UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07288
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FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
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(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
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(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 9/30
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Date of reporting period: 9/30/09
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Item 1. Reports to Stockholders.
(GRAPHIC)
SEPTEMBER 30, 2009
ANNUAL 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 CUSTODIAN FUNDS
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
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
(GRAPHIC)
Not part of the annual report
Contents
SHAREHOLDER LETTER ...................................................... 1
ANNUAL REPORT
Economic and Market Overview ............................................ 3
Franklin DynaTech Fund .................................................. 5
Franklin Growth Fund .................................................... 16
Franklin Income Fund .................................................... 25
Franklin U.S. Government Securities Fund ................................ 39
Franklin Utilities Fund ................................................. 50
Financial Highlights and Statements of Investments ...................... 59
Financial Statements .................................................... 112
Notes to Financial Statements ........................................... 121
Report of Independent Registered Public Accounting Firm ................. 144
Tax Designation ......................................................... 145
Board Members and Officers .............................................. 146
Shareholder Information ................................................. 151
Shareholder Letter
Dear Shareholder:
During the 12-month period ended September 30, 2009, economic activity weakened
before showing signs of stabilization. The slowdown began in 2008 with the U.S.
subprime mortgage and credit crises and eventually spread worldwide. Despite
coordinated efforts by many governments to address spreading liquidity and
credit problems, deteriorating economic conditions and mounting uncertainty
contributed to market woes through the period's first half. Later in the period,
some indicators offered a better economic outlook, and markets rallied beginning
in March 2009, erasing much of the earlier losses. At period-end, although some
observers thought the worst of the economic crises was behind us, others
believed significant challenges remained. We think it is important to put
short-term market developments in perspective. Keep in mind that as uncertain as
current conditions may be, we have navigated through past periods of high market
volatility by remaining committed to our long-term perspective and disciplined
investment philosophy. During such times, we search for bargains that we believe
may be well positioned to become eventual winners. Although conditions remain
challenging, our experience gives us reason to be optimistic about future market
stabilization and recovery.
Franklin Custodian Funds' annual 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 annual 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 current
market conditions.
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 SEPTEMBER 30, 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 annual report
Annual Report
Economic and Market Overview
The 12-month period under review can be divided into two halves: the first
marked by the bursting of the credit and commodities' bubbles, the onset of
global recession and the precipitous decline of equity markets, and the second
by a sharp market rebound amid renewed optimism. Following the failure of
several financial institutions in September 2008, restrictive credit and wealth
deterioration stalled economic activity, marking the first global recession in
nearly half a century. Equity market volatility reached record levels, and
consumer confidence plummeted. Job losses mounted and U.S. unemployment rose,
ending the period at 9.8%, although the pace of job losses eased somewhat toward
the end of the period.(1)
The Federal Reserve Board responded to the deteriorating financial and credit
situations by lowering the federal funds target rate to a range of 0% to 0.25%
in December 2008 to stimulate economic growth. In addition, in late July the
government implemented a month-long cash-for-clunkers program, which boosted
retail and auto sales. Economic activity, as measured by U.S. gross domestic
product (GDP), fell at annualized rates of 5.4% in 2008's fourth quarter and
6.1% in 2009's first quarter. The decline in GDP eased in 2009's second quarter
to an annualized rate of -0.7%, and GDP rose in the third quarter at an
estimated annualized 3.5% rate. Commodity prices fell through early 2009 before
rebounding somewhat through period-end, which contributed to a significant
decline in inflation. September's inflation rate was an annualized -1.3%, while
core inflation, which excludes food and energy costs, was an annualized 1.5%.(1)
Most Treasury prices rose during the period, and fixed income spreads were
generally wide relative to Treasury yields due to heightened market turbulence
and risk aversion. Spreads for high yield bonds hit record levels. The spread
between two-year and 10-year Treasury yields rose to 236 basis points (100 basis
points equal one percentage point) at the end of September from 185 basis points
at the beginning of the reporting period. The two-year Treasury bill yield fell
from 2.00% to 0.95% over the 12-month period, while the 10-year Treasury note
yield fell from 3.85% to 3.31%.
(1.) Source: Bureau of Labor Statistics.
Annual Report | 3
U.S. equity markets declined precipitously until March 2009 before beginning a
rally fueled by low valuations, renewed optimism and aggregate corporate
earnings that beat consensus expectations. Investors' optimism returned and risk
aversion subsided as equity markets regained much of their losses from 2008. For
the 12 months under review, the Dow Jones Industrial Average, Standard & Poor's
500 Index (S&P 500) and NASDAQ Composite Index had total returns of -7.38%,
- -6.91% and +2.53%, respectively.(2) Information technology was the only sector
to post positive results during the year under review, while the financials,
energy and industrials sectors had the biggest declines.
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS AND OPINIONS AS OF SEPTEMBER 30,
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 is one of the most
widely used benchmarks of U.S. equity performance. The NASDAQ Composite
Index measures all NASDAQ domestic and international common type stocks
listed on The NASDAQ Stock Market. The index is market value weighted and
includes more than 3,000 companies.
4 | Annual Report
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 annual report for Franklin DynaTech Fund covers the fiscal year ended
September 30, 2009.
PERFORMANCE OVERVIEW
Franklin DynaTech Fund - Class A posted a +2.71% cumulative total return for the
12 months under review. For the same period, the Fund underperformed its narrow
benchmark, the NASDAQ 100 Index, which had a price-only return of +7.80%, and
outperformed the broader Standard & Poor's 500 Index (S&P 500), which had a
- -6.91% total return.(1) You can find the Fund's long-term performance data in
the Performance Summary beginning on page 8.
INVESTMENT STRATEGY
When choosing equity investments for the Fund, the manager applies a
"bottom-up," long-term approach, focusing on the market price of a company's
securities relative to the manager's evaluation of the company's long-term
earnings, asset value and cash flow potential. The manager also considers a
company's price/ earnings ratio, profit margins and liquidation value.
(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, and an index is not 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 64.
Annual Report | 5
PORTFOLIO BREAKDOWN*
Franklin DynaTech Fund
Based on Total Net Assets as of 9/30/09
(BAR CHART)
Internet Software & Services 9.3%
Semiconductors & Semiconductor Equipment 9.1%
Computers & Peripherals 8.9%
Software 8.5%
Communications Equipment 7.4%
Biotechnology 6.6%
Energy Equipment & Services 6.4%
Pharmaceuticals 5.9%
Health Care Equipment & Supplies 4.4%
IT Services 4.2%
Internet & Catalog Retail 3.9%
Chemicals 3.6%
Life Sciences Tools & Services 2.9%
Capital Markets 2.6%
Health Care Providers & Services 2.3%
Other 14.1%
* Other net assets equal -0.1% due to Fund liabilities.
MANAGER'S DISCUSSION
During the Fund's fiscal year, the health care sector weighed on performance,
due in part to several health care equipment and supplies industry companies
including Swiss ophthalmic equipment and pharmaceuticals company Alcon,
implantable biomedical devices manufacturer Medtronic and surgical instrument
maker Stryker.(2) Life sciences tools and services industry holding Covance,
which provides drug development services, also hindered results, as did
biotechnology company Celgene. In general, the health care sector underperformed
the overall market in recent months as the federal government worked through
details of health care reform. The materials sector detracted from Fund
performance due to holdings in chemicals companies Monsanto and
Sigma-Aldrich.(3) Several information technology holdings also detracted from
results including thermal imaging systems manufacturer FLIR Systems and software
makers Adobe Systems, Nintendo and Ubisoft Entertainment.(4) During the period,
we liquidated our Medtronic, Covance, FLIR Systems and Ubisoft Entertainment
positions.
The Fund's performance benefited overall from the information technology sector,
particularly computers and peripherals industry holding Apple, which continued
to advance due to innovative products including the iPhone, iPod and Mac
computers. Other sector positions that performed well were Chinese Internet and
mobile phone services provider Tencent Holdings, Internet search engine Google,
and semiconductor manufacturer Silicon Laboratories. The consumer discretionary
sector also boosted the Fund's returns during the fiscal year, largely due to
Internet retailers Amazon.com and Priceline.com, both of which benefited from
improving consumer spending.(5) Other holdings that benefited performance were
health care information technology provider Cerner, industrial goods
manufacturer Precision Castparts, and Flowserve, which supplies pumps and valves
to several industries globally. Norwegian communications equipment manufacturer
Tandberg also contributed to results as it received a purchase offer from Cisco
during the period.
(2.) The health care sector comprises biotechnology, health care equipment and
supplies, health care providers and services, health care technology, life
sciences tools and services, and pharmaceuticals in the SOI.
(3.) The materials sector comprises chemicals in the SOI.
(4.) 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.
(5.) The consumer discretionary sector comprises Internet and catalog retail,
and media in the SOI.
6 | Annual Report
As managers of Franklin DynaTech Fund, at period-end we were encouraged by the
relative abundance of leading science and technology companies that 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 SEPTEMBER 30, 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 HOLDINGS
Franklin DynaTech Fund
9/30/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY, COUNTRY NET ASSETS
- ------------------------ ----------
Apple Inc.
COMPUTERS & PERIPHERALS, U.S. 6.6%
Google Inc., A
INTERNET SOFTWARE & SERVICES, U.S. 4.0%
Intel Corp.
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT, U.S. 3.6%
Teva Pharmaceutical Industries Ltd., ADR
PHARMACEUTICALS, ISRAEL 2.9%
Visa Inc., A
IT SERVICES, U.S. 2.8%
Gilead Sciences Inc.
BIOTECHNOLOGY, U.S. 2.8%
FMC Technologies Inc.
ENERGY EQUIPMENT & SERVICES, U.S. 2.5%
Hewlett-Packard Co.
COMPUTERS & PERIPHERALS, U.S. 2.3%
Amazon.com Inc.
