA
Portfolio Management Team
Franklin DynaTech Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF MARCH 31, 2009, 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.
4. Sources: Standard & Poor's; (C) 2009 Ned Davis Research, Inc. See footnote 1
for a description of the S&P 500.
TOP 10 HOLDINGS
Franklin DynaTech Fund
3/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ------------------------------------------------- ----------
Apple Inc. 5.0%
COMPUTERS & PERIPHERALS, U.S.
Google Inc., A 3.8%
INTERNET SOFTWARE & SERVICES, U.S.
Gilead Sciences Inc. 3.7%
BIOTECHNOLOGY, U.S.
Intel Corp. 3.6%
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT, U.S.
Teva Pharmaceutical Industries Ltd., ADR 3.4%
PHARMACEUTICALS, ISRAEL
Visa Inc., A 3.0%
IT SERVICES, U.S.
QUALCOMM Inc. 2.6%
COMMUNICATIONS EQUIPMENT, U.S.
Hewlett-Packard Co. 2.5%
COMPUTERS & PERIPHERALS, U.S.
Amazon.com Inc. 2.4%
INTERNET & CATALOG RETAIL, U.S.
Celgene Corp. 2.3%
BIOTECHNOLOGY, U.S.
Semiannual Report | 7
Performance Summary as of 3/31/09
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 does 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: FKDNX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$7.60 $ 17.27 $ 24.87
DISTRIBUTIONS (10/1/08-3/31/09)
Long-Term Capital Gain $ 1.5822
CLASS B (SYMBOL: FDNBX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$7.34 $ 16.14 $ 23.48
DISTRIBUTIONS (10/1/08-3/31/09)
Long-Term Capital Gain $ 1.5822
CLASS C (SYMBOL: FDYNX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$7.28 $ 15.95 $ 23.23
DISTRIBUTIONS (10/1/08-3/31/09)
Long-Term Capital Gain $ 1.5822
CLASS R (SYMBOL: N/A) CHANGE 3/31/09 12/1/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) +$1.58 $ 17.24 $ 15.66
ADVISOR CLASS (SYMBOL: N/A) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$7.59 $ 17.31 $ 24.90
DISTRIBUTIONS (10/1/08-3/31/09)
Long-Term Capital Gain $ 1.5822
8 | Semiannual Report
Performance Summary (CONTINUED)
PERFORMANCE
CUMULATIVE TOTAL RETURN EXCLUDES SALES CHARGES. AGGREGATE AND AVERAGE ANNUAL
TOTAL RETURNS 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.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -23.54% -31.55% -14.56% -6.03%
Average Annual Total Return(2) -27.95% -35.48% -4.24% -1.21%
Value of $10,000 Investment(3) $ 7,205 $ 6,452 $ 8,052 $ 8,857
Total Annual Operating Expenses(4) 0.99%
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (2/1/00)
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -23.81% -32.06% -17.72% -32.24%
Average Annual Total Return(2) -26.57% -34.52% -4.17% -4.16%
Value of $10,000 Investment(3) $ 7,343 $ 6,548 $ 8,083 $ 6,776
Total Annual Operating Expenses(4) 1.75%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -23.85% -32.06% -17.72% -12.78%
Average Annual Total Return(2) -24.53% -32.68% -3.83% -1.36%
Value of $10,000 Investment(3) $ 7,547 $ 6,732 $ 8,228 $ 8,722
Total Annual Operating Expenses(4) 1.75%
CLASS R INCEPTION (12/1/08)
- -------------------------------------- ------------------
Cumulative Total Return(1) +10.09%
Aggregate Total Return(5) +10.09%
Value of $10,000 Investment(3) $11,009
Total Annual Operating Expenses(4) 1.25%
ADVISOR CLASS(6) 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -23.47% -31.41% -14.37% -5.83%
Average Annual Total Return(2) -23.47% -31.41% -3.06% -0.60%
Value of $10,000 Investment(3) $ 7,653 $ 6,859 $ 8,563 $ 9,417
Total Annual Operating Expenses(4) 0.75%
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 (800) 342-5236.
Semiannual Report | 9
Performance Summary (CONTINUED)
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 ADVANCEMENTS. 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 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. Six-month return has not been
annualized.
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. In periods of market volatility, assets may decline significantly,
causing total annual Fund operating expenses to become higher than the figures
shown.
5. Aggregate total return represents the change in value of an investment over
the period shown. Since Class R shares have existed for less than one year,
average annual total returns are not available.
6. Effective 5/15/08, the Fund began offering Advisor Class shares, which do not
have sales charges or a Rule 12b-1 plan. Performance quotations for this class
reflect the following methods of calculation: (a) For periods prior to 5/15/08,
a restated figure is used based upon the Fund's Class A performance, excluding
the effect of Class A's maximum initial sales charge, but reflecting the effect
of the Class A Rule 12b-1 fees; and (b) for periods after 5/14/08, actual
Advisor Class performance is used reflecting all charges and fees applicable to
that class. Since 5/15/08 (commencement of sales), the cumulative total return
of Advisor Class shares was -39.31%.
10 | Semiannual Report
Your Fund's Expenses
FRANKLIN DYNATECH FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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.
Semiannual Report | 11
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.
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
VALUE 10/1/08 VALUE 3/31/09 PERIOD* 10/1/08-3/31/09
----------------- -------------- -------------------------
CLASS A
Actual $1,000 $ 764.60 $ 5.10
Hypothetical (5% return before expenses) $1,000 $1,019.15 $ 5.84
CLASS B
Actual $1,000 $ 761.90 $ 8.43
Hypothetical (5% return before expenses) $1,000 $1,015.36 $ 9.65
CLASS C
Actual $1,000 $ 761.50 $ 8.43
Hypothetical (5% return before expenses) $1,000 $1,015.36 $ 9.65
CLASS R
Actual (12/1/08-3/31/09) $1,000 $1,100.90 $ 4.94
Hypothetical (5% return before expenses) $1,000 $1,017.85 $ 7.14
ADVISOR CLASS
Actual $1,000 $ 765.30 $ 4.05
Hypothetical (5% return before expenses) $1,000 $1,020.34 $ 4.63
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.16%; B: 1.92%; C: 1.92%; R: 1.42%; and Advisor
0.92%), multiplied by the average account value over the period, multiplied by
182/365 (Hypothetical for all share classes; Actual for Classes A, B, C and
Advisor) to reflect the one-half year period. For Actual Class R expenses, the
multiplier is 121/365 to reflect the number of days since inception.
12 | Semiannual Report
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PORTFOLIO BREAKDOWN
Franklin Growth Fund
Based on Total Net Assets as of 3/31/09
[BAR CHART]
Capital Goods* 25.4%
Pharmaceuticals, Biotechnology & Life Sciences 20.0%
Technology Hardware & Equipment 13.8%
Transportation 8.1%
Software & Services 7.4%
Health Care Equipment & Services 5.6%
Materials 2.6%
Commercial & Professional Services 2.4%
Energy 2.2%
Other 6.7%
Short-Term Investments & Other Net Assets 5.8%
* Significant exposure to a single sector may result in greater volatility for
the Fund than a more broadly diversified portfolio.
This semiannual report for Franklin Growth Fund covers the period ended March
31, 2009.
PERFORMANCE OVERVIEW
Franklin Growth Fund - Class A had a -27.27% cumulative total return for the six
months under review. The Fund performed better than its benchmark, the Standard
& Poor's 500 Index (S&P 500), which had a -30.54% total return for the same
period.(1) You can find the Fund's long-term performance data in the Performance
Summary beginning on page 16.
INVESTMENT STRATEGY
We are research-driven, fundamental investors pursuing a growth strategy. As
"bottom-up" investors we focus primarily on finding individual securities that
meet our criteria for growth potential, quality and valuation. We search for
high-quality companies that have identifiable drivers of future earnings growth.
We rely on our team of analysts to help provide in-depth industry expertise and
use both qualitative and quantitative analysis to evaluate companies. Our
analysts identify each company's market opportunity, competitive position,
management and financial strength, business and financial risks, and valuation.
We choose to invest in those companies that, in our opinion, offer the best
trade-off between growth opportunity, business and financial risk, and
valuation.
MANAGER'S DISCUSSION
Franklin Growth Fund owned shares of 109 companies at period-end. We continue to
invest in a broad array of companies of all sizes and in varied industries.
1. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. 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.
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 61.
Semiannual Report | 13
TOP 10 HOLDINGS
Franklin Growth Fund
3/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ------------------------------------------------- ----------
Apple Inc. 4.6%
TECHNOLOGY HARDWARE & EQUIPMENT
Johnson & Johnson 3.4%
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES
International Business Machines Corp. 3.4%
TECHNOLOGY HARDWARE & EQUIPMENT
Amgen Inc. 2.8%
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES
Northrop Grumman Corp. 2.6%
CAPITAL GOODS
3M Co. 2.6%
CAPITAL GOODS
General Dynamics Corp. 2.5%
CAPITAL GOODS
W.W. Grainger Inc. 2.3%
CAPITAL GOODS
Allergan Inc. 2.3%
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES
The Boeing Co. 2.2%
CAPITAL GOODS
In a challenging environment for stocks, several of our holdings hindered Fund
performance during the period. In the industrials sector, aerospace and defense
companies Boeing, General Dynamics and Lockheed Martin were primary detractors,
as was industrial conglomerate Textron. In the transportation industry, railroad
operator Union Pacific declined in value. Elsewhere, auto components company
Johnson Controls in the automobiles and components industry hurt results.
During the period under review, Fund performance was helped by several holdings
in the pharmaceuticals, biotechnology and life sciences industry. Among these
were pharmaceutical giants Wyeth and Schering-Plough and biotechnology companies
Genentech and Biogen Idec. Other contributors included computers and peripherals
company Apple in the technology hardware and equipment industry and electric
utility FPL, a new holding, in the utilities sector.
Thank you for your continued participation in Franklin Growth Fund. We look
forward to serving your future investment needs.
[PHOTO OF V. JERRY PALMIERI]
- -s- V. Jerry Palmieri
V. Jerry Palmieri
[PHOTO OF SERENA PERIN VINTON]
- -s- Serena Perin Vinton
Serena Perin Vinton
Portfolio Management Team
Franklin Growth Fund
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF MARCH 31, 2009, 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 | Semiannual Report
Effective November 1, 2008, SERENA PERIN VINTON, a senior vice president of
Franklin Global Advisers, assumed portfolio manager responsibilities for
Franklin Growth Fund. She is a member of the Franklin Institutional Large Cap
Growth Equity team.
Ms. Perin Vinton joined Franklin Templeton Investments in 1991. She served as an
analyst and portfolio manager in the international fixed income group for four
years before joining the Franklin equity group in 1995. Her prior equity
research responsibilities include analysis of the consumer products and
household goods, specialty retail, apparel/footwear/textiles, paper and forest
products, building materials and steel industries.
Prior to joining Franklin Templeton, Ms. Perin Vinton worked as a research
assistant for a British member of Parliament in London. She earned her B.A. in
business economics from Brown University. She is a Chartered Financial Analyst
(CFA) Charterholder and is a licensed registered securities representative. Ms.
Perin Vinton is a member of the CFA Institute.
Semiannual Report | 15
Performance Summary as of 3/31/09
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 does 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 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$10.45 $ 26.72 $ 37.17
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $ 0.3065
CLASS B (SYMBOL: FKGBX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$ 9.76 $ 25.68 $ 35.44
CLASS C (SYMBOL: FRGSX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$ 9.70 $ 25.44 $ 35.14
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $ 0.0224
CLASS R (SYMBOL: FGSRX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$10.20 $ 26.67 $ 36.87
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $ 0.1080
ADVISOR CLASS (SYMBOL: FCGAX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$10.53 $ 26.72 $ 37.25
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $ 0.4017
16 | Semiannual Report
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.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -27.27% -33.09% -9.99% -8.28%
Average Annual Total Return(2) -31.46% -36.93% -3.23% -1.45%
Value of $10,000 Investment(3) $6,854 $ 6,307 $8,484 $8,645
Total Annual Operating Expenses(4) 0.89%
CLASS B 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -27.54% -33.57% -13.30% -13.63%
Average Annual Total Return(2) -30.44% -36.23% -3.21% -1.45%
Value of $10,000 Investment(3) $6,956 $ 6,377 $8,496 $8,637
Total Annual Operating Expenses(4) 1.64%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -27.54% -33.57% -13.30% -14.89%
Average Annual Total Return(2) -28.26% -34.23% -2.81% -1.60%
Value of $10,000 Investment(3) $7,174 $ 6,577 $8,670 $8,511
Total Annual Operating Expenses(4) 1.64%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -27.37% -33.23% -11.12% -14.93%
Average Annual Total Return(2) -27.37% -33.23% -2.33% -2.21%
Value of $10,000 Investment(3) $7,263 $ 6,677 $8,888 $8,507
Total Annual Operating Expenses(4) 1.14%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -27.16% -32.89% -8.85% -5.98%
Average Annual Total Return(2) -27.16% -32.89% -1.84% -0.61%
Value of $10,000 Investment(3) $7,284 $ 6,711 $9,115 $9,402
Total Annual Operating Expenses(4) 0.64%
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 (800) 342-5236.
Semiannual Report | 17
Performance Summary (CONTINUED)
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 PRICE 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
FLUCTUATIONS AND ECONOMIC AS WELL AS POLITICAL UNCERTAINTY. THE PORTFOLIO
INCLUDES INVESTMENTS IN THE TECHNOLOGY SECTOR, WHICH HAS BEEN ONE OF THE MOST
VOLATILE SECTORS OF THE MARKET. 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. Six-month return has not been
annualized.
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. In periods of market volatility, assets may decline
significantly, causing total annual Fund operating expenses to become
higher than the figures shown.
18 | Semiannual Report
Your Fund's Expenses
FRANKLIN GROWTH FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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.
Semiannual Report | 19
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.
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
VALUE 10/1/08 VALUE 3/31/09 PERIOD* 10/1/08-3/31/09
----------------- -------------- -------------------------
CLASS A
Actual $1,000 $ 727.30 $4.26
Hypothetical (5% return before expenses) $1,000 $1,020.00 $4.99
CLASS B
Actual $1,000 $ 724.60 $7.52
Hypothetical (5% return before expenses) $1,000 $1,016.21 $8.80
CLASS C
Actual $1,000 $ 724.60 $7.52
Hypothetical (5% return before expenses) $1,000 $1,016.21 $8.80
CLASS R
Actual $1,000 $ 726.30 $5.38
Hypothetical (5% return before expenses) $1,000 $1,018.70 $6.29
ADVISOR CLASS
Actual $1,000 $ 728.40 $3.23
Hypothetical (5% return before expenses) $1,000 $1,021.19 $3.78
* Expenses calculated using the most recent six-month expense ratio, annualized
for each class (A: 0.99%; B: 1.75%; C: 1.75%; R: 1.25%; and Advisor: 0.75%),
multiplied by the average account value over the period, multiplied by 182/365
to reflect the one-half year period.
20 | Semiannual Report
Franklin Income Fund
YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Income Fund seeks to maximize
income while maintaining prospects for capital appreciation by investing, under
normal market conditions, in a diversified portfolio of debt and equity
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin Income Fund covers the period ended March
31, 2009.
PERFORMANCE OVERVIEW
Franklin Income Fund - Class A had a -17.48% cumulative total return for the six
months under review. The Fund performed better than its equity benchmark, the
Standard & Poor's 500 Index (S&P 500), which had a -30.54% total return;
underperformed its fixed income benchmark, the Barclays Capital (BC) U.S.
Aggregate Index, which returned +4.70%; and performed comparably with its peers
as measured by the Lipper Mixed-Asset Target Allocation Moderate Funds
Classification Average, which had a -18.12% total return, for the same
period.(1) You can find the Fund's long-term performance data in the Performance
Summary beginning on page 26.
1. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. 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.
Source: Lipper Inc. 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 six-month period ended 3/31/09,
there were 536 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.
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 71.
Semiannual Report | 21
PORTFOLIO BREAKDOWN
Franklin Income Fund
Based on Total Net Assets as of 3/31/09
Consumer Discretionary Bonds 15.7%
Utilities Stocks 15.1%
Financials Bonds 8.3%
Energy Bonds 7.6%
Utilities Bonds 6.8%
Health Care Bonds 6.1%
Senior Floating Rate Interests 5.9%
Financials Stocks 5.4%
Industrials Bonds 4.8%
Energy Stocks 3.9%
Health Care Stocks 2.8%
Consumer Staples Bonds 2.6%
Corporate Convertible Bonds 2.0%
Other Bonds 4.2%
Other Stocks 3.5%
Short-Term Investments & Other Net Assets 5.3%
DIVIDEND DISTRIBUTIONS*
Franklin Income Fund
10/1/08-3/31/09
DIVIDEND PER SHARE (CENTS)
-----------------------------------------------------------------------
MONTH CLASS A CLASS B CLASS B1** CLASS C CLASS R ADVISOR CLASS
- ----------- ------- ------- ---------- ------- ------- -------------
October 1.25 1.09 1.16 1.16 1.19 1.27
November 1.25 1.09 1.16 1.16 1.19 1.27
December*** 2.20 2.10 2.13 2.13 2.16 2.23
January 1.25 1.15 1.18 1.18 1.21 1.28
February 1.25 1.15 1.18 1.18 1.21 1.28
March 1.25 1.14 1.20 1.19 1.20 1.27
---- ---- ---- ---- ---- ----
TOTAL 8.45 7.72 8.01 8.00 8.16 8.60
* 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.
*** Includes an additional 0.95 cent per share distribution to meet excise tax
requirements.
INVESTMENT STRATEGY
By generally performing 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
Equity markets remained volatile during the reporting period as the credit
crisis continued and investors remained concerned about the global financial
system's health. The global downturn deepened as demand declined for a wide
range of products and services, pressuring valuations further. Stock markets
plummeted at the beginning of 2009 due to concerns about a global depression
before staging a rally from lows reached on March 9. By period-end, the rally
had lifted the S&P 500 approximately 26% from its lowest point.(1)
22 | Semiannual Report
The financial sector was among the laggards during the period. Continued worries
regarding leverage and capital adequacy weighed on the sector along with rising
concerns regarding loan losses due to the deteriorating economic environment and
rising unemployment. Governments in the U.S. and abroad remained focused on the
sector and put forth additional measures including a "stress test" to help
improve capital levels and ultimately confidence in the beleaguered financial
sector. Within financials, Bank of America, Wells Fargo and HSBC Holdings
detracted from Fund performance.
The electric utilities sector's total return, -20.54% as measured by the S&P 500
Utilities Index, reflected the negative impact of the sell-off.(2) Declines in
aggregate electricity demand and energy commodity prices weighed on investors'
expected results for the sector. Additionally, fears of continued credit market
disruptions and the overall higher cost of debt financing raised concerns
regarding the health and stability of common stock dividends for certain
companies. Despite broad sector weakness, the Fund realized positive returns
from several holdings including FPL Group, PG&E and Puget Sound Energy. FPL
Group and PG&E performed well due to the success of their initiatives to develop
clean energy from renewable sources including the wind and sun. Puget Sound
appreciated as a consortium led by Macquarie Group successfully acquired the
company.
One bright spot among equities during the period under review was the
performance of health care companies, particularly pharmaceutical companies. Our
Schering-Plough and Mylan (sold by period-end) convertible investments
appreciated. During the period, Schering-Plough agreed to be acquired by Merck,
and we believe Mylan had a strong competitive position in generic
pharmaceuticals, which investors expected to benefit from pressures to reduce
health care costs.
Fixed income markets also exhibited volatility during the period. The 10-year
Treasury yield plummeted from 3.85% on September 30, 2008, to a low of 2.08% on
December 18, 2008, as investors sought the safety and liquidity of U.S.
Treasuries and shunned virtually all other asset classes. For example, credit
spreads for investment-grade and noninvestment-grade corporate bonds widened.
2. Source: (C) 2009 Morningstar. The S&P 500 Utilities Index is a market
capitalization-weighted index consisting of all utility stocks in the S&P 500.
Semiannual Report | 23
TOP 5 EQUITY HOLDINGS
Franklin Income Fund
3/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ------------------------------------ ----------
Public Service Enterprise Group Inc. 1.6%
UTILITIES
Bank of America Corp. 1.6%
FINANCIALS
Merck & Co. Inc. 1.6%
HEALTH CARE
Duke Energy Corp. 1.4%
UTILITIES
Canadian Oil Sands Trust (Canada) 1.4%
FINANCIALS
TOP 5 BOND HOLDINGS*
Franklin Income Fund
3/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ------------------------------------ ----------
Ford Motor Credit Co. LLC 4.6%
CONSUMER DISCRETIONARY
Tenet Healthcare Corp. 3.7%
HEALTH CARE
Energy Future Holdings Corp.** 3.3%
UTILITIES
Dynegy Holdings Inc. 2.6%
UTILITIES
GMAC LLC 2.4%
FINANCIALS
* Does not include convertible bonds.
** Includes bonds issued by Texas Competitive Electric Holdings Co., a wholly
owned subsidiary of Energy Future Holdings Corp.
The largest detractors from Fund performance during the period within fixed
income included Energy Future Holdings, Charter Communications (CCH in the SOI)
and Freescale Semiconductor, which were negatively impacted by heavy debt loads
and weakening fundamentals. For Energy Future Holdings, formerly TXU, weaker
electricity demand and lower commodity prices, particularly for domestic natural
gas, resulted in disappointing results. Despite strong performance of Charter
Communications' cable and high speed Internet businesses, the company's
excessive debt led it to seek a pre-packaged bankruptcy restructuring to
continue operations. Lastly, weakening demand for consumer electronics and
declining auto sales hurt Freescale Semiconductor.
Significant contributors to Fund performance on the fixed income side included
GMAC and Ford Motor Credit, which were among our largest fixed income holdings.
GMAC benefited from becoming a bank holding company in December 2008 and from a
significant preferred stock investment by the U.S. Treasury as part of the
Troubled Asset Relief Program. Ford Motor Credit bonds improved from distressed
levels as its parent company, Ford Motor, appeared to some to have sufficient
liquidity to navigate current market challenges without seeking government
assistance. Dollar General bonds also generated positive total returns as
economic trends helped the company's relative position as a discount retail
chain and as company-specific initiatives boosted profit margins.
Although the Fund's overall allocation tilted toward bonds during the six-month
period, we remain committed to seeking investments across a wide range of asset
classes including common stocks, preferred stocks, convertible securities,
corporate bonds, term loans, and government and agency securities. During the
period, we increased our holdings in investment-grade corporate bonds and
floating-rate corporate term loans.
24 | Semiannual Report
Thank you for your continued participation in Franklin Income Fund. We look
forward to serving your future investment needs.
[PHOTO OF EDWARD PERKS]
- -s- Edward Perks
Edward Perks, CFA
(PHOTO OF CHARLES B. JOHNSON)
- -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 MARCH 31, 2009, 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.
Semiannual Report | 25
Performance Summary as of 3/31/09
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 does 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 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.43 $1.55 $1.98
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.0845
Short-Term Capital Gain $0.0012
TOTAL $0.0857
CLASS B (SYMBOL: FBICX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.43 $1.54 $1.97
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.0772
Short-Term Capital Gain $0.0012
TOTAL $0.0784
CLASS B1 (SYMBOL: FICBX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.43 $1.55 $1.98
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.0801
Short-Term Capital Gain $0.0012
TOTAL $0.0813
CLASS C (SYMBOL: FCISX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.43 $1.56 $1.99
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.0800
Short-Term Capital Gain $0.0012
TOTAL $0.0812
CLASS R (SYMBOL: FISRX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.42 $1.53 $1.95
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.0816
Short-Term Capital Gain $0.0012
TOTAL $0.0828
26 | Semiannual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
ADVISOR CLASS (SYMBOL: FRIAX) CHANGE 3/31/09 9/30/08
- ---------------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.43 $1.54 $1.97
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.0860
Short-Term Capital Gain $0.0012
TOTAL $0.0872
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.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -17.48% -30.06% -6.85% +51.98%
Average Annual Total Return(2) -21.07% -33.11% -2.29% +3.82%
Value of $10,000 Investment(3) $ 7,893 $6,689 $8,908 $14,551
Distribution Rate(4) 9.26%
30-Day Standardized Yield(5) 13.89%
Total Annual Operating Expenses(6) 0.62%
CLASS B 6-MONTH 1-YEAR 5-YEAR INCEPTION (11/1/01)
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -17.95% -30.80% -10.83% +18.08%
Average Annual Total Return(2) -21.07% -33.36% -2.55% +2.27%
Value of $10,000 Investment(3) $ 7,893 $6,664 $8,788 $11,808
Distribution Rate(4) 8.88%
30-Day Standardized Yield(5) 13.74%
Total Annual Operating Expenses(6) 1.47%
CLASS B1 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -17.71% -30.42% -9.20% +46.02%
Average Annual Total Return(2) -20.84% -32.99% -2.19% +3.86%
Value of $10,000 Investment(3) $ 7,916 $6,701 $8,951 $14,602
Distribution Rate(4) 9.29%
30-Day Standardized Yield(5) 14.06%
Total Annual Operating Expenses(6) 1.12%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -17.63% -30.30% -9.17% +44.25%
Average Annual Total Return(2) -18.41% -30.95% -1.91% +3.73%
Value of $10,000 Investment(3) $ 8,159 $6,905 $9,083 $14,425
Distribution Rate(4) 9.15%
30-Day Standardized Yield(5) 14.06%
Total Annual Operating Expenses(6) 1.12%
Semiannual Report | 27
Performance Summary (CONTINUED)
PERFORMANCE (CONTINUED)
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -17.40% -30.27% -8.57% +18.66%
Average Annual Total Return(2) -17.40% -30.27% -1.78% +2.39%
Value of $10,000 Investment(3) $ 8,260 $6,973 $9,143 $11,866
Distribution Rate(4) 9.41%
30-Day Standardized Yield(5) 14.22%
Total Annual Operating Expenses(6) 0.97%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- -------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -17.51% -29.79% -6.21% +53.76%
Average Annual Total Return(2) -17.51% -29.79% -1.27% +4.40%
Value of $10,000 Investment(3) $ 8,249 $7,021 $9,379 $15,376
Distribution Rate(4) 9.90%
30-Day Standardized Yield(5) 14.71%
Total Annual Operating Expenses(6) 0.47%
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 (800) 342-5236.
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 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. WHILE STOCKS HAVE HISTORICALLY OUTPERFORMED
OTHER ASSET CLASSES OVER THE LONG TERM, THEY TEND TO FLUCTUATE OVER THE SHORT
TERM AS A RESULT OF FACTORS AFFECTING INDIVIDUAL COMPANIES, INDUSTRIES OR THE
SECURITIES MARKET AS A WHOLE. 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. Six-month return has not been
annualized.
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
March dividend and the maximum offering price (NAV for Classes B, B1, C, R and
Advisor) per share on 3/31/09.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 3/31/09.
6. Figures are as stated in the Fund's prospectus current as of the date of this
report. In periods of market volatility, assets may decline significantly,
causing total annual Fund operating expenses to become higher than the figures
shown.
28 | Semiannual Report
Your Fund's Expenses
FRANKLIN INCOME FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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.
Semiannual Report | 29
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.
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
VALUE 10/1/08 VALUE 3/31/09 PERIOD* 10/1/08-3/31/09
----------------- -------------- -------------------------
CLASS A
Actual $ 1,000 $ 825.20 $ 3.14
Hypothetical (5% return before expenses) $ 1,000 $ 1,021.49 $ 3.48
CLASS B
Actual $ 1,000 $ 820.50 $ 6.99
Hypothetical (5% return before expenses) $ 1,000 $ 1,017.25 $ 7.75
CLASS B1
Actual $ 1,000 $ 822.90 $ 5.41
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.00 $ 5.99
CLASS C
Actual $ 1,000 $ 823.70 $ 5.41
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.00 $ 5.99
CLASS R
Actual $ 1,000 $ 826.00 $ 4.73
Hypothetical (5% return before expenses) $ 1,000 $ 1,019.75 $ 5.24
ADVISOR CLASS
Actual $ 1,000 $ 824.90 $ 2.46
Hypothetical (5% return before expenses) $ 1,000 $ 1,022.24 $ 2.72
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.69%; B: 1.54%; B1: 1.19%; C: 1.19%; R: 1.04%;
and Advisor: 0.54%), multiplied by the average account value over the period,
multiplied by 182/365 to reflect the one-half year period.
30 | Semiannual Report
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 3/31/09
[PIE CHART]
GNMA ............................................. 96.4%
Short-Term Investments & Other Net Assets ........ 3.6%
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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
This semiannual report for Franklin U.S. Government Securities Fund covers the
period ended March 31, 2009.
PERFORMANCE OVERVIEW
Franklin U.S. Government Securities Fund - Class A posted a +6.02% cumulative
total return for the six months under review. The Fund outperformed the +5.45%
total return of its peers as measured by the Lipper GNMA Funds Classification
Average.(2) In comparison, the Barclays Capital (BC)
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.
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 six-month period ended 3/31/09, there were 65 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
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.
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 88.
Semiannual Report | 31
DIVIDEND DISTRIBUTIONS*
Franklin U.S. Government Securities Fund
10/1/08-3/31/09
DIVIDEND PER SHARE
-----------------------------------------------------------------
MONTH CLASS A CLASS B CLASS C CLASS R ADVISOR CLASS
- -------- ----------- ----------- ----------- ----------- -------------
October 2.55 cents 2.29 cents 2.29 cents 2.37 cents 2.62 cents
November 2.55 cents 2.29 cents 2.29 cents 2.37 cents 2.62 cents
December 2.55 cents 2.27 cents 2.28 cents 2.36 cents 2.64 cents
January 2.55 cents 2.27 cents 2.28 cents 2.36 cents 2.64 cents
February 2.55 cents 2.27 cents 2.28 cents 2.36 cents 2.64 cents
March 2.55 cents 2.26 cents 2.27 cents 2.35 cents 2.62 cents
----------- ----------- ----------- ----------- -------------
TOTAL 15.30 CENTS 13.65 CENTS 13.69 CENTS 14.17 CENTS 15.78 CENTS
* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
U.S. Government: Intermediate Index returned +6.08% for the same period.(3) The
Fund's return reflects the effect of management fees and expenses, while the BC
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
35.