INTERNET & CATALOG RETAIL, U.S. 2.3%
Celgene Corp.
BIOTECHNOLOGY, U.S. 2.3%
Annual Report | 7
Performance Summary as of 9/30/09
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKDNX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.67 $23.20 $24.87
DISTRIBUTIONS (10/1/08-9/30/09)
Long-Term Capital Gain $1.5822
CLASS B (SYMBOL: FDNBX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.88 $21.60 $23.48
DISTRIBUTIONS (10/1/08-9/30/09)
Long-Term Capital Gain $1.5822
CLASS C (SYMBOL: FDYNX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.89 $21.34 $23.23
DISTRIBUTIONS (10/1/08-9/30/09)
Long-Term Capital Gain $1.5822
CLASS R (SYMBOL: N/A) CHANGE 9/30/09 12/1/08
- --------------------- ------ ------- -------
Net Asset Value (NAV) +$7.47 $23.13 $15.66
ADVISOR CLASS (SYMBOL: N/A) CHANGE 9/30/09 9/30/08
- --------------------------- ------ ------- -------
Net Asset Value (NAV) -$1.62 $23.28 $24.90
DISTRIBUTIONS (10/1/08-9/30/09)
Long-Term Capital Gain $1.5822
8 | Annual 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 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) +2.71% +18.64% +19.13%
Average Annual Total Return(2) -3.21% +2.26% +1.17%
Value of $10,000 Investment(3) $9,679 $11,183 $11,228
Total Annual Operating Expenses(4) 0.99%
CLASS B 1-YEAR 5-YEAR INCEPTION (2/1/00)
- ------- ------- ------- ------------------
Cumulative Total Return(1) +1.96% +14.28% -8.97%
Average Annual Total Return(2) -1.72% +2.34% -0.97%
Value of $10,000 Investment(3) $9,828 $11,228 $9,103
Total Annual Operating Expenses(4) 1.75%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) +1.89% +14.24% +10.51%
Average Annual Total Return(2) +0.97% +2.70% +1.00%
Value of $10,000 Investment(3) $10,097 $11,424 $11,051
Total Annual Operating Expenses(4) 1.75%
CLASS R INCEPTION (12/1/08)
- ------- -------------------
Cumulative Total Return(1) +47.70%
Aggregate Total Return(5) +47.70%
Value of $10,000 Investment(3) $14,770
Total Annual Operating Expenses(4) 1.25%
ADVISOR CLASS(6) 1-YEAR 5-YEAR 10-YEAR
- ---------------- ------- ------- -------
Cumulative Total Return(1) +2.92% +19.03% +19.52%
Average Annual Total Return(2) +2.92% +3.55% +1.80%
Value of $10,000 Investment(3) $10,292 $11,903 $11,952
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.
Annual Report | 9
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The indexes are unmanaged. They
differ from the Fund in composition and do not pay management fees or expenses.
One cannot invest directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 9/30/09
- ------- -------
1-Year -3.21%
5-Year +2.26%
10-Year +1.17%
CLASS A (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN DYNATECH NASDAQ 100
DATE FUND - CLASS A S&P 500 INDEX INDEX
- ------------- ----------------- ------------- ----------
10/1/1999 $ 9,425 $10,000 $10,000
10/31/1999 $ 9,808 $10,633 $10,953
11/30/1999 $10,387 $10,849 $12,321
12/31/1999 $11,492 $11,488 $15,399
1/31/2000 $11,608 $10,911 $14,826
2/29/2000 $12,630 $10,704 $17,721
3/31/2000 $12,758 $11,751 $18,264
4/30/2000 $12,067 $11,398 $15,670
5/31/2000 $11,488 $11,164 $13,805
6/30/2000 $12,195 $11,439 $15,631
7/31/2000 $11,980 $11,260 $14,990
8/31/2000 $12,849 $11,960 $16,934
9/30/2000 $11,835 $11,328 $14,829
10/31/2000 $11,533 $11,281 $13,631
11/30/2000 $10,304 $10,391 $10,410
12/31/2000 $10,086 $10,442 $ 9,725
1/31/2001 $10,594 $10,812 $10,769
2/28/2001 $ 9,315 $ 9,827 $ 7,925
3/31/2001 $ 8,768 $ 9,204 $ 6,534
4/30/2001 $ 9,340 $ 9,919 $ 7,704
5/31/2001 $ 9,196 $ 9,986 $ 7,475
6/30/2001 $ 9,128 $ 9,743 $ 7,611
7/31/2001 $ 8,840 $ 9,647 $ 6,992
8/31/2001 $ 8,480 $ 9,043 $ 6,104
9/30/2001 $ 7,946 $ 8,313 $ 4,852
10/31/2001 $ 8,311 $ 8,471 $ 5,668
11/30/2001 $ 8,828 $ 9,121 $ 6,628
12/31/2001 $ 8,763 $ 9,201 $ 6,550
1/31/2002 $ 8,694 $ 9,067 $ 6,438
2/28/2002 $ 8,286 $ 8,892 $ 5,645
3/31/2002 $ 8,540 $ 9,226 $ 6,034
4/30/2002 $ 8,080 $ 8,667 $ 5,304
5/31/2002 $ 7,976 $ 8,603 $ 5,018
6/30/2002 $ 7,482 $ 7,990 $ 4,367
7/31/2002 $ 7,095 $ 7,367 $ 3,996
8/31/2002 $ 7,065 $ 7,416 $ 3,914
9/30/2002 $ 6,609 $ 6,610 $ 3,457
10/31/2002 $ 7,168 $ 7,192 $ 4,110
11/30/2002 $ 7,611 $ 7,615 $ 4,635
12/31/2002 $ 7,022 $ 7,167 $ 4,088
1/31/2003 $ 6,944 $ 6,980 $ 4,083
2/28/2003 $ 7,013 $ 6,875 $ 4,193
3/31/2003 $ 7,073 $ 6,942 $ 4,231
4/30/2003 $ 7,542 $ 7,514 $ 4,593
5/31/2003 $ 8,101 $ 7,909 $ 4,975
6/30/2003 $ 8,239 $ 8,010 $ 4,991
7/31/2003 $ 8,535 $ 8,152 $ 5,303
8/31/2003 $ 8,849 $ 8,310 $ 5,570
9/30/2003 $ 8,673 $ 8,222 $ 5,414
10/31/2003 $ 9,266 $ 8,687 $ 5,882
11/30/2003 $ 9,438 $ 8,764 $ 5,915
12/31/2003 $ 9,735 $ 9,223 $ 6,096
1/31/2004 $ 9,946 $ 9,393 $ 6,201
2/29/2004 $ 9,838 $ 9,523 $ 6,107
3/31/2004 $ 9,782 $ 9,380 $ 5,974
4/30/2004 $ 9,619 $ 9,232 $ 5,820
5/31/2004 $10,010 $ 9,359 $ 6,089
6/30/2004 $10,122 $ 9,541 $ 6,299
7/31/2004 $ 9,283 $ 9,225 $ 5,816
8/31/2004 $ 9,116 $ 9,263 $ 5,684
9/30/2004 $ 9,464 $ 9,363 $ 5,867
10/31/2004 $ 9,666 $ 9,506 $ 6,174
11/30/2004 $10,100 $ 9,891 $ 6,526
12/31/2004 $10,483 $10,227 $ 6,733
1/31/2005 $ 9,860 $ 9,978 $ 6,311
2/28/2005 $ 9,989 $10,188 $ 6,275
3/31/2005 $ 9,769 $10,007 $ 6,157
4/30/2005 $ 9,597 $ 9,818 $ 5,901
5/31/2005 $10,264 $10,130 $ 6,407
6/30/2005 $10,161 $10,144 $ 6,203
7/31/2005 $10,681 $10,522 $ 6,666
8/31/2005 $10,758 $10,426 $ 6,569
9/30/2005 $10,741 $10,510 $ 6,652
10/31/2005 $10,655 $10,335 $ 6,558
11/30/2005 $11,339 $10,726 $ 6,946
12/31/2005 $11,236 $10,729 $ 6,833
1/31/2006 $11,687 $11,014 $ 7,105
2/28/2006 $11,459 $11,043 $ 6,938
3/31/2006 $11,532 $11,181 $ 7,075
4/30/2006 $11,464 $11,331 $ 7,063
5/31/2006 $10,715 $11,005 $ 6,560
6/30/2006 $10,797 $11,020 $ 6,542
7/31/2006 $10,462 $11,088 $ 6,269
8/31/2006 $10,853 $11,352 $ 6,561
9/30/2006 $11,094 $11,644 $ 6,870
10/31/2006 $11,352 $12,024 $ 7,195
11/30/2006 $11,618 $12,252 $ 7,439
12/31/2006 $11,532 $12,424 $ 7,296
1/31/2007 $11,799 $12,612 $ 7,443
2/28/2007 $11,601 $12,365 $ 7,316
3/31/2007 $11,691 $12,504 $ 7,361
4/30/2007 $12,238 $13,057 $ 7,757
5/31/2007 $12,607 $13,513 $ 8,008
6/30/2007 $12,526 $13,289 $ 8,032
7/31/2007 $12,569 $12,877 $ 8,024