INVESTMENT STRATEGY
We presently invest substantially all the Fund's assets 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 six-month reporting period, economic fundamentals deteriorated
globally, as recessionary dynamics broadened and deepened. U.S. Treasury yields
declined to multi-decade lows as the effects of liquidity and credit problems
3. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. The BC U.S.
Government: Intermediate Index is the intermediate component of the BC U.S.
Government Index, which covers securities issued by the U.S. government (i.e.,
securities in the BC U.S. Treasury and Agency Indexes), including public
obligations of the U.S. Treasury with a remaining maturity of one year or more
and publicly issued debt of U.S. government agencies, quasi-federal
corporations, and corporate or foreign debt guaranteed by the U.S. government.
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.
32| Semiannual Report
impacted economic activity. In an ongoing effort to stabilize financial markets
and restore confidence to investors, the U.S. Treasury and Federal Reserve
announced several new initiatives aimed at increasing credit availability and
reducing mortgage rates.
The overall mortgage-backed securities (MBS) market continued its strong
performance, relative to many other credit-related sectors. Over the period,
Ginnie Mae (GNMA) MBS could not keep up with the robust performance of
comparable high credit-quality U.S. Treasuries but had a strong total return
profile relative to most other fixed income sectors.
Consistent with its strategy, Franklin U.S. Government Securities Fund continued
to invest substantially in GNMA MBS, and looked across the GNMA universe for
strong cash flow fundamentals and valuations. During the period, GNMA MBS
remained the only MBS backed by the full faith and credit of the U.S. government
- -- the same guarantee applicable to U.S. Treasuries.1 Although this guarantee
mostly isolated the GNMA sector from credit market disruptions, it was not
completely immune to the general market volatility experienced by high
credit-quality MBS.
The primary risk for GNMA investors is prepayment risk, which occurs when
residential mortgage pools prepay their underlying mortgages during the
refinancing process, creating uncertain cash flows for investors. Rather than
avoiding prepayment risk, the Fund sought to take advantage of discrepancies
found in its prepayment valuations and the market's prepayment expectations. We
used our experience and intensive research process to find pools that we
believed contained these discrepancies. Although prepayments increased by the
end of the period, they did not reach the extent experienced in past waves.
According to our analysis, declines in home price appreciation and equity, as
well as tighter underwriting standards, will likely lessen current prepayment
activity.
Over time, the majority of the GNMA sector's returns came from income, and our
strategy continued to emphasize it as well. Historically, we have strategically
allocated our resources between the two primary pass-through programs offered by
Ginnie Mae: GNMA I MBS (comprising single-issuer pools) and GNMA II MBS
(comprising multiple-issuer pools). Over the period, we marginally decreased the
Fund's allocation to GNMA II securities as the sector richened and the GNMA I
sector began offering better value. In some cases we swapped GNMA IIs into GNMA
Is.
The decline in Treasury and mortgage rates combined with the Federal Reserve
Board's announcement that it would purchase agency mortgages as part of its
quantitative easing policy increased prepayment risk in higher coupon MBS. In
this environment, we reduced the portfolio's allocation to higher coupon MBS
Semiannual Report | 33
in favor of lower coupon MBS. We favored 30-year collateral bonds rather than
their 15-year counterparts and continually evaluated opportunities across the
GNMA sector and coupon spectrum to identify those securities that offered what
we considered the best total return potential.
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 OF ROGER A. BAYSTON]
- -s- Roger A. Bayston
Roger A. Bayston, CFA
[PHOTO OF JACK LEMEIN]
- -s- Jack Lemein
Jack Lemein
[PHOTO OF PAUL VARUNOK]
- -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 MARCH 31, 2009, 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.
34 | Semiannual Report
Performance Summary as of 3/31/09
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 does 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 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.23 $6.68 $6.45
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.1530
CLASS B (SYMBOL: FUGBX) CHANGE 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.23 $6.67 $6.44
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.1365
CLASS C (SYMBOL: FRUGX) CHANGE 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.22 $6.64 $6.42
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.1369
CLASS R (SYMBOL: FUSRX) CHANGE 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.22 $6.67 $6.45
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.1417
ADVISOR CLASS (SYMBOL: FUSAX) CHANGE 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.22 $6.69 $6.47
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.1578
Semiannual Report | 35
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.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------ ------ -------
Cumulative Total Return(1) +6.02% +6.62% +26.47% +69.23%
Average Annual Total Return(2) +1.46% +2.12% +3.90% +4.95%
Distribution Rate(3) 4.38%
30-Day Standardized Yield(4) 3.88%
Total Annual Operating Expenses(5) 0.74%
CLASS B 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------ ------ -------
Cumulative Total Return(1) +5.60% +6.08% +23.25% +62.15%
Average Annual Total Return(2) +1.60% +2.08% +3.93% +4.95%
Distribution Rate(3) 4.07%
30-Day Standardized Yield(4) 3.55%
Total Annual Operating Expenses(5) 1.26%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------ ------ -------
Cumulative Total Return(1) +5.63% +5.96% +23.17% +60.44%
Average Annual Total Return(2) +4.63% +4.96% +4.26% +4.84%
Distribution Rate(3) 4.10%
30-Day Standardized Yield(4) 3.55%
Total Annual Operating Expenses(5) 1.26%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------------------------------------- ------- ------ ------ -----------------
Cumulative Total Return(1) +5.68% +6.25% +23.99% +38.37%
Average Annual Total Return(2) +5.68% +6.25% +4.39% +4.59%
Distribution Rate(3) 4.23%
30-Day Standardized Yield(4) 3.71%
Total Annual Operating Expenses(5) 1.11%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- ------ ------ -------
Cumulative Total Return(1) +5.92% +6.59% +27.21% +71.39%
Average Annual Total Return(2) +5.92% +6.59% +4.93% +5.54%
Distribution Rate(3) 4.70%
30-Day Standardized Yield(4) 4.21%
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 (800) 342-5236.
36 | Semiannual Report
Performance Summary (CONTINUED)
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. Six-month return has not been
annualized.
3. Distribution rate is based on an annualization of the respective class's
March dividend and the maximum offering price (NAV for Classes B, C, R and
Advisor) per share on 3/31/09.
4. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 3/31/09.
5. Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline significantly,
causing total annual Fund operating expenses to become higher than the figures
shown.
Semiannual Report | 37
Your Fund's Expenses
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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.
38 | Semiannual 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.
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
VALUE 10/1/08 VALUE 3/31/09 PERIOD* 10/1/08 - 3/31/09
----------------- -------------- -------------------------
CLASS A
Actual $1,000 $1,060.20 $3.65
Hypothetical (5% return before expenses) $1,000 $1,021.39 $3.58
CLASS B
Actual $1,000 $1,056.00 $6.30
Hypothetical (5% return before expenses) $1,000 $1,018.80 $6.19
CLASS C
Actual $1,000 $1,056.30 $6.31
Hypothetical (5% return before expenses) $1,000 $1,018.80 $6.19
CLASS R
Actual $1,000 $1,056.80 $5.54
Hypothetical (5% return before expenses) $1,000 $1,019.55 $5.44
ADVISOR CLASS
Actual $1,000 $1,059.20 $2.98
Hypothetical (5% return before expenses) $1,000 $1,022.04 $2.92
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.71%; B: 1.23%; C: 1.23%; R: 1.08%; and Advisor:
0.58%), multiplied by the average account value over the period, multiplied by
182/365 to reflect the one-half year period.
Semiannual Report | 39
Franklin Utilities Fund
YOUR FUND'S GOAL 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 (800) 342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
PORTFOLIO BREAKDOWN
Franklin Utilities Fund
Based on Total Net Assets as of 3/31/09
[BAR CHART]
Electric Utilities 49.7%
Multi-Utilities 37.6%
Independent Power Producers & Energy Traders 3.3%
Diversified Telecommunication Services 2.8%
Oil, Gas & Consumable Fuels 2.5%
Gas Utilities 1.6%
Water Utilities 0.5%
Short-Term Investments & Other Net Assets 2.0%
This semiannual report for Franklin Utilities Fund covers the period ended March
31, 2009.
PERFORMANCE OVERVIEW
For the six months under review, Franklin Utilities Fund - Class A had a -19.65%
cumulative total return. The Fund performed better than its broad benchmark, the
Standard & Poor's 500 Index (S&P 500), which had a -30.54% total return for the
same period.(1) The Fund performed comparably to the -20.54% total return of its
narrow benchmark, the S&P 500 Utilities Index.(2) You can find the Fund's
long-term performance data in the Performance Summary beginning on page 42.
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.
MANAGER'S DISCUSSION
An extreme bear market environment prevailed during much of the six months under
review and utilities were not immune to the weakness. With waning demand arising
from the intensifying global recession, it was also an especially difficult time
for energy and related commodity stocks. Utility stocks did,
1. Source: (C) 2009 Morningstar. All Rights Reserved. The information contained
herein: (1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate, complete
or timely. Neither Morningstar nor its content providers are responsible for any
damages or losses arising from any use of this information. 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: (C) 2009 Morningstar. The S&P 500 Utilities Index is a market
capitalization-weighted index consisting of all 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 95.
40 | Semiannual Report
however, show some of their typically defensive investment characteristics, and
as a whole the group recorded smaller losses than the overall stock market.
Some of the Fund's electric utilities did not fare as well as others and
represented the bulk of the portfolio's major detractors during the review
period. A significant detractor from performance was FirstEnergy, an electric
utility serving a region that includes Ohio, Pennsylvania and New Jersey.
FirstEnergy's share price dropped significantly as a portion of the power it
sells to electricity customers is influenced by general commodity prices.
Several other electric utility holdings also produced significant losses:
Exelon, which operates in northern Illinois and southeastern Pennsylvania;
Entergy, which provides electricity to four southern states; and Edison
International, which distributes electricity primarily to central and southern
California and is also the country's leading purchaser of renewable energy. Each
of these companies sells electricity at market-based pricing, and a severe drop
in electricity prices during the period impacted these firms' profitability.
Some holdings did manage to post gains during this difficult period, which
helped mitigate the Fund's losses among other securities and buoyed its
over-_all results. In particular, electric and natural gas utilities that are
not directly exposed to commodity prices fared well. Among the most significant
contributors in that regard were California-based multi-utility company PG&E and
Washington state-based multi-utility company Puget Energy (no longer held by
period-end), which was acquired by an investor consortium in February. In
addition, FPL Group, a Florida-based electric utility, posted a positive return
during the period. FPL benefited by increased interest in renewable energy, as
it is the country's largest operator of wind-powered generation.
Thank you for your continued participation in Franklin Utilities Fund. We look
forward to serving your future investment needs.
[PHOTO OF JOHN C. KOHLI]
- -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 MARCH 31, 2009, 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.
TOP 10 EQUITY HOLDINGS
Franklin Utilities Fund
3/31/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- ----------------------------------- ----------
Exelon Corp. 5.7%
ELECTRIC UTILITIES
Entergy Corp. 4.7%
ELECTRIC UTILITIES
PG&E Corp. 4.6%
MULTI-UTILITIES
FPL Group Inc. 4.4%
ELECTRIC UTILITIES
Sempra Energy 4.2%
MULTI-UTILITIES
The Southern Co. 4.2%
ELECTRIC UTILITIES
Public Service Enterprise Group Inc. 3.6%
MULTI-UTILITIES
FirstEnergy Corp. 3.5%
ELECTRIC UTILITIES
PPL Corp. 3.3%
ELECTRIC UTILITIES
Duke Energy Corp. 3.1%
ELECTRIC UTILITIES
Semiannual Report | 41
Performance Summary as of 3/31/09
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 does 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 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) -$2.63 $9.29 $ 11.92
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.2140
Long-Term Capital Gain $0.0773
TOTAL $0.2913
CLASS B (SYMBOL: FRUBX) CHANGE 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) -$2.62 $9.29 $ 11.91
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.1848
Long-Term Capital Gain $0.0773
TOTAL $0.2621
CLASS C (SYMBOL: FRUSX) CHANGE 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) -$2.62 $9.26 $ 11.88
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.1863
Long-Term Capital Gain $0.0773
TOTAL $0.2636
CLASS R (SYMBOL: FRURX) CHANGE 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) -$2.62 $9.27 $ 11.89
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.1948
Long-Term Capital Gain $0.0773
TOTAL $0.2721
ADVISOR CLASS (SYMBOL: FRUAX) CHANGE 3/31/09 9/30/08
- --------------------------------- ------ ------- -------
Net Asset Value (NAV) -$2.64 $9.34 $ 11.98
DISTRIBUTIONS (10/1/08-3/31/09)
Dividend Income $0.2220
Long-Term Capital Gain $0.0773
TOTAL $0.2993
42 | Semiannual Report
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.
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- -------- -------- ---------
Cumulative Total Return(1) -19.65% -25.90% +24.38% +74.30%
Average Annual Total Return(2) -23.07% -29.04% +3.57% +5.26%
Value of $10,000 Investment(3) $ 7,693 $ 7,096 $11,914 $16,689
Distribution Rate(4) 4.16%
30-Day Standardized Yield(5) 4.23%
Total Annual Operating Expenses(6) 0.74%
CLASS B 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- -------- -------- ---------
Cumulative Total Return(1) -19.84% -26.27% +21.24% +67.44%
Average Annual Total Return(2) -22.96% -29.10% +3.60% +5.29%
Value of $10,000 Investment(3) $ 7,704 $ 7,090 $11,934 $16,744
Distribution Rate(4) 3.71%
30-Day Standardized Yield(5) 3.93%
Total Annual Operating Expenses(6) 1.24%
CLASS C 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- -------- -------- ---------
Cumulative Total Return(1) -19.87% -26.31% +21.22% +65.63%
Average Annual Total Return(2) -20.65% -27.02% +3.92% +5.18%
Value of $10,000 Investment(3) $ 7,935 $ 7,298 $12,122 $16,563
Distribution Rate(4) 3.76%
30-Day Standardized Yield(5) 3.94%
Total Annual Operating Expenses(6) 1.24%
CLASS R 6-MONTH 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------------------------------------- ------- -------- -------- ------------------
Cumulative Total Return(1) -19.78% -26.11% +22.25% +35.12%
Average Annual Total Return(2) -19.78% -26.11% +4.10% +4.24%
Value of $10,000 Investment(3) $ 8,022 $ 7,389 $12,225 $13,512
Distribution Rate(4) 3.94%
30-Day Standardized Yield(5) 4.07%
Total Annual Operating Expenses(6) 1.09%
ADVISOR CLASS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
- ------------------------------------- ------- -------- -------- ---------
Cumulative Total Return(1) -19.57% -25.74% +25.33% +76.88%
Average Annual Total Return(2) -19.57% -25.74% +4.62% +5.87%
Value of $10,000 Investment(3) $ 8,043 $ 7,426 $12,533 $17,688
Distribution Rate(4) 4.49%
30-Day Standardized Yield(5) 4.55%
Total Annual Operating Expenses(6) 0.59%
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 (800) 342-5236.
Semiannual Report | 43
Performance Summary (CONTINUED)
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. Six-month return has not been
annualized.
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
most recent quarterly dividend and the maximum offering price (NAV for Classes
B, C, R and Advisor) per share on 3/31/09.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 3/31/09.
6. Figures are as stated in the Fund's prospectus current as of the date of
this report. In periods of market volatility, assets may decline significantly,
causing total annual Fund operating expenses to become higher than the figures
shown.
44 | Semiannual Report
Your Fund's Expenses
FRANKLIN UTILITIES FUND
As a Fund shareholder, you can incur two types of costs:
- - Transaction costs, including sales charges (loads) on Fund purchases; and
- - 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.
Semiannual Report | 45
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.
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
VALUE 10/1/08 VALUE 3/31/09 PERIOD* 10/1/08-3/31/09
----------------- -------------- -------------------------
CLASS A
Actual $1,000 $ 803.50 $3.51
Hypothetical (5% return before expenses) $1,000 $1,021.04 $3.93
CLASS B
Actual $1,000 $ 801.60 $5.79
Hypothetical (5% return before expenses) $1,000 $1,018.50 $6.49
CLASS C
Actual $1,000 $ 801.30 $5.79
Hypothetical (5% return before expenses) $1,000 $1,018.50 $6.49
CLASS R
Actual $1,000 $ 802.20 $5.12
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.74
ADVISOR CLASS
Actual $1,000 $ 804.30 $2.88
Hypothetical (5% return before expenses) $1,000 $1,021.74 $3.23
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.78%; B: 1.29%; C: 1.29%; R: 1.14%; and Advisor:
0.64%), multiplied by the average account value over the period, multiplied by
182/365 to reflect the one-half year period.
46 | Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN DYNATECH FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- -------- -------- --------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ............ $ 24.87 $ 32.33 $ 25.80 $ 24.98 $ 22.01 $ 20.17
-------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) .............. (0.02) (0.08) (0.08) (0.05) (0.01) (0.09)
Net realized and unrealized gains
(losses) ................................... (6.00) (6.67) 6.61 0.87 2.98 1.93
-------- -------- -------- -------- -------- --------
Total from investment operations ................ (6.02) (6.75) 6.53 0.82 2.97 1.84
-------- -------- -------- -------- -------- --------
Less distributions from net realized gains ...... (1.58) (0.71) -- -- -- --
-------- -------- -------- -------- -------- --------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period .................. $ 17.27 $ 24.87 $ 32.33 $ 25.80 $ 24.98 $ 22.01
======== ======== ======== ======== ======== ========
Total return(e) ................................. (23.54)% (21.36)% 25.31% 3.28% 13.49% 9.12%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ..................................... 1.16% 0.97% 0.99% 0.97% 1.00% 0.97%
Net investment income (loss) .................... (0.28)% (0.26)% (0.30)% (0.20)% (0.02)% (0.41)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $380,946 $388,843 $553,347 $590,633 $628,732 $640,120
Portfolio turnover rate ......................... 29.92% 41.01% 18.03% 18.61% 17.26% 14.93%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 47
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- -------- -------- --------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ............ $ 23.48 $ 30.78 $ 24.75 $ 24.15 $ 21.43 $ 19.79
------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) .............. (0.08) (0.29) (0.28) (0.23) (0.18) (0.25)
Net realized and unrealized gains
(losses) ................................... (5.68) (6.30) 6.31 0.83 2.90 1.89
------- -------- -------- -------- -------- --------
Total from investment operations ................ (5.76) (6.59) 6.03 0.60 2.72 1.64
------- -------- -------- -------- -------- --------
Less distributions from net realized
gains ......................................... (1.58) (0.71) -- -- -- --
------- -------- -------- -------- -------- --------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d) --(d)
------- -------- -------- -------- -------- --------
Net asset value, end of period .................. $ 16.14 $ 23.48 $ 30.78 $ 24.75 $ 24.15 $ 21.43
======= ======== ======== ======== ======== ========
Total return(e) ................................. (23.81)% (21.96)% 24.36% 2.48% 12.69% 8.29%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ..................................... 1.92% 1.73% 1.75% 1.72% 1.74% 1.72%
Net investment income (loss) .................... (1.04)% (1.02)% (1.06)% (0.95)% (0.76)% (1.16)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $12,458 $ 10,704 $ 16,625 $ 18,718 $ 19,497 $ 18,824
Portfolio turnover rate ......................... 29.92% 41.01% 18.03% 18.61% 17.26% 14.93%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
48 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- -------- -------- --------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ............ $ 23.23 $ 30.46 $ 24.50 $ 23.90 $ 21.21 $ 19.59
------- -------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) .............. (0.08) (0.28) (0.28) (0.23) (0.17) (0.25)
Net realized and unrealized gains
(losses) ................................... (5.62) (6.24) 6.24 0.83 2.86 1.87
------- -------- -------- -------- -------- --------
Total from investment operations ................ (5.70) (6.52) 5.96 0.60 2.69 1.62
------- -------- -------- -------- -------- --------
Less distributions from net realized
gains ......................................... (1.58) (0.71) -- -- -- --
------- -------- -------- -------- -------- --------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d) --(d)
------- -------- -------- -------- -------- --------
Net asset value, end of period .................. $ 15.95 $ 23.23 $ 30.46 $ 24.50 $ 23.90 $ 21.21
======= ======== ======== ======== ======== ========
Total return(e) ................................. (23.85)% (21.93)% 24.33% 2.51% 12.68% 8.27%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ..................................... 1.92% 1.73% 1.74% 1.71% 1.74% 1.72%
Net investment income (loss) .................... (1.04)% (1.02)% (1.05)% (0.94)% (0.76)% (1.16)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $62,439 $ 53,289 $ 70,413 $ 69,069 $ 73,587 $ 75,642
Portfolio turnover rate ......................... 29.92% 41.01% 18.03% 18.61% 17.26% 14.93%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 49
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
PERIOD ENDED
MARCH 31, 2009(a)
(UNAUDITED)
-----------------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period $ 15.66
-------
Income from investment operations(b):
Net investment income (loss)(c) (0.03)
Net realized and unrealized gains (losses) 1.61
-------
Total from investment operations 1.58
-------
Net asset value, end of period $ 17.24
=======
Total return(d) 10.09%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses(f) 1.42%
Net investment income (loss) (0.54)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) $ 4,602
Portfolio turnover rate 29.92%
(a) For the period December 1, 2008 (effective date) to March 31, 2009.
(b) 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 repurchases of the Fund shares in relation to income earned and/or
fluctuating market value of the investments of the Fund.
(c) Based on average daily shares outstanding.
(d) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(e) Ratios are annualized for periods less than one year.
(f) Benefit of expense reduction rounds to less than 0.01%.
50 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
SIX MONTHS ENDED PERIOD ENDED
MARCH 31, 2009 SEPTEMBER 30,
(UNAUDITED) 2008(a)
---------------- -------------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............................ $ 24.90 $ 31.40
------- -------
Income from investment operations(b):
Net investment income (loss)(c) .............................. --(d) (0.01)
Net realized and unrealized gains (losses) ................... (6.01) (6.49)
------- -------
Total from investment operations ................................ (6.01) (6.50)
------- -------
Less distributions from net realized gains ...................... (1.58) --
------- -------
Redemption fees(e) .............................................. -- --(d)
------- -------
Net asset value, end of period .................................. $ 17.31 $ 24.90
------- -------
Total return(f) ................................................. (23.47)% (20.70)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses(h) ..................................................... 0.92% 0.73%
Net investment income (loss) .................................... (0.04)% ( 0.02)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............................... $ 5,020 $ 1,938
Portfolio turnover rate ......................................... 29.92% 41.01%
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 51
Franklin Custodian Fund
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED)
FRANKLIN DYNATECH FUND COUNTRY SHARES/WARRANTS VALUE
- ---------------------------------------------------------------- ------------- --------------- -----------
COMMON STOCKS AND OTHER EQUITY INTERESTS 98.6%
AEROSPACE & DEFENSE 1.3%
Precision Castparts Corp .................................... United States 100,000 $ 5,990,000
-----------
AIR FREIGHT & LOGISTICS 1.5%
C.H. Robinson Worldwide Inc ................................. United States 150,000 6,841,500
-----------
BIOTECHNOLOGY 10.1%
(a)Amgen Inc. .................................................. United States 21,900 1,084,487
(a)Celgene Corp. ............................................... United States 244,800 10,869,120
(a)Cephalon Inc. ............................................... United States 35,000 2,383,500
(a)Genzyme Corp. ............................................... United States 65,000 3,860,350
(a)Gilead Sciences Inc. ........................................ United States 369,600 17,119,872
(a)Myriad Genetics Inc. ........................................ United States 214,200 9,739,674
(a)OSI Pharmaceuticals Inc. .................................... United States 50,000 1,913,000
-----------
46,970,003
-----------
CAPITAL MARKETS 0.7%
The Goldman Sachs Group Inc. ................................ United States 10,000 1,060,200
Invesco Ltd. ................................................ United States 150,000 2,079,000
-----------
3,139,200
-----------
CHEMICALS 3.7%
Monsanto Co. ................................................ United States 105,000 8,725,500
Sigma-Aldrich Corp. ......................................... United States 225,000 8,502,750
-----------
17,228,250
-----------
COMMERCIAL SERVICES & SUPPLIES 1.1%
(a)Stericycle Inc. ............................................. United States 110,000 5,250,300
-----------
COMMUNICATIONS EQUIPMENT 6.5%
(a)Cisco Systems Inc. .......................................... United States 612,300 10,268,271
(a,b)Dilithium Networks Inc., wts., 12/31/09 ................... United States 4,126 --
QUALCOMM Inc. ............................................... United States 310,000 12,062,100
(a)Research In Motion Ltd. ..................................... Canada 120,000 5,168,400
(a)Tandberg ASA. ............................................... Norway 200,000 2,946,686
-----------
30,445,457
-----------
COMPUTERS & PERIPHERALS 7.6%
(a)Apple Inc. .................................................. United States 220,000 23,126,400
Hewlett-Packard Co. ......................................... United States 363,900 11,666,634
(a)NetApp Inc. ................................................. United States 45,100 669,284
-----------
35,462,318
-----------
CONSUMER FINANCE 0.2%
American Express Co. ........................................ United States 50,000 681,500
-----------
DIVERSIFIED FINANCIAL SERVICES 0.9%
CME Group Inc. .............................................. United States 10,000 2,463,900
JPMorgan Chase & Co. ........................................ United States 50,000 1,329,000
Moody's Corp. ............................................... United States 20,000 458,400
-----------
4,251,300
-----------
52 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN DYNATECH FUND COUNTRY SHARES/WARRANTS VALUE
- ---------------------------------------------------------------- ------------- --------------- -----------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS 1.3%
(a)Dolby Laboratories Inc., A. ................................. United States 120,000 $ 4,093,200
(a)FLIR Systems Inc. ........................................... United States 100,000 2,048,000
-----------
6,141,200
-----------
ENERGY EQUIPMENT & SERVICES 4.1%
(a)FMC Technologies Inc. ....................................... United States 300,000 9,411,000
(a)National Oilwell Varco Inc. ................................. United States 50,000 1,435,500
Schlumberger Ltd. ........................................... United States 200,000 8,124,000
-----------
18,970,500
-----------
HEALTH CARE EQUIPMENT & SUPPLIES 6.8%
Alcon Inc. .................................................. Switzerland 50,000 4,545,500
Baxter International Inc. ................................... United States 112,500 5,762,250
C. R. Bard Inc. ............................................. United States 82,500 6,576,900
Medtronic Inc. .............................................. United States 200,000 5,894,000
(a)St. Jude Medical Inc. ....................................... United States 80,000 2,906,400
Stryker Corp. ............................................... United States 170,000 5,786,800
-----------
31,471,850
-----------
HEALTH CARE PROVIDERS & SERVICES 2.3%
(a)Express Scripts Inc. ........................................ United States 150,000 6,925,500
(a)Laboratory Corp. of America Holdings. ....................... United States 28,300 1,655,267
(a)VCA Antech Inc. ............................................. United States 100,000 2,255,000
-----------
10,835,767
-----------
HEALTH CARE TECHNOLOGY 1.2%
(a)Cerner Corp. ................................................ United States 125,000 5,496,250
-----------
INDUSTRIAL CONGLOMERATES 0.1% ...............................
General Electric Co. ........................................ United States 20,000 202,200
-----------
INTERNET & CATALOG RETAIL 3.2%
(a)Amazon.com Inc. ............................................. United States 150,000 11,016,000
(a)Priceline.com Inc. .......................................... United States 50,000 3,939,000
-----------
14,955,000
-----------
INTERNET SOFTWARE & SERVICES 5.9%
(a)Baidu.com, ADR. ............................................. China 25,000 4,415,000
(a)Google Inc., A. ............................................. United States 50,200 17,472,612
(a)MercadoLibre Inc. ........................................... Argentina 80,000 1,484,000
(a)Sohu.com Inc. ............................................... China 50,000 2,065,500
Tencent Holdings Ltd. ....................................... China 250,000 1,851,506
-----------
27,288,618
-----------
IT SERVICES 5.5%
(a)Affiliated Computer Services Inc., A. ....................... United States 100,000 4,789,000
MasterCard Inc., A. ......................................... United States 42,000 7,034,160
Visa Inc., A. ............................................... United States 250,000 13,900,000
-----------
25,723,160
-----------
Semiannual Report | 53
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN DYNATECH FUND COUNTRY SHARES/WARRANTS VALUE
- ---------------------------------------------------------------- ------------- --------------- -----------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
LIFE SCIENCES TOOLS & SERVICES 3.6%
(a)Illumina Inc. ............................................... United States 100,000 $ 3,724,000
Pharmaceutical Product Development Inc. ..................... United States 63,400 1,503,848
(a)Thermo Fisher Scientific Inc. ............................... United States 125,000 4,458,750
(a)Waters Corp. ................................................ United States 195,300 7,216,335
-----------
16,902,933
-----------
MACHINERY 1.0%
Danaher Corp. ............................................... United States 35,000 1,897,700
Flowserve Corp. ............................................. United States 50,000 2,806,000
-----------
4,703,700
-----------
MEDIA 0.3%
(a)The DIRECTV Group Inc. ...................................... United States 70,000 1,595,300
-----------
PHARMACEUTICALS 10.0%
Abbott Laboratories. ........................................ United States 60,000 2,862,000
Allergan Inc. ............................................... United States 50,000 2,388,000
Johnson & Johnson. .......................................... United States 184,000 9,678,400
Merck KGaA. ................................................. Germany 20,000 1,762,655
Novo-Nordisk AS, ADR. ....................................... Denmark 80,000 3,838,400
Roche Holding AG. ........................................... Switzerland 50,000 6,859,903
Schering-Plough Corp. ....................................... United States 150,000 3,532,500
Teva Pharmaceutical Industries Ltd., ADR. ................... Israel 350,000 15,767,500
-----------
46,689,358
-----------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 7.5%
(a)Cree Inc. ................................................... United States 20,000 470,600
(a)Hittite Microwave Corp. ..................................... United States 100,000 3,120,000
Intel Corp. ................................................. United States 1,125,000 16,931,250
(a)Lam Research Corp. .......................................... United States 150,000 3,415,500
Microchip Technology Inc. ................................... United States 180,000 3,814,200
(a)Netlogic Microsystems Inc. .................................. United States 100,000 2,748,000
Power Integrations Inc. ..................................... United States 100,000 1,720,000
(a)Silicon Laboratories Inc. ................................... United States 100,000 2,640,000
-----------
34,859,550
-----------
SOFTWARE 8.7%
(a)Activision Blizzard Inc. .................................... United States 500,000 5,230,000
(a)Adobe Systems Inc. .......................................... United States 380,000 8,128,200
(a)ANSYS Inc. .................................................. United States 175,000 4,392,500
(a)Autodesk Inc. ............................................... United States 150,000 2,521,500
(a)Concur Technologies Inc. .................................... United States 100,000 1,919,000
Microsoft Corp. ............................................. United States 250,000 4,592,500
Nintendo Co. Ltd., ADR. ..................................... Japan 135,000 4,927,500
(a)Oracle Corp. ................................................ United States 300,000 5,421,000
(a)Salesforce.com Inc. ......................................... United States 100,000 3,273,000
-----------
40,405,200
-----------
54 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN DYNATECH FUND COUNTRY SHARES/WARRANTS VALUE
- ---------------------------------------------------------------------------------- ------------- ---------------- ------------
COMMON STOCKS AND OTHER EQUITY INTERESTS (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES 3.5%
America Movil SAB de CV, L, ADR ........................................... Mexico 47,600 $ 1,289,008
(a)American Tower Corp., A ................................................... United States 319,535 9,723,450
China Mobile (Hong Kong) Ltd., ADR ........................................ China 12,600 548,352
Rogers Communications Inc., B ............................................. Canada 76,200 1,755,788
(a)SBA Communications Corp. .................................................. United States 130,400 3,038,320
------------
16,354,918
------------
TOTAL COMMON STOCKS AND OTHER EQUITY INTERESTS
(COST $370,894,128) ..................................................... 458,855,332
------------
PREFERRED STOCKS (COST $289,500) 0.0%(c)
COMMUNICATIONS EQUIPMENT 0.0%(c)
(a,b)Dilithium Networks Inc., depository receipt, D, pfd., 144A, PIPES ........... United States 124,248 162,765
------------
PRINCIPAL AMOUNT
----------------
NOTES (COST $4,807) 0.0%(c)
COMMUNICATIONS EQUIPMENT 0.0%(c)
(a,b)Dilithium Networks Inc., 11.00%, 12/31/09 ................................... United States 4,807 4,807
------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $371,188,435) 459,022,904
------------
SHARES
----------------
SHORT TERM INVESTMENTS (COST $10,188,175) 2.2%
MONEY MARKET FUNDS 2.2%
(d)Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.13% ...... United States 10,188,175 10,188,175
------------
TOTAL INVESTMENTS (COST $381,376,610) 100.8% .............................. 469,211,079
OTHER ASSETS, LESS LIABILITIES (0.8)% ..................................... (3,744,870)
------------
NET ASSETS 100.0% ......................................................... $465,466,209
============
See Abbreviations on page 127.
(a) Non-income producing.
(b) See Note 9 regarding restricted and illiquid securities.
(c) Rounds to less than 0.1% of net assets.
(d) 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.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 55
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN GROWTH FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ----------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ---------- ---------- ---------- ---------- ----------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ........................... $ 37.17 $ 46.36 $ 39.10 $ 34.83 $ 30.58 $ 26.87
---------- ---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) ........... 0.18 0.24 0.16 0.12 0.13 0.06
Net realized and unrealized
gains (losses) ................... (10.32) (9.30) 7.21 4.21 4.20 3.68
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ...... (10.14) (9.06) 7.37 4.33 4.33 3.74
---------- ---------- ---------- ---------- ---------- ----------
Less distributions from net
investment income ................... (0.31) (0.13) (0.11) (0.06) (0.08) (0.03)
---------- ---------- ---------- ---------- ---------- ----------
Redemption fees(c) .................... -- --(d) --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........ $ 26.72 $ 37.17 $ 46.36 $ 39.10 $ 34.83 $ 30.58
========== ========== ========== ========== ========== ==========
Total return(e) ....................... (27.27)% (19.59)% 18.87% 12.46% 14.17% 13.92%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 0.99% 0.89% 0.93% 0.91% 0.94% 0.98%
Net investment income ................. 1.27% 0.56% 0.37% 0.34% 0.40% 0.20%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $1,213,355 $1,708,612 $2,123,419 $1,695,802 $1,567,675 $1,531,871
Portfolio turnover rate ............... 2.04% 5.64% 0.37% 2.21% 1.16% 1.56%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
56 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 -----------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ------- -------- -------- -------- --------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ............. $ 35.44 $ 44.42 $ 37.65 $ 33.73 $ 29.77 $ 26.32
------- ------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) ............... 0.07 (0.08) (0.16) (0.15) (0.11) (0.16)
Net realized and unrealized gains
(losses) ..................................... (9.83) (8.90) 6.93 4.07 4.07 3.61
------- ------- -------- -------- -------- --------
Total from investment operations ................. (9.76) (8.98) 6.77 3.92 3.96 3.45
------- ------- -------- -------- -------- --------
Redemption fees(c) -- --(d) --(d) --(d) --(d) --(d)
------- ------- -------- -------- -------- --------
Net asset value, end of period ................... $ 25.68 $ 35.44 $ 44.42 $ 37.65 $ 33.73 $ 29.77
======= ======= ======== ======== ======== ========
Total return(e) .................................. (27.54)% (20.22)% 17.98% 11.62% 13.30% 13.11%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ...................................... 1.75% 1.64% 1.69% 1.67% 1.69% 1.73%
Net investment income (loss) ..................... 0.51% (0.19)% (0.39)% (0.42)% (0.35)% (0.55)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $55,163 $89,779 $138,640 $122,871 $123,926 $121,986
Portfolio turnover rate .......................... 2.04% 5.64% 0.37% 2.21% 1.16% 1.56%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 57
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ----------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ---------- ---------- --------- ---------- ----------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ........................... $ 35.14 $ 44.03 $ 37.32 $ 33.43 $ 29.51 $ 26.09
---------- ---------- ---------- --------- ---------- ----------
Income from investment operations(a):
Net investment income (loss)(b) .... 0.07 (0.08) (0.16) (0.15) (0.11) (0.16)
Net realized and unrealized
gains (losses) ................... (9.75) (8.81) 6.87 4.04 4.03 3.58
---------- ---------- ---------- --------- ---------- ----------
Total from investment operations ...... (9.68) (8.89) 6.71 3.89 3.92 3.42
---------- ---------- ---------- --------- ---------- ----------
Less distributions from net
investment income ................... (0.02) -- -- -- -- --
---------- ---------- ---------- --------- ---------- ----------
Redemption fees(c) -- --(d) --(d) --(d) --(d) --(d)
---------- ---------- ---------- --------- ---------- ----------
Net asset value, end of period ........ $ 25.44 $ 35.14 $ 44.03 $ 37.32 $ 33.43 $ 29.51
========== ========== ========== ========= ========== ==========
Total return(e) ....................... (27.54)% (20.19)% 17.98% 11.60% 13.32% 13.11%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 1.75% 1.64% 1.69% 1.66% 1.69% 1.73%
Net investment income (loss) .......... 0.51% (0.19)% (0.39)% (0.41)% (0.35)% (0.55)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $ 178,792 $ 255,425 $ 340,671 $ 273,512 $ 270,538 $ 270,131
Portfolio turnover rate ............... 2.04% 5.64% 0.37% 2.21% 1.16% 1.56%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year. (g)Benefit of expense
reduction rounds to less than 0.01%.
58 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
FRANKLIN CUSTODIAN FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ---------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- --------- -------- --------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............. $ 36.87 $ 45.99 $ 38.80 $ 34.59 $ 30.39 $ 26.74
------------- -------- -------- --------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) ............... 0.14 0.14 0.04 0.02 0.05 (0.02)
Net realized and unrealized gains (losses) .... (10.23) (9.23) 7.16 4.19 4.16 3.67
------------- -------- -------- --------- -------- --------
Total from investment operations ................. (10.09) (9.09) 7.20 4.21 4.21 3.65
------------- -------- -------- --------- -------- --------
Less distributions from net investment income .... (0.11) (0.03) (0.01) --(c) (0.01) --
------------- -------- -------- --------- -------- --------
Redemption fees(d) ............................... -- --(c) --(c) --(c) --(c) --(c)
------------- -------- -------- --------- -------- --------
Net asset value, end of period ................... $ 26.67 $ 36.87 $ 45.99 $ 38.80 $ 34.59 $ 30.39
============= ======== ======== ========= ======== ========
Total return(e) .................................. (27.37)% (19.78)% 18.55% 12.18% 13.87% 13.65%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ...................................... 1.25% 1.14% 1.19% 1.17% 1.19% 1.23%
Net investment income (loss) ..................... 1.01% 0.31% 0.11% 0.08% 0.15% (0.05)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ................ $ 27,751 $ 30,175 $ 53,134 $ 37,804 $ 27,818 $ 20,060
Portfolio turnover rate .......................... 2.04% 5.64% 0.37% 2.21% 1.16% 1.56%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 59
FRANKLIN CUSTODIAN FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 -----------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- --------- --------- --------- ---------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ............ $ 37.25 $ 46.45 $ 39.17 $ 34.89 $ 30.63 $ 26.91
------------- -------- --------- --------- --------- ---------
Income from investment operations(a):
Net investment income(b) ..................... 0.21 0.34 0.27 0.22 0.21 0.14
Net realized and unrealized gains (losses) ... (10.34) (9.31) 7.21 4.21 4.21 3.67
------------- -------- --------- --------- --------- ---------
Total from investment operations ................ (10.13) (8.97) 7.48 4.43 4.42 3.81
------------- -------- --------- --------- --------- ---------
Less distributions from net investment income ... (0.40) (0.23) (0.20) (0.15) (0.16) (0.09)
------------- -------- --------- --------- --------- ---------
Redemption fees(c) .............................. -- --(d) --(d) --(d) --(d) --(d)
------------- -------- --------- --------- --------- ---------
Net asset value, end of period .................. $ 26.72 $ 37.25 $ 46.45 $ 39.17 $ 34.89 $ 30.63
============= ======== ========= ========= ========= =========
Total return(e) ................................. (27.16)% (19.39)% 19.16% 12.73% 14.45% 14.19%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ..................................... 0.75% 0.64% 0.69% 0.67% 0.69% 0.73%
Net investment income ........................... 1.51% 0.81% 0.61% 0.58% 0.65% 0.45%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ............... $ 185,794 $256,988 $ 363,221 $ 274,603 $ 221,752 $ 133,332
Portfolio turnover rate ......................... 2.04% 5.64% 0.37% 2.21% 1.16% 1.56%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
60 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
FRANKLIN CUSTODIAN FUNDS
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED)
FRANKLIN GROWTH FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------- --------- -------------
COMMON STOCKS 94.1%
AUTOMOBILES & COMPONENTS 1.5%
(a)Ford Motor Co. ............................................................................. 1,100,000 $ 2,893,000
Harley-Davidson Inc. ....................................................................... 400,000 5,356,000
Johnson Controls Inc. ...................................................................... 1,200,000 14,400,000
Toyota Motor Corp., ADR (Japan) ............................................................ 30,000 1,899,000
-------------
24,548,000
-------------
CAPITAL GOODS 25.4%
3M Co. ..................................................................................... 855,000 42,510,600
The Boeing Co. ............................................................................. 1,045,000 37,181,100
Caterpillar Inc. ........................................................................... 200,000 5,592,000
Deere & Co. ................................................................................ 100,000 3,287,000
Emerson Electric Co. ....................................................................... 1,000,000 28,580,000
General Dynamics Corp. ..................................................................... 1,000,000 41,590,000
General Electric Co. ....................................................................... 70,000 707,700
Illinois Tool Works Inc. ................................................................... 1,000,000 30,850,000
Ingersoll-Rand Co. Ltd., A ................................................................. 1,002,000 13,827,600
Lockheed Martin Corp. ...................................................................... 500,000 34,515,000
Northrop Grumman Corp. ..................................................................... 1,000,000 43,640,000
Pall Corp. ................................................................................. 500,000 10,215,000
Raytheon Co. ............................................................................... 600,000 23,364,000
Rockwell Collins Inc. ...................................................................... 100,000 3,264,000
(a)SunPower Corp., A .......................................................................... 2,000 47,560
(a)SunPower Corp., B .......................................................................... 48,000 950,400
Textron Inc. ............................................................................... 1,050,000 6,027,000
(a)Thomas & Betts Corp. ....................................................................... 500,000 12,510,000
Tyco International Ltd. .................................................................... 387,513 7,579,754
United Technologies Corp. .................................................................. 850,000 36,533,000
W.W. Grainger Inc. ......................................................................... 550,000 38,599,000
-------------
421,370,714
-------------
COMMERCIAL & PROFESSIONAL SERVICES 2.4%
Avery Dennison Corp. ....................................................................... 462,000 10,321,080
Dun & Bradstreet Corp. ..................................................................... 122,000 9,394,000
Equifax Inc. ............................................................................... 400,000 9,780,000
Robert Half International Inc. ............................................................. 300,000 5,349,000
(a)Stericycle Inc. ............................................................................ 100,000 4,773,000
-------------
39,617,080
-------------
CONSUMER DURABLES & APPAREL 1.7%
VF Corp. ................................................................................... 500,000 28,555,000
-------------
CONSUMER SERVICES 0.8%
Carnival Corp. ............................................................................. 565,000 12,204,000
(a)Interval Leisure Group Inc. ................................................................ 60,020 318,106
-------------
12,522,106
-------------
ENERGY 2.2%
BP PLC, ADR (United Kingdom) ............................................................... 350,200 14,043,020
ConocoPhillips ............................................................................. 35,000 1,370,600
Devon Energy Corp. ......................................................................... 50,000 2,234,500
Semiannual Report | 61
FRANKLIN CUSTODIAN FUNDS
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN GROWTH FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------- --------- -------------
COMMON STOCKS (CONTINUED)
ENERGY (CONTINUED)
Exxon Mobil Corp. .......................................................................... 70,000 $ 4,767,000
Royal Dutch Shell PLC, A, ADR (Netherlands) ................................................ 280,000 12,404,000
Schlumberger Ltd. .......................................................................... 40,000 1,624,800
(a)Transocean Ltd. ............................................................................ 15,222 895,662
-------------
37,339,582
-------------
HEALTH CARE EQUIPMENT & SERVICES 5.6%
Baxter International Inc. .................................................................. 400,000 20,488,000
Cardinal Health Inc. ....................................................................... 300,000 9,444,000
(a)Edwards Lifesciences Corp. ................................................................. 50,000 3,031,500
IMS Health Inc. ............................................................................ 500,000 6,235,000
(a)Intuitive Surgical Inc. .................................................................... 19,000 1,811,840
(a)Medco Health Solutions Inc. ................................................................ 96,480 3,988,483
Medtronic Inc. ............................................................................. 60,000 1,768,200
Quest Diagnostics Inc. ..................................................................... 500,000 23,740,000
Teleflex Inc. .............................................................................. 500,000 19,545,000
(a)Zimmer Holdings Inc. ....................................................................... 64,000 2,336,000
-------------
92,388,023
-------------
HOUSEHOLD & PERSONAL PRODUCTS 0.1%
The Procter & Gamble Co. ................................................................... 35,000 1,648,150
-------------
MATERIALS 2.6%
Air Products and Chemicals Inc. ............................................................ 500,000 28,125,000
Sigma-Aldrich Corp. ........................................................................ 400,000 15,116,000
-------------
43,241,000
-------------
MEDIA 1.2%
The Walt Disney Co. ........................................................................ 1,130,000 20,520,800
-------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 20.0%
Abbott Laboratories ........................................................................ 400,000 19,080,000
Allergan Inc. .............................................................................. 800,000 38,208,000
(a)Amgen Inc. ................................................................................. 932,000 46,152,640
(a)Biogen Idec Inc. ........................................................................... 400,000 20,968,000
(a)Celgene Corp. .............................................................................. 25,000 1,110,000
(a)Dionex Corp. ............................................................................... 250,000 11,812,500
Eli Lilly and Co. .......................................................................... 400,000 13,364,000
Johnson & Johnson .......................................................................... 1,081,000 56,860,600
Merck & Co. Inc. ........................................................................... 500,000 13,375,000
(a)Millipore Corp. ............................................................................ 400,000 22,964,000
Pfizer Inc. ................................................................................ 2,170,000 29,555,400
Roche Holding AG, ADR (Switzerland) ........................................................ 80,000 2,752,000
Schering-Plough Corp. ...................................................................... 500,000 11,775,000
(a)Waters Corp. ............................................................................... 500,000 18,475,000
Wyeth ...................................................................................... 600,000 25,824,000
-------------
332,276,140
-------------
62 | Semiannual Report
FRANKLIN CUSTODIAN FUNDS
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN GROWTH FUND SHARES VALUE
- ----------------------------------------------------------------------------------------------- --------- -------------
COMMON STOCKS (CONTINUED)
RETAILING 0.2%
(a)Expedia Inc. ............................................................................... 300,100 $ 2,724,908
(a)HSN Inc. ................................................................................... 60,020 308,503
(a)Ticketmaster Entertainment Inc. ............................................................ 60,020 221,474
-------------
3,254,885
-------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.3%
Texas Instruments Inc. ..................................................................... 250,000 4,127,500
(a)Verigy Ltd. (Singapore) .................................................................... 48,974 404,036
-------------
4,531,536
-------------
SOFTWARE & SERVICES 7.4%
Automatic Data Processing Inc. ............................................................. 700,000 24,612,000
(a)Computer Sciences Corp. .................................................................... 1,000,000 36,840,000
(a)Google Inc., A ............................................................................. 40,000 13,922,400
(a)IAC/InterActiveCorp. ....................................................................... 150,050 2,285,262
Microsoft Corp. ............................................................................ 900,000 16,533,000
(a)Oracle Corp. ............................................................................... 500,000 9,035,000
(a)Yahoo! Inc. ................................................................................ 1,600,000 20,496,000
-------------
123,723,662
-------------
TECHNOLOGY HARDWARE & EQUIPMENT 13.8%
(a)Agilent Technologies Inc. .................................................................. 400,000 6,148,000
(a)Apple Inc. ................................................................................. 725,000 76,212,000
(a)Cisco Systems Inc. ......................................................................... 1,545,000 25,909,650
(a)EMC Corp. .................................................................................. 1,000,000 11,400,000
Hewlett-Packard Co. ........................................................................ 1,156,250 37,069,375
International Business Machines Corp. ...................................................... 580,000 56,196,200
(a)Logitech International SA (Switzerland) .................................................... 150,000 1,542,000
(a)Mettler-Toledo International Inc. .......................................................... 50,000 2,566,500
Molex Inc. ................................................................................. 146,483 2,012,676
Molex Inc., A .............................................................................. 146,483 1,851,545
QUALCOMM Inc. .............................................................................. 110,000 4,280,100
Tyco Electronics Ltd. ...................................................................... 387,513 4,278,144
-------------
229,466,190
-------------
TELECOMMUNICATION SERVICES 0.2%
(a)American Tower Corp., A .................................................................... 115,000 3,499,450
-------------
TRANSPORTATION 8.1%
Air France-KLM, ADR (France) ............................................................... 550,000 4,867,500
(a)Alaska Air Group Inc. ...................................................................... 500,000 8,785,000
(a)AMR Corp. .................................................................................. 2,000,000 6,380,000
Arkansas Best Corp. ........................................................................ 500,000 9,510,000
British Airways PLC, ADR (United Kingdom) .................................................. 500,000 10,195,000
Canadian National Railway Co. (Canada) ..................................................... 500,000 17,725,000
Canadian Pacific Railway Ltd. (Canada) ..................................................... 500,000 14,815,000
(a)Continental Airlines Inc., B ............................................................... 1,000,000 8,810,000
Expeditors International of Washington Inc. ................................................ 80,000 2,263,200
Forward Air Corp. .......................................................................... 500,000 8,115,000
Semiannual Report | 63
FRANKLIN CUSTODIAN FUNDS
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN GROWTH FUND SHARES VALUE
- -------------------------------------------------------------------------------------------- --------- ---------------
COMMON STOCKS (CONTINUED)
TRANSPORTATION (CONTINUED)
Heartland Express Inc. .................................................................. 500,000 $ 7,405,000
Southwest Airlines Co. .................................................................. 65,200 412,716
Union Pacific Corp. ..................................................................... 600,000 24,666,000
Werner Enterprises Inc. ................................................................. 500,000 7,560,000
(a)YRC Worldwide Inc. ...................................................................... 700,000 3,143,000
---------------
134,652,416
---------------
UTILITIES 0.6%
FPL Group Inc. 200,000 10,146,000
---------------
TOTAL COMMON STOCKS (COST $1,003,352,234) 1,563,300,734
---------------
PRINCIPAL AMOUNT
----------------
CORPORATE BONDS (COST $1,615,052) 0.1%
AUTOMOBILES & COMPONENTS 0.1%
General Motors Corp., senior deb., 8.375%, 7/15/33 ...................................... $ 8,500,000 1,062,500
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST $1,004,967,286) 1,564,363,234
---------------
SHARES
----------------
SHORT TERM INVESTMENTS 5.8%
MONEY MARKET FUNDS (COST $ 82,480,843) 5.0%
(b)Franklin Institutional Fiduciary Trust Money Market Portfolio, 0.13% .................... 82,480,843 82,480,843
---------------
PRINCIPAL AMOUNT
----------------
REPURCHASE AGREEMENTS (COST $13,980,468) 0.8%
(c)Joint Repurchase Agreement, 0.132%, 4/01/09
(Maturity Value $ 13,980,519) .......................................................... $ 13,980,468 13,980,468
Banc of America Securities LLC (Maturity Value $ 978,357)
Barclays Capital Inc. (Maturity Value $ 978,357)
BNP Paribas Securities Corp. (Maturity Value $ 3,913,427)
Credit Suisse Securities (USA) LLC (Maturity Value $ 3,424,388)
Deutsche Bank Securities Inc. (Maturity Value $ 2,729,277)
HSBC Securities (USA) Inc. (Maturity Value $ 1,956,713)
Collateralized by U.S.Government Agency Securities, 1.03% - 5.50%, 9/25/09 - 12/14/22;
(d) U.S. Treasury Bills, 6/11/09 - 9/03/09; and U.S. Treasury Notes, 0.875% -
4.50%, 5/15/10 - 3/31/13
---------------
TOTAL INVESTMENTS (COST $ 1,101,428,597) 100.0% ............................................ 1,660,824,545
OTHER ASSETS, LESS LIABILITIES 0.0%(e) ..................................................... 30,522
---------------
NET ASSETS 100.0% .......................................................................... $ 1,660,855,067
===============
See Abbreviations on page 127.
(a) Non-income producing.
(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 joint repurchase agreement.
(d) The security is traded on a discount basis with no stated coupon rate.
(e) Rounds to less than 0.1% of net assets.