8/31/2007 $12,999 $13,070 $ 8,259
9/30/2007 $13,902 $13,558 $ 8,684
10/31/2007 $14,684 $13,774 $ 9,299
11/30/2007 $13,983 $13,198 $ 8,676
12/31/2007 $14,194 $13,107 $ 8,659
1/31/2008 $12,299 $12,321 $ 7,647
2/29/2008 $12,044 $11,920 $ 7,248
3/31/2008 $12,211 $11,869 $ 7,400
4/30/2008 $13,204 $12,447 $ 7,964
5/31/2008 $13,732 $12,608 $ 8,441
6/30/2008 $12,928 $11,545 $ 7,629
7/31/2008 $12,787 $11,448 $ 7,680
8/31/2008 $12,690 $11,614 $ 7,777
9/30/2008 $10,932 $10,579 $ 6,623
10/31/2008 $ 9,117 $ 8,802 $ 5,543
11/30/2008 $ 8,180 $ 8,171 $ 4,924
12/31/2008 $ 8,373 $ 8,257 $ 5,032
1/31/2009 $ 8,092 $ 7,561 $ 4,902
2/28/2009 $ 7,753 $ 6,756 $ 4,639
3/31/2009 $ 8,358 $ 7,348 $ 5,137
4/30/2009 $ 9,176 $ 8,051 $ 5,791
5/31/2009 $ 9,558 $ 8,502 $ 5,962
6/30/2009 $ 9,713 $ 8,519 $ 6,135
7/31/2009 $10,454 $ 9,163 $ 6,659
8/31/2009 $10,662 $ 9,494 $ 6,749
9/30/2009 $11,228 $ 9,848 $ 7,139
Total Returns 12.28% -1.52% -28.61%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 9/30/09
- ------- -------
1-Year -1.72%
5-Year +2.34%
Since Inception (2/1/00) -0.97%
CLASS B (2/1/00-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN DYNATECH NASDAQ 100
DATE FUND - CLASS B S&P 500 INDEX INDEX
- ------------- ----------------- ------------- ----------
2/1/2000 $10,000 $10,000 $10,000
2/29/2000 $10,870 $ 9,811 $11,952
3/31/2000 $10,973 $10,770 $12,319
4/30/2000 $10,374 $10,446 $10,569
5/31/2000 $ 9,868 $10,232 $ 9,311
6/30/2000 $10,471 $10,484 $10,543
7/31/2000 $10,278 $10,320 $10,110
8/31/2000 $11,020 $10,961 $11,422
9/30/2000 $10,146 $10,383 $10,002
10/31/2000 $ 9,879 $10,339 $ 9,194
11/30/2000 $ 8,824 $ 9,524 $ 7,021
12/31/2000 $ 8,624 $ 9,570 $ 6,559
1/31/2001 $ 9,053 $ 9,910 $ 7,263
2/28/2001 $ 7,958 $ 9,006 $ 5,345
3/31/2001 $ 7,488 $ 8,436 $ 4,407
4/30/2001 $ 7,968 $ 9,091 $ 5,196
5/31/2001 $ 7,841 $ 9,152 $ 5,042
6/30/2001 $ 7,779 $ 8,929 $ 5,134
7/31/2001 $ 7,528 $ 8,842 $ 4,716
8/31/2001 $ 7,219 $ 8,288 $ 4,117
9/30/2001 $ 6,760 $ 7,619 $ 3,273
10/31/2001 $ 7,062 $ 7,764 $ 3,823
11/30/2001 $ 7,499 $ 8,360 $ 4,471
12/31/2001 $ 7,437 $ 8,433 $ 4,417
1/31/2002 $ 7,378 $ 8,310 $ 4,342
2/28/2002 $ 7,026 $ 8,150 $ 3,807
3/31/2002 $ 7,239 $ 8,456 $ 4,069
4/30/2002 $ 6,842 $ 7,943 $ 3,577
5/31/2002 $ 6,751 $ 7,885 $ 3,385
6/30/2002 $ 6,329 $ 7,323 $ 2,945
7/31/2002 $ 5,995 $ 6,752 $ 2,695
8/31/2002 $ 5,969 $ 6,797 $ 2,640
9/30/2002 $ 5,576 $ 6,058 $ 2,332
10/31/2002 $ 6,046 $ 6,591 $ 2,772
11/30/2002 $ 6,413 $ 6,979 $ 3,126
12/31/2002 $ 5,917 $ 6,569 $ 2,757
1/31/2003 $ 5,848 $ 6,397 $ 2,754
2/28/2003 $ 5,903 $ 6,301 $ 2,828
3/31/2003 $ 5,947 $ 6,362 $ 2,853
4/30/2003 $ 6,340 $ 6,886 $ 3,098
5/31/2003 $ 6,806 $ 7,249 $ 3,355
6/30/2003 $ 6,916 $ 7,342 $ 3,366
7/31/2003 $ 7,158 $ 7,471 $ 3,577
8/31/2003 $ 7,419 $ 7,617 $ 3,757
9/30/2003 $ 7,268 $ 7,536 $ 3,652
10/31/2003 $ 7,760 $ 7,962 $ 3,967
11/30/2003 $ 7,896 $ 8,032 $ 3,989
12/31/2003 $ 8,142 $ 8,454 $ 4,112
1/31/2004 $ 8,311 $ 8,609 $ 4,182
2/29/2004 $ 8,215 $ 8,728 $ 4,119
3/31/2004 $ 8,164 $ 8,597 $ 4,029
4/30/2004 $ 8,025 $ 8,462 $ 3,925
5/31/2004 $ 8,344 $ 8,578 $ 4,107
6/30/2004 $ 8,432 $ 8,745 $ 4,248
7/31/2004 $ 7,727 $ 8,455 $ 3,923
8/31/2004 $ 7,584 $ 8,489 $ 3,834
9/30/2004 $ 7,867 $ 8,581 $ 3,957
10/31/2004 $ 8,028 $ 8,712 $ 4,164
11/30/2004 $ 8,388 $ 9,065 $ 4,402
12/31/2004 $ 8,696 $ 9,373 $ 4,541
1/31/2005 $ 8,179 $ 9,145 $ 4,257
2/28/2005 $ 8,278 $ 9,337 $ 4,233
3/31/2005 $ 8,091 $ 9,172 $ 4,153
4/30/2005 $ 7,944 $ 8,998 $ 3,980
5/31/2005 $ 8,491 $ 9,284 $ 4,321
6/30/2005 $ 8,399 $ 9,298 $ 4,183
7/31/2005 $ 8,825 $ 9,643 $ 4,496
8/31/2005 $ 8,880 $ 9,555 $ 4,431
9/30/2005 $ 8,865 $ 9,633 $ 4,486
10/31/2005 $ 8,784 $ 9,472 $ 4,423
11/30/2005 $ 9,342 $ 9,830 $ 4,685
12/31/2005 $ 9,254 $ 9,834 $ 4,608
1/31/2006 $ 9,621 $10,094 $ 4,792
2/28/2006 $ 9,423 $10,122 $ 4,679
3/31/2006 $ 9,478 $10,248 $ 4,772
4/30/2006 $ 9,416 $10,385 $ 4,764
5/31/2006 $ 8,795 $10,086 $ 4,425
6/30/2006 $ 8,858 $10,100 $ 4,412
7/31/2006 $ 8,579 $10,162 $ 4,228
8/31/2006 $ 8,895 $10,404 $ 4,425
9/30/2006 $ 9,085 $10,672 $ 4,633
10/31/2006 $ 9,291 $11,020 $ 4,853
11/30/2006 $ 9,504 $11,230 $ 5,017
12/31/2006 $ 9,427 $11,387 $ 4,921
1/31/2007 $ 9,640 $11,559 $ 5,020
2/28/2007 $ 9,471 $11,333 $ 4,935
3/31/2007 $ 9,541 $11,460 $ 4,965
4/30/2007 $ 9,977 $11,968 $ 5,232
5/31/2007 $10,271 $12,385 $ 5,401
6/30/2007 $10,201 $12,179 $ 5,418
7/31/2007 $10,231 $11,802 $ 5,412
8/31/2007 $10,572 $11,979 $ 5,571
9/30/2007 $11,299 $12,427 $ 5,857
10/31/2007 $11,927 $12,624 $ 6,272
11/30/2007 $11,354 $12,097 $ 5,852
12/31/2007 $11,515 $12,013 $ 5,840
1/31/2008 $ 9,971 $11,292 $ 5,158
2/29/2008 $ 9,765 $10,925 $ 4,889
3/31/2008 $ 9,900 $10,878 $ 4,991
4/30/2008 $10,706 $11,408 $ 5,372
5/31/2008 $11,133 $11,556 $ 5,693
6/30/2008 $10,481 $10,581 $ 5,146
7/31/2008 $10,367 $10,493 $ 5,180
8/31/2008 $10,288 $10,644 $ 5,245
9/30/2008 $ 8,862 $ 9,696 $ 4,467
10/31/2008 $ 7,390 $ 8,067 $ 3,739
11/30/2008 $ 6,631 $ 7,489 $ 3,321
12/31/2008 $ 6,787 $ 7,568 $ 3,394
1/31/2009 $ 6,560 $ 6,930 $ 3,306
2/28/2009 $ 6,285 $ 6,192 $ 3,129
3/31/2009 $ 6,775 $ 6,735 $ 3,465
4/30/2009 $ 7,438 $ 7,379 $ 3,906
5/31/2009 $ 7,748 $ 7,792 $ 4,021
6/30/2009 $ 7,874 $ 7,808 $ 4,138
7/31/2009 $ 8,474 $ 8,398 $ 4,491
8/31/2009 $ 8,643 $ 8,701 $ 4,552
9/30/2009 $ 9,103 $ 9,026 $ 4,815
Total Returns -8.97% -9.74% -51.85%
10 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 9/30/09
- ------- -------
1-Year +0.97%
5-Year +2.70%
10-Year +1.00%
CLASS C (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN DYNATECH NASDAQ 100
DATE FUND - CLASS C S&P 500 INDEX INDEX
- ------------- ----------------- ------------- ----------
10/1/1999 $10,000 $10,000 $10,000
10/31/1999 $10,398 $10,633 $10,953
11/30/1999 $11,007 $10,849 $12,321
12/31/1999 $12,170 $11,488 $15,399
1/31/2000 $12,286 $10,911 $14,826
2/29/2000 $13,361 $10,704 $17,721
3/31/2000 $13,486 $11,751 $18,264
4/30/2000 $12,750 $11,398 $15,670
5/31/2000 $12,126 $11,164 $13,805
6/30/2000 $12,871 $11,439 $15,631
7/31/2000 $12,634 $11,260 $14,990
8/31/2000 $13,540 $11,960 $16,934
9/30/2000 $12,465 $11,328 $14,829
10/31/2000 $12,139 $11,281 $13,631