64 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
FRANKLIN CUSTODIAN FUNDS
FINANCIAL HIGHLIGHTS
FRANKLIN INCOME FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 --------------------------------------------------------------------------------
CLASS A (UNAUDITED) 2008 2007 2006 2005 2004
---------------- ------------ ------------ ------------ ----------- ------------
PER SHARE OPERATING
PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value,
beginning of period ....... $ 1.98 $ 2.74 $ 2.57 $ 2.50 $ 2.42 $ 2.25
------------- ------------ ------------ ------------ ----------- ------------
Income from investment
operations(a):
Net investment
income(b) ............. 0.08 0.16 0.14 0.14 0.14 0.12
Net realized and
unrealized gains
(losses) .............. (0.43) (0.71) 0.21 0.09 0.10 0.22
------------- ------------ ------------ ------------ ----------- ------------
Total from investment
operations .............. (0.35) (0.55) 0.35 0.23 0.24 0.34
------------- ------------ ------------ ------------ ----------- ------------
Less distributions from:
Net investment income ... (0.08) (0.15) (0.14) (0.15) (0.15) (0.16)
Net realized gains ...... --(c) (0.06) (0.04) (0.01) (0.01) (0.01)
------------- ------------ ------------ ------------ ----------- ------------
Total distributions ........ (0.08) (0.21) (0.18) (0.16) (0.16) (0.17)
------------- ------------ ------------ ------------ ----------- ------------
Redemption fees(d) ......... -- --(c) --(c) --(c) --(c) --(c)
------------- ------------ ------------ ------------ ----------- ------------
Net asset value, end
of period ............... $ 1.55 $ 1.98 $ 2.74 $ 2.57 $ 2.50 $ 2.42
============= ============ ============ ============ =========== ============
Total return(e) ............ (17.48)% (21.36)% 14.14% 9.73% 10.45% 15.50%
RATIOS TO AVERAGE NET
ASSETS(f)
Expenses ................... 0.69%(g) 0.62%(g) 0.63%(g) 0.64%(h) 0.65%(h) 0.68%(g)
Net investment income ...... 9.60% 6.44% 5.31% 5.61% 5.54% 5.11%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ................. $ 20,236,054 $ 26,892,973 $ 35,476,603 $ 26,641,398 $21,934,575 $ 14,743,190
Portfolio turnover rate .... 27.31% 39.92% 25.45% 28.35% 28.51% 31.90%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 65
FRANKLIN CUSTODIAN FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------------------------
CLASS B (UNAUDITED) 2008 2007 2006 2005 2004
---------------- ----------- ----------- ------------ ------------- -----------
PER SHARE OPERATING
PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value,
beginning of period .......... $ 1.97 $ 2.73 $ 2.56 $ 2.49 $ 2.41 $ 2.24
----------- ----------- ----------- ------------ ------------- -----------
Income from investment
operations(a):
Net investment income(b) ... 0.07 0.14 0.12 0.12 0.11 0.10
Net realized and
unrealized gains
(losses) ................. (0.42) (0.71) 0.21 0.08 0.11 0.22
----------- ----------- ----------- ------------ ------------- -----------
Total from investment
operations .................... (0.35) (0.57) 0.33 0.20 0.22 0.32
----------- ----------- ----------- ------------ ------------- -----------
Less distributions from:
Net investment income ...... (0.08) (0.13) (0.12) (0.12) (0.13) (0.14)
Net realized gains ......... --(c) (0.06) (0.04) (0.01) (0.01) (0.01)
----------- ----------- ----------- ------------ ------------- -----------
Total distributions ........... (0.08) (0.19) (0.16) (0.13) (0.14) (0.15)
----------- ----------- ----------- ------------ ------------- -----------
Redemption fees(d) ............ -- --(c) --(c) --(c) --(c) --(c)
----------- ----------- ----------- ------------ ------------- -----------
Net asset value, end
of period ..................... $ 1.54 $ 1.97 $ 2.73 $ 2.56 $ 2.49 $ 2.41
=========== =========== =========== ============ ============= ===========
Total return(e)................. (17.95)% (22.13)% 13.23% 8.83% 9.57% 14.59%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ...................... 1.54%(g) 1.47%(g) 1.48%(g) 1.49%(h) 1.50%(h) 1.53%(g)
Net investment income ......... 8.75% 5.59% 4.46% 4.76% 4.69% 4.26%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ...................... $ 1,666,993 $ 2,428,765 $ 3,745,636 $ 3,743,374 $ 3,922,396 $ 3,486,880
Portfolio turnover rate ....... 27.31% 39.92% 25.45% 28.35% 28.51% 31.90%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
66 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
FRANKLIN CUSTODIAN FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------------------------
CLASS B1 (UNAUDITED) 2008 2007 2006 2005 2004
---------------- ----------- ----------- ------------ ------------- -----------
PER SHARE OPERATING
PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value,
beginning of period .......... $ 1.98 $ 2.74 $ 2.57 $ 2.50 $ 2.42 $ 2.25
----------- ----------- ----------- ------------ ------------- -----------
Income from investment
operations(a):
Net investment income(b) ... 0.07 0.15 0.13 0.13 0.12 0.11
Net realized and
unrealized gains
(losses) .................. (0.42) (0.71) 0.21 0.08 0.11 0.21
----------- ----------- ----------- ------------ ------------- -----------
Total from investment
operations ................... (0.35) (0.56) 0.34 0.21 0.23 0.32
----------- ----------- ----------- ------------ ------------- -----------
Less distributions from:
Net investment income ...... (0.08) (0.14) (0.13) (0.13) (0.14) (0.14)
Net realized gains ......... --(c) (0.06) (0.04) (0.01) (0.01) (0.01)
----------- ----------- ----------- ------------ ------------- -----------
Total distributions ........... (0.08) (0.20) (0.17) (0.14) (0.15) (0.15)
----------- ----------- ----------- ------------ ------------- -----------
Redemption fees(d) ............ -- --(c) --(c) --(c) --(c) --(c)
----------- ----------- ----------- ------------ ------------- -----------
Net asset value, end of
period ....................... $ 1.55 $ 1.98 $ 2.74 $ 2.57 $ 2.50 $ 2.42
=========== =========== =========== ============ ============= ===========
Total return(e) ............... (17.71)% (21.77)% 13.57% 9.17% 9.90% 14.90%
RATIOS TO AVERAGE NET
ASSETS(f)
Expenses ...................... 1.19%(g) 1.12%(g) 1.13%(g) 1.14%(h) 1.15%(h) 1.18%(g)
Net investment income ......... 9.10% 5.94% 4.81% 5.11% 5.04% 4.61%
SUPPLEMENTAL DATA
Net assets, end of
period (000's) ................ $ 132,020 $ 224,713 $ 397,224 $ 459,302 $ 493,063 $ 511,471
Portfolio turnover rate ....... 27.31% 39.92% 25.45% 28.35% 28.51% 31.90%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 67
FRANKLIN CUSTODIAN FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ----------- ----------- ----------- ----------- ----------
CLASS C
PER SHARE OPERATING
PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of Period ................. $ 1.99 $ 2.76 $ 2.59 $ 2.51 $ 2.43 $ 2.26
---------- ----------- ----------- ----------- ----------- ----------
Income from investment
operations(a):
Net investment
income(b) ............... 0.07 0.15 0.13 0.13 0.13 0.11
Net realized and
unrealized
gains (losses) ........... (0.42) (0.72) 0.21 0.09 0.10 0.21
---------- ----------- ----------- ----------- ----------- ----------
Total from investment
Operations ................ (0.35) (0.57) 0.34 0.22 0.23 0.32
---------- ----------- ----------- ----------- ----------- ----------
Less distributions from:
Net investment income ..... (0.08) (0.14) (0.13) (0.13) (0.14) (0.14)
Net realized gains ........ --(c) (0.06) (0.04) (0.01) (0.01) (0.01)
---------- ----------- ----------- ----------- ----------- ----------
Total distributions .......... (0.08) (0.20) (0.17) (0.14) (0.15) (0.15)
---------- ----------- ----------- ----------- ----------- ----------
Redemption fees(d) ........... -- --(c) --(c) --(c) --(c) --(c)
---------- ----------- ----------- ----------- ----------- ----------
Net asset value, end
of period ................ $ 1.56 $ 1.99 $ 2.76 $ 2.59 $ 2.51 $ 2.43
========== =========== =========== =========== =========== ==========
Total return(e) .............. (17.63)% (21.98)% 13.47% 9.56% 9.84% 14.85%
RATIOS TO AVERAGE NET
ASSETS(f)
Expenses ..................... 1.19%(g) 1.12%(g) 1.13%(g) 1.14%(h) 1.15%(h) 1.18%(g)
Net investment income ........ 9.10% 5.94% 4.81% 5.11% 5.04% 4.61%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ................... $9,326,417 $12,443,143 $16,203,796 $12,138,969 $10,113,365 $6,616,891
Portfolio turnover rate ...... 27.31% 39.92% 25.45% 28.35% 28.51% 31.90%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
68 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ---------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- -------- -------- -------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the
period)
Net asset value, beginning of period ....... $ 1.95 $ 2.71 $ 2.55 $ 2.48 $ 2.40 $ 2.23
-------- -------- -------- -------- -------- -------
Income from investment operations(a):
Net investment income(b) ................ 0.07 0.15 0.13 0.13 0.13 0.11
Net realized and unrealized gains
(losses) .............................. (0.41) (0.71) 0.20 0.09 0.10 0.22
-------- -------- -------- -------- -------- -------
Total from investment operations ........... (0.34) (0.56) 0.33 0.22 0.23 0.33
-------- -------- -------- -------- -------- -------
Less distributions from:
Net investment income ................... (0.08) (0.14) (0.13) (0.14) (0.14) (0.15)
Net realized gains ...................... --(c) (0.06) (0.04) (0.01) (0.01) (0.01)
-------- -------- -------- -------- -------- -------
Total distributions ........................ (0.08) (0.20) (0.17) (0.15) (0.15) (0.16)
-------- -------- -------- -------- -------- -------
Redemption fees(d) ......................... -- --(c) --(c) --(c) --(c) --(c)
-------- -------- -------- -------- -------- -------
Net asset value, end of period ............. $ 1.53 $ 1.95 $ 2.71 $ 2.55 $ 2.48 $ 2.40
======== ======== ======== ======== ======== =======
Total return(e) ............................ (17.40)% (21.91)% 13.47% 9.43% 10.15% 15.25%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ................................... 1.04%(g) 0.97%(g) 0.98%(g) 0.99%(h) 1.00%(h) 1.03%(g)
Net investment income ...................... 9.25% 6.09% 4.96% 5.26% 5.19% 4.76%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .......... $228,117 $267,956 $286,670 $183,609 $122,222 $73,165
Portfolio turnover rate .................... 27.31% 39.92% 25.45% 28.35% 28.51% 31.90%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 69
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------------- ---------- ---------- ---------- ---------- --------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of
period ....................... $ 1.97 $ 2.73 $ 2.56 $ 2.49 $ 2.41 $ 2.24
---------- ---------- ---------- ---------- ---------- --------
Income from investment operations
(a):
Net investment income(b) ..... 0.08 0.16 0.15 0.14 0.14 0.12
Net realized and unrealized
gains (losses) ............. (0.42) (0.70) 0.21 0.09 0.11 0.22
---------- ---------- ---------- ---------- ---------- --------
Total from investment
operations ................... (0.34) (0.54) 0.36 0.23 0.25 0.34
---------- ---------- ---------- ---------- ---------- --------
Less distributions from:
Net investment income ........ (0.09) (0.16) (0.15) (0.15) (0.16) (0.16)
Net realized gains ........... --(c) (0.06) (0.04) (0.01) (0.01) (0.01)
---------- ---------- ---------- ---------- ---------- --------
Total distributions ............. (0.09) (0.22) (0.19) (0.16) (0.17) (0.17)
---------- ---------- ---------- ---------- ---------- --------
Redemption fees(d) .............. -- --(c) --(c) --(c) --(c) --(c)
---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of
period ........................ $ 1.54 $ 1.97 $ 2.73 $ 2.56 $ 2.49 $ 2.41
========== ========== ========== ========== ========== ========
Total return(e) ................. (17.51)% (21.33)% 14.36% 9.94% 10.65% 15.74%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ........................ 0.54%(g) 0.47%(g) 0.48%(g) 0.49%(h) 0.50%(h) 0.53%(g)
Net investment income ........... 9.75% 6.59% 5.46% 5.76% 5.69% 5.26%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ....................... $2,893,768 $4,259,806 $6,195,966 $3,786,643 $2,280,318 $901,149
Portfolio turnover rate ....... 27.31% 39.92% 25.45% 28.35% 28.51% 31.90%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
(h) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
70 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED)
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------ -------------- ---------- --------------
COMMON STOCKS 26.8%
CONSUMER DISCRETIONARY 0.1%
(a)Comcast Corp., A ........................................ United States 3,789,333 $ 51,686,502
--------------
CONSUMER STAPLES 0.0%(b)
Diageo PLC .............................................. United Kingdom 909,000 10,257,795
--------------
ENERGY 3.0%
(c)Canadian Oil Sands Trust ................................ Canada 25,847,400 497,163,950
ConocoPhillips .......................................... United States 8,500,000 332,860,000
Spectra Energy Corp. .................................... United States 15,761,200 222,863,368
--------------
1,052,887,318
--------------
FINANCIALS 3.4%
Bank of America Corp. ................................... United States 50,000,000 341,000,000
Barclays PLC ............................................ United Kingdom 15,000,000 31,852,562
Duke Realty Corp. ....................................... United States 3,163,800 17,400,900
HSBC Holdings PLC ....................................... United Kingdom 35,000,000 198,361,114
iStar Financial Inc. .................................... United States 5,213,500 14,649,935
JPMorgan Chase & Co. .................................... United States 10,000,000 265,800,000
Wells Fargo & Co. ....................................... United States 21,000,000 299,040,000
--------------
1,168,104,511
--------------
HEALTH CARE 2.5%
Merck & Co. Inc. ........................................ United States 20,000,000 535,000,000
Pfizer Inc. ............................................. United States 23,000,000 313,260,000
--------------
848,260,000
--------------
INFORMATION TECHNOLOGY 1.1%
(a)Intel Corp. ............................................. United States 20,000,000 301,000,000
(a)Texas Instruments Inc. .................................. United States 4,800,000 79,248,000
--------------
380,248,000
--------------
MATERIALS 0.7%
AngloGold Ashanti Ltd., ADR ............................. South Africa 2,884,064 106,018,193
Newmont Mining Corp. .................................... United States 3,000,000 134,280,000
--------------
240,298,193
--------------
TELECOMMUNICATION SERVICES 1.0%
AT&T Inc. ............................................... United States 11,000,000 277,200,000
Vodafone Group PLC. ..................................... United Kingdom 30,000,000 52,836,513
--------------
330,036,513
--------------
UTILITIES 15.0%
AGL Resources Inc. ...................................... United States 3,600,000 95,508,000
(c)Ameren Corp. ............................................ United States 12,150,000 281,758,500
American Electric Power Co. Inc. ........................ United States 8,350,000 210,921,000
CenterPoint Energy Inc. ................................. United States 5,600,000 58,408,000
Consolidated Edison Inc. ................................ United States 5,300,000 209,933,000
Constellation Energy Group .............................. United States 3,000,000 61,980,000
Dominion Resources Inc. ................................. United States 10,600,000 328,494,000
DTE Energy Co. .......................................... United States 4,550,000 126,035,000
Semiannual Report | 71
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
- ------------------------------------------------------------ -------------- ---------- --------------
COMMON STOCKS (CONTINUED)
UTILITIES (CONTINUED)
Duke Energy Corp. ....................................... United States 34,750,000 $ 497,620,000
FirstEnergy Corp. ....................................... United States 5,400,000 208,440,000
FPL Group Inc. .......................................... United States 8,550,000 433,741,500
NiSource Inc. ........................................... United States 4,400,000 43,120,000
PG&E Corp. .............................................. United States 10,000,000 382,200,000
(c)Pinnacle West Capital Corp. ............................. United States 5,100,000 135,456,000
Portland General Electric Co. ........................... United States 3,000,000 52,770,000
Progress Energy Inc. .................................... United States 9,450,000 342,657,000
Public Service Enterprise Group Inc. .................... United States 18,350,000 540,774,500
Sempra Energy .......................................... United States 5,950,000 275,128,000
The Southern Co. ........................................ United States 13,500,000 413,370,000
TECO Energy Inc. ........................................ United States 10,000,000 111,500,000
Xcel Energy Inc. ........................................ United States 18,900,000 352,107,000
--------------
5,161,921,500
--------------
TOTAL COMMON STOCKS (COST $11,891,677,222) .............. 9,243,700,332
--------------
CONVERTIBLE PREFERRED STOCKS 2.8%
CONSUMER DISCRETIONARY 0.1%
General Motors Corp., 6.25%, cvt. pfd., C ............... United States 11,000,000 27,940,000
--------------
ENERGY 0.5%
(d)Sandridge Energy Inc., 8.50%, cvt., pfd., 144A .......... United States 1,810,000 174,380,468
--------------
FINANCIALS 1.8%
Bank of America Corp., 7.25%, cvt. pfd., L .............. United States 465,000 197,392,500
Citigroup Inc., 6.50%, cvt. pfd. ........................ United States 5,698,450 155,852,607
(e)Fannie Mae, 5.375%, cvt. pfd. ........................... United States 4,700 7,473,000
(e)Fannie Mae, 8.75%, cvt. pfd. ............................ United States 3,239,000 3,368,560
Felcor Lodging Trust Inc., 7.80%, cvt. pfd., A .......... United States 3,000,000 12,000,000
Legg Mason Inc., 7.00%, cvt. pfd ........................ United States 2,625,000 47,775,000
(e)Lehman Brothers Holdings Inc., 7.25%, cvt. pfd., P ...... United States 1,000,650 740,481
(e)Lehman Brothers Holdings Inc., 8.75%, cvt. pfd., Q ...... United States 550,000 577,500
(e)Washington Mutual Inc., 7.75%, cvt. pfd., R ............. United States 25,484 124,872
Wells Fargo & Co., 7.50%, cvt. pfd., A .................. United States 380,000 182,016,200
--------------
607,320,720
--------------
HEALTH CARE 0.3%
Schering-Plough Corp., 6.00%, cvt. pfd. ................. United States 525,000 110,709,375
-------------
UTILITIES 0.1%
CMS Energy Trust I, 7.75%, cvt. pfd. .................... United States 1,725,000 50,156,618
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $3,849,220,315) .................................. 970,507,181
--------------
(f)EQUITY LINKED SECURITIES 0.9%
ENERGY 0.4%
(d)The Goldman Sachs Group Inc. into XTO Energy Inc., 9.00%,
144A ................................................... United States 3,825,000 115,911,079
--------------
72 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------- ------------- ------------------- ------------
(f)EQUITY LINKED SECURITIES (CONTINUED)
MATERIALS 0.5%
(d)The Goldman Sachs Group Inc. into Barrick Gold
Corp., 12.5%, 144A ....................................... United States 5,000,000 $171,933,000
------------
TOTAL EQUITY LINKED SECURITIES (COST $358,433,093) ....... 287,844,079
------------
PREFERRED STOCKS 0.2%
FINANCIALS 0.2%
(e)Fannie Mae, 6.75%, pfd. .................................. United States 3,000,000 1,500,000
(e)Fannie Mae, 7.625%, pfd., R .............................. United States 2,399,400 1,751,562
(e)Fannie Mae, 8.25%, pfd. .................................. United States 11,784,000 8,366,640
(e)Freddie Mac, 8.375%, pfd., Z ............................. United States 16,608,000 7,639,680
(d)Preferred Blocker Inc., 7.00%, pfd., 144A ................ United States 267,636 53,301,396
------------
TOTAL PREFERRED STOCKS (COST $928,695,780) ............... 72,559,278
------------
PRINCIPAL AMOUNT(g)
-------------------
(h,i)SENIOR FLOATING RATE INTERESTS 5.9%
CONSUMER DISCRETIONARY 1.2%
Clear Channel Communications Inc., Term Loan
B, 4.17%, 11/13/15 ..................................... United States 635,000,000 243,880,005
(j)Dex Media West LLC, Term Loan B, 6.25%, 10/24/14 ......... United States 10,000,000 4,591,670
(k)Idearc Inc.,
Term Loan A, 5.75%, 11/17/13 ......................... United States 44,437,500 17,515,796
Term Loan B, 6.25%, 11/17/14 ......................... United States 24,809,645 9,582,725
Jarden Corp., Term Loan B-3, 3.72% - 4.75%, 1/24/12 ...... United States 122,812,824 111,628,137
R.H. Donnelley Inc., Term Loan D-2, 6.75%, 6/30/11 ....... United States 53,309,074 23,922,447
------------
411,120,780
------------
HEALTH CARE 0.5%
Bausch and Lomb Inc.,
(l)Delayed Draw Term Loan, 3.768% - 4.47%, 4/28/15 ...... United States 5,268,000 4,523,895
Parent Term Loan B, 4.47%, 4/28/15 ................... United States 34,681,000 29,782,309
HCA Inc.,
Term Loan A-1, 3.22%, 11/19/12 ....................... United States 79,027,978 68,527,135
Term Loan B-1, 3.47%, 11/18/13 ....................... United States 72,977,912 62,268,403
------------
165,101,742
------------
INDUSTRIALS 0.7%
Allison Transmission Inc., Term Loan B, 3.29% - 3.32%,
8/07/14 ................................................ United States 174,088,704 116,252,607
Ceva Group PLC,
Dollar Pre-Refunded L/C Commitment, 4.22%, 8/01/12 ... United States 13,684,211 5,952,631
EGL Term Loans, 3.521%, 8/01/12 ...................... United States 114,280,263 49,711,914
U.S. Investigations Services Inc., Term Loan B,
3.977%, 2/21/15 ........................................ United States 108,345,865 87,805,331
------------
259,722,483
------------
INFORMATION TECHNOLOGY 1.8%
First Data Corp.,
Term Loan B-2, 3.268% - 3.272%, 9/24/14 .............. United States 246,250,000 166,665,201
Term Loan B-3, 3.268% - 3.272%, 9/24/14 .............. United States 330,123,120 223,360,312
Semiannual Report | 73
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(g) VALUE
- --------------------------------------------------------------- ------------- ------------------- --------------
(h,i)SENIOR FLOATING RATE INTERESTS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
Freescale Semiconductor Inc.,
(j)2.247%, 12/01/13 ..................................... United States 78,180,898 $ 32,591,662
12.50%, 12/15/14 ..................................... United States 356,202,760 185,670,689
--------------
608,287,864
--------------
MATERIALS 0.4%
Newpage Corp., Term Loan B, 4.313% - 6.00%, 12/21/14 ..... United States 40,500,000 27,864,000
Novelis Corp., US Term Loan, 3.22%, 7/07/14 .............. United States 149,221,745 94,755,808
--------------
122,619,808
--------------
UTILITIES 1.3%
Texas Competitive Electric Holdings Co. LLC,
Term Loan B-1, 4.018% - 4.033%, 10/10/14 ............. United States 172,994,038 114,673,423
Term Loan B-2, 4.018% - 4.033%, 10/10/14 ............. United States 246,249,999 163,371,607
Term Loan B-3, 4.018% - 4.033%, 10/10/14 ............. United States 270,875,000 179,261,283
--------------
457,306,313
--------------
TOTAL SENIOR FLOATING RATE INTERESTS
(COST $3,318,311,313) ................................... 2,024,158,990
--------------
CORPORATE BONDS 56.1%
CONSUMER DISCRETIONARY 15.7%
Cablevision Systems Corp., senior note, B, 8.00%,
4/15/12 ................................................. United States 485,000,000 474,087,500
(k,m)CCH I Holdings LLC, senior note,
13.50%, 1/15/14 ...................................... United States 375,000,000 6,093,750
9.92%, 4/01/14 ....................................... United States 117,380,000 1,613,975
11.75%, 5/15/14 ...................................... United States 342,000,000 5,557,500
(k,m)CCH I LLC, senior secured note, 11.00%, 10/01/15 ......... United States 767,000,000 86,287,500
(k,m)CCH II LLC, senior note, 10.25%, 9/15/10 ................. United States 310,000,000 263,162,100
(k,m)CCO Holdings LLC, senior note, 8.75%, 11/15/13 ........... United States 80,000,000 64,555,520
CSC Holdings Inc., senior note,
(d)144A, 8.50%, 4/15/14 ................................. United States 67,300,000 66,627,000
B, 7.625%, 4/01/11 ................................... United States 36,050,000 35,959,875
Dex Media Inc.,
senior disc. note, 9.00%, 11/15/13 ................... United States 290,000,000 37,700,000
senior note, B, 8.00%, 11/15/13 ...................... United States 95,600,000 12,428,000
Dex Media West Finance,
senior note, B, 8.50%, 8/15/10 ....................... United States 106,500,000 53,782,500
senior sub. note, 9.875%, 8/15/13 .................... United States 114,100,000 23,105,250
DIRECTV Holdings LLC, senior note, 7.625%, 5/15/16 ....... United States 285,000,000 280,725,000
Dollar General Corp.,
senior note, 10.625%, 7/15/15 ........................ United States 510,000,000 511,275,000
(n)senior sub. note, PIK, 11.875%, 7/15/17 .............. United States 200,000,000 197,500,000
EchoStar DBS Corp., senior note,
6.375%, 10/01/11 ..................................... United States 65,000,000 62,887,500
7.75%, 5/31/15 ....................................... United States 133,000,000 123,025,000
7.125%, 2/01/16 ...................................... United States 265,000,000 238,500,000
74 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(g) VALUE
- --------------------------------------------------------------- -------------- ------------------- --------------
CORPORATE BONDS (CONTINUED)
CONSUMER DISCRETIONARY (CONTINUED)
Ford Motor Co., 7.45%, 7/16/31 ........................... United States 600,000,000 $ 188,250,000
Ford Motor Credit Co. LLC,
7.375%, 10/28/09 .................................... United States 627,000,000 565,867,500
7.875%, 6/15/10 ..................................... United States 550,000,000 454,640,450
7.375%, 2/01/11 ..................................... United States 410,000,000 309,992,800
senior note, 9.75%, 9/15/10 ......................... United States 145,000,000 119,320,210
senior note, 9.875%, 8/10/11 ........................ United States 75,000,000 56,810,700
senior note, 7.25%, 10/25/11 ........................ United States 90,000,000 64,121,490
General Motors Corp., senior deb., 8.375%, 7/15/33 ....... United States 510,000,000 63,750,000
Host Hotels & Resorts LP, senior note,
6.875%, 11/01/14 .................................... United States 110,000,000 85,250,000
K, 7.125%, 11/01/13 ................................. United States 76,800,000 62,400,000
M, 7.00%, 8/15/12 ................................... United States 13,000,000 11,050,000
O, 6.375%, 3/15/15 .................................. United States 230,000,000 171,350,000
Q, 6.75%, 6/01/16 ................................... United States 185,000,000 135,975,000
KB Home, senior note,
6.375%, 8/15/11 ..................................... United States 40,000,000 36,200,000
5.75%, 2/01/14 ...................................... United States 75,000,000 59,718,750
6.25%, 6/15/15 ...................................... United States 90,000,000 70,200,000
7.25%, 6/15/18 ...................................... United States 70,500,000 53,580,000
(d)Lamar Media Corp., senior note, 144A, 9.75%, 4/01/14 ..... United States 30,800,000 30,145,500
Liberty Media Corp., senior note, 5.70%, 5/15/13 ......... United States 85,000,000 63,547,955
MGM MIRAGE,
senior note, 6.75%, 4/01/13 ......................... United States 70,000,000 24,850,000
(d)senior secured note, 144A, 13.00%, 11/15/13 ......... United States 125,000,000 93,750,000
R.H. Donnelley Corp.,
senior disc. note, A-1, 6.875%, 1/15/13 ............. United States 142,000,000 8,520,000
senior disc. note, A-2, 6.875%, 1/15/13 ............. United States 209,450,000 12,567,000
senior note, 6.875%, 1/15/13 ........................ United States 55,000,000 3,300,000
senior note, 8.875%, 10/15/17 ....................... United States 501,500,000 30,090,000
senior note, A-3, 8.875%, 1/15/16 ................... United States 213,100,000 13,318,750
(d,n)Univision Communications Inc., senior note, 144A, PIK,
9.75%, 3/15/15 ......................................... United States 332,000,000 34,860,000
Visant Holding Corp., senior note, 8.75%, 12/01/13 ....... United States 50,000,000 45,750,000
--------------
5,414,049,075
--------------
CONSUMER STAPLES 2.6%
Altria Group Inc.,
7.125%, 6/22/10 ..................................... United States 55,000,000 57,062,610
senior bond, 9.25%, 8/06/19 ......................... United States 102,000,000 109,314,726
senior note, 8.50%, 11/10/13 ........................ United States 130,000,000 141,180,000
senior note, 9.70%, 11/10/18 ........................ United States 330,000,000 360,002,940
(d)Anheuser-Busch InBev NV, senior note, 144A,
7.20%, 1/15/14 .......................................... United States 110,000,000 115,426,740
(d)BAT International Finance PLC, senior note, 144A, 9.50%,
11/15/18 ................................................ United Kingdom 41,000,000 46,668,004
(d)Tyson Foods Inc., senior note, 144A, 10.50%, 3/01/14 ..... United States 52,800,000 54,120,000
--------------
883,775,020
--------------
Semiannual Report | 75
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(G) VALUE
- --------------------------------------------------------------- ------------- ------------------- --------------
CORPORATE BONDS (CONTINUED)
ENERGY 7.6%
Callon Petroleum Co., senior note, 9.75%, 12/08/10 ....... United States 110,000,000 $ 44,550,000
Chesapeake Energy Corp., senior note,
7.625%, 7/15/13 ..................................... United States 55,000,000 50,875,000
9.50%, 2/15/15 ...................................... United States 167,000,000 163,242,500
6.50%, 8/15/17 ...................................... United States 175,000,000 143,500,000
6.25%, 1/15/18 ...................................... United States 150,000,000 117,750,000
7.25%, 12/15/18 ..................................... United States 169,000,000 139,636,250
6.875%, 11/15/20 .................................... United States 135,000,000 106,312,500
El Paso Corp., senior note,
12.00%, 12/12/13 .................................... United States 176,600,000 188,962,000
7.25%, 4/01/18 ...................................... United States 50,000,000 42,750,000
MTN, 7.75%, 1/15/32 ................................. United States 250,000,000 187,724,750
(d)Forest Oil Corp., senior note, 144A, 8.50%, 2/15/14 ...... United States 57,500,000 53,618,750
Mariner Energy Inc., senior note,
7.50%, 4/15/13 ...................................... United States 45,000,000 33,525,000
8.00%, 5/15/17 ...................................... United States 29,600,000 19,684,000
Newfield Exploration Co., senior sub. note,
6.625%, 4/15/16 ..................................... United States 120,800,000 108,720,000
OPTI Canada Inc., senior note, 7.875%, 12/15/14 .......... Canada 127,000,000 56,197,500
Petrohawk Energy Corp., senior note,
9.125%, 7/15/13 ..................................... United States 83,000,000 80,095,000
(d)144A, 10.50%, 8/01/14 ............................... United States 129,050,000 129,050,000
(d)144A, 7.875%, 6/01/15 ............................... United States 99,000,000 87,615,000
(d)Petroplus Finance Ltd., senior note, 144A,
6.75%, 5/01/14 ...................................... Switzerland 67,150,000 50,026,750
7.00%, 5/01/17 ...................................... Switzerland 5,000,000 3,625,000
Pioneer Natural Resources Co.,
6.65%, 3/15/17 . .................................... United States 25,000,000 19,092,975
senior bond, 6.875%, 5/01/18 ........................ United States 110,000,000 81,416,170
Plains Exploration & Production Co., senior note, 7.75%,
6/15/15 ............................................. United States 75,000,000 64,875,000
Sabine Pass LNG LP, senior secured note,
7.25%, 11/30/13 ..................................... United States 105,000,000 74,550,000
7.50%, 11/30/16 ..................................... United States 375,000,000 253,125,000
(d)SandRidge Energy Inc., senior note, 144A, 8.00%,
6/01/18 ............................................. United States 28,000,000 20,720,000
Sesi LLC, senior note, 6.875%, 6/01/14 ................... United States 110,000,000 89,650,000
Tesoro Corp., senior note, 6.50%, 6/01/17 ................ United States 16,000,000 12,160,000
(d)W&T Offshore Inc., senior note, 144A, 8.25%, 6/15/14 ..... United States 147,398,000 95,071,710
Weatherford International Ltd.,
senior bond, 9.875%, 3/01/39 ........................ United States 65,000,000 64,128,805