11/30/2000 $10,841 $10,391 $10,410
12/31/2000 $10,599 $10,442 $ 9,725
1/31/2001 $11,129 $10,812 $10,769
2/28/2001 $ 9,779 $ 9,827 $ 7,925
3/31/2001 $ 9,204 $ 9,204 $ 6,534
4/30/2001 $ 9,797 $ 9,919 $ 7,704
5/31/2001 $ 9,639 $ 9,986 $ 7,475
6/30/2001 $ 9,562 $ 9,743 $ 7,611
7/31/2001 $ 9,254 $ 9,647 $ 6,992
8/31/2001 $ 8,869 $ 9,043 $ 6,104
9/30/2001 $ 8,307 $ 8,313 $ 4,852
10/31/2001 $ 8,683 $ 8,471 $ 5,668
11/30/2001 $ 9,217 $ 9,121 $ 6,628
12/31/2001 $ 9,140 $ 9,201 $ 6,550
1/31/2002 $ 9,067 $ 9,067 $ 6,438
2/28/2002 $ 8,639 $ 8,892 $ 5,645
3/31/2002 $ 8,894 $ 9,226 $ 6,034
4/30/2002 $ 8,411 $ 8,667 $ 5,304
5/31/2002 $ 8,297 $ 8,603 $ 5,018
6/30/2002 $ 7,777 $ 7,990 $ 4,367
7/31/2002 $ 7,371 $ 7,367 $ 3,996
8/31/2002 $ 7,334 $ 7,416 $ 3,914
9/30/2002 $ 6,855 $ 6,610 $ 3,457
10/31/2002 $ 7,435 $ 7,192 $ 4,110
11/30/2002 $ 7,886 $ 7,615 $ 4,635
12/31/2002 $ 7,275 $ 7,167 $ 4,088
1/31/2003 $ 7,188 $ 6,980 $ 4,083
2/28/2003 $ 7,257 $ 6,875 $ 4,193
3/31/2003 $ 7,311 $ 6,942 $ 4,231
4/30/2003 $ 7,795 $ 7,514 $ 4,593
5/31/2003 $ 8,365 $ 7,909 $ 4,975
6/30/2003 $ 8,502 $ 8,010 $ 4,991
7/31/2003 $ 8,803 $ 8,152 $ 5,303
8/31/2003 $ 9,122 $ 8,310 $ 5,570
9/30/2003 $ 8,935 $ 8,222 $ 5,414
10/31/2003 $ 9,542 $ 8,687 $ 5,882
11/30/2003 $ 9,711 $ 8,764 $ 5,915
12/31/2003 $10,012 $ 9,223 $ 6,096
1/31/2004 $10,221 $ 9,393 $ 6,201
2/29/2004 $10,103 $ 9,523 $ 6,107
3/31/2004 $10,039 $ 9,380 $ 5,974
4/30/2004 $ 9,866 $ 9,232 $ 5,820
5/31/2004 $10,258 $ 9,359 $ 6,089
6/30/2004 $10,367 $ 9,541 $ 6,299
7/31/2004 $ 9,501 $ 9,225 $ 5,816
8/31/2004 $ 9,327 $ 9,263 $ 5,684
9/30/2004 $ 9,674 $ 9,363 $ 5,867
10/31/2004 $ 9,875 $ 9,506 $ 6,174
11/30/2004 $10,313 $ 9,891 $ 6,526
12/31/2004 $10,691 $10,227 $ 6,733
1/31/2005 $10,057 $ 9,978 $ 6,311
2/28/2005 $10,180 $10,188 $ 6,275
3/31/2005 $ 9,948 $10,007 $ 6,157
4/30/2005 $ 9,765 $ 9,818 $ 5,901
5/31/2005 $10,440 $10,130 $ 6,407
6/30/2005 $10,326 $10,144 $ 6,203
7/31/2005 $10,851 $10,522 $ 6,666
8/31/2005 $10,919 $10,426 $ 6,569
9/30/2005 $10,901 $10,510 $ 6,652
10/31/2005 $10,805 $10,335 $ 6,558
11/30/2005 $11,489 $10,726 $ 6,946
12/31/2005 $11,380 $10,729 $ 6,833
1/31/2006 $11,827 $11,014 $ 7,105
2/28/2006 $11,590 $11,043 $ 6,938
3/31/2006 $11,658 $11,181 $ 7,075
4/30/2006 $11,581 $11,331 $ 7,063
5/31/2006 $10,819 $11,005 $ 6,560
6/30/2006 $10,892 $11,020 $ 6,542
7/31/2006 $10,550 $11,088 $ 6,269
8/31/2006 $10,937 $11,352 $ 6,561
9/30/2006 $11,175 $11,644 $ 6,870
10/31/2006 $11,425 $12,024 $ 7,195
11/30/2006 $11,685 $12,252 $ 7,439
12/31/2006 $11,594 $12,424 $ 7,296
1/31/2007 $11,850 $12,612 $ 7,443
2/28/2007 $11,649 $12,365 $ 7,316
3/31/2007 $11,731 $12,504 $ 7,361
4/30/2007 $12,269 $13,057 $ 7,757
5/31/2007 $12,630 $13,513 $ 8,008
6/30/2007 $12,543 $13,289 $ 8,032
7/31/2007 $12,579 $12,877 $ 8,024
8/31/2007 $13,004 $13,070 $ 8,259
9/30/2007 $13,893 $13,558 $ 8,684
10/31/2007 $14,668 $13,774 $ 9,299
11/30/2007 $13,961 $13,198 $ 8,676
12/31/2007 $14,157 $13,107 $ 8,659
1/31/2008 $12,261 $12,321 $ 7,647
2/29/2008 $12,000 $11,920 $ 7,248
3/31/2008 $12,158 $11,869 $ 7,400
4/30/2008 $13,139 $12,447 $ 7,964
5/31/2008 $13,657 $12,608 $ 8,441
6/30/2008 $12,849 $11,545 $ 7,629
7/31/2008 $12,700 $11,448 $ 7,680
8/31/2008 $12,597 $11,614 $ 7,777
9/30/2008 $10,846 $10,579 $ 6,623
10/31/2008 $ 9,035 $ 8,802 $ 5,543
11/30/2008 $ 8,106 $ 8,171 $ 4,924
12/31/2008 $ 8,291 $ 8,257 $ 5,032
1/31/2009 $ 8,006 $ 7,561 $ 4,902
2/28/2009 $ 7,664 $ 6,756 $ 4,639
3/31/2009 $ 8,260 $ 7,348 $ 5,137
4/30/2009 $ 9,063 $ 8,051 $ 5,791
5/31/2009 $ 9,435 $ 8,502 $ 5,962
6/30/2009 $ 9,580 $ 8,519 $ 6,135
7/31/2009 $10,305 $ 9,163 $ 6,659
8/31/2009 $10,502 $ 9,494 $ 6,749
9/30/2009 $11,051 $ 9,848 $ 7,139
Total Returns 10.51% -1.52% -28.61%
AGGREGATE TOTAL RETURN
CLASS R 9/30/09
- ------- -------
Since Inception (12/1/08) +47.70%
CLASS R (12/1/08-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN DYNATECH NASDAQ 100
DATE FUND - CLASS R S&P 500 INDEX INDEX
- ------------- ----------------- ------------- ----------
12/1/2008 $10,000 $10,000 $10,000
12/31/2008 $11,034 $10,106 $10,218
1/31/2009 $10,663 $ 9,255 $ 9,954
2/28/2009 $10,216 $ 8,269 $ 9,420
3/31/2009 $11,008 $ 8,994 $10,432
4/30/2009 $12,080 $ 9,854 $11,759
5/31/2009 $12,585 $10,405 $12,107
6/30/2009 $12,783 $10,426 $12,458
7/31/2009 $13,760 $11,215 $13,522
8/31/2009 $14,028 $11,620 $13,706
9/30/2009 $14,770 $12,053 $14,497
Total Returns 47.70% 20.53% 44.97%
Annual Report | 11
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS(6) 9/30/09
- ---------------- -------
1-Year +2.92%
5-Year +3.55%
10-Year +1.80%
ADVISOR CLASS (10/1/99-9/30/09)(6)
(PERFORMANCE GRAPH)
FRANKLIN DYNATECH NASDAQ 100
DATE FUND - ADVISOR CLASS S&P 500 INDEX INDEX
- ------------- -------------------- ------------- ----------
10/1/1999 $10,000 $10,000 $10,000
10/31/1999 $10,407 $10,633 $10,953
11/30/1999 $11,021 $10,849 $12,321
12/31/1999 $12,193 $11,488 $15,399
1/31/2000 $12,316 $10,911 $14,826
2/29/2000 $13,400 $10,704 $17,721
3/31/2000 $13,537 $11,751 $18,264
4/30/2000 $12,803 $11,398 $15,670
5/31/2000 $12,189 $11,164 $13,805
6/30/2000 $12,939 $11,439 $15,631
7/31/2000 $12,711 $11,260 $14,990
8/31/2000 $13,633 $11,960 $16,934
9/30/2000 $12,557 $11,328 $14,829
10/31/2000 $12,237 $11,281 $13,631
11/30/2000 $10,933 $10,391 $10,410
12/31/2000 $10,701 $10,442 $ 9,725
1/31/2001 $11,240 $10,812 $10,769
2/28/2001 $ 9,883 $ 9,827 $ 7,925
3/31/2001 $ 9,303 $ 9,204 $ 6,534
4/30/2001 $ 9,910 $ 9,919 $ 7,704
5/31/2001 $ 9,757 $ 9,986 $ 7,475
6/30/2001 $ 9,685 $ 9,743 $ 7,611
7/31/2001 $ 9,380 $ 9,647 $ 6,992
8/31/2001 $ 8,998 $ 9,043 $ 6,104
9/30/2001 $ 8,431 $ 8,313 $ 4,852
10/31/2001 $ 8,818 $ 8,471 $ 5,668
11/30/2001 $ 9,366 $ 9,121 $ 6,628
12/31/2001 $ 9,298 $ 9,201 $ 6,550
1/31/2002 $ 9,225 $ 9,067 $ 6,438
2/28/2002 $ 8,791 $ 8,892 $ 5,645
3/31/2002 $ 9,061 $ 9,226 $ 6,034
4/30/2002 $ 8,572 $ 8,667 $ 5,304
5/31/2002 $ 8,463 $ 8,603 $ 5,018
6/30/2002 $ 7,938 $ 7,990 $ 4,367
7/31/2002 $ 7,528 $ 7,367 $ 3,996
8/31/2002 $ 7,496 $ 7,416 $ 3,914
9/30/2002 $ 7,012 $ 6,610 $ 3,457
10/31/2002 $ 7,605 $ 7,192 $ 4,110
11/30/2002 $ 8,075 $ 7,615 $ 4,635
12/31/2002 $ 7,450 $ 7,167 $ 4,088
1/31/2003 $ 7,368 $ 6,980 $ 4,083
2/28/2003 $ 7,441 $ 6,875 $ 4,193
3/31/2003 $ 7,505 $ 6,942 $ 4,231
4/30/2003 $ 8,002 $ 7,514 $ 4,593
5/31/2003 $ 8,595 $ 7,909 $ 4,975
6/30/2003 $ 8,741 $ 8,010 $ 4,991
7/31/2003 $ 9,056 $ 8,152 $ 5,303
8/31/2003 $ 9,389 $ 8,310 $ 5,570
9/30/2003 $ 9,202 $ 8,222 $ 5,414
10/31/2003 $ 9,832 $ 8,687 $ 5,882
11/30/2003 $10,014 $ 8,764 $ 5,915
12/31/2003 $10,329 $ 9,223 $ 6,096
1/31/2004 $10,552 $ 9,393 $ 6,201
2/29/2004 $10,438 $ 9,523 $ 6,107
3/31/2004 $10,379 $ 9,380 $ 5,974
4/30/2004 $10,206 $ 9,232 $ 5,820
5/31/2004 $10,621 $ 9,359 $ 6,089
6/30/2004 $10,740 $ 9,541 $ 6,299
7/31/2004 $ 9,850 $ 9,225 $ 5,816
8/31/2004 $ 9,672 $ 9,263 $ 5,684
9/30/2004 $10,042 $ 9,363 $ 5,867
10/31/2004 $10,256 $ 9,506 $ 6,174
11/30/2004 $10,717 $ 9,891 $ 6,526
12/31/2004 $11,123 $10,227 $ 6,733
1/31/2005 $10,461 $ 9,978 $ 6,311
2/28/2005 $10,598 $10,188 $ 6,275
3/31/2005 $10,365 $10,007 $ 6,157
4/30/2005 $10,183 $ 9,818 $ 5,901
5/31/2005 $10,890 $10,130 $ 6,407
6/30/2005 $10,781 $10,144 $ 6,203
7/31/2005 $11,333 $10,522 $ 6,666
8/31/2005 $11,415 $10,426 $ 6,569
9/30/2005 $11,397 $10,510 $ 6,652
10/31/2005 $11,305 $10,335 $ 6,558
11/30/2005 $12,031 $10,726 $ 6,946
12/31/2005 $11,921 $10,729 $ 6,833
1/31/2006 $12,400 $11,014 $ 7,105
2/28/2006 $12,158 $11,043 $ 6,938
3/31/2006 $12,236 $11,181 $ 7,075
4/30/2006 $12,163 $11,331 $ 7,063
5/31/2006 $11,369 $11,005 $ 6,560
6/30/2006 $11,456 $11,020 $ 6,542
7/31/2006 $11,100 $11,088 $ 6,269
8/31/2006 $11,515 $11,352 $ 6,561
9/30/2006 $11,771 $11,644 $ 6,870
10/31/2006 $12,044 $12,024 $ 7,195
11/30/2006 $12,327 $12,252 $ 7,439
12/31/2006 $12,236 $12,424 $ 7,296
1/31/2007 $12,519 $12,612 $ 7,443
2/28/2007 $12,309 $12,365 $ 7,316
3/31/2007 $12,405 $12,504 $ 7,361
4/30/2007 $12,984 $13,057 $ 7,757
5/31/2007 $13,377 $13,513 $ 8,008
6/30/2007 $13,290 $13,289 $ 8,032
7/31/2007 $13,335 $12,877 $ 8,024
8/31/2007 $13,792 $13,070 $ 8,259
9/30/2007 $14,750 $13,558 $ 8,684
10/31/2007 $15,580 $13,774 $ 9,299
11/30/2007 $14,836 $13,198 $ 8,676
12/31/2007 $15,059 $13,107 $ 8,659
1/31/2008 $13,049 $12,321 $ 7,647
2/29/2008 $12,779 $11,920 $ 7,248
3/31/2008 $12,956 $11,869 $ 7,400
4/30/2008 $14,010 $12,447 $ 7,964
5/31/2008 $14,574 $12,608 $ 8,441
6/30/2008 $13,721 $11,545 $ 7,629
7/31/2008 $13,576 $11,448 $ 7,680
8/31/2008 $13,474 $11,614 $ 7,777
9/30/2008 $11,613 $10,579 $ 6,623
10/31/2008 $ 9,682 $ 8,802 $ 5,543
11/30/2008 $ 8,693 $ 8,171 $ 4,924
12/31/2008 $ 8,897 $ 8,257 $ 5,032
1/31/2009 $ 8,600 $ 7,561 $ 4,902
2/28/2009 $ 8,240 $ 6,756 $ 4,639
3/31/2009 $ 8,887 $ 7,348 $ 5,137
4/30/2009 $ 9,755 $ 8,051 $ 5,791
5/31/2009 $10,166 $ 8,502 $ 5,962
6/30/2009 $10,335 $ 8,519 $ 6,135
7/31/2009 $11,126 $ 9,163 $ 6,659
8/31/2009 $11,346 $ 9,494 $ 6,749
9/30/2009 $11,952 $ 9,848 $ 7,139
Total Returns 19.52% -1.52% -28.61%
12 | Annual Report
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 ADVANCEMENT. THE FUND MAY ALSO
INVEST IN SMALL-CAPITALIZATION COMPANIES, WHICH CAN BE PARTICULARLY SENSITIVE TO
CHANGING ECONOMIC CONDITIONS, AND THEIR PROSPECTS FOR GROWTH ARE LESS CERTAIN
THAN THOSE OF LARGER, MORE ESTABLISHED COMPANIES. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(4.) 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 and average annual total returns of
Advisor Class shares were -18.38% and -13.71%.
(7.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for
market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500
includes reinvested dividends and is one of the most widely used benchmarks
of U.S. equity performance. The NASDAQ 100 Index includes 100 of the
largest domestic and international nonfinancial companies listed on The
NASDAQ Stock Market based on market capitalization. The index reflects
companies across major industry groups including computer hardware and
software, telecommunications, retail/wholesale trade and biotechnology. It
does not contain financial companies including investment companies. The
NASDAQ 100 Index is calculated under a modified capitalization-weighted
methodology. Index returns are price-return only and do not include
reinvested dividends.
Annual Report | 13
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.
14 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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 4/1/09 VALUE 9/30/09 PERIOD* 4/1/09-9/30/09
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,343.40 $ 6.76
Hypothetical (5% return before expenses) $1,000 $1,019.30 $ 5.82
CLASS B
Actual $1,000 $1,338.30 $11.21
Hypothetical (5% return before expenses) $1,000 $1,015.44 $ 9.67
CLASS C
Actual $1,000 $1,337.90 $11.14
Hypothetical (5% return before expenses) $1,000 $1,015.54 $ 9.60
CLASS R
Actual $1,000 $1,341.60 $ 8.22
Hypothetical (5% return before expenses) $1,000 $1,018.05 $ 7.08
ADVISOR CLASS
Actual $1,000 $1,344.90 $ 5.29
Hypothetical (5% return before expenses) $1,000 $1,020.56 $ 4.56
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.15%; B: 1.91%; C: 1.90%; R: 1.40%; and
Advisor: 0.90%;), multiplied by the average account value over the period,
multiplied by 183/365 to reflect the one-half year period.
Annual Report | 15
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 9/30/09
(BAR CHART)
Capital Goods 22.0%
Pharmaceuticals, Biotechnology & Life Sciences 16.4%
Technology Hardware & Equipment 15.0%
Software & Services 8.6%
Transportation 7.7%
Energy 4.9%
Health Care Equipment & Services 4.6%
Materials 3.3%
Automobiles & Components 2.1%
Other 15.1%
Short-Term Investments & Other Net Assets 0.3%
This annual report for Franklin Growth Fund covers the fiscal year ended
September 30, 2009.
PERFORMANCE OVERVIEW
Franklin Growth Fund - Class A had a -0.71% cumulative total return for the 12
months under review. The Fund performed better than its benchmark, the Standard
& Poor's 500 Index (S&P 500), which had a -6.91% total return for the same
period.(1) You can find the Fund's long-term performance data in the Performance
Summary beginning on page 18.