senior note, 9.625%, 3/01/19 ........................ United States 50,000,000 51,831,200
--------------
2,634,080,860
--------------
FINANCIALS 8.3%
American Express Co., senior note, 7.00%, 3/19/18 ........ United States 90,000,000 79,569,720
American Express Credit Corp., senior note, C,
7.30%, 8/20/13 ...................................... United States 150,000,000 139,415,400
(d,h)American International Group Inc., junior sub. deb.,
144A, FRN, 8.175%, 5/15/58 ............................... United States 250,000,000 21,310,000
76 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(g) VALUE
- --------------------------------------------------------------- ------------- ------------------- --------------
CORPORATE BONDS (CONTINUED)
FINANCIALS (CONTINUED)
(o)Bank of America Corp., pfd., sub. bond, M, 8.125%,
Perpetual ................................................ United States 70,000,000 $ 28,793,800
Duke Realty LP, senior note,
6.25%, 5/15/13 ...................................... United States 16,000,000 11,521,607
5.95%, 2/15/17 ...................................... United States 30,000,000 17,974,470
6.50%, 1/15/18 ...................................... United States 21,100,000 12,987,782
General Electric Capital Corp., senior note,
5.625%, 5/01/18 ..................................... United States 20,000,000 17,431,960
(d)GMAC LLC, senior note, 144A,
7.75%, 1/19/10 ...................................... United States 319,000,000 273,542,500
7.25%, 3/02/11 ...................................... United States 148,000,000 109,632,480
6.875%, 9/15/11 ..................................... United States 425,000,000 302,221,750
6.875%, 8/28/12 ..................................... United States 170,000,000 114,279,100
6.75%, 12/01/14 ..................................... United States 58,052,000 33,787,425
Goldman Sachs Group Inc., senior note, 7.50%, 2/15/19 .... United States 80,000,000 80,017,680
HCP Inc., senior note,
5.65%, 12/15/13 ..................................... United States 500,000 376,874
6.30%, 9/15/16 ...................................... United States 23,000,000 16,285,469
6.00%, 1/30/17 ...................................... United States 13,190,000 8,892,421
5.625%, 5/01/17 ..................................... United States 5,000,000 3,196,060
6.70%, 1/30/18 ...................................... United States 39,700,000 27,414,112
iStar Financial Inc.,
8.625%, 6/01/13 ..................................... United States 160,000,000 51,231,520
senior note, 5.95%, 10/15/13 ........................ United States 20,000,000 6,004,360
(o)JPMorgan Chase & Co., junior sub. note, 1, 7.90%,
Perpetual ........................................... United States 775,000,000 499,062,025
(k)Lehman Brothers Holdings Inc., senior note,
7.50%, 12/03/08 ..................................... United States 400,000,000 31,889,500
7.50%, 1/21/09 ...................................... United States 900,000,000 43,780,500
6.20%, 9/26/14 ...................................... United States 286,300,000 37,934,750
(d,h)Liberty Mutual Group, junior sub. note, 144A, FRN,
10.75%, 6/15/88 .......................................... United States 100,000,000 49,056,500
Merrill Lynch & Co. Inc., 6.875%, 4/25/18 ................ United States 48,000,000 37,622,400
Morgan Stanley, 5.05%, 1/21/11 ........................... United States 88,000,000 86,567,008
Morgan Stanley Dean Witter & Co.,
6.60%, 4/01/12 ...................................... United States 25,000,000 25,129,275
5.30%, 3/01/13 ...................................... United States 100,000,000 96,272,600
Simon Property Group LP, senior note, 10.35%, 4/01/19 .... United States 100,000,000 97,376,700
(o)Wells Fargo Capital XIII, pfd., 7.70%, Perpetual ......... United States 44,500,000 21,582,500
(o)Wells Fargo Capital XV, pfd., 9.75%, Perpetual ........... United States 417,000,000 310,665,000
(d)Woodside Finance Ltd.,
144A, 8.75%, 3/01/19 ................................ Australia 70,000,000 69,046,810
senior note, 144A, 8.125%, 3/01/14 .................. Australia 105,000,000 106,351,662
--------------
2,868,223,720
--------------
HEALTH CARE 6.1%
Community Health Systems Inc., senior sub. note, 8.875%,
7/15/15 ............................................... United States 353,500,000 335,825,000
DaVita Inc.,
senior note, 6.625%, 3/15/13 ........................ United States 50,000,000 48,750,000
senior sub. note, 7.25%, 3/15/15 .................... United States 62,000,000 59,907,500
Semiannual Report | 77
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(g) VALUE
- --------------------------------------------------------------- -------------- ------------------- --------------
CORPORATE BONDS (CONTINUED)
HEALTH CARE (CONTINUED)
HCA Inc.,
6.75%, 7/15/13 .................................... United States 7,615,000 $ 5,730,288
6.375%, 1/15/15 ................................... United States 145,000,000 95,700,000
senior note, 6.50%, 2/15/16 ....................... United States 150,000,000 99,000,000
senior secured note, 9.25%, 11/15/16 .............. United States 145,000,000 132,312,500
Tenet Healthcare Corp., senior note,
7.375%, 2/01/13 ................................... United States 370,000,000 296,000,000
(h)FRN, 9.25%, 2/01/15 ............................... United States 350,000,000 271,250,000
(d)144A, 9.00%, 5/01/15 .............................. United States 350,500,000 339,985,000
(d)144A, 10.00%, 5/01/18 ............................. United States 360,000,000 350,100,000
(h,n)U.S. Oncology Holdings Inc., senior note, PIK,
FRN, 6.904%, 3/15/12 ................................... United States 84,068,604 51,281,848
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 19,956,500
--------------
2,105,798,636
--------------
INDUSTRIALS 4.8%
Allied Waste North America Inc.,
senior note, B, 7.375%, 4/15/14 ................... United States 190,000,000 180,210,060
senior note, B, 7.125%, 5/15/16 ................... United States 95,000,000 88,707,865
senior secured note, 6.125%, 2/15/14 .............. United States 215,000,000 202,308,335
senior secured note, 6.875%, 6/01/17 .............. United States 100,000,000 91,137,300
Browning-Ferris Industries Inc., 7.40%, 9/15/35 ........ United States 100,000,000 88,086,900
(d)Ceva Group PLC, senior note, 144A, 10.00%, 9/01/14 ..... United Kingdom 100,000,000 38,750,000
Hertz Corp.,
senior note, 8.875%, 1/01/14 ...................... United States 320,000,000 195,600,000
senior sub. note, 10.50%, 1/01/16 ................. United States 25,000,000 11,000,000
Ingersoll-Rand Global Holding Co. Ltd., senior
note, 9.50%, 4/15/14 .............................. United States 58,100,000 58,095,352
JohnsonDiversey Holdings Inc., senior disc. note,
10.67%, 5/15/13 ................................... United States 168,400,000 127,142,000
JohnsonDiversey Inc., senior sub. note, B, 9.625%,
5/15/12 ........................................... United States 125,000,000 113,750,000
Nortek Inc., senior note, 10.00%, 12/01/13 ............. United States 85,000,000 35,912,500
RBS Global & Rexnord Corp.,
senior note, 9.50%, 8/01/14 ....................... United States 120,000,000 97,800,000
senior sub. note, 11.75%, 8/01/16 ................. United States 94,000,000 57,810,000
(d,h,n)Rexnord Holdings Inc., senior note, 144A, PIK, FRN,
7.511%, 3/01/13 ................................... United States 157,398,375 67,681,301
Terex Corp., senior sub. note, 8.00%, 11/15/17 ......... United States 185,000,000 150,775,000
(d)U.S. Investigations Services Inc., senior note,
144A, 10.50%, 11/01/15 ............................ United States 45,000,000 34,537,500
--------------
1,639,304,113
--------------
INFORMATION TECHNOLOGY 1.9%
Ceridian Corp., senior note, 11.50%, 11/15/15 .......... United States 80,000,000 34,000,000
First Data Corp., senior note, 9.875%, 9/24/15 ......... United States 270,000,000 159,300,000
Fiserv Inc., senior note, 6.80%, 11/20/17 .............. United States 40,000,000 37,504,360
Flextronics International Ltd., senior sub. note, 6.25%,
11/15/14 ............................................. Singapore 75,000,000 63,750,000
78 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(g) VALUE
- --------------------------------------------------------------- -------------- ------------------- -------------
CORPORATE BONDS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
Freescale Semiconductor Inc., senior note,
8.875%, 12/15/14 .................................... United States 3,685,000 $ 792,275
10.125%, 12/15/16 ................................... United States 140,364,000 25,967,340
Lucent Technologies Inc., 6.45%, 3/15/29 ................. United States 180,000,000 69,300,000
(d,k)Nortel Networks Ltd., senior note, 144A, 10.75%,
7/15/16 .................................................. Canada 77,100,000 14,263,500
Sanmina-SCI Corp., senior sub. note,
6.75%, 3/01/13 ...................................... United States 150,000,000 59,250,000
8.125%, 3/01/16 ..................................... United States 100,000,000 35,500,000
SunGard Data Systems Inc.,
senior note, 9.125%, 8/15/13 ........................ United States 35,000,000 30,625,000
(d)senior note, 144A, 10.625%, 5/15/15 ................. United States 55,000,000 48,400,000
senior sub. note, 10.25%, 8/15/15 ................... United States 85,000,000 59,925,000
-------------
638,577,475
-------------
MATERIALS 1.8%
Freeport-McMoRan Copper & Gold Inc.,
senior note, 8.25%, 4/01/15 ......................... United States 82,400,000 78,666,250
senior note, 8.375%, 4/01/17 ........................ United States 110,000,000 102,995,090
senior secured note, 6.875%, 2/01/14 ................ United States 70,000,000 68,669,300
(d)Ineos Group Holdings PLC, senior sub. note, 144A, 7.875%,
2/15/16 ............................................. United Kingdom 175,000,000 EUR 19,746,562
Nalco Finance Holdings, senior note, 9.00%, 2/01/14 ...... United States 380,000,000 343,900,000
NewPage Corp., senior secured note, 10.00%, 5/01/12 ...... United States 60,000,000 21,150,000
Novelis Inc., senior note, 7.25%, 2/15/15 ................ Canada 3,000,000 1,215,000
-------------
636,342,202
-------------
TELECOMMUNICATION SERVICES 0.5%
Crown Castle International Corp., senior note,
9.00%, 1/15/15 ...................................... United States 100,000,000 100,750,000
(d)Digicel Group Ltd., senior note, 144A,
8.875%, 1/15/15 ..................................... Jamaica 131,000,000 85,150,000
-------------
185,900,000
-------------
UTILITIES 6.8%
Aquila Inc., senior note, 11.875%, 7/01/12 ............... United States 79,500,000 83,531,365
Arizona Public Service Co., senior note, 8.75%, 3/01/19 .. United States 80,000,000 80,472,320
CMS Energy Corp., senior note, 7.75%, 8/01/10 ........... United States 16,860,000 16,822,605
Dominion Resources Inc., senior note, 8.875%,
1/15/19 ............................................. United States 40,000,000 45,368,920
Duke Energy Corp., senior note, 6.30%, 2/01/14 ........... United States 37,600,000 38,549,550
Dynegy Holdings Inc., senior note,
6.875%, 4/01/11 ..................................... United States 345,520,000 309,240,400
8.75%, 2/15/12 ...................................... United States 331,905,000 290,416,875
7.50%, 6/01/15 ...................................... United States 113,560,000 78,072,500
8.375%, 5/01/16 ..................................... United States 231,760,000 158,176,200
7.75%, 6/01/19 ...................................... United States 100,000,000 65,500,000
Energy Future Holdings Corp., senior note,
10.875%, 11/01/17 ................................... United States 187,500,000 121,875,000
P, 5.55%, 11/15/14 .................................. United States 300,000,000 113,138,700
(n)PIK, 12.00%, 11/01/17 ............................... United States 243,700,000 104,181,750
Illinois Power Co., senior secured note, 9.75%,
11/15/18 ............................................ United States 65,000,000 70,888,090
Semiannual Report | 79
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(g) VALUE
- --------------------------------------------------------------- -------------- ------------------- ---------------
CORPORATE BONDS (CONTINUED)
UTILITIES (CONTINUED)
(d)Intergen NV, senior secured note, 144A, 9.00%, 6/30/17 ..... Netherlands 80,000,000 $ 72,800,000
Public Service Co. of New Mexico, senior note, 7.95%,
5/15/18 .................................................. United States 55,000,000 48,336,915
Reliant Energy Inc., senior note,
7.625%, 6/15/14 ....................................... United States 150,000,000 121,500,000
7.875%, 6/15/17 ....................................... United States 153,100,000 121,714,500
Sempra Energy, senior note, 8.90%, 11/15/13 ................ United States 63,000,000 68,569,074
Texas Competitive Electric Holdings Co. LLC, senior note,
A, 10.25%, 11/01/15 ................................... United States 350,000,000 176,750,000
B, 10.25%, 11/01/15 ................................... United States 186,900,000 94,384,500
(n)PIK, 10.50%, 11/01/16 ................................. United States 150,000,000 57,750,000
---------------
2,338,039,264
---------------
TOTAL CORPORATE BONDS (COST $27,785,719,655) 19,344,090,365
---------------
CONVERTIBLE BONDS 2.0%
CONSUMER DISCRETIONARY 0.5%
(d)Host Hotels & Resorts LP, cvt., senior note, 144A,
2.625%, 4/15/12 ....................................... United States 98,022,000 68,615,400
(d)Host Marriott LP, cvt., senior deb., 144A, 3.25%,
3/15/24 ............................................... United States 100,533,000 91,736,363
---------------
160,351,763
---------------
FINANCIALS 1.1%
(d)Duke Realty LP, cvt., senior note, 144A, 3.75%,
12/01/11 .............................................. United States 135,000,000 94,500,000
(h)iStar Financial Inc., cvt., senior note, FRN, 1.935%,
10/01/12 .............................................. United States 250,000,000 72,470,750
Vornado Realty Trust, cvt., senior bond,
3.625%, 11/15/26 ...................................... United States 75,000,000 58,875,000
2.85%, 4/01/27 ........................................ United States 222,500,000 167,987,500
---------------
393,833,250
---------------
INFORMATION TECHNOLOGY 0.4%
(d)Advanced Micro Devices Inc., cvt., senior note, 144A, 5.75%,
8/15/12 .................................................. United States 325,000,000 145,437,500
---------------
TOTAL CONVERTIBLE BONDS (COST $1,023,145,377) .............. 699,622,513
---------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $49,155,202,755) ................................... 32,642,482,738
---------------
80 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
- --------------------------------------------------------------- -------------- ------------------- ---------------
SHORT TERM INVESTMENTS 2.9%
MONEY MARKET FUNDS (COST $258,040,182) 0.7%
(p)Bank of New York Institutional Cash Reserve Fund,
0.15% ...................................................... United States 451,668 $ 442,635
(q)Franklin Institutional Fiduciary Trust Money Market
Portfolio, 0.13% ........................................... United States 257,588,514 257,588,514
---------------
258,031,149
---------------
PRINCIPAL AMOUNT(g)
-------------------
REPURCHASE AGREEMENTS (COST $757,401,060) 2.2%
(r)Joint Repurchase Agreement, 0.132%, 4/01/09
(Maturity Value $757,403,829) .............................. United States $757,401,060 757,401,060
Banc of America Securities LLC (Maturity Value
$53,003,120)
Barclays Capital Inc. (Maturity Value $53,003,120)
BNP Paribas Securities Corp. (Maturity Value
$212,012,480)
Credit Suisse Securities (USA) LLC
(Maturity Value $185,518,494)
Deutsche Bank Securities Inc. (Maturity Value
$147,860,375)
HSBC Securities (USA) Inc. (Maturity Value $106,006,240)
Collateralized by U.S.Government Agency Securities,
1.03% - 5.50%, 9/25/09 - 12/14/22; (s)U.S. Treasury
Bills,
6/11/09 - 9/03/09; and U.S. Treasury Notes,
0.875% - 4.50%, 5/15/10 - 3/31/13
---------------
TOTAL INVESTMENTS (COST $50,170,643,997) 97.6% .............................. 33,657,914,947
OPTIONS WRITTEN (0.0)%(b) ................................................... (375,000)
OTHER ASSETS, LESS LIABILITIES 2.4% ......................................... 825,828,799
---------------
NET ASSETS 100.0% ........................................................... $34,483,368,746
===============
CONTRACTS
-----------
(t)OPTIONS WRITTEN 0.0%(b)
CALL OPTIONS 0.0%(b)
CONSUMER DISCRETIONARY 0.0%(b)
Comcast Corp., Apr. 15 Calls, 4/18/09 ....................................... 5,000 100,000
---------------
INFORMATION TECHNOLOGY 0.0%(b)
Intel Corp., Apr. 17 Calls, 4/18/09 ......................................... 5,000 65,000
Texas Instruments Inc., Apr. 17.5 Calls, 4/18/09 ............................ 5,000 210,000
---------------
275,000
---------------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $453,897) .............................................. 375,000
===============
Semiannual Report | 81
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN INCOME FUND
See Abbreviations on page 127.
(a) A portion or all of the security is held in connection with written option
contracts open at period end.
(b) Rounds to less than 0.1% of net assets.
(c) See Note 11 regarding holdings of 5% voting securities.
(d) 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 Trust's Board of Trustees. At March 31, 2009, the aggregate value of these
securities was $3,947,781,749, representing 11.45% of net assets.
(e) Non-income producing.
(f) See Note 1(f) regarding Equity-Linked Securities.
(g) The principal amount is stated in U.S. dollars unless otherwise indicated.
(h) The coupon rate shown represents the rate at period end.
(i) See Note 1(i) regarding senior floating rate interests.
(j) A portion or all of the security purchased on a delayed delivery basis. See
Note 1(d).
(k) See Note 8 regarding defaulted securities.
(l) See Note 10 regarding unfunded loan commitments.
(m) See Note 12 regarding other considerations.
(n) Income may be received in additional securities and/or cash.
(o) Perpetual security with no stated maturity date.
(p) The rate shown is the annualized seven-day yield at period end.
(q) 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.
(r) See Note 1(c) regarding joint repurchase agreement.
(s) The security is traded on a discount basis with no stated coupon rate.
(t) See Note 1(g) regarding written options.
82 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ----------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
----------------- ---------- ---------- ---------- ---------- ----------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of
period ............................ $ 6.45 $ 6.39 $ 6.43 $ 6.53 $ 6.68 $ 6.81
---------- ---------- ---------- ---------- ---------- ----------
Income from investment
operations(a):
Net investment income(b) ........ 0.14 0.30 0.31 0.30 0.28 0.27
Net realized and unrealized
gains (losses) ................. 0.24 0.08 (0.02) (0.09) (0.11) (0.04)
---------- ---------- ---------- ---------- ---------- ----------
Total from investment operations ... 0.38 0.38 0.29 0.21 0.17 0.23
---------- ---------- ---------- ---------- ---------- ----------
Less distributions from net
investment income ................ (0.15) (0.32) (0.33) (0.31) (0.32) (0.36)
---------- ---------- ---------- ---------- ---------- ----------
Redemption fees(c) ................. -- --(d) --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period ..... $ 6.68 $ 6.45 $ 6.39 $ 6.43 $ 6.53 $ 6.68
========== ========== ========== ========== ========== ==========
Total return(e) .................... 6.02% 6.00% 4.63% 3.40% 2.67% 3.46%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................ 0.71% 0.72% 0.72% 0.72% 0.72% 0.70%
Net investment income .............. 4.33% 4.64% 4.78% 4.64% 4.29% 4.09%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $6,150,173 $5,353,961 $5,073,449 $5,291,117 $5,901,449 $6,420,381
Portfolio turnover rate ............ 17.22% 21.66% 12.34% 20.54% 29.14% 41.45%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 83
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- -------- -------- --------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning of
period .............................. $ 6.44 $ 6.38 $ 6.42 $ 6.52 $ 6.67 $ 6.80
-------- -------- -------- -------- -------- --------
Income from investment
operations(a):
Net investment income(b) ........... 0.12 0.27 0.27 0.26 0.25 0.24
Net realized and unrealized
gains (losses) .................... 0.25 0.07 (0.01) (0.08) (0.11) (0.05)
-------- -------- -------- -------- -------- --------
Total from investment operations ...... 0.37 0.34 0.26 0.18 0.14 0.19
-------- -------- -------- -------- -------- --------
Less distributions from net
investment income ................... (0.14) (0.28) (0.30) (0.28) (0.29) (0.32)
-------- -------- -------- -------- -------- --------
Redemption fees(c) .................... -- --(d) --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ........ $ 6.67 $ 6.44 $ 6.38 $ 6.42 $ 6.52 $ 6.67
======== ======== ======== ======== ======== ========
Total return(e) ....................... 5.60% 5.61% 4.10% 2.87% 2.13% 2.92%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................... 1.23% 1.24% 1.25% 1.24% 1.25% 1.23%
Net investment income ................. 3.81% 4.12% 4.25% 4.12% 3.76% 3.56%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ..... $283,707 $284,649 $316,720 $388,807 $478,788 $568,276
Portfolio turnover rate ............... 17.22% 21.66% 12.34% 20.54% 29.14% 41.45%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
84 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- -------- -------- --------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ......................... $ 6.42 $ 6.36 $ 6.40 $ 6.50 $ 6.65 $ 6.78
---------- -------- -------- -------- -------- --------
Income from investment
operations(a):
Net investment income(b) ........ 0.12 0.27 0.27 0.26 0.25 0.24
Net realized and unrealized
gains (losses) ................. 0.24 0.07 (0.01) (0.08) (0.11) (0.05)
---------- -------- -------- -------- -------- --------
Total from investment operations ... 0.36 0.34 0.26 0.18 0.14 0.19
---------- -------- -------- -------- -------- --------
Less distributions from net
investment income ................. (0.14) (0.28) (0.30) (0.28) (0.29) (0.32)
---------- -------- -------- -------- -------- --------
Redemption fees(c) ................. -- --(d) --(d) --(d) --(d) --(d)
---------- -------- -------- -------- -------- --------
Net asset value, end of period ..... $ 6.64 $ 6.42 $ 6.36 $ 6.40 $ 6.50 $ 6.65
========== ======== ======== ======== ======== ========
Total return(e) .................... 5.63% 5.48% 4.12% 2.88% 2.14% 2.91%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................ 1.23% 1.24% 1.25% 1.23% 1.25% 1.23%
Net investment income .............. 3.81% 4.12% 4.25% 4.13% 3.76% 3.56%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $1,021,558 $610,148 $418,951 $424,462 $508,539 $597,451
Portfolio turnover rate ............ 17.22% 21.66% 12.34% 20.54% 29.14% 41.45%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 85
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 --------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- ------- ------- ------- -------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ......................... $ 6.45 $ 6.39 $ 6.43 $ 6.53 $ 6.68 $ 6.81
-------- -------- ------- ------- ------- -------
Income from investment
operations(a):
Net investment income(b) ........ 0.13 0.28 0.28 0.27 0.26 0.25
Net realized and unrealized
gains (losses) ................. 0.23 0.07 (0.01) (0.08) (0.11) (0.05)
-------- -------- ------- ------- ------- -------
Total from investment operations ... 0.36 0.35 0.27 0.19 0.15 0.20
-------- -------- ------- ------- ------- -------
Less distributions from net
investment income ................. (0.14) (0.29) (0.31) (0.29) (0.30) (0.33)
-------- -------- ------- ------- ------- -------
Redemption fees(c) ................. -- --(d) --(d) --(d) --(d) --(d)
-------- -------- ------- ------- ------- -------
Net asset value, end of period ..... $ 6.67 $ 6.45 $ 6.39 $ 6.43 $ 6.53 $ 6.68
======== ======== ======= ======= ======= =======
Total return(e) .................... 5.68% 5.61% 4.25% 3.01% 2.29% 3.08%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................ 1.08% 1.09% 1.10% 1.09% 1.10% 1.08%
Net investment income .............. 3.96% 4.27% 4.40% 4.27% 3.91% 3.71%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $125,610 $104,648 $74,537 $71,104 $65,790 $59,431
Portfolio turnover rate ............ 17.22% 21.66% 12.34% 20.54% 29.14% 41.45%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable, and is not annualized for periods less than one
year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
86 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- -------- -------- --------
ADVISOR CLASS
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period .................. $ 6.47 $ 6.41 $ 6.45 $ 6.55 $ 6.69 $ 6.83
-------- -------- -------- -------- -------- --------
Income from investment
operations(a):
Net investment income(b) ........ 0.15 0.31 0.31 0.31 0.29 0.28
Net realized and unrealized
gains (losses) ................. 0.23 0.08 (0.01) (0.09) (0.10) (0.06)
-------- -------- -------- -------- -------- --------
Total from investment operations ... 0.38 0.39 0.30 0.22 0.19 0.22
-------- -------- -------- -------- -------- --------
Less distributions from net
investment income ................. (0.16) (0.33) (0.34) (0.32) (0.33) (0.36)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ................. -- --(d) --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ..... $ 6.69 $ 6.47 $ 6.41 $ 6.45 $ 6.55 $ 6.69
======== ======= ======== ======== ======== ========
Total return(e) .................... 5.92% 6.11% 4.75% 3.53% 2.95% 3.42%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses(g) ........................ 0.58% 0.59% 0.60% 0.59% 0.60% 0.58%
Net investment income .............. 4.46% 4.77% 4.90% 4.77% 4.41% 4.21%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $733,364 $612,026 $470,751 $387,239 $334,681 $340,279
Portfolio turnover rate ............ 17.22% 21.66% 12.34% 20.54% 29.14% 41.45%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 87
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------- ---------------- ---------------
MORTGAGE-BACKED SECURITIES 96.4%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 96.4%
GNMA GP 30 Year, 8.25%, 3/15/17 - 10/15/17 ..................... $ 101,127 $ 108,488
GNMA GP 30 Year, 9.25%, 5/15/16 - 12/15/16 ..................... 221,844 240,891
GNMA GP 30 Year, 10.00%, 11/15/09 - 1/15/10 .................... 35,640 36,557
GNMA GP 30 Year, 10.25%, 5/15/20 ............................... 9,980 11,059
GNMA GP 30 Year, 11.00%, 1/15/10 - 11/15/10 .................... 124,595 129,972
GNMA GP 30 Year, 11.25%, 7/15/13 - 1/15/16 ..................... 186,841 209,558
GNMA GP 30 Year, 11.50%, 2/15/13 - 5/15/13 ..................... 28,220 31,657
GNMA GP 30 Year, 11.75%, 7/15/13 - 8/15/13 ..................... 29,403 33,108
GNMA GP 30 Year, 12.00%, 3/15/11 - 12/15/12 .................... 9,483 10,336
GNMA GP 30 Year, 12.50%, 5/15/10 - 6/15/10 ..................... 12,199 12,861
GNMA GP 30 Year, 12.75%, 5/15/14 ............................... 4,405 5,124
GNMA I SF 15 Year, 6.50%, 5/15/18 .............................. 1,112,935 1,174,760
GNMA I SF 15 Year, 7.00%, 10/15/09 ............................. 7,494 7,527
(a)GNMA I SF 30 Year, 4.50%, 1/15/39 - 4/01/39 .................... 464,235,446 475,811,904
GNMA I SF 30 Year, 4.50%, 3/15/39 .............................. 114,170,000 117,026,412
(a)GNMA I SF 30 Year, 5.00%, 2/15/33 - 4/01/39 .................... 963,922,210 1,002,947,848
GNMA I SF 30 Year, 5.50%, 5/15/38 - 12/15/38 ................... 1,454,013,840 1,518,033,374
GNMA I SF 30 Year, 5.50%, 12/15/38 ............................. 94,950,000 99,093,657
(a)GNMA I SF 30 Year, 5.50%, 2/15/39 .............................. 107,160,074 111,692,559
GNMA I SF 30 Year, 6.00%, 10/15/23 - 11/15/38 .................. 1,455,896,787 1,526,731,957
GNMA I SF 30 Year, 6.50%, 5/15/23 - 2/15/38 .................... 351,052,634 371,641,231
GNMA I SF 30 Year, 6.75%, 3/15/26 - 4/15/26 .................... 67,994 72,487
GNMA I SF 30 Year, 7.00%, 4/15/16 - 9/15/32 .................... 176,486,092 189,244,183
GNMA I SF 30 Year, 7.25%, 11/15/25 - 1/15/26 ................... 534,778 571,308
GNMA I SF 30 Year, 7.50%, 7/15/16 - 8/15/33 .................... 57,078,920 61,199,633
GNMA I SF 30 Year, 7.70%, 1/15/21 - 1/15/22 .................... 402,914 430,411
GNMA I SF 30 Year, 8.00%, 11/15/15 - 9/15/30 ................... 33,656,557 36,255,951
GNMA I SF 30 Year, 8.25%, 3/15/27 .............................. 36,577 39,554
GNMA I SF 30 Year, 8.50%, 12/15/09 - 6/15/25 ................... 7,414,157 8,027,411
GNMA I SF 30 Year, 9.00%, 9/15/13 - 7/15/23 .................... 9,202,990 9,954,964
GNMA I SF 30 Year, 9.50%, 6/15/09 - 8/15/22 .................... 5,422,700 5,954,926
GNMA I SF 30 Year, 10.00%, 2/15/16 - 3/15/25 ................... 7,290,095 8,048,955
GNMA I SF 30 Year, 10.50%, 2/15/12 - 10/15/21 .................. 5,520,652 6,202,900
GNMA I SF 30 Year, 11.00%, 12/15/09 - 5/15/21 .................. 3,894,416 4,342,400
GNMA I SF 30 Year, 11.50%, 3/15/13 - 2/15/16 ................... 1,073,625 1,211,546
GNMA I SF 30 Year, 12.00%, 5/15/11 - 1/15/18 ................... 5,252,000 6,026,700
GNMA I SF 30 Year, 12.50%, 4/15/10 - 8/15/18 ................... 3,804,214 4,322,642
GNMA I SF 30 Year, 13.00%, 1/15/11 - 9/15/15 ................... 4,250,054 4,867,475
GNMA II GP 30 Year, 8.75%, 3/20/17 - 7/20/17 ................... 40,371 43,177
GNMA II GP 30 Year, 11.50%, 8/20/13 ............................ 12,133 13,565
GNMA II SF 30 Year, 4.50%, 5/20/33 - 10/20/34 .................. 35,605,943 36,516,300
GNMA II SF 30 Year, 5.00%, 7/20/33 - 3/20/36 ................... 270,501,660 281,081,480
GNMA II SF 30 Year, 5.00%, 9/20/33 ............................. 175,388,298 182,163,465
GNMA II SF 30 Year, 5.50%, 6/20/34 - 8/20/38 ................... 678,832,225 707,372,657
GNMA II SF 30 Year, 5.50%, 12/20/34 ............................ 122,433,793 127,647,179
GNMA II SF 30 Year, 5.50%, 6/20/38 ............................. 105,237,477 109,539,050
GNMA II SF 30 Year, 6.00%, 10/20/23 - 12/20/38 ................. 841,087,520 879,498,246
88 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (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, 6.50%, 6/20/24 - 3/20/34 ................... $ 59,653,099 $ 63,555,894
GNMA II SF 30 Year, 7.00%, 2/20/28 - 7/20/33 ................... 32,192,935 34,513,856
GNMA II SF 30 Year, 7.50%, 10/20/22 - 4/20/32 .................. 5,856,298 6,278,518
GNMA II SF 30 Year, 8.00%, 8/20/16 - 6/20/30 ................... 2,854,086 3,082,031
GNMA II SF 30 Year, 8.50%, 4/20/16 - 6/20/25 ................... 1,437,796 1,550,693
GNMA II SF 30 Year, 9.00%, 8/20/16 - 11/20/21 .................. 463,535 499,833
GNMA II SF 30 Year, 9.50%, 3/20/18 - 4/20/25 ................... 265,370 290,947
GNMA II SF 30 Year, 10.00%, 8/20/15 - 3/20/21 .................. 578,508 635,207
GNMA II SF 30 Year, 10.50%, 9/20/13 - 3/20/21 .................. 1,494,647 1,669,766
GNMA II SF 30 Year, 11.00%, 8/20/13 - 1/20/21 .................. 234,790 263,776
GNMA II SF 30 Year, 11.50%, 9/20/13 - 2/20/18 .................. 129,132 145,817
GNMA II SF 30 Year, 12.00%, 9/20/13 - 2/20/16 .................. 232,634 266,113
GNMA II SF 30 Year, 12.50%, 10/20/13 - 11/20/15 ................ 176,510 203,214
GNMA II SF 30 Year, 13.00%, 10/20/13 - 9/20/15 ................. 174,003 204,800
---------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $ 7,743,615,186) ........ 8,008,799,870
---------------
SHARES
-------------
SHORT TERM INVESTMENTS 5.0%
MONEY MARKET FUNDS (COST $257,603,750) 3.1%
(b)Franklin Institutional Fiduciary Trust Money
Market Portfolio, 0.13% ....................................... 257,603,750 257,603,750
---------------
PRINCIPAL AMOUNT
----------------
REPURCHASE AGREEMENTS (COST $161,755,000) 1.9%
(c) Barclays Capital Inc., 0.14%, 4/01/09
(Maturity Value $ 161,755,629)
Collateralized by U.S. Treasury Notes, 2.00%, 11/30/13 ..... $ 161,755,000 161,755,000
---------------
TOTAL INVESTMENTS (COST $ 8,162,973,936) 101.4% ................. 8,428,158,620
OTHER ASSETS, LESS LIABILITIES (1.4)% ........................... (113,746,276)
---------------
NET ASSETS 100.0% ............................................... $ 8,314,412,344
===============
See Abbreviations on page 127.
(a) A portion or all of the security purchased on a delayed delivery or TBA
basis. See Note 1(d).