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 152 companies at period-end. We continue to
invest in a broad array of companies of all sizes and in varied industries.
In a challenging environment for stocks, several of our holdings hindered Fund
performance during the fiscal year. In particular, the industrials sector was a
major detractor where holdings such as airline operator AMR, road and rail
(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, and an index is not 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 72.
16 | Annual Report
company Union Pacific, aerospace and defense companies General Dynamics,
Lockheed Martin and Northrop Grumman, and industrial conglomerate Textron
declined in value.(2)
During the year under review, Fund performance was largely driven by several
holdings in the information technology and health care sectors.(3) Within
information technology, computer hardware and software company Apple,
information technology outsourcing services provider Computer Sciences,
technology hardware and equipment manufacturer International Business Machines,
the world's leading Internet search engine operator Google and networking
products manufacturer Cisco Systems boosted Fund returns. Pharmaceutical giants
Wyeth, Schering-Plough and Allergan and biotechnology company Genentech in the
health care sector also benefited the Fund. Genentech was acquired by Roche
Holdings during the period.
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 SEPTEMBER 30, 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.
(2.) The industrials sector comprises capital goods, commercial and professional
services, and transportation in the SOI.
(3.) The information technology sector comprises semiconductors and
semiconductor equipment, software and services, and technology hardware and
equipment in the SOI. The health care sector comprises health care
equipment and services; and pharmaceuticals, biotechnology and life
sciences in the SOI.
TOP 10 HOLDINGS
Franklin Growth Fund
9/30/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Apple Inc. 5.3%
TECHNOLOGY HARDWARE & EQUIPMENT
Johnson & Johnson 2.5%
PHARMACEUTICALS, BIOTECHNOLOGY
& LIFE SCIENCES
International Business Machines Corp. 2.3%
TECHNOLOGY HARDWARE & EQUIPMENT
General Dynamics Corp. 2.1%
CAPITAL GOODS
Cisco Systems Inc. 2.1%
TECHNOLOGY HARDWARE & EQUIPMENT
3M Co. 2.1%
CAPITAL GOODS
Allergan Inc. 1.8%
PHARMACEUTICALS, BIOTECHNOLOGY
& LIFE SCIENCES
The Boeing Co. 1.8%
CAPITAL GOODS
Amgen Inc. 1.8%
PHARMACEUTICALS, BIOTECHNOLOGY
& LIFE SCIENCES
Hewlett-Packard Co. 1.8%
TECHNOLOGY HARDWARE & EQUIPMENT
Annual Report | 17
Performance Summary as of 9/30/09
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKGRX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.69 $36.48 $37.17
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.3065
CLASS B (SYMBOL: FKGBX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.51 $34.93 $35.44
CLASS C (SYMBOL: FRGSX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.53 $34.61 $35.14
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.0224
CLASS R (SYMBOL: FGSRX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$0.50 $36.37 $36.87
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.1080
ADVISOR CLASS (SYMBOL: FCGAX) CHANGE 9/30/09 9/30/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) -$0.72 $36.53 $37.25
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.4017
18 | Annual 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 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) -0.71% +21.85% +22.61%
Average Annual Total Return(2) -6.42% +2.80% +1.46%
Value of $10,000 Investment(3) $9,358 $11,483 $11,555
Total Annual Operating Expenses(4) 0.89%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) -1.44% +17.33% +15.51%
Average Annual Total Return(2) -5.38% +2.89% +1.45%
Value of $10,000 Investment(3) $9,462 $11,533 $11,551
Total Annual Operating Expenses(4) 1.64%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- -------
Cumulative Total Return(1) -1.45% +17.35% +13.76%
Average Annual Total Return(2) -2.43% +3.25% +1.30%
Value of $10,000 Investment(3) $9,757 $11,735 $11,376
Total Annual Operating Expenses(4) 1.64%
CLASS R 1-YEAR 5-YEAR INCEPTION (1/1/02)
- ------- ------ ------- ------------------
Cumulative Total Return(1) -0.98% +20.30% +15.98%
Average Annual Total Return(2) -0.98% +3.77% +1.93%
Value of $10,000 Investment(3) $9,902 $12,030 $11,598
Total Annual Operating Expenses(4) 1.14%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- ------ ------- -------
Cumulative Total Return(1) -0.45% +23.36% +25.69%
Average Annual Total Return(2) -0.45% +4.29% +2.31%
Value of $10,000 Investment(3) $9,955 $12,336 $12,569
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.
Annual Report | 19
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged index includes
reinvestment of any income or distributions. It differs from the Fund in
composition and does not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 9/30/09
- ------- -------
1-Year -6.42%
5-Year +2.80%
10-Year +1.46%
CLASS A (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN
GROWTH FUND S&P 500
DATE - CLASS A INDEX
- ---- ----------- -------
10/1/1999 $ 9,424 $10,000
10/31/1999 $ 9,577 $10,633
11/30/1999 $ 9,699 $10,849
12/31/1999 $10,012 $11,488
1/31/2000 $ 9,928 $10,911
2/29/2000 $ 9,696 $10,704
3/31/2000 $10,540 $11,751
4/30/2000 $10,664 $11,398
5/31/2000 $10,708 $11,164
6/30/2000 $10,859 $11,439
7/31/2000 $10,691 $11,260
8/31/2000 $11,160 $11,960
9/30/2000 $10,699 $11,328
10/31/2000 $10,841 $11,281
11/30/2000 $10,560 $10,391
12/31/2000 $10,766 $10,442
1/31/2001 $10,969 $10,812
2/28/2001 $10,419 $ 9,827
3/31/2001 $ 9,647 $ 9,204
4/30/2001 $10,425 $ 9,919
5/31/2001 $10,585 $ 9,986
6/30/2001 $10,099 $ 9,743
7/31/2001 $10,075 $ 9,647
8/31/2001 $ 9,617 $ 9,043
9/30/2001 $ 8,547 $ 8,313
10/31/2001 $ 8,833 $ 8,471
11/30/2001 $ 9,672 $ 9,121
12/31/2001 $ 9,747 $ 9,201
1/31/2002 $ 9,607 $ 9,067
2/28/2002 $ 9,539 $ 8,892
3/31/2002 $ 9,870 $ 9,226
4/30/2002 $ 9,246 $ 8,667
5/31/2002 $ 9,063 $ 8,603
6/30/2002 $ 8,379 $ 7,990
7/31/2002 $ 7,625 $ 7,367
8/31/2002 $ 7,640 $ 7,416
9/30/2002 $ 6,808 $ 6,610
10/31/2002 $ 7,281 $ 7,192
11/30/2002 $ 7,779 $ 7,615
12/31/2002 $ 7,373 $ 7,167
1/31/2003 $ 7,091 $ 6,980
2/28/2003 $ 6,930 $ 6,875
3/31/2003 $ 6,930 $ 6,942
4/30/2003 $ 7,435 $ 7,514
5/31/2003 $ 7,922 $ 7,909
6/30/2003 $ 8,157 $ 8,010
7/31/2003 $ 8,399 $ 8,152
8/31/2003 $ 8,585 $ 8,310
9/30/2003 $ 8,324 $ 8,222
10/31/2003 $ 8,817 $ 8,687