(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 agreements.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 89
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN UTILITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 -------------------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ---------- ---------- ---------- ---------- ----------
CLASS A
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ........................ $ 11.92 $ 14.58 $ 12.89 $ 12.59 $ 10.16 $ 8.80
---------- ---------- ---------- ---------- ---------- ----------
Income from investment
operations(a):
Net investment income(b) ....... 0.21 0.41 0.40 0.43 0.45 0.43
Net realized and unrealized
gains (losses) ................ (2.55) (1.93) 2.16 0.37 2.42 1.33
---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations ....................... (2.34) (1.52) 2.56 0.80 2.87 1.76
---------- ---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income .......... (0.21) (0.40) (0.40) (0.41) (0.44) (0.40)
Net realized gains ............. (0.08) (0.74) (0.47) (0.09) -- --
---------- ---------- ---------- ---------- ---------- ----------
Total distributions ............... (0.29) (1.14) (0.87) (0.50) (0.44) (0.40)
---------- ---------- ---------- ---------- ---------- ----------
Redemption fees(c) ................ -- --(d) --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period .... $ 9.29 $ 11.92 $ 14.58 $ 12.89 $ 12.59 $ 10.16
========== ========== ========== ========== ========== ==========
Total return(e) ................... (19.65)% (11.63)% 20.32% 6.69% 28.81% 20.40%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses .......................... 0.78%(g) 0.74%(g) 0.75%(g) 0.76%(g) 0.78%(g) 0.80%
Net investment income ............. 4.14% 2.92% 2.83% 3.54% 3.92% 4.49%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) .......................... $1,341,624 $1,769,397 $2,157,614 $1,926,732 $1,986,034 $1,450,832
Portfolio turnover rate ........... 8.34% 8.32% 10.84% 7.97% 13.53% 16.13%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
90 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ---------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ------- -------- -------- -------- --------
CLASS B
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ........................ $ 11.91 $ 14.56 $ 12.88 $ 12.57 $ 10.15 $ 8.80
------- ------- -------- -------- -------- --------
Income from investment
operations(a):
Net investment income(b) ....... 0.18 0.33 0.33 0.37 0.39 0.38
Net realized and unrealized
gains (losses) ................ (2.54) (1.91) 2.15 0.38 2.42 1.33
------- ------- -------- -------- -------- --------
Total from investment
operations ....................... (2.36) (1.58) 2.48 0.75 2.81 1.71
------- ------- -------- -------- -------- --------
Less distributions from:
Net investment income .......... (0.18) (0.33) (0.33) (0.35) (0.39) (0.36)
Net realized gains ............. (0.08) (0.74) (0.47) (0.09) -- --
------- ------- -------- -------- -------- --------
Total distributions ............... (0.26) (1.07) (0.80) (0.44) (0.39) (0.36)
------- ------- -------- -------- -------- --------
Redemption fees(c) ................ -- --(d) --(d) --(d) --(d) --(d)
------- ------- -------- -------- -------- --------
Net asset value, end of period .... $ 9.29 $ 11.91 $ 14.56 $ 12.88 $ 12.57 $ 10.15
======= ======= ======== ======== ======== ========
Total return(e) ................... (19.84)% (12.04)% 19.66% 6.25% 28.11% 19.71%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses .......................... 1.29%(g) 1.24%(g) 1.26%(g) 1.26%(g) 1.28%(g) 1.30%
Net investment income ............. 3.63% 2.42% 2.32% 3.04% 3.42% 3.99%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) .......................... $62,063 $92,695 $127,587 $133,824 $154,277 $127,105
Portfolio turnover rate ........... 8.34% 8.32% 10.84% 7.97% 13.53% 16.13%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 91
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 --------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- -------- -------- --------- -------- --------
CLASS C
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ......................... $ 11.88 $ 14.53 $ 12.85 $ 12.55 $ 10.13 $ 8.78
-------- -------- -------- --------- -------- --------
Income from investment
operations(a):
Net investment income(b) ........ 0.18 0.33 0.33 0.37 0.39 0.38
Net realized and unrealized
gains (losses) ................. (2.53) (1.91) 2.15 0.37 2.42 1.33
-------- -------- -------- -------- -------- --------
Total from investment operations ... (2.35) (1.58) 2.48 0.74 2.81 1.71
-------- -------- -------- -------- -------- --------
Less distributions from:
Net investment income ........... (0.19) (0.33) (0.33) (0.35) (0.39) (0.36)
Net realized gains .............. (0.08) (0.74) (0.47) (0.09) -- --
-------- -------- -------- -------- -------- --------
Total distributions ................ (0.27) (1.07) (0.80) (0.44) (0.39) (0.36)
-------- -------- -------- -------- -------- --------
Redemption fees(c) ................. -- --(d) --(d) --(d) --(d) --(d)
-------- -------- -------- -------- -------- --------
Net asset value, end of period ..... $ 9.26 $ 11.88 $ 14.53 $ 12.85 $ 12.55 $ 10.13
======== ======== ======== ========= ======== ========
Total return(e) .................... (19.87)% (12.06)% 19.72% 6.19% 28.16% 19.76%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ........................... 1.29%(g) 1.24%(g) 1.26%(g) 1.25%(g) 1.28%(g) 1.30%
Net investment income .............. 3.63% 2.42% 2.32% 3.05% 3.42% 3.99%
SUPPLEMENTAL DATA
Net assets, end of period (000's) .. $257,162 $339,247 $424,977 $391,509 $435,714 $283,747
Portfolio turnover rate ............ 8.34% 8.32% 10.84% 7.97% 13.53% 16.13%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
92 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ----------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ------- ------- ------- ------- ------
CLASS R
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period ..................... $ 11.89 $ 14.54 $ 12.86 $ 12.57 $ 10.15 $ 8.79
--------- ------- ------- ------- ------- ------
Income from investment
operations(a):
Net investment income(b) ... 0.19 0.36 0.35 0.39 0.43 0.39
Net realized and unrealized
gains (losses) ............ (2.54) (1.92) 2.16 0.36 2.40 1.34
--------- ------- ------- ------- ------- ------
Total from investment
operations ................... (2.35) (1.56) 2.51 0.75 2.83 1.73
--------- ------- ------- ------- ------- ------
Less distributions from:
Net investment income ...... (0.19) (0.35) (0.36) (0.37) (0.41) (0.37)
Net realized gains ......... (0.08) (0.74) (0.47) (0.09) -- --
--------- ------- ------- ------- ------- ------
Total distributions ........... (0.27) (1.09) (0.83) (0.46) (0.41) (0.37)
--------- ------- ------- ------- ------- ------
Redemption fees(c) ............ -- --(d) --(d) --(d) --(d) --(d)
--------- ------- ------- ------- ------- ------
Net asset value, end of
period ................ $ 9.27 $ 11.89 $ 14.54 $ 12.86 $ 12.57 $10.15
========= ======= ======= ======= ======= ======
Total return(e) ............... (19.78)% (11.92)% 19.92% 6.29% 28.35% 20.02%
RATIOS TO AVERAGE NET ASSETS(f)
Expenses ...................... 1.14%(g) 1.09%(g) 1.11%(g) 1.11%(g) 1.13%(g) 1.15%
Net investment income ......... 3.78% 2.57% 2.47% 3.19% 3.57% 4.14%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ...................... $ 29,311 $36,596 $41,845 $27,736 $14,649 $1,590
Portfolio turnover rate ....... 8.34% 8.32% 10.84% 7.97% 13.53% 16.13%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return does not reflect sales commissions or contingent deferred sales
charges, if applicable, and is not annualized for periods less than one year.
(f)Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 93
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, 2009 ---------------------------------------------------------------
(UNAUDITED) 2008 2007 2006 2005 2004
---------------- ------- ------- -------- -------- ---------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding
throughout the period)
Net asset value, beginning
of period .................... $ 11.98 $ 14.64 $ 12.95 $ 12.64 $ 10.20 $ 8.84
------- ------- ------- -------- -------- ---------
Income from investment
operations(a):
Net investment income(b) ... 0.22 0.42 0.42 0.45 0.48 0.44
Net realized and unrealized
gains (losses) ............ (2.56) (1.92) 2.17 0.38 2.42 1.34
------- ------- ------- -------- -------- ---------
Total from investment
operations ................... (2.34) (1.50) 2.59 0.83 2.90 1.78
------- ------- ------- -------- -------- ---------
Less distributions from:
Net investment income ...... (0.22) (0.42) (0.43) (0.43) (0.46) (0.42)
Net realized gains ......... (0.08) (0.74) (0.47) (0.09) -- --
------- ------- ------- -------- -------- ---------
Total distributions ........... (0.30) (1.16) (0.90) (0.52) (0.46) (0.42)
------- ------- ------- -------- -------- ---------
Redemption fees(c) -- --(d) --(d) --(d) --(d) --(d)
------- ------- ------- -------- -------- ---------
Net asset value, end of
period ....................... $ 9.34 $ 11.98 $ 14.64 $ 12.95 $ 12.64 $ 10.20
======= ======= ======= ======== ======== =========
Total return(e) ............... (19.57)% (11.45)% 20.43% 6.88% 29.00% 20.48%
RATIOS TO AVERAGE NET ASSETS (f)
Expenses ...................... 0.64%(g) 0.59%(g) 0.61%(g) 0.61%(g) 0.63%(g) 0.65%
Net investment income ......... 4.28% 3.07% 2.97% 3.69% 4.07% 4.64%
SUPPLEMENTAL DATA
Net assets, end of period
(000's) ..................... $50,976 $58,817 $86,823 $103,041 $110,249 $51,586
Portfolio turnover rate ....... 8.34% 8.32% 10.84% 7.97% 13.53% 16.13%
(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 repurchases 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) Effective September 1, 2008, the redemption fee was eliminated.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is not annualized for periods less than one year.
(f) Ratios are annualized for periods less than one year.
(g) Benefit of expense reduction rounds to less than 0.01%.
94 | The accompanying notes are an integral part of these financial statements.
| Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED)
FRANKLIN UTILITIES FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------- -------------- ---------- ------------
COMMON STOCKS 94.2%
DIVERSIFIED TELECOMMUNICATION SERVICES 2.8%
AT&T Inc. ............................................................ United States 1,000,000 $ 25,200,000
Verizon Communications Inc. .......................................... United States 800,000 24,160,000
------------
49,360,000
------------
ELECTRIC UTILITIES 47.4%
Allegheny Energy Inc. ................................................ United States 1,000,000 23,170,000
American Electric Power Co. Inc. ..................................... United States 1,300,000 32,838,000
Cleco Corp. .......................................................... United States 1,000,000 21,690,000
Duke Energy Corp. .................................................... United States 3,800,000 54,416,000
Edison International ................................................. United States 1,800,000 51,858,000
Entergy Corp. ........................................................ United States 1,200,000 81,708,000
Exelon Corp. ......................................................... United States 2,200,000 99,858,000
FirstEnergy Corp. .................................................... United States 1,600,000 61,760,000
FPL Group Inc. ....................................................... United States 1,500,000 76,095,000
Hawaiian Electric Industries Inc. .................................... United States 400,000 5,496,000
Northeast Utilities .................................................. United States 500,000 10,795,000
NV Energy Inc. ....................................................... United States 5,000,000 46,950,000
Pepco Holdings Inc. .................................................. United States 1,000,000 12,480,000
Pinnacle West Capital Corp. .......................................... United States 600,000 15,936,000
Portland General Electric Co. ........................................ United States 1,500,000 26,385,000
PPL Corp. ............................................................ United States 2,000,000 57,420,000
Progress Energy Inc. ................................................. United States 1,500,000 54,390,000
The Southern Co. ..................................................... United States 2,400,000 73,488,000
Westar Energy Inc. ................................................... United States 1,080,600 18,942,918
------------
825,675,918
------------
GAS UTILITIES 1.6%
AGL Resources Inc. ................................................... United States 786,875 20,875,794
Southwest Gas Corp. .................................................. United States 300,000 6,321,000
------------
27,196,794
------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 2.5%
Constellation Energy Group............................................ United States 2,100,000 43,386,000
------------
MULTI-UTILITIES 36.9%
Alliant Energy Corp. ................................................. United States 1,200,000 29,628,000
Ameren Corp. . ....................................................... United States 1,350,000 31,306,500
CenterPoint Energy Inc. .............................................. United States 2,000,000 20,860,000
CMS Energy Corp. ..................................................... United States 1,000,000 11,840,000
Consolidated Edison Inc. ............................................. United States 800,000 31,688,000
Dominion Resources Inc. .............................................. United States 1,600,000 49,584,000
DTE Energy Co. ....................................................... United States 500,000 13,850,000
GDF Suez ............................................................. France 700,000 24,021,111
Integrys Energy Group Inc. ........................................... United States 200,000 5,208,000
National Grid PLC .................................................... United Kingdom 4,987,755 38,286,908
NiSource Inc. ........................................................ United States 1,500,000 14,700,000
PG&E Corp. ........................................................... United States 2,100,000 80,262,000
PNM Resources Inc. ................................................... United States 855,720 7,068,247
Public Service Enterprise Group Inc. ................................. United States 2,100,000 61,887,000
Semiannual Report | 95
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN UTILITIES FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------- -------------- ------------------ --------------
COMMON STOCKS (CONTINUED)
MULTI-UTILITIES (CONTINUED)
RWE AG ............................................................... Germany 300,000 $ 21,151,057
SCANA Corp. .......................................................... United States 900,000 27,801,000
Sempra Energy ........................................................ United States 1,600,000 73,984,000
TECO Energy Inc. ..................................................... United States 700,000 7,805,000
United Utilities Group PLC ........................................... United Kingdom 1,460,189 10,129,709
Vectren Corp. ........................................................ United States 600,000 12,654,000
Wisconsin Energy Corp. ............................................... United States 600,000 24,702,000
Xcel Energy Inc. ..................................................... United States 2,400,000 44,712,000
--------------
643,128,532
--------------
OIL, GAS & CONSUMABLE FUELS 2.5%
Spectra Energy Corp. ................................................. United States 2,197,600 31,074,064
The Williams Cos. Inc. ............................................... United States 1,105,190 12,577,062
--------------
43,651,126
--------------
WATER UTILITIES 0.5%
American Water Works Co. Inc. ........................................ United States 400,000 7,696,000
--------------
TOTAL COMMON STOCKS (COST $1,479,329,346) ............................ 1,640,094,370
--------------
CONVERTIBLE PREFERRED STOCKS (COST $13,497,475) 0.5%
ELECTRIC UTILITIES 0.5%
CMS Energy Trust I, 7.75%, cvt. pfd. ................................. United States 270,050 7,852,055
--------------
PRINCIPAL AMOUNT(a)
-------------------
CORPORATE BONDS 3.3%
ELECTRIC UTILITIES 1.8%
MidAmerican Energy Holdings Co., senior note, 8.48%, 9/15/28 ......... United States $25,000,000 26,732,600
Northeast Generation Co., senior secured note, B-1,
8.812%, 10/15/26 ................................................... United States 7,294,922 5,527,713
--------------
32,260,313
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 0.8%
Energy Future Holdings Corp., senior note,
P, 5.55%, 11/15/14. ............................................. United States 32,300,000 12,181,267
R, 6.55%, 11/15/34 .............................................. United States 5,700,000 1,574,220
--------------
13,755,487
--------------
MULTI-UTILITIES 0.7%
Aquila Inc., senior note,
9.95%, 2/01/11 .................................................. United States 6,000,000 5,895,858
8.27%, 11/15/21 ................................................. United States 6,100,000 6,161,872
--------------
12,057,730
--------------
TOTAL CORPORATE BONDS (COST $77,228,025) ............................. 58,073,530
--------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $1,570,054,846) ............................................. 1,706,019,955
--------------
96 | Semiannual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, MARCH 31, 2009 (UNAUDITED) (CONTINUED)
FRANKLIN UTILITIES FUND COUNTRY SHARES VALUE
- ---------------------------------------------------------------------- -------------- -------------- --------------
SHORT TERM INVESTMENTS (COST $30,247,454) 1.7%
MONEY MARKET FUNDS 1.7%
(b)Franklin Institutional Fiduciary Trust Money Market Portfolio,
0.13% ............................................................. United States 30,247,454 $ 30,247,454
--------------
TOTAL INVESTMENTS (COST $1,600,302,300) 99.7% ..................... 1,736,267,409
OTHER ASSETS, LESS LIABILITIES 0.3% ............................... 4,868,925
--------------
NET ASSETS 100.0% ................................................. $1,741,136,334
==============
(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.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 97
Franklin Custodian Funds
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 2009 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- -------------- ----------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ........................................... $ 371,188,435 $1,004,967,286 $ 48,375,609,233
Cost - Non-controlled affiliated issuers (Note 11) .................... -- -- 780,045,190
Cost - Sweep Money Fund (Note 7) ...................................... 10,188,175 82,480,843 257,588,514
Cost - Repurchase agreements .......................................... -- 13,980,468 757,401,060
------------- -------------- ----------------
Total cost of investments ............................................. $ 381,376,610 $1,101,428,597 $ 50,170,643,997
============= ============== ================
Value - Unaffiliated issuers .......................................... $ 459,022,904 $1,564,363,234 $ 31,728,546,923
Value - Non-controlled affiliated issuers (Note 11) ................... -- -- 914,378,450
Value - Sweep Money Fund (Note 7) ..................................... 10,188,175 82,480,843 257,588,514
Value - Repurchase agreements ......................................... -- 13,980,468 757,401,060
------------- -------------- ----------------
Total value of investments ............................................ 469,211,079 1,660,824,545 33,657,914,947
Cash 57,511 84,892 5,215,654
Receivables:
Investment securities sold ............................................ -- -- 411,117,417
Capital shares sold ................................................... 440,765 2,734,889 82,879,391
Dividends and interest ................................................ 308,715 1,951,978 568,449,968
Other assets ............................................................ 1,015 4,111 75,507
------------- -------------- ----------------
Total assets ....................................................... 470,019,085 1,665,600,415 34,725,652,884
------------- -------------- ----------------
Liabilities:
Payables:
Investment securities purchased ....................................... 2,635,003 -- 123,654,747
Capital shares redeemed ............................................... 1,279,611 2,524,512 79,383,207
Affiliates ............................................................ 546,547 1,715,080 29,876,577
Unaffiliated transfer agent fees ...................................... 85,019 283,157 5,735,979
Options written, at value (premiums received $0, $0 and $453,897) ....... -- -- 375,000
Unrealized depreciation on unfunded loan commitments (Note 10) .......... -- -- 488,337
Accrued expenses and other liabilities .................................. 6,696 222,599 2,770,291
------------- -------------- ----------------
Total liabilities .................................................. 4,552,876 4,745,348 242,284,138
------------- -------------- ----------------
Net assets, at value ............................................. $ 465,466,209 $1,660,855,067 $ 34,483,368,746
============= ============== ================
Net assets consist of:
Paid-in capital ......................................................... $ 427,260,973 $1,062,759,052 $ 55,081,332,519
Undistributed net investment income (loss) .............................. (862,618) 3,673,245 --
Distributions in excess of net investment income ........................ -- -- (25,863,108)
Net unrealized appreciation (depreciation) .............................. 87,834,012 559,395,948 (16,513,040,297)
Accumulated net realized gain (loss) .................................... (48,766,158) 35,026,822 (4,059,060,368)
------------- -------------- ----------------
Net assets, at value ............................................. $ 465,466,209 $1,660,855,067 $ 34,483,368,746
============= ============== ================
98 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
March 31, 2009 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- -------------- ---------------
CLASS A:
Net assets, at value .................................................. $ 380,946,004 $1,213,354,760 $20,236,054,011
============= ============== ===============
Shares outstanding .................................................... 22,060,460 45,409,763 13,093,178,325
============= ============== ===============
Net asset value per share(a) .......................................... $ 17.27 $ 26.72 $ 1.55
============= ============== ===============
Maximum offering price per share (net asset value per share /
94.25%, 94.25% and 95.75%, respectively) ............................ $ 18.32 $ 28.35 $ 1.62
============= ============== ===============
CLASS B:
Net assets, at value .................................................. $ 12,458,344 $ 55,163,212 $ 1,666,992,952
============= ============== ===============
Shares outstanding .................................................... 771,984 2,147,912 1,082,868,627
============= ============== ===============
Net asset value and maximum offering price per share(a) ............... $ 16.14 $ 25.68 $ 1.54
============= ============== ===============
CLASS B1:
Net assets, at value .................................................. -- -- $ 132,019,768
============= ============== ===============
Shares outstanding .................................................... -- -- 85,347,280
============= ============== ===============
Net asset value and maximum offering price per share(a) ............... -- -- $ 1.55
============= ============== ===============
CLASS C:
Net assets, at value .................................................. $ 62,438,987 $ 178,791,727 $ 9,326,417,009
============= ============== ===============
Shares outstanding .................................................... 3,915,088 7,027,886 5,989,238,966
============= ============== ===============
Net asset value and maximum offering price per share(a) ............... $ 15.95 $ 25.44 $ 1.56
============= ============== ===============
CLASS R:
Net assets, at value .................................................. $ 4,602,462 $ 27,751,272 $ 228,117,495
============= ============== ===============
Shares outstanding .................................................... 266,946 1,040,521 149,256,731
============= ============== ===============
Net asset value and maximum offering price per share .................. $ 17.24 $ 26.67 $ 1.53
============= ============== ===============
ADVISOR CLASS:
Net assets, at value .................................................. $ 5,020,412 $ 185,794,096 $ 2,893,767,511
============= ============== ===============
Shares outstanding .................................................... 290,044 6,954,220 1,882,252,602
============= ============== ===============
Net asset value and maximum offering price per share .................. $ 17.31 $ 26.72 $ 1.54
============= ============== ===============
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 99
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
March 31, 2009 (unaudited)
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
--------------- --------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers .............................................................. $7,743,615,186 $1,570,054,846
Cost - Sweep Money Fund (Note 7) ......................................................... 257,603,750 30,247,454
Cost - Repurchase agreements ............................................................. 161,755,000 --
-------------- --------------
Total cost of investments ................................................................ $8,162,973,936 $1,600,302,300
============== ==============
Value - Unaffiliated issuers ............................................................. $8,008,799,870 $1,706,019,955
Value - Sweep Money Fund (Note 7) ........................................................ 257,603,750 30,247,454
Value - Repurchase agreements ............................................................ 161,755,000 --
-------------- --------------
Total value of investments ............................................................... 8,428,158,620 1,736,267,409
Cash ....................................................................................... 2,809 --
Receivables:
Investment securities sold ............................................................... 227,758,653 --
Capital shares sold ...................................................................... 43,113,103 2,410,392
Dividends and interest ................................................................... 34,415,772 6,931,855
Other assets ............................................................................... 15,570 4,034
-------------- --------------
Total assets .......................................................................... 8,733,464,527 1,745,613,690
-------------- --------------
Liabilities:
Payables:
Investment securities purchased .......................................................... 400,315,221 --
Capital shares redeemed .................................................................. 11,753,008 2,649,509
Affiliates ............................................................................... 6,051,692 1,435,199
Unaffiliated transfer agent fees ......................................................... 698,645 220,631
Accrued expenses and other liabilities ..................................................... 233,617 172,017
-------------- --------------
Total liabilities ..................................................................... 419,052,183 4,477,356
-------------- --------------
Net assets, at value ................................................................ $8,314,412,344 $1,741,136,334
============== ==============
Net assets consist of:
Paid-in capital ............................................................................ $8,460,007,222 $1,581,785,328
Undistributed net investment income (distributions in excess of net investment income) ..... (7,993,402) 5,321,207
Net unrealized appreciation (depreciation) ................................................. 265,184,684 135,965,109
Accumulated net realized gain (loss) ....................................................... (402,786,160) 18,064,690
-------------- --------------
Net assets, at value ................................................................ $8,314,412,344 $1,741,136,334
============== ==============
100 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
March 31, 2009 (unaudited)
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
--------------- --------------
CLASS A:
Net assets, at value ....................................... $ 6,150,173,475 $1,341,623,975
=============== ==============
Shares outstanding ......................................... 921,046,556 144,373,184
=============== ==============
Net asset value per share(a) ............................... $ 6.68 $ 9.29
=============== ==============
Maximum offering price per share (net asset value per
share / 95.75%) .......................................... $ 6.98 $ 9.70
=============== ==============
CLASS B:
Net assets, at value ....................................... $ 283,706,562 $ 62,063,245
=============== ==============
Shares outstanding ......................................... 42,555,501 6,680,797
=============== ==============
Net asset value and maximum offering price per share(a) .... $ 6.67 $ 9.29
=============== ==============
CLASS C:
Net assets, at value ....................................... $ 1,021,558,074 $ 257,162,091
=============== ==============
Shares outstanding ......................................... 153,813,850 27,757,814
=============== ==============
Net asset value and maximum offering price per share(a) .... $ 6.64 $ 9.26
=============== ==============
CLASS R:
Net assets, at value ....................................... $ 125,610,088 $ 29,311,144
=============== ==============
Shares outstanding ......................................... 18,827,914 3,161,822
=============== ==============
Net asset value and maximum offering price per share ....... $ 6.67 $ 9.27
=============== ==============
ADVISOR CLASS:
Net assets, at value ....................................... $ 733,364,145 $ 50,975,879
=============== ==============
Shares outstanding ......................................... 109,556,853 5,459,375
=============== ==============
Net asset value and maximum offering price per share ....... $ 6.69 $ 9.34
=============== ==============
(a) Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable.