11/30/2003 $ 8,928 $ 8,764
12/31/2003 $ 9,440 $ 9,223
1/31/2004 $ 9,582 $ 9,393
2/29/2004 $ 9,626 $ 9,523
3/31/2004 $ 9,402 $ 9,380
4/30/2004 $ 9,409 $ 9,232
5/31/2004 $ 9,561 $ 9,359
6/30/2004 $ 9,951 $ 9,541
7/31/2004 $ 9,427 $ 9,225
8/31/2004 $ 9,347 $ 9,263
9/30/2004 $ 9,483 $ 9,363
10/31/2004 $ 9,598 $ 9,506
11/30/2004 $10,159 $ 9,891
12/31/2004 $10,506 $10,227
1/31/2005 $10,146 $ 9,978
2/28/2005 $10,323 $10,188
3/31/2005 $10,311 $10,007
4/30/2005 $10,065 $ 9,818
5/31/2005 $10,463 $10,130
6/30/2005 $10,348 $10,144
7/31/2005 $10,889 $10,522
8/31/2005 $10,848 $10,426
9/30/2005 $10,827 $10,510
10/31/2005 $10,743 $10,335
11/30/2005 $11,265 $10,726
12/31/2005 $11,384 $10,729
1/31/2006 $11,499 $11,014
2/28/2006 $11,655 $11,043
3/31/2006 $11,929 $11,181
4/30/2006 $12,023 $11,331
5/31/2006 $11,761 $11,005
6/30/2006 $11,693 $11,020
7/31/2006 $11,555 $11,088
8/31/2006 $11,830 $11,352
9/30/2006 $12,175 $11,644
10/31/2006 $12,673 $12,024
11/30/2006 $13,003 $12,252
12/31/2006 $12,996 $12,424
1/31/2007 $13,408 $12,612
2/28/2007 $13,162 $12,365
3/31/2007 $13,140 $12,504
4/30/2007 $13,670 $13,057
5/31/2007 $14,229 $13,513
6/30/2007 $14,098 $13,289
7/31/2007 $13,820 $12,877
8/31/2007 $13,970 $13,070
9/30/2007 $14,473 $13,558
10/31/2007 $14,957 $13,774
11/30/2007 $14,326 $13,198
12/31/2007 $13,923 $13,107
1/31/2008 $13,018 $12,321
2/29/2008 $12,802 $11,920
3/31/2008 $12,648 $11,869
4/30/2008 $13,231 $12,447
5/31/2008 $13,616 $12,608
6/30/2008 $12,382 $11,545
7/31/2008 $12,770 $11,448
8/31/2008 $13,040 $11,614
9/30/2008 $11,637 $10,579
10/31/2008 $ 9,724 $ 8,802
11/30/2008 $ 8,920 $ 8,171
12/31/2008 $ 9,274 $ 8,257
1/31/2009 $ 8,793 $ 7,561
2/28/2009 $ 7,887 $ 6,756
3/31/2009 $ 8,464 $ 7,348
4/30/2009 $ 9,417 $ 8,051
5/31/2009 $ 9,791 $ 8,502
6/30/2009 $ 9,826 $ 8,519
7/31/2009 $10,668 $ 9,163
8/31/2009 $11,001 $ 9,494
9/30/2009 $11,555 $ 9,848
AVERAGE ANNUAL TOTAL RETURN
CLASS B 9/30/09
- ------- -------
1-Year -5.38%
5-Year +2.89%
10-Year +1.45%
CLASS B (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN
GROWTH FUND S&P 500
DATE - CLASS B INDEX
- ---- ----------- -------
10/1/1999 $10,000 $10,000
10/31/1999 $10,157 $10,633
11/30/1999 $10,276 $10,849
12/31/1999 $10,602 $11,488
1/31/2000 $10,503 $10,911
2/29/2000 $10,256 $10,704
3/31/2000 $11,138 $11,751
4/30/2000 $11,265 $11,398
5/31/2000 $11,305 $11,164
6/30/2000 $11,456 $11,439
7/31/2000 $11,271 $11,260
8/31/2000 $11,761 $11,960
9/30/2000 $11,268 $11,328
10/31/2000 $11,410 $11,281
11/30/2000 $11,107 $10,391
12/31/2000 $11,315 $10,442
1/31/2001 $11,523 $10,812
2/28/2001 $10,941 $ 9,827
3/31/2001 $10,121 $ 9,204
4/30/2001 $10,928 $ 9,919
5/31/2001 $11,091 $ 9,986
6/30/2001 $10,577 $ 9,743
7/31/2001 $10,541 $ 9,647
8/31/2001 $10,060 $ 9,043
9/30/2001 $ 8,931 $ 8,313
10/31/2001 $ 9,224 $ 8,471
11/30/2001 $10,102 $ 9,121
12/31/2001 $10,172 $ 9,201
1/31/2002 $10,019 $ 9,067
2/28/2002 $ 9,944 $ 8,892
3/31/2002 $10,279 $ 9,226
4/30/2002 $ 9,625 $ 8,667
5/31/2002 $ 9,429 $ 8,603
6/30/2002 $ 8,710 $ 7,990
7/31/2002 $ 7,921 $ 7,367
8/31/2002 $ 7,934 $ 7,416
9/30/2002 $ 7,065 $ 6,610
10/31/2002 $ 7,550 $ 7,192
11/30/2002 $ 8,065 $ 7,615
12/31/2002 $ 7,635 $ 7,167
1/31/2003 $ 7,342 $ 6,980
2/28/2003 $ 7,169 $ 6,875
3/31/2003 $ 7,166 $ 6,942
4/30/2003 $ 7,684 $ 7,514
5/31/2003 $ 8,179 $ 7,909
6/30/2003 $ 8,416 $ 8,010
7/31/2003 $ 8,661 $ 8,152
8/31/2003 $ 8,846 $ 8,310
9/30/2003 $ 8,573 $ 8,222
10/31/2003 $ 9,074 $ 8,687
11/30/2003 $ 9,185 $ 8,764
12/31/2003 $ 9,703 $ 9,223
1/31/2004 $ 9,843 $ 9,393
2/29/2004 $ 9,885 $ 9,523
3/31/2004 $ 9,648 $ 9,380
4/30/2004 $ 9,651 $ 9,232
5/31/2004 $ 9,801 $ 9,359
6/30/2004 $10,195 $ 9,541
7/31/2004 $ 9,648 $ 9,225
8/31/2004 $ 9,563 $ 9,263
9/30/2004 $ 9,696 $ 9,363
10/31/2004 $ 9,807 $ 9,506
11/30/2004 $10,374 $ 9,891
12/31/2004 $10,719 $10,227
1/31/2005 $10,348 $ 9,978
2/28/2005 $10,521 $10,188
3/31/2005 $10,504 $10,007
4/30/2005 $10,247 $ 9,818
5/31/2005 $10,644 $10,130
6/30/2005 $10,521 $10,144
7/31/2005 $11,061 $10,522
8/31/2005 $11,016 $10,426
9/30/2005 $10,986 $10,510
10/31/2005 $10,892 $10,335
11/30/2005 $11,416 $10,726
12/31/2005 $11,530 $10,729
1/31/2006 $11,641 $11,014
2/28/2006 $11,791 $11,043
3/31/2006 $12,061 $11,181
4/30/2006 $12,146 $11,331
5/31/2006 $11,872 $11,005
6/30/2006 $11,801 $11,020
7/31/2006 $11,654 $11,088
8/31/2006 $11,924 $11,352
9/30/2006 $12,263 $11,644
10/31/2006 $12,755 $12,024
11/30/2006 $13,081 $12,252
12/31/2006 $13,061 $12,424
1/31/2007 $13,468 $12,612
2/28/2007 $13,214 $12,365
3/31/2007 $13,182 $12,504
4/30/2007 $13,709 $13,057
5/31/2007 $14,256 $13,513
6/30/2007 $14,116 $13,289
7/31/2007 $13,833 $12,877
8/31/2007 $13,970 $13,070
9/30/2007 $14,468 $13,558
10/31/2007 $14,951 $13,774
11/30/2007 $14,320 $13,198
12/31/2007 $13,916 $13,107
1/31/2008 $13,012 $12,321
2/29/2008 $12,796 $11,920
3/31/2008 $12,642 $11,869
4/30/2008 $13,224 $12,447
5/31/2008 $13,609 $12,608
6/30/2008 $12,376 $11,545
7/31/2008 $12,764 $11,448
8/31/2008 $13,034 $11,614
9/30/2008 $11,631 $10,579
10/31/2008 $ 9,719 $ 8,802
11/30/2008 $ 8,915 $ 8,171
12/31/2008 $ 9,270 $ 8,257
1/31/2009 $ 8,789 $ 7,561
2/28/2009 $ 7,884 $ 6,756
3/31/2009 $ 8,460 $ 7,348
4/30/2009 $ 9,413 $ 8,051
5/31/2009 $ 9,786 $ 8,502
6/30/2009 $ 9,822 $ 8,519
7/31/2009 $10,664 $ 9,163
8/31/2009 $10,997 $ 9,494
9/30/2009 $11,551 $ 9,848
20 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 9/30/09
- ------- -------
1-Year -2.43%
5-Year +3.25%
10-Year +1.30%
CLASS C (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN
GROWTH FUND S&P 500
DATE - CLASS C INDEX
- ---- ----------- -------
10/1/1999 $10,000 $10,000
10/31/1999 $10,157 $10,633
11/30/1999 $10,279 $10,849
12/31/1999 $10,608 $11,488
1/31/2000 $10,508 $10,911
2/29/2000 $10,259 $10,704
3/31/2000 $11,143 $11,751
4/30/2000 $11,265 $11,398
5/31/2000 $11,305 $11,164
6/30/2000 $11,458 $11,439
7/31/2000 $11,274 $11,260
8/31/2000 $11,763 $11,960
9/30/2000 $11,271 $11,328
10/31/2000 $11,414 $11,281
11/30/2000 $11,109 $10,391
12/31/2000 $11,320 $10,442
1/31/2001 $11,523 $10,812
2/28/2001 $10,943 $ 9,827
3/31/2001 $10,122 $ 9,204
4/30/2001 $10,933 $ 9,919
5/31/2001 $11,093 $ 9,986
6/30/2001 $10,578 $ 9,743
7/31/2001 $10,542 $ 9,647
8/31/2001 $10,060 $ 9,043
9/30/2001 $ 8,935 $ 8,313
10/31/2001 $ 9,227 $ 8,471
11/30/2001 $10,100 $ 9,121
12/31/2001 $10,170 $ 9,201
1/31/2002 $10,019 $ 9,067
2/28/2002 $ 9,944 $ 8,892
3/31/2002 $10,279 $ 9,226
4/30/2002 $ 9,625 $ 8,667
5/31/2002 $ 9,428 $ 8,603
6/30/2002 $ 8,712 $ 7,990
7/31/2002 $ 7,920 $ 7,367
8/31/2002 $ 7,933 $ 7,416
9/30/2002 $ 7,066 $ 6,610
10/31/2002 $ 7,552 $ 7,192