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 101
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended March 31, 2009 (unaudited)
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- ------------- ---------------
Investment income:
Dividends:
Unaffiliated issuers .................................................... $ 1,838,441 $ 19,715,201 $ 371,535,878
Non-controlled affiliated issuers (Note 11) ............................. -- -- 52,161,189
Sweep Money Fund (Note 7) ............................................... 58,028 19,831 880,252
Interest .................................................................. 1,065 215,729 1,430,922,626
Income from securities loaned ............................................. -- -- 126,131
------------- ------------- ---------------
Total investment income ............................................ 1,897,534 19,950,761 1,855,626,076
------------- ------------- ---------------
Expenses:
Management fees (Note 3a) ................................................. 1,061,825 4,062,374 71,367,035
Distribution fees: (Note 3c)
Class A ................................................................. 429,173 1,548,140 15,712,783
Class B ................................................................. 57,998 314,615 9,097,877
Class B1 ................................................................ -- -- 516,930
Class C ................................................................. 281,119 946,483 31,415,082
Class R ................................................................. 7,870 66,063 566,777
Transfer agent fees (Note 3e) ............................................. 742,354 2,179,928 21,880,747
Custodian fees (Note 4) ................................................... 5,006 28,730 205,223
Reports to shareholders ................................................... 48,915 198,502 1,860,996
Registration and filing fees .............................................. 45,932 76,156 930,560
Professional fees ......................................................... 20,599 30,334 184,444
Trustees' fees and expenses ............................................... 2,032 7,087 172,963
Other ..................................................................... 57,474 28,695 600,453
------------- ------------- ---------------
Total expenses ..................................................... 2,760,297 9,487,107 154,511,870
Expense reductions (Note 4) ........................................ (145) (63) (39,679)
------------- ------------- ---------------
Net expenses .................................................... 2,760,152 9,487,044 154,472,191
------------- ------------- ---------------
Net investment income (loss) .................................. (862,618) 10,463,717 1,701,153,885
------------- ------------- ---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers ................................................. (48,505,869) 51,731,758 (3,878,280,067)
Non-controlled affiliated issuers (Note 11) .......................... -- -- 2,898,232
Realized gain distributions from REITs .................................. -- -- 9,156,789
Written options ......................................................... -- -- 201,299
Foreign currency transactions ........................................... 118,937 (16,652) (577,323)
------------- ------------- ---------------
Net realized gain (loss) ...................................... (48,386,932) 51,715,106 (3,866,601,070)
------------- ------------- ---------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................................. (52,576,818) (704,539,240) (5,975,812,446)
Translation of other assets and liabilities denominated in
foreign currencies ................................................... (457) -- 253,284
------------- ------------- ---------------
Net change in unrealized appreciation (depreciation) .......... (52,577,275) (704,539,240) (5,975,559,162)
------------- ------------- ---------------
Net realized and unrealized gain (loss) ...................................... (100,964,207) (652,824,134) (9,842,160,232)
------------- ------------- ---------------
Net increase (decrease) in net assets resulting from operations .............. $(101,826,825) $(642,360,417) $(8,141,006,347)
============= ============= ===============
102 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the six months ended March 31, 2009 (unaudited)
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
--------------- --------------
Investment income:
Dividends:
Unaffiliated issuers .................................................................. $ -- $ 43,380,827
Sweep Money Fund (Note 7) ............................................................. 908,690 47,535
Interest ................................................................................ 190,949,591 3,296,537
--------------- --------------
Total investment income ............................................................ 191,858,281 46,724,899
--------------- --------------
Expenses:
Management fees (Note 3a) ............................................................... 17,027,657 4,390,096
Distribution fees: (Note 3c)
Class A ............................................................................... 3,878,236 1,024,487
Class B ............................................................................... 935,733 233,512
Class C ............................................................................... 2,637,661 913,144
Class R ............................................................................... 288,965 77,076
Transfer agent fees (Note 3e) ........................................................... 4,344,067 1,414,131
Custodian fees (Note 4) ................................................................. 57,913 38,212
Reports to shareholders ................................................................. 297,443 134,393
Registration and filing fees ............................................................ 108,629 71,857
Professional fees ....................................................................... 50,274 26,941
Trustees' fees and expenses ............................................................. 20,333 6,561
Other ................................................................................... 146,887 30,340
--------------- --------------
Total expenses ..................................................................... 29,793,798 8,360,750
Expense reductions (Note 4) ........................................................ (5,403) (464)
--------------- --------------
Net expenses ..................................................................... 29,788,395 8,360,286
--------------- --------------
Net investment income ......................................................... 162,069,886 38,364,613
--------------- --------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................................... 5,751,010 17,308,636
Foreign currency transactions ......................................................... -- (104,597)
--------------- --------------
Net realized gain (loss) ...................................................... 5,751,010 17,204,039
--------------- --------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................................... 270,336,713 (505,416,409)
Translation of other assets and liabilities denominated in foreign currencies ......... -- 10,486
--------------- --------------
Net change in unrealized appreciation (depreciation) .......................... 270,336,713 (505,405,923)
--------------- --------------
Net realized and unrealized gain (loss) .................................................... 276,087,723 (488,201,884)
--------------- --------------
Net increase (decrease) in net assets resulting from operations ............................ $ 438,157,609 $ (449,837,271)
=============== ==============
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 103
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN DYNATECH FUND FRANKLIN GROWTH FUND
------------------------------------- ------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 2009 YEAR ENDED MARCH 31, 2009 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 2008 (UNAUDITED) SEPTEMBER 30, 2008
---------------- ------------------ --------------- ------------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) ................. $ (862,618) $ (2,101,251) $ 10,463,717 $ 13,118,571
Net realized gain (loss) from investments and
foreign currency transactions ............. (48,386,932) 43,383,275 51,715,106 93,118,459
Net change in unrealized appreciation
(depreciation) on investments and
translation of other assets and
liabilities denominated in
foreign currencies ........................ (52,577,275) (169,942,555) (704,539,240) (703,968,727)
------------- ------------- -------------- ---------------
Net increase (decrease) in net assets
resulting from operations ............ (101,826,825) (128,660,531) (642,360,417) (597,731,697)
------------- ------------- -------------- ---------------
Distributions to shareholders from:
Net investment income:
Class A ................................... -- -- (13,937,515) (6,070,923)
Class C ................................... -- -- (158,739) --
Class R ................................... -- -- (93,243) (37,603)
Advisor Class ............................. -- -- (2,842,374) (1,821,203)
Net realized gains:
Class A ................................... (23,817,215) (11,692,397) -- --
Class B ................................... (674,313) (381,099) -- --
Class C ................................... (3,500,844) (1,631,082) -- --
Advisor Class ............................. (211,314) -- -- --
------------- ------------- -------------- ---------------
Total distributions to shareholders ............ (28,203,686) (13,704,578) (17,031,871) (7,929,729)
------------- ------------- -------------- ---------------
Capital share transactions: (Note 2)
Class A ................................... 103,336,323 (43,399,423) (13,624,468) 15,676,618
Class B ................................... 4,817,660 (2,207,134) (10,177,209) (23,505,949)
Class C ................................... 24,433,522 (13,103) (6,022,190) (17,756,728)
Class R ................................... 4,406,938 -- 7,405,727 (9,619,605)
Advisor Class ............................. 3,728,143 2,370,407 1,686,271 (37,246,106)
------------- ------------- -------------- ---------------
Total capital share transactions ............... 140,722,586 (43,249,253) (20,731,869) (72,451,770)
------------- ------------- -------------- ---------------
Redemption fees ................................ -- 2,715 -- 7,384
------------- ------------- -------------- ---------------
Net increase (decrease) in net assets ... 10,692,075 (185,611,647) (680,124,157) (678,105,812)
Net assets:
Beginning of period ............................ 454,774,134 640,385,781 2,340,979,224 3,019,085,036
------------- ------------- -------------- ---------------
End of period .................................. $ 465,466,209 $ 454,774,134 $1,660,855,067 $ 2,340,979,224
============= ============= ============== ===============
Undistributed net investment income (loss) included
in net assets:
End of period ................................ $ (862,618) $ -- $ 3,673,245 $ 10,241,399
============= ============= ============== ===============
104 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN
FRANKLIN INCOME FUND U.S. GOVERNMENT SECURITIES FUND
------------------------------------- ------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 2009 YEAR ENDED MARCH 31, 2009 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 2008 (UNAUDITED) SEPTEMBER 30, 2008
---------------- ------------------ ---------------- ------------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 1,701,153,885 $ 3,656,589,855 $ 162,069,886 $ 305,138,958
Net realized gain (loss) from investments,
written options and foreign currency
transactions ............................ (3,866,601,070) (73,189,382) 5,751,010 (4,950,231)
Net change in unrealized appreciation
(depreciation) on investments and
translation of other assets and
liabilities denominated in foreign
currencies .............................. (5,975,559,162) (16,753,818,156) 270,336,713 74,540,856
---------------- ---------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations .......... (8,141,006,347) (13,170,417,683) 438,157,609 374,729,583
---------------- ---------------- -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ................................. (1,111,635,600) (2,070,078,091) (133,613,430) (255,332,116)
Class B ................................. (89,193,572) (175,223,876) (6,030,578) (13,147,734)
Class B1 ................................ (8,170,294) (18,498,215) -- --
Class C ................................. (483,025,981) (864,273,614) (16,365,132) (21,546,227)
Class R ................................. (11,579,655) (17,491,311) (2,476,242) (3,921,392)
Advisor Class ........................... (174,656,025) (358,190,789) (15,220,904) (27,206,570)
Net realized gains:
Class A ................................. (15,591,600) (800,081,992) -- --
Class B ................................. (1,384,690) (82,519,889) -- --
Class B1 ................................ (124,160) (8,423,689) -- --
Class C ................................. (7,179,957) (363,101,410) -- --
Class R ................................. (166,198) (6,753,197) -- --
Advisor Class ........................... (2,449,031) (142,671,699) -- --
---------------- ---------------- -------------- --------------
Total distributions to shareholders .......... (1,905,156,763) (4,907,307,772) (173,706,286) (321,154,039)
---------------- ---------------- -------------- --------------
Capital share transactions: (Note 2)
Class A ................................. (837,599,679) 1,818,347,709 596,639,334 236,684,954
Class B ................................. (240,160,550) (326,601,311) (10,816,608) (35,014,568)
Class B1 ................................ (44,593,157) (76,335,994) -- --
Class C ................................. (416,704,799) 1,004,888,472 382,584,133 189,199,415
Class R ................................. 20,290,671 78,037,080 16,953,876 29,664,847
Advisor Class ........................... (459,055,941) (219,327,033) 99,169,234 136,835,144
---------------- ---------------- -------------- --------------
Total capital share transactions ............. (1,977,823,455) 2,279,008,923 1,084,529,969 557,369,792
---------------- ---------------- -------------- --------------
Redemption fees .............................. -- 176,722 -- 78,148
---------------- ---------------- -------------- --------------
Net increase (decrease) in net assets... (12,023,986,565) (15,798,539,810) 1,348,981,292 611,023,484
Net assets:
Beginning of period .......................... 46,507,355,311 62,305,895,121 6,965,431,052 6,354,407,568
---------------- ---------------- -------------- --------------
End of period ................................ $ 34,483,368,746 $ 46,507,355,311 $8,314,412,344 $6,965,431,052
================ ================ ============== ==============
Undistributed net investment income
(distributions in excess of net investment
income) included in net assets:
End of period .............................. $ (25,863,108) $ 151,244,134 $ (7,993,402) $ 3,642,998
================ ================ ============== ==============
Semiannual Report | The accompanying notes are an integral part of these
financial statements. | 105
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN UTILITIES FUND
--------------------------------------
SIX MONTHS ENDED
MARCH 31, 2009 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 2008
---------------- ------------------
Increase (decrease) in net assets:
Operations:
Net investment income ..................................................... $ 38,364,613 $ 77,610,616
Net realized gain (loss) from investments and foreign currency
transactions............................................................. 17,204,039 55,226,870
Net change in unrealized appreciation (depreciation) on investments and
translation of other assets and liabilities denominated in foreign
currencies .............................................................. (505,405,923) (444,647,745)
-------------- --------------
Net increase (decrease) in net assets resulting from operations ...... (449,837,271) (311,810,259)
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ................................................................ (30,937,748) (60,642,671)
Class B ................................................................ (1,306,450) (2,772,274)
Class C ................................................................ (5,198,482) (9,718,344)
Class R ................................................................ (600,126) (1,082,816)
Advisor Class .......................................................... (1,194,582) (2,496,434)
Net realized gains:
Class A ................................................................ (11,143,330) (107,493,008)
Class B ................................................................ (556,682) (6,261,449)
Class C ................................................................ (2,138,465) (21,133,249)
Class R ................................................................ (236,227) (2,175,474)
Advisor Class .......................................................... (407,396) (4,410,835)
-------------- --------------
Total distributions to shareholders ......................................... (53,719,488) (218,186,554)
-------------- --------------
Capital share transactions: (Note 2)
Class A ................................................................ (40,488,407) 15,831,422
Class B ................................................................ (10,896,657) (12,918,491)
Class C ................................................................ (7,463,551) (7,376,287)
Class R ................................................................ 798,087 3,080,978
Advisor Class .......................................................... 5,990,934 (10,722,085)
-------------- --------------
Total capital share transactions ............................................ (52,059,594) (12,104,463)
-------------- --------------
Redemption fees ............................................................. -- 8,502
-------------- --------------
Net increase (decrease) in net assets ................................ (555,616,353) (542,092,774)
Net assets:
Beginning of period ......................................................... 2,296,752,687 2,838,845,461
-------------- --------------
End of period ............................................................... $1,741,136,334 $2,296,752,687
============== ==============
Undistributed net investment income included in net assets:
End of period ............................................................... $ 5,321,207 $ 6,193,982
============== ==============
106 | The accompanying notes are an integral part of these financial
statements. | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Custodian Funds (Trust) is registered under the Investment Company Act
of 1940, as amended, (1940 Act) as an open-end investment company, consisting of
five funds (Funds). The classes of shares offered within each of the Funds are
indicated below. Effective December 1, 2008, the Franklin DynaTech Fund began
offering a new class of shares, Class R. 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 C, CLASS R CLASS A, CLASS B, CLASS B1,
& ADVISOR CLASS CLASS C, CLASS R & ADVISOR CLASS
- ---------------------------------------- --------------------------------
Franklin DynaTech Fund Franklin Income Fund
Franklin Growth 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 and non-registered money market
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 Trust 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 Trust's 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 Trust 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 Trust's pricing services use independent market quotations
from loan dealers or financial institutions and may incorporate valuation
methodologies that consider multiple bond
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Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
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.
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 Trust has 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 Trust's Board of Trustees.
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 Trust's Board of Trustees.
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.
108 | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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. Repurchase agreements 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 period end had been
entered into on March 31, 2008. Repurchase agreements are valued at cost.
D. SECURITIES PURCHASED ON A DELAYED DELIVERY AND TBA BASIS
The Funds may purchase securities on a delayed delivery and 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.
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Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. EQUITY-LINKED SECURITIES
The Funds may invest in equity-linked securities. Equity-linked securities are
hybrid financial instruments that generally combine both debt and equity
characteristics into a single note form. Payments received from equity linked
securities may be based on the performance of an underlying equity security, an
equity index, or an option position. The risks of investing in equity-linked
securities include unfavorable price movements in the underlying security and
the credit risk of the issuing financial institution. There may be no guaranty
of a return of principal with equity linked securities and the appreciation
potential may be limited. Equity-linked securities may be more volatile and less
liquid than other investments held by the fund.
G. OPTIONS
The Funds may purchase or write options. Options are contracts entitling the
holder to purchase or sell securities or other financial instruments at a
specified price or, in the case of index options, to receive or pay the
difference between the index value and the strike price of the index option.
Options purchased are recorded as investments; options written (sold) are
recorded as liabilities. Upon closing of an option which results in a cash
settlement, the difference between the premium (original option value) and the
settlement proceeds is realized as a gain or loss. When securities are acquired
or delivered upon exercise of an option, the acquisition cost or sale proceeds
are adjusted by the amount of the premium. When an option expires, the premium
is realized as a gain for options written or as a loss for options purchased.
The risks include the possibility there may be an illiquid options market or the
inability of the counterparties to fulfill their obligations under the contract.
Writing options involves, to varying degrees, elements of market risk in excess
of the amount recognized in the Statement of Assets and Liabilities.
H. SECURITIES LENDING
Certain funds participate in a principal based security lending program. The
fund receives 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
a non-registered money market fund managed by the fund's custodian on the fund's
behalf. The fund receives income from the investment of cash collateral, in
addition to lending fees and rebates paid by the borrower. The fund bears the
market risk with respect to the collateral investment, securities loaned, and
the risk that the principal may default on its obligations to the fund. At March
31, 2009, the Funds have no securities on loan.
I. 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
110 | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
I. SENIOR FLOATING RATE INTERESTS (CONTINUED)
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.
J. 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.
The Funds have reviewed the tax positions, taken on federal income tax returns,
for each of the three open tax years and as of March 31, 2009, and have
determined that no provision for income tax is required in the Funds' financial
statements.
K. 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. Facility fees are recognized as income over the expected term of the
loan. 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.
Common expenses incurred by the Trust are allocated among the Funds based on the
ratio of net assets of each fund to the combined net assets of the Trust. Fund
specific expenses are charged directly to the fund that incurred the expense.
Realized and unrealized gains and losses and net investment income, not
including 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.
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Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L. 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.
M. REDEMPTION FEES
A short term trading redemption fee was imposed, with some exceptions, on any
fund shares that were redeemed or exchanged within seven calendar days following
their purchase date. The redemption fee was 2% of the amount redeemed. Such fees
were retained by the funds and accounted for as an addition to paid-in capital.
Effective September 1, 2008, the redemption fee was eliminated.
N. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust, on behalf of the Funds, enters into contracts with service
providers that contain general indemnification clauses. The Trust's maximum
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. Currently, the
Trust expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At March 31, 2009, there were an unlimited number of shares authorized (without
par value). Transactions in the Funds' shares were as follows:
FRANKLIN DYNATECH FUND FRANKLIN GROWTH FUND
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- --------------- ----------- --------------
CLASS A SHARES:
Six Months ended March 31, 2009
Shares sold ......................... 1,175,088 $ 20,744,685 6,578,144 $ 186,224,401
Shares issued on merger (Note 13) ... 7,598,915 126,195,671 -- --
Shares issued in reinvestment
of distributions .................. 1,359,430 21,288,669 486,458 12,711,152
Shares redeemed ..................... (3,705,483) (64,892,702) (7,622,615) (212,560,021)
---------- -------------- ---------- --------------
Net increase (decrease) ............. 6,427,950 $ 103,336,323 (558,013) $ (13,624,468)
========== ============== ========== ==============
Year ended September 30, 2008
Shares sold ......................... 2,459,851 $ 74,264,719 8,827,142 $ 378,328,625
Shares issued in reinvestment
of distributions .................. 327,827 10,398,720 122,947 5,584,261
Shares redeemed ..................... (4,271,990) (128,062,862) (8,782,747) (368,236,268)
---------- -------------- ---------- --------------
Net increase (decrease) ............. (1,484,312) $ (43,399,423) 167,342 $ 15,676,618
========== ============== ========== ==============
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Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN DYNATECH FUND (a,b) FRANKLIN GROWTH FUND
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- -------------- ----------- -------------
CLASS B SHARES:
Six Months ended March 31, 2009
Shares sold ......................... 46,430 $ 758,576 209,344 $ 5,533,013
Shares issued on merger (Note 13) ... 471,140 7,329,289 -- --
Shares issued in reinvestment
of distributions ................. 39,296 576,475 -- --
Shares redeemed ..................... (240,815) (3,846,680) (594,348) (15,710,222)
--------- ------------ ---------- -------------
Net increase (decrease) ............. 316,051 $ 4,817,660 (385,004) $ (10,177,209)
========= ============ ========== =============
Year ended September 30, 2008
Shares sold ......................... 52,403 $ 1,544,828 125,600 $ 5,153,957
Shares issued in reinvestment
of distributions ................. 11,458 345,223 -- --
Shares redeemed ..................... (148,078) (4,097,185) (714,091) (28,659,906)
--------- ------------ ---------- -------------
Net increase (decrease) ............. (84,217) $ (2,207,134) (588,491) $ (23,505,949)
========= ============ ========== =============
CLASS C SHARES:
Six Months ended March 31, 2009
Shares sold ......................... 216,310 $ 3,574,285 1,034,375 $ 27,756,469
Shares issued on merger (Note 13) ... 1,986,027 30,539,237 -- --
Shares issued in reinvestment
of distributions ................. 219,790 3,186,956 5,806 144,798
Shares redeemed ..................... (801,189) (12,866,956) (1,280,396) (33,923,457)
--------- ------------ ---------- -------------
Net increase (decrease) ............. 1,620,938 $ 24,433,522 (240,215) $ (6,022,190)
========= ============ ========== =============
Year ended September 30, 2008
Shares sold ......................... 463,723 $ 13,055,269 1,049,876 $ 42,650,882
Shares issued in reinvestment
of distributions ................. 49,809 1,484,796 -- --
Shares redeemed ..................... (531,022) (14,553,168) (1,518,464) (60,407,610)
--------- ------------ ---------- -------------
Net increase (decrease) ............. (17,490) $ (13,103) (468,588) $ (17,756,728)
========= ============ ========== =============
CLASS R SHARES:
Six Months ended March 31, 2009
Shares sold ......................... 68,885 $ 1,133,993 1,364,349 $ 39,868,070
Shares issued on merger (Note 13) ... 269,510 4,473,861 -- --
Shares issued in reinvestment
of distributions ................. -- -- 3,545 92,514
Shares redeemed ..................... (71,449) (1,200,916) (1,145,821) (32,554,857)
--------- ------------ ---------- -------------
Net increase (decrease) ............. 266,946 $ 4,406,938 222,073 $ 7,405,727
========= ============ ========== =============
Year ended September 30, 2008
Shares sold ......................... 1,405,234 $ 60,391,562
Shares issued in reinvestment
of distributions ................. 831 37,532
Shares redeemed ..................... (1,742,886) (70,048,699)
---------- -------------
Net increase (decrease) ............. (336,821) $ (9,619,605)
========== =============
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Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN DYNATECH FUND (a,b) FRANKLIN GROWTH FUND
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ------------ ----------- --------------
ADVISOR CLASS SHARES:
Six Months ended March 31, 2009
Shares sold ....................... 114,156 $ 2,115,701 805,246 $ 22,529,098
Shares issued on merger
(Note 13)........................ 99,151 1,649,870 -- --
Shares issued in reinvestment of
distributions ................... 13,467 211,295 102,244 2,668,574
Shares redeemed ................... (14,559) (248,723) (851,411) (23,511,401)
------- ----------- ---------- -------------
Net increase (decrease) ........... 212,215 $ 3,728,143 56,079 $ 1,686,271
======= =========== ========== =============
Year ended September 30, 2008
Shares sold ....................... 77,884 $ 2,371,991 435,026 $ 18,614,125
Shares issued in reinvestment of
distributions ................... -- -- 35,629 1,618,617
Shares redeemed ................... (55) (1,584) (1,391,576) (57,478,848)
------- ----------- ---------- -------------
Net increase (decrease) ........... 77,829 $ 2,370,407 (920,921) $ (37,246,106)
======= =========== ========== =============
(a) For the period December 1, 2008 (effective date) to March 31, 2009 for
Class R.
(b) For the period May 15, 2008 (effective date) to September 30, 2008 for
Advisor Class.
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
--------------- ----------------- ------------- ----------------
SHARES AMOUNT SHARES AMOUNT
--------------- ----------------- ------------- ----------------
CLASS A SHARES:
Six Months ended March 31, 2009
Shares sold .................... 1,511,778,323 $ 2,415,898,820 199,339,600 $ 1,302,445,747
Shares issued in reinvestment
of distributions ............. 505,568,857 819,865,146 14,363,320 93,590,950
Shares redeemed ................ (2,536,499,396) (4,073,363,645) (122,188,824) (799,397,363)
-------------- ---------------- ------------ ---------------
Net increase (decrease) ........ (519,152,216) $ (837,599,679) 91,514,096 $ 596,639,334
============== ================ ============ ===============
Year ended September 30, 2008
Shares sold .................... 2,544,696,021 $ 6,300,808,165 163,998,702 $ 1,063,757,904
Shares issued in reinvestment
of distributions ............. 861,810,845 2,170,625,893 26,672,832 172,606,574
Shares redeemed ................ (2,750,408,371) (6,653,086,349) (154,570,818) (999,679,524)
-------------- ---------------- ------------ ---------------
Net increase (decrease) ........ 656,098,495 $ 1,818,347,709 36,100,716 $ 236,684,954
============== ================ ============ ===============
CLASS B SHARES:
Six Months ended March 31, 2009
Shares sold .................... 18,674,905 $ 30,061,499 6,778,438 $ 44,042,990
Shares issued in reinvestment
of distributions ............. 36,323,303 58,626,490 669,442 4,355,048
Shares redeemed ................ (206,338,375) (328,848,539) (9,061,886) (59,214,646)
-------------- ---------------- ------------ ---------------
Net increase (decrease) ........ (151,340,167) $ (240,160,550) (1,614,006) $ (10,816,608)
============== ================ ============ ===============
Year ended September 30, 2008
Shares sold .................... 27,100,787 $ 66,950,743 5,348,092 $ 34,672,758
Shares issued in reinvestment
of distributions ............. 69,806,922 176,086,346 1,444,414 9,335,318
Shares redeemed ................ (235,941,388) (569,638,400) (12,232,414) (79,022,644)
-------------- ---------------- ------------ ---------------
Net increase (decrease) ........ (139,033,679) $ (326,601,311) (5,439,908) $ (35,014,568)
============== ================ ============ ===============
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Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
--------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ----------------- ------------ ---------------
CLASS B1 SHARES:
Six Months ended March 31, 2009
Shares sold .................... 523,787 $ 845,832
Shares issued in reinvestment
of distributions ............. 2,894,115 4,710,652
Shares redeemed ................ (31,734,276) (50,149,641)
-------------- ----------------
Net increase (decrease) ........ (28,316,374) (44,593,157)
============== ================
Year ended September 30, 2008
-------------- ----------------
Shares sold .................... 822,057 $ 2,065,334
-------------- ----------------
Shares issued in reinvestment
of distributions ............ 6,648,942 16,876,257
-------------- ----------------
Shares redeemed ................ (38,805,221) (95,277,585)
-------------- ----------------
Net increase (decrease) ........ (31,334,222) (76,335,994)
============== ================
CLASS C SHARES:
Six Months ended March 31, 2009
Shares sold .................... 680,146,705 $ 1,095,141,615 79,856,682 $ 519,646,464
Shares issued in reinvestment
of distributions ............. 200,749,592 327,888,795 1,787,535 11,596,816
Shares redeemed ................ (1,141,528,347) (1,839,735,209) (22,855,438) (148,659,147)
-------------- ---------------- ----------- --------------
Net increase (decrease) ........ (260,632,050) $ (416,704,799) 58,788,779 $ 382,584,133
============== ================ =========== ==============
Year ended September 30, 2008
Shares sold .................... 1,222,445,500 $ 3,049,617,623 48,720,410 $ 314,954,793
Shares issued in reinvestment
of distributions ............. 334,651,278 849,748,929 2,414,820 15,553,869
Shares redeemed ................ (1,188,226,292) (2,894,478,080) (21,953,511) (141,309,247)
-------------- ---------------- ----------- --------------
Net increase (decrease) ........ 368,870,486 $ 1,004,888,472 29,181,719 $ 189,199,415
============== ================ =========== ==============
CLASS R SHARES:
Six Months ended March 31, 2009
Shares sold .................... 38,489,064 $ 61,673,334 7,268,795 $ 47,502,983
Shares issued in reinvestment
of distributions ............. 6,778,693 10,837,677 371,440 2,418,694
Shares redeemed ................ (33,093,110) (52,220,340) (5,039,350) (32,967,801)
-------------- ---------------- ----------- --------------
Net increase (decrease) ........ 12,174,647 $ 20,290,671 2,600,885 $ 16,953,876
============== ================ =========== ==============
Year ended September 30, 2008
Shares sold .................... 58,875,986 $ 144,210,207 9,784,662 $ 63,518,662
Shares issued in reinvestment
of distributions ............. 8,993,345 22,370,464 589,231 3,808,045
Shares redeemed ................ (36,526,510) (88,543,591) (5,812,499) (37,661,860)
-------------- ---------------- ----------- --------------
Net increase (decrease) ........ 31,342,821 $ 78,037,080 4,561,394 $ 29,664,847
============== ================ =========== ==============
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Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
--------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ----------------- ------------ --------------
ADVISOR CLASS SHARES:
Six Months ended March 31, 2009
Shares sold .................... 226,418,311 $ 351,424,971 25,292,769 $ 166,547,528
Shares issued in reinvestment
of distributions ............. 105,858,946 171,186,435 2,057,583 13,438,112
Shares redeemed ................ (616,970,353) (981,667,347) (12,381,066) (80,816,406)
------------ ---------------- ----------- -------------
Net increase (decrease) ........ (284,693,096) $ (459,055,941) 14,969,286 $ 99,169,234
============ ================ =========== =============
Year ended September 30, 2008
Shares sold .................... 150,837,000 $ 385,467,201 23,046,973 $ 149,358,584
Shares issued in reinvestment
of distributions ............. 194,550,584 488,488,071 3,926,708 25,461,308
Shares redeemed ................ (451,931,098) (1,093,282,305) (5,837,483) (37,984,748)
------------ ---------------- ----------- -------------
Net increase (decrease) ........ (106,543,514) $ (219,327,033) 21,136,198 $ 136,835,144
============ ================ =========== =============
FRANKLIN UTILITIES FUND
------------------------------
SHARES AMOUNT
------------ ---------------
CLASS A SHARES:
Six Months ended March 31, 2009
Shares sold ................................................. 12,154,554 $ 121,569,096
Shares issued in reinvestment of distributions .............. 3,542,764 33,654,745
Shares redeemed ............................................. (19,749,447) (195,712,248)
----------- --------------
Net increase (decrease) ..................................... (4,052,129) $ (40,488,407)
=========== ==============
Year ended September 30, 2008
Shares sold ................................................. 16,043,525 $ 225,313,039
Shares issued in reinvestment of distributions .............. 9,557,544 137,168,657
Shares redeemed ............................................. (25,172,402) (346,650,274)
----------- --------------
Net increase (decrease) ..................................... 428,667 $ 15,831,422
=========== ==============
CLASS B SHARES:
Six Months ended March 31, 2009
Shares sold ................................................. 195,320 $ 1,954,408
Shares issued in reinvestment of distributions .............. 116,482 1,110,672
Shares redeemed ............................................. (1,413,036) (13,961,737)
----------- --------------
Net increase (decrease) ..................................... (1,101,234) $ (10,896,657)
=========== ==============
Year ended September 30, 2008
Shares sold ................................................. 520,447 $ 7,346,138
Shares issued in reinvestment of distributions .............. 385,638 5,555,107
Shares redeemed ............................................. (1,884,233) (25,819,736)
----------- --------------
Net increase (decrease) ..................................... (978,148) $ (12,918,491)
=========== ==============
116 | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN UTILITIES FUND
---------------------------
SHARES AMOUNT
----------- -------------
CLASS C SHARES:
Six Months ended March 31, 2009
Shares sold ...................................... 3,470,267 $ 34,883,883
Shares issued in reinvestment of distributions ... 449,027 4,261,749
Shares redeemed .................................. (4,715,405) (46,609,183)
---------- ------------
Net increase (decrease) .......................... (796,111) $ (7,463,551)
========== ============
Year ended September 30, 2008
Shares sold ...................................... 4,526,897 $ 63,185,313
Shares issued in reinvestment of distributions ... 1,256,000 18,036,872
Shares redeemed .................................. (6,474,947) (88,598,472)
---------- ------------
Net increase (decrease) .......................... (692,050) $ (7,376,287)
========== ============
CLASS R SHARES:
Six Months ended March 31, 2009
Shares sold ...................................... 658,237 $ 6,574,728
Shares issued in reinvestment of distributions ... 86,795 822,800
Shares redeemed .................................. (661,223) (6,599,441)
---------- ------------
Net increase (decrease) .......................... 83,809 $ 798,087
========== ============
Year ended September 30, 2008
Shares sold ...................................... 1,413,654 $ 19,831,591
Shares issued in reinvestment of distributions ... 223,864 3,206,653
Shares redeemed .................................. (1,437,674) (19,957,266)
---------- ------------
Net increase (decrease) .......................... 199,844 $ 3,080,978
========== ============
ADVISOR CLASS SHARES:
Six Months ended March 31, 2009
Shares sold ...................................... 1,913,893 $ 19,600,711
Shares issued in reinvestment of distributions ... 142,857 1,360,388
Shares redeemed .................................. (1,507,938) (14,970,165)
---------- ------------
Net increase (decrease) .......................... 548,812 $ 5,990,934
========== ============
Year ended September 30, 2008
Shares sold ...................................... 2,965,799 $ 43,092,338
Shares issued in reinvestment of distributions ... 392,475 5,664,728
Shares redeemed .................................. (4,378,036) (59,479,151)
---------- ------------
Net increase (decrease) .......................... (1,019,762) $(10,722,085)
========== ============
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
trustees of the Trust 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
Semiannual Report | 117
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES
The Franklin Income Fund and the Franklin Utilities Fund pay an investment
management fee to Advisers 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 $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% 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% Over $50 billion, up to and including $65 billion
0.345% Over $65 billion, up to and including $80 billion
0.340% In excess of $80 billion
The Franklin DynaTech Fund and the Franklin U.S. Government Securities Fund pay
an investment management fee to Advisers, and 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 $7.5 billion
0.440% Over $7.5 billion, up to and including $10 billion
0.430% 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.
118 | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
C. DISTRIBUTION FEES
The Trust's Board of Trustees 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.
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% 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 period:
FRANKLIN FRANKLIN FRANKLIN
DYNATECH GROWTH INCOME
FUND FUND FUND
-------- --------- -----------
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ................................................ $ 24,165 $ 247,854 $ 4,730,351
Contingent deferred sales charges retained ...................... $ 3,990 $ 22,204 $ 1,404,058
FRANKLIN U.S.
GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
------------- ---------
Sales charges retained net of commissions paid to unaffiliated
broker/dealers................................................. $ 1,215,414 $ 111,241
Contingent deferred sales charges retained....................... $ 187,711 $ 46,135
Semiannual Report | 119
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
E. TRANSFER AGENT FEES
For the period ended March 31, 2009, 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 .................. $ 537,084 $ 1,585,353 $ 11,201,596
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
--------------- ---------
Transfer agent fees ........................... $ 2,861,659 $ 941,409
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 period ended March 31, 2009, 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, 2008, the capital loss carryforwards were as
follows:
FRANKLIN
U.S. GOVERNMENT
FRANKLIN SECURITIES
GROWTH FUND FUND
------------ ---------------
Capital loss carryforwards expiring in:
2009 .................................... $ -- $ 46,256,951
2010 .................................... -- 11,768,551
2011 .................................... -- 33,556,845
2012 .................................... 16,688,284 129,102,166
2013 .................................... -- 74,283,298
2014 .................................... -- 47,763,112
2015 .................................... -- 28,034,940
2016 .................................... -- 20,514,778
------------ -------------
$ 16,688,284 $ 391,280,641
============ =============
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, 2008, the Franklin Income
Fund and the Franklin U.S. Government Securities
120 | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. INCOME TAXES (CONTINUED)
Fund deferred realized capital losses of $152,070,052 and $17,256,291,
respectively. At September 30, 2008, the Franklin DynaTech Fund deferred
realized currency losses of $40,773.
At March 31, 2009, the cost of investments and net unrealized appreciation
(depreciation) for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
-------------- ---------------- ------------------
Cost of investments .......................... $ 381,746,107 $ 1,104,026,000 $ 50,194,860,659
============= =============== =================
Unrealized appreciation ...................... $ 115,440,094 $ 731,979,206 $ 1,299,861,362
Unrealized depreciation ...................... (27,975,122) (175,180,661) (17,836,807,074)
------------- --------------- -----------------
Net unrealized appreciation (depreciation) ... $ 87,464,972 $ 556,798,545 $ (16,536,945,712)
============= =============== =================
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
---------------- ----------------
Cost of investments .......................... $ 8,162,973,936 $ 1,598,187,875
=============== ===============
Unrealized appreciation ...................... $ 265,882,641 $ 327,408,276
Unrealized depreciation ...................... (697,957) (189,328,742)
--------------- ---------------
Net unrealized appreciation (depreciation) ... $ 265,184,684 $ 138,079,534
=============== ===============
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of defaulted securities, foreign currency
transactions, paydown losses, payments-in-kind, 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
period ended March 31, 2009, were as follows:
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- ------------ ----------------
Purchases ................... $ 124,936,466 $ 37,167,021 $ 9,816,555,774
Sales ....................... $ 139,561,251 $ 76,145,248 $ 11,138,774,620
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
--------------- --------------
Purchases .................................. $ 2,447,763,639 $ 161,927,395
Sales ...................................... $ 1,253,554,468 $ 257,035,737
Semiannual Report | 121
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENT TRANSACTIONS (CONTINUED)
Transactions in options written during the period ended March 31, 2009, were as
follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ----------
FRANKLIN INCOME FUND
Options outstanding at September 30, 2008 ............. -- $ --
Options written ....................................... 18,000 513,897
Options expired ....................................... (3,000) (60,000)
Options exercised ..................................... -- --
Options closed ........................................ -- --
------ ---------
Options outstanding at March 31, 2009 ................. 15,000 $ 453,897
====== =========
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (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.
8. CREDIT RISK AND DEFAULTED SECURITIES
The Franklin Income Fund has 50.2% of its portfolio invested in high yield,
senior secured floating rate notes, or other securities rated below investment
grade. These securities may be more sensitive to economic conditions causing
greater price volatility and are potentially subject to a greater risk of loss
due to default than higher rated securities.
The Franklin Income Fund held defaulted securities and/or other securities for
which the income has been deemed uncollectible. At March 31, 2009, the aggregate
value of these securities was $582,237,116, representing 1.69% 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. RESTRICTED SECURITIES
The Funds may invest in securities that are restricted under the Securities Act
of 1933 (1933 Act) or which are subject to legal, contractual, or other agreed
upon restrictions on resale. Restricted securities are often purchased in
private placement transactions, and cannot be sold without prior
122 | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. RESTRICTED SECURITIES (CONTINUED)
registration unless the sale is pursuant to an exemption under the 1933 Act.
Disposal of these securities may require greater effort and expense, and prompt
sale at an acceptable price may be difficult. The Funds may have registration
rights for restricted securities. The issuer generally incurs all registration
costs.
At March 31, 2009, the Franklin DynaTech Fund held investments in restricted
securities, excluding 144A securities deemed to be liquid, valued in accordance
with procedures approved by the Trust's Board of Trustees as reflecting fair
value, as follows:
SHARES/WARRANTS/ ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE COST VALUE
- ---------------------- -------------------------------------------------------------------- -------- ----------- ---------
FRANKLIN DYNATECH FUND
124,248 Dilithium Networks Inc., depository receipt, D, pfd., 144A, PIPES... 7/13/06 $ 289,500 $ 162,765
4,807 Dilithium Networks Inc., 11.00%, 12/31/09 .......................... 10/30/08 4,807 4,807
4,126 Dilithium Networks Inc., wts., 12/31/09 ............................ 10/30/08 1 --
---------
TOTAL RESTRICTED SECURITIES (0.04% of Net Assets) .................. $ 167,572
=========
10. UNFUNDED LOAN COMMITMENTS
The Franklin Income Fund may enter into certain credit agreements, all or a
portion of which may be unfunded. The fund is obligated to fund these loan
commitments at the borrowers' discretion. Funded portions of credit agreements
are presented on the Statement of Investments.
At March 31, 2009, unfunded commitments were as follows:
UNFUNDED
COMMITMENT
-----------
BORROWER
FRANKLIN INCOME FUND
Bausch and Lomb Inc., Delayed Draw Term Loan ................. $ 3,512,000
-----------
Unfunded loan commitments and funded portions of credit agreements are marked to
market daily and any unrealized appreciation or depreciation is included in the
Statement of Assets and Liabilities and Statement of Operations.
Semiannual Report | 123
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. 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
period ended March 31, 2009, 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 PERIOD ADDITIONS REDUCTIONS OF PERIOD OF PERIOD INCOME (LOSS)
- ------------------------------- ---------- --------- ---------- --------- ------------- ------------ --------------
FRANKLIN INCOME FUND
NON-CONTROLLED AFFILIATES
AGL Resources Inc. ............ 4,000,000 -- 400,000 3,600,000 $ --(a) $ 3,400,000 $ (4,771,533)
Ameren Corp. .................. 12,500,000 -- 350,000 12,150,000 281,758,500 12,750,000 (11,385,680)
Canadian Oil Sands Trust ...... 25,000,000 847,400 -- 25,847,400 497,163,950 15,900,559 --
PG&E Corp. .................... 20,000,000 -- 10,000,000 10,000,000 --(a) 10,469,592 (35,287,883)
Pinnacle West Capital Corp. ... 5,500,000 -- 400,000 5,100,000 135,456,000 5,775,000 (7,236,926)
Puget Energy Inc. ............. 7,500,000 -- 7,500,000 -- --(a) 3,866,038 61,580,254
------------- ------------ -------------
TOTAL AFFILIATED SECURITIES (2.65% of Net Assets)......................... $ 914,378,450 $ 52,161,189 $ 2,898,232
============= ============ =============
(a) As of March 31, 2009, no longer an affiliate.
12. 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.
13. MERGER
On December 3, 2008, the Franklin DynaTech Fund acquired the net assets of the
Franklin Global Communications Fund, Franklin Global Health Care Fund, and the
Franklin Technology Fund pursuant to a plan of reorganization approved by the
Franklin Global Communications Fund's, Franklin Global Health Care Fund's, and
the Franklin Technology Fund's shareholders. The merger was accomplished by a
tax free exchange, and the net assets acquired and shares issued were as
follows:
SHARES ISSUED
BY FRANKLIN
FUND NAME NET ASSETS DYNATECH FUND
- ------------------------------------------------ ------------- -------------
Franklin Global Communications Fund ............ $ 47,740,803 2,914,752
Franklin Global Health Care Fund ............... 89,644,203 5,503,466
Franklin Technology Fund ....................... 32,802,922 2,006,525
------------- -------------
Total .......................................... $ 170,187,928 10,424,743
============= =============
124 | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
13. MERGER (CONTINUED)
The net asset figures shown above include ($18,324,767), ($8,835,122), and
($10,136,675) of unrealized appreciation (depreciation) for the Franklin Global
Communications Fund, Franklin Global Health Care Fund, and the Franklin
Technology Fund, respectively. The combined net assets of the fund immediately
after the merger were $475,468,843.
14. CREDIT FACILITY
Effective January 23, 2009, the Funds, together with other U.S. registered and
foreign investment funds managed by Franklin Templeton Investments
(individually, "Borrower"; collectively "Borrowers"), entered into a joint
syndicated senior unsecured credit facility totaling $725 million (Global Credit
Facility) to provide a source of funds to the Borrowers for temporary and
emergency purposes, including the ability to meet future unanticipated or
unusually large redemption requests.
Under the terms of the Global Credit Facility, the Funds shall, in addition to
interest charged on any borrowings made by the Funds and other costs incurred by
the Funds, pay its share of fees and expenses incurred in connection with the
implementation and maintenance of the Global Credit Facility, based upon its
relative share of the aggregate net assets of all of the Borrowers, including an
annual commitment fee based upon the unused portion of the Global Credit
Facility. During the period, the Funds incurred commitment fees of $23,088 of
their pro rata portion of the Global Credit Facility, which is reflected in
Other expenses on the Statements of Operations. During the period ended March
31, 2009, the Funds did not utilize the Global Credit Facility.
15. FAIR VALUE MEASUREMENTS
The Funds adopted Financial Accounting Standards Board (FASB) Statement No. 157,
"Fair Value Measurement" (SFAS 157), on October 1, 2008. SFAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The Funds have determined that the implementation
of SFAS 157 did not have a material impact on the Funds' financial statements.
SFAS 157 establishes a fair value hierarchy that distinguishes between market
data obtained from independent sources (observable inputs) and the Trust's own
market assumptions (unobservable inputs). These inputs are used in determining
the value of the Funds' investments and are summarized in the following fair
value hierarchy:
-- Level 1 - quoted prices in active markets for identical securities
-- Level 2 - other significant observable inputs (including quoted
prices for similar securities, interest rates, prepayment speed,
credit risk, etc.)
-- Level 3 - significant unobservable inputs (including the fund's own
assumptions in determining the fair value of investments)
Semiannual Report | 125
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
15. FAIR VALUE MEASUREMENTS (CONTINUED)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
The following is a summary of the inputs used as of March 31, 2009, in valuing
the Funds' assets and liabilities carried at fair value:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
---------------- ---------------- --------- ----------------
FRANKLIN DYNATECH FUND
ASSETS:
Investments in Securities $ 469,043,507 $ -- $ 167,572 $ 469,211,079
FRANKLIN GROWTH FUND
ASSETS:
Investments in Securities $ 1,645,781,577 $ 15,042,968 $ -- $ 1,660,824,545
FRANKLIN INCOME FUND
ASSETS:
Investments in Securities $ 10,901,130,268 $ 22,756,784,679 $ -- $ 33,657,914,947
LIABILITIES:
Options Written 375,000 -- -- 375,000
Other Financial Instrumentsa -- 488,337 -- 488,337
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
ASSETS:
Investments in Securities $ 257,603,750 $ 8,170,554,870 $ -- $ 8,428,158,620
FRANKLIN UTILITIES FUND
ASSETS:
Investments in Securities $ 1,670,341,824 $ 65,925,585 $ -- $ 1,736,267,409
(a) Other financial instruments includes net unrealized appreciation
(depreciation) on unfunded loan commitments.
At March 31, 2009 the reconciliation of assets in which significant unobservable
inputs (Level 3) were used in determining the Funds' fair value, were as
follows:
FRANKLIN
DYNATECH
FUND
-------------
INVESTMENTS
IN SECURITIES
-------------
Beginning Balance - October 1, 2008 ......................... $ --
Net realized gain (loss) ................................. --
Net change in unrealized appreciation (depreciation) ..... (18,637)
Net purchases (sales) .................................... --
Transfers in and/or out of Level 3 ....................... 186,209
-------------
Ending Balance .............................................. $ 167,572
=============
Net change in unrealized appreciation (depreciation)
attributable to assets still held at end of period ....... $ (18,637)
=============
126 | Semiannual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
16. NEW ACCOUNTING PRONOUNCEMENTS
In April 2009, FASB issued FASB Staff Position FSP FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" (FSP
FAS 157-4), which provides additional guidance when the volume and level of
activity for the asset or liability measured at fair value have significantly
decreased. Additionally, FSP FAS 157-4 amends FASB Statement No. 157, Fair Value
Measurements, expanding disclosure requirements by reporting entities
surrounding the major categories of assets and liabilities carried at fair
value. FSP FAS 157-4 is effective for interim and annual periods ending after
June 15, 2009. The Trust is currently evaluating the impact, if any, of applying
FSP FAS 157-4.
In March 2008, FASB issued FASB Statement No. 161, "Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which expands disclosures about derivative investments and hedging
activities. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Trust believes applying the various provisions of
SFAS 161 will not have a material impact on its financial statements.
17. SUBSEQUENT EVENT
On May 6, 2009, the Franklin Growth Fund acquired the net assets of the Franklin
Capital Growth Fund pursuant to a plan of reorganization approved by the
Franklin Capital Growth Fund's shareholders. The merger was accomplished by a
tax-free exchange of 22,770,597 shares of the Franklin Growth Fund (valued at
$709,391,405) for the net assets of the Franklin Capital Growth Fund which
aggregated $699,807,298, including $(9,584,107) of unrealized appreciation
(depreciation). The combined net assets of the Fund immediately after the merger
were $2,586,155,713.
ABBREVIATIONS
CURRENCY SELECTED PORTFOLIO
EUR - Euro ADR - American Depository Receipt
FRN - Floating Rate Note
GP - Graduated Payment
MTN - Medium Term Note
PIK - Payment-In-Kind
PIPES - Private Investment in Public Equity Security
SF - Single Family
Semiannual Report | 127
Franklin Custodian Funds
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 24, 2009, the Board of Trustees (Board), including a
majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for each of the five separate funds comprising
Franklin Custodian Funds (Fund(s)). In reaching this decision, the Board took
into account information furnished throughout the year at regular Board
meetings, as well as information prepared specifically in connection with the
annual renewal review process. Information furnished and discussed throughout
the year included investment performance reports and related financial
information for each Fund, as well as periodic reports on shareholder services,
legal, compliance, pricing, brokerage commissions and execution and other
services provided by the Investment Manager (Manager) and its affiliates.
Information furnished specifically in connection with the renewal process
included a report for each Fund prepared by Lipper, Inc. (Lipper), an
independent organization, as well as additional material, including a Fund
profitability analysis report prepared by management. The Lipper reports
compared each Fund's investment performance and expenses with those of other
mutual funds deemed comparable to the Fund as selected by Lipper. The Fund
profitability analysis report discussed the profitability to Franklin Templeton
Investments from its overall U.S. fund operations, as well as on an individual
fund-by-fund basis. Included with such profitability analysis report was
information on a fund-by-fund basis listing portfolio managers and other
accounts they manage, as well as information on management fees charged by the
Manager and its affiliates including management's explanation of differences
where relevant and a three-year expense analysis with an explanation for any
increase in expense ratios. Additional material accompanying such report was a
memorandum prepared by management describing project initiatives and capital
investments relating to the services provided to the Funds by the Franklin
Templeton Investments organization, as well as a memorandum relating to
economies of scale and a comparative analysis concerning transfer agent fees
charged each Fund. Such material also discussed some of the actions taken by
management in coping with problems arising out of the past year's financial
upheaval.
In considering such materials, the independent Trustees received assistance and
advice from and met separately with independent counsel. While the investment
management agreements for all Funds were considered at the same Board meeting,
the Board dealt with each Fund separately. In approving continuance of the
investment management agreement for each Fund, the Board, including a majority
of independent Trustees, determined that the existing management fee structure
was fair and reasonable and that continuance of the investment management
agreement was in the best interests of each Fund and its shareholders. While
attention was given to all information furnished, the following discusses some
primary factors relevant to the Board's decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Funds and their shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished it showing that the investment policies and restrictions for
each Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other
128 | Semiannual Report
Franklin Custodian Funds
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
management personnel with the code of ethics adopted throughout the Franklin
Templeton fund complex, the adherence to fair value pricing procedures
established by the Board, and the accuracy of net asset value calculations. The
Board also noted the extent of benefits provided Fund shareholders from being
part of the Franklin Templeton family of funds, including the right to exchange
investments between the same class of funds without a sales charge, the ability
to reinvest Fund dividends into other funds and the right to combine holdings in
other funds to obtain a reduced sales charge. Favorable consideration was given
to management's continuous efforts and expenditures in establishing back-up
systems and recovery procedures to function in the event of a natural disaster,
it being noted by the Board that such systems and procedures had functioned
smoothly during the Florida hurricanes and blackouts experienced in recent
years. Among other factors taken into account by the Board were the Manager's
best execution trading policies, including a favorable report by an independent
portfolio trading analytical firm. Consideration was also given to the
experience of each Fund's portfolio management team, the number of accounts
managed and general method of compensation. In this latter respect, the Board
noted that a primary factor in management's determination of a portfolio
manager's bonus compensation was the relative investment performance of the
funds he or she managed and that a portion of such bonus was required to be
invested in a predesignated list of funds within such person's fund management
area so as to be aligned with the interests of Fund shareholders. The Board also
took into account the quality of transfer agent and shareholder services
provided Fund shareholders by an affiliate of the Manager, noting continuing
expenditures by management to increase and improve the scope of such services,
periodic favorable reports on such service conducted by third parties, and the
continuous enhancements to and high industry ranking given the Franklin
Templeton website. Particular attention was given to the overall performance and
actions taken by the Manager and its affiliates in response to problems arising
out of the market turmoil and financial crisis experienced during the past year.
In this respect, the Board noted that management's independent credit analysis
and diligent risk management procedures had minimized exposure of funds within
the Franklin Templeton complex to subprime mortgages and that its continuous
monitoring of counterparty credit risk had limited fund exposure to firms
experiencing financial difficulties like Bear Stearns and AIG. The same type of
conservative approach and attention to risk had also prevented any structured
investment products or other volatile instruments from being held in the
portfolios of any of the money market funds within the Franklin Templeton
complex, including the sweep money fund utilized by many of the funds as part of
their cash management. The Board also took into account, among other things,
management's efforts in establishing a $725 million global credit facility for
the benefit of the Funds and other accounts managed by Franklin Templeton
Investments to provide a source of cash for temporary and emergency purposes or
to meet unusual redemption requests as well as the strong financial position of
the Manager's parent company and its commitment to the mutual fund business. The
Board also noted that during the past year Franklin Templeton Investments, like
many other fund managers, had announced a hiring freeze and implemented employee
reductions, and the Board discussed with management the nature of such
reductions and steps being taken to minimize any negative impact on the nature
and quality of services being provided the Funds.
Semiannual Report | 129
Franklin Custodian Funds
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of each Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
performance was given to the Lipper reports furnished for the agreement
renewals. The Lipper reports prepared for each individual Fund showed the
investment performance of its Class A shares during 2008 and the previous
10-year periods ended December 31, 2008, in comparison with a performance
universe selected by Lipper. Investment performance was shown on a total return
basis for all Funds with income return being shown as well for those Funds
having income as an investment objective element. The following summarizes the
performance results for each Fund.
FRANKLIN DYNATECH FUND - This Fund's investment performance was shown in
comparison to a performance universe consisting of the Fund and all retail and
institutional science and technology funds as classified by Lipper. Consistent
with the market sell-off that occurred in 2008, the Fund and all other funds
within such performance universe experienced losses during the past year. On a
comparative basis the Fund's Lipper report showed the Fund's total return during
2008 to be in the second-highest quintile of such performance universe, and on
an annualized basis to be in the second-highest quintiles of such universe for
the previous three-, five- and 10-year periods. The Board noted such favorable
comparative performance.
FRANKLIN GROWTH FUND - The Fund's investment performance was shown in comparison
to a performance universe consisting of all retail and institutional multi-cap
core funds as classified by Lipper. Consistent with the market sell-off that
occurred in 2008, the Fund and all other funds with such performance universe
experienced losses during the past year. On a comparative basis, the Fund's
Lipper report showed the Fund's total return during 2008 to be in the highest
quintile of such performance universe and its total return on an annualized
basis ranked it in the highest quintile of such universe during each of the
previous three- and five-year periods, as well as the middle quintile of such
universe for the previous 10-year period. The Board noted such favorable
comparative performance.
FRANKLIN INCOME FUND - This Fund's investment performance was shown in
comparison to a performance universe consisting of the Fund and all other retail
and institutional mixed-asset target allocation moderate funds as classified by
Lipper. The Lipper report showed the Fund's 7.68% income return during 2008 to
be in the highest or best performing quintile of its performance universe and
that its income return during each of the previous 10 years was also in the
highest quintile of such performance universe. The Lipper report showed the
Fund's 30.51% loss on a total return basis during 2008 to be below the 2008
median loss of 25.34% for the performance universe placing it in the fifth or
worst performing quintile of such universe, while its total return on an
annualized basis was in the middle quintile of such universe during each of the
previous three- and five-year periods, and in the highest quintile of such
universe for the previous 10-year period. The Board discussed with management
the reasons for the Fund's total return performance
130 | Semiannual Report
Franklin Custodian Funds
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
during 2008 and, while intending to continuously monitor such Fund, did not
believe that such recent underperformance warranted any change in portfolio
management.
FRANKLIN U.S. GOVERNMENT SECURITIES FUND - This Fund's investment performance
was shown in comparison to a performance universe consisting of all retail and
institutional Ginnie Mae funds as classified by Lipper. The Fund's Lipper report
showed its 4.95% income return during 2008 was in the second-highest quintile of
such universe and its income return on an annualized basis was in the
second-highest quintile for the previous three-year period and in the highest
quintile of such performance universe for the previous five- and 10-year
periods. The Fund's 6.88% total return, as shown in such report, was in the
second-highest quintile of its performance universe during 2008, and its total
return on an annualized basis was in the middle quintile of such universe for
the previous three-year period, and the second-highest quintile of such universe
for the previous five- and 10-year periods. The Board expressed satisfaction
with such performance.
FRANKLIN UTILITIES FUND - This Fund's investment performance was shown in
comparison to a performance universe consisting of all retail and institutional
utility funds as classified by Lipper. Consistent with the market sell-off that
occurred in 2008, the Fund and all other funds within such performance universe
experienced losses on a total return basis during the past year. On a
comparative basis, the Fund's Lipper report showed its income return during
2008, as well as during each of the previous three-, five- and 10-year periods
on an annualized basis was in the highest quintile of such performance universe.
The Fund's total return during 2008 placed it in the highest quintile of its
performance universe, and on an annualized basis placed it in the highest
quintile of its performance universe during the previous three- and 10-year
periods, and the second-highest quintile during the previous five-year period.
The Board noted such favorable comparative performance.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of each Fund compared with those of a
group of other funds selected by Lipper as constituting its appropriate Lipper
expense group. Lipper expense data is based upon historical information taken
from each Fund's most recent annual report and, as a result of the severe
decline in mutual fund industry assets during the last quarter of 2008, is based
on asset levels that are higher than the level currently existing for most
funds. While recognizing the limitations inherent in Lipper's methodology and
recognizing that current expense ratios may increase as assets decline, the
Board believed that the independent analysis conducted by Lipper remained an
appropriate measure of comparative expenses. In reviewing comparative costs,
Lipper provides information on each Fund's contractual investment management fee
in comparison with the contractual investment management fee that would have
been charged by other funds within its Lipper expense group assuming they were
similar in size to the Fund, as well as the actual total expenses of the Fund in
comparison with those of its Lipper expense group. The Lipper contractual
investment management fee analysis considers administrative charges as being
part of management fees and total expenses for comparative consistency are shown
by Lipper for Fund Class A shares. The results of such expense comparisons
showed that the contractual investment management fee
Semiannual Report | 131
Franklin Custodian Funds
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
rate for each of Franklin DynaTech Fund, Franklin Growth Fund and Franklin
Utilities Fund was in the least expensive quintile of their respective Lipper
expense groups, and for Franklin Income Fund and Franklin U.S. Government
Securities Fund was in the second least expensive quintile of their Lipper
expense groups. The actual total expense rates for all the Funds were in the
least expensive quintile of their respective Lipper expense groups. Based upon
the above, the Board was satisfied with the management fees and total expenses
of each Fund in comparison to its respective Lipper expense group.
MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
each Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual Funds during the 12-month period ended September 30,
2008, being the most recent fiscal year end for Franklin Resources, Inc., the
Manager's parent. During such period, the assets of the Franklin Templeton U.S.
fund business were significantly higher than currently existing, and to such
extent the profitability analysis does not reflect current fund operations.
While taking this into account in assessing the significance of the Fund
profitability analysis, the Board recognized such analysis was made at a given
point in time and that the decline in assets and effect on profitability would
be reflected in the profitability analysis covering Franklin Resources' 2009
fiscal year period. In reviewing the analysis, attention was given to the
methodology followed in allocating costs to each Fund, it being recognized that
allocation methodologies are inherently subjective and various allocation
methodologies may each be reasonable while producing different results. In this
respect, the Board noted that, while being continuously refined and reflecting
changes in the Manager's own cost accounting, the cost allocation methodology
was consistent with that followed in profitability report presentations for the
Funds made in prior years and that the Funds' independent registered public
accounting firm had been engaged by the Manager to perform certain procedures on
a biennial basis, specified and approved by the Manager and the Funds' Board
solely for their purposes and use in reference to the profitability analysis. In
reviewing and discussing such analysis, management discussed with the Board its
belief that costs incurred in establishing the infrastructure necessary for the
type of mutual fund operations conducted by the Manager and its affiliates may
not be fully reflected in the expenses allocated to each Fund in determining its
profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Funds, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC and other regulatory requirements. In
addition, the Board considered a third-party study comparing the profitability
of the Manager's parent on an overall basis as compared to other publicly held
managers broken down to show profitability from management operations exclusive
of distribution expenses, as well as profitability including distribution
expenses. The Board also considered the extent to which the Manager and its
affiliates might derive ancillary benefits from fund operations, including its
interest in a joint venture entity that financed up-front commissions paid
132 | Semiannual Report
Franklin Custodian Funds
SHAREHOLDER INFORMATION (CONTINUED)
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)
to brokers/dealers who sold fund Class B shares prior to February 2005 when the
offering of such shares was discontinued, as well as potential benefits
resulting from allocation of fund brokerage and the use of commission dollars to
pay for research. Based upon its consideration of all these factors, the Board
determined that the level of profits realized by the Manager and its affiliates
from providing services to each Fund was not excessive in view of the nature,
quality and extent of services provided.
ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Funds grow larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Board noted that based upon
the Fund profitability analysis, it appears that as some funds get larger, at
some point economies of scale do result in the Manager realizing a larger profit
margin on management services provided such a fund. The Board also noted that
economies of scale are shared with each Fund and its shareholders through
management fee breakpoints so that as a Fund grows in size, its effective
management fee rate declines. The fee structure under the investment management
agreement with each Fund provides an initial fee of 0.625% on the first $100
million of assets; 0.50% on the next $150 million of assets; 0.45% on the next
$7.25 billion of assets; and declining thereafter for each subsequent $2.5
billion of assets until reaching a breakpoint of 0.35% for assets in excess of
$50 billion, with such breakpoints continuing in the case of Franklin Income
Fund and Franklin Utilities Fund to 0.345% on assets in excess of $65 billion
and 0.34% on assets in excess of $80 billion. In discussing such overall fee
structure, management noted that the asset sizes of all Funds were beneath their
last breakpoint levels and stated its view that such fee structures reach a
relatively low rate quickly reflecting anticipated economies of scale as a
Fund's assets increase and pointed out the favorable effective management fee
and total expense comparisons for each Fund within its Lipper expense group, as
previously discussed under "Comparative Expenses." The Board believed that to
the extent economies of scale may be realized by the Manager and its affiliates,
the schedule of fees under the investment management agreement for each Fund
provides a sharing of benefits with the Fund and its shareholders.
PROXY VOTING POLICIES AND PROCEDURES
The Fund's investment manager 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 (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.
Semiannual Report | 133
Franklin Custodian Funds
SHAREHOLDER INFORMATION (CONTINUED)
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 (800)
SEC-0330.
134 | Semiannual Report
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Franklin Templeton Funds
LITERATURE REQUEST. TO RECEIVE A PROSPECTUS, PLEASE CALL US AT (800) DIAL
BEN/(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.
VALUE
Franklin All Cap Value Fund
Franklin Balance Sheet Investment Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(1)
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Quest Fund
Mutual Recovery Fund(2)
Mutual Shares Fund
BLEND
Franklin Focused Core Equity Fund
Franklin Large Cap Equity Fund
Franklin Rising Dividends Fund
GROWTH
Franklin Flex Cap Growth Fund
Franklin Growth Fund
Franklin Growth Opportunities Fund
Franklin Small Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Real Estate Fund
Franklin Gold & Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund Mutual
Financial Services Fund
GLOBAL
Mutual Global Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
INTERNATIONAL
Franklin India Growth Fund
Franklin International Growth Fund
Franklin International Small Cap Growth Fund
Mutual European Fund
Mutual International 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
Templeton Frontier Markets Fund
HYBRID
Franklin Balanced Fund
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Templeton Income 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
FIXED INCOME
Franklin Adjustable U.S. Government Securities Fund(3)
Franklin Floating Rate Daily Access Fund
Franklin High Income Fund
Franklin Limited Maturity U.S. Government Securities Fund(3)
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(3)
Templeton Global Bond Fund
Templeton Global Total Return Fund
Templeton International Bond Fund
TAX-FREE INCOME(4)
NATIONAL
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(5)
LIMITED-/INTERMEDIATE-TERM
California Intermediate-Term Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Intermediate-Term Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(6)
Colorado
Connecticut
Florida
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(6)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products Trust(8)
1. The fund is closed to new investors. Existing shareholders and select
retirement plans can continue adding to their accounts.
2. 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.
3. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
4. For investors subject to the alternative minimum tax, a small portion of fund
dividends may be taxable. Distributions of capital gains are generally taxable.
5. The fund invests primarily in insured municipal securities.
6. These funds are available in four or more variations, including long-term
portfolios, intermediate-term portfolios, portfolios of insured securities, a
high-yield portfolio (CA only) and money market portfolios.
7. The Board of Trustees approved the elimination of the non-fundamental policy
requiring the fund to invest at least 80% of net assets in insured municipal
securities and the removal of the word "Insured" from the fund name. The changes
became effective 2/17/09.
8. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
04/09 Not part of the semiannual report
[FRANKLIN TEMPLETON INVESTMENTS LOGO] One Franklin Parkway
San Mateo, CA 94403-1906
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SEMIANNUAL REPORT AND SHAREHOLDER LETTER
FRANKLIN CUSTODIAN FUNDS
INVESTMENT MANAGER
Franklin Advisers, Inc.
DISTRIBUTOR
Franklin Templeton Distributors, Inc.
(800) DIAL BEN(R)
franklintempleton.com
SHAREHOLDER SERVICES
(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 S2009 05/09
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 experts are 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. N/A
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 MANGERS OF CLOSE-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 Trustees 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 Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and
Gaston Gardey, Chief Financial Officer and Chief Accounting 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
By /S/LAURA F. FERGERSON
--------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date May 27, 2009
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/LAURA F. FERGERSON
-------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date May 27, 2009
By /S/GASTON GARDEY
-------------------------
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date May 27, 2009