11/30/2002 $ 8,065 $ 7,615
12/31/2002 $ 7,638 $ 7,167
1/31/2003 $ 7,342 $ 6,980
2/28/2003 $ 7,168 $ 6,875
3/31/2003 $ 7,165 $ 6,942
4/30/2003 $ 7,684 $ 7,514
5/31/2003 $ 8,180 $ 7,909
6/30/2003 $ 8,416 $ 8,010
7/31/2003 $ 8,663 $ 8,152
8/31/2003 $ 8,846 $ 8,310
9/30/2003 $ 8,574 $ 8,222
10/31/2003 $ 9,073 $ 8,687
11/30/2003 $ 9,182 $ 8,764
12/31/2003 $ 9,704 $ 9,223
1/31/2004 $ 9,842 $ 9,393
2/29/2004 $ 9,885 $ 9,523
3/31/2004 $ 9,648 $ 9,380
4/30/2004 $ 9,648 $ 9,232
5/31/2004 $ 9,799 $ 9,359
6/30/2004 $10,193 $ 9,541
7/31/2004 $ 9,648 $ 9,225
8/31/2004 $ 9,559 $ 9,263
9/30/2004 $ 9,694 $ 9,363
10/31/2004 $ 9,806 $ 9,506
11/30/2004 $10,371 $ 9,891
12/31/2004 $10,719 $10,227
1/31/2005 $10,344 $ 9,978
2/28/2005 $10,519 $10,188
3/31/2005 $10,502 $10,007
4/30/2005 $10,243 $ 9,818
5/31/2005 $10,640 $10,130
6/30/2005 $10,519 $10,144
7/31/2005 $11,061 $10,522
8/31/2005 $11,015 $10,426
9/30/2005 $10,985 $10,510
10/31/2005 $10,890 $10,335
11/30/2005 $11,412 $10,726
12/31/2005 $11,527 $10,729
1/31/2006 $11,639 $11,014
2/28/2006 $11,787 $11,043
3/31/2006 $12,059 $11,181
4/30/2006 $12,145 $11,331
5/31/2006 $11,872 $11,005
6/30/2006 $11,796 $11,020
7/31/2006 $11,652 $11,088
8/31/2006 $11,921 $11,352
9/30/2006 $12,260 $11,644
10/31/2006 $12,752 $12,024
11/30/2006 $13,078 $12,252
12/31/2006 $13,061 $12,424
1/31/2007 $13,465 $12,612
2/28/2007 $13,212 $12,365
3/31/2007 $13,183 $12,504
4/30/2007 $13,705 $13,057
5/31/2007 $14,257 $13,513
6/30/2007 $14,116 $13,289
7/31/2007 $13,830 $12,877
8/31/2007 $13,971 $13,070
9/30/2007 $14,464 $13,558
10/31/2007 $14,940 $13,774
11/30/2007 $14,300 $13,198
12/31/2007 $13,889 $13,107
1/31/2008 $12,979 $12,321
2/29/2008 $12,756 $11,920
3/31/2008 $12,591 $11,869
4/30/2008 $13,163 $12,447
5/31/2008 $13,541 $12,608
6/30/2008 $12,306 $11,545
7/31/2008 $12,683 $11,448
8/31/2008 $12,943 $11,614
9/30/2008 $11,543 $10,579
10/31/2008 $ 9,641 $ 8,802
11/30/2008 $ 8,837 $ 8,171
12/31/2008 $ 9,183 $ 8,257
1/31/2009 $ 8,700 $ 7,561
2/28/2009 $ 7,799 $ 6,756
3/31/2009 $ 8,365 $ 7,348
4/30/2009 $ 9,302 $ 8,051
5/31/2009 $ 9,663 $ 8,502
6/30/2009 $ 9,696 $ 8,519
7/31/2009 $10,518 $ 9,163
8/31/2009 $10,840 $ 9,494
9/30/2009 $11,376 $ 9,848
AVERAGE ANNUAL TOTAL RETURN
CLASS R 9/30/09
- ------- -------
1-Year -0.98%
5-Year +3.77%
Since Inception (1/1/02) +1.93%
CLASS R (1/1/02-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN
GROWTH FUND S&P 500
DATE - CLASS R INDEX
- ---- ----------- -------
1/1/2002 $10,000 $10,000
1/31/2002 $ 9,832 $ 9,854
2/28/2002 $ 9,759 $ 9,664
3/31/2002 $10,098 $10,027
4/30/2002 $ 9,455 $ 9,420
5/31/2002 $ 9,265 $ 9,350
6/30/2002 $ 8,566 $ 8,684
7/31/2002 $ 7,793 $ 8,007
8/31/2002 $ 7,806 $ 8,060
9/30/2002 $ 6,957 $ 7,184
10/31/2002 $ 7,436 $ 7,816
11/30/2002 $ 7,946 $ 8,276
12/31/2002 $ 7,528 $ 7,790
1/31/2003 $ 7,240 $ 7,586
2/28/2003 $ 7,071 $ 7,472
3/31/2003 $ 7,071 $ 7,545
4/30/2003 $ 7,586 $ 8,166
5/31/2003 $ 8,080 $ 8,596
6/30/2003 $ 8,318 $ 8,706
7/31/2003 $ 8,562 $ 8,859
8/31/2003 $ 8,750 $ 9,032
9/30/2003 $ 8,483 $ 8,936
10/31/2003 $ 8,984 $ 9,442
11/30/2003 $ 9,095 $ 9,525
12/31/2003 $ 9,613 $10,024
1/31/2004 $ 9,755 $10,208
2/29/2004 $ 9,799 $10,350
3/31/2004 $ 9,571 $10,194
4/30/2004 $ 9,575 $10,034
5/31/2004 $ 9,730 $10,172
6/30/2004 $10,123 $10,370
7/31/2004 $ 9,587 $10,026
8/31/2004 $ 9,505 $10,067
9/30/2004 $ 9,640 $10,176
10/31/2004 $ 9,755 $10,332
11/30/2004 $10,323 $10,750
12/31/2004 $10,674 $11,115
1/31/2005 $10,306 $10,844
2/28/2005 $10,483 $11,073
3/31/2005 $10,467 $10,877
4/30/2005 $10,217 $10,670
5/31/2005 $10,620 $11,010
6/30/2005 $10,499 $11,025
7/31/2005 $11,045 $11,435
8/31/2005 $11,004 $11,331
9/30/2005 $10,978 $11,423
10/31/2005 $10,889 $11,232
11/30/2005 $11,416 $11,657
12/31/2005 $11,534 $11,661
1/31/2006 $11,651 $11,970
2/28/2006 $11,804 $12,003
3/31/2006 $12,083 $12,152
4/30/2006 $12,172 $12,315
5/31/2006 $11,906 $11,961
6/30/2006 $11,836 $11,977
7/31/2006 $11,693 $12,051
8/31/2006 $11,969 $12,338
9/30/2006 $12,315 $12,655
10/31/2006 $12,813 $13,068
11/30/2006 $13,147 $13,316
12/31/2006 $13,136 $13,503
1/31/2007 $13,549 $13,707
2/28/2007 $13,295 $13,439
3/31/2007 $13,272 $13,590
4/30/2007 $13,806 $14,192
5/31/2007 $14,364 $14,687
6/30/2007 $14,231 $14,443
7/31/2007 $13,949 $13,995
8/31/2007 $14,095 $14,205
9/30/2007 $14,600 $14,736
10/31/2007 $15,086 $14,970
11/30/2007 $14,444 $14,345
12/31/2007 $14,034 $14,245
1/31/2008 $13,123 $13,391
2/29/2008 $12,900 $12,956
3/31/2008 $12,742 $12,900
4/30/2008 $13,326 $13,528
5/31/2008 $13,713 $13,703
6/30/2008 $12,468 $12,548
7/31/2008 $12,856 $12,442
8/31/2008 $13,126 $12,622
9/30/2008 $11,712 $11,498
10/31/2008 $ 9,784 $ 9,567
11/30/2008 $ 8,974 $ 8,880
12/31/2008 $ 9,330 $ 8,975
1/31/2009 $ 8,843 $ 8,218
2/28/2009 $ 7,930 $ 7,343
3/31/2009 $ 8,507 $ 7,986
4/30/2009 $ 9,464 $ 8,751
5/31/2009 $ 9,837 $ 9,240
6/30/2009 $ 9,872 $ 9,259
7/31/2009 $10,715 $ 9,959
8/31/2009 $11,046 $10,318
9/30/2009 $11,598 $10,703
Annual Report | 21
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 9/30/09
- ------------- -------
1-Year -0.45%
5-Year +4.29%
10-Year +2.31%
ADVISOR CLASS (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN
GROWTH FUND - S&P 500
DATE ADVISOR CLASS Index
- ---- ------------- -------
10/1/1999 $10,000 $10,000
10/31/1999 $10,165 $10,633
11/30/1999 $10,298 $10,849
12/31/1999 $10,633 $11,488
1/31/2000 $10,544 $10,911
2/29/2000 $10,301 $10,704
3/31/2000 $11,199 $11,751
4/30/2000 $11,332 $11,398
5/31/2000 $11,381 $11,164
6/30/2000 $11,547 $11,439
7/31/2000 $11,369 $11,260
8/31/2000 $11,870 $11,960
9/30/2000 $11,384 $11,328
10/31/2000 $11,538 $11,281
11/30/2000 $11,239 $10,391
12/31/2000 $11,459 $10,442
1/31/2001 $11,679 $10,812
2/28/2001 $11,096 $ 9,827
3/31/2001 $10,275 $ 9,204
4/30/2001 $11,106 $ 9,919
5/31/2001 $11,280 $ 9,986
6/30/2001 $10,763 $ 9,743
7/31/2001 $10,740 $ 9,647
8/31/2001 $10,256 $ 9,043
9/30/2001 $ 9,114 $ 8,313
10/31/2001 $ 9,421 $ 8,471
11/30/2001 $10,321 $ 9,121
12/31/2001 $10,401 $ 9,201
1/31/2002 $10,253 $ 9,067
2/28/2002 $10,184 $ 8,892
3/31/2002 $10,540 $ 9,226
4/30/2002 $ 9,873 $ 8,667
5/31/2002 $ 9,682 $ 8,603
6/30/2002 $ 8,952 $ 7,990
7/31/2002 $ 8,147 $ 7,367
8/31/2002 $ 8,167 $ 7,416
9/30/2002 $ 7,279 $ 6,610
10/31/2002 $ 7,787 $ 7,192
11/30/2002 $ 8,322 $ 7,615
12/31/2002 $ 7,888 $ 7,167
1/31/2003 $ 7,589 $ 6,980
2/28/2003 $ 7,417 $ 6,875
3/31/2003 $ 7,420 $ 6,942
4/30/2003 $ 7,960 $ 7,514
5/31/2003 $ 8,484 $ 7,909
6/30/2003 $ 8,736 $ 8,010
7/31/2003 $ 8,998 $ 8,152
8/31/2003 $ 9,197 $ 8,310
9/30/2003 $ 8,922 $ 8,222
10/31/2003 $ 9,452 $ 8,687
11/30/2003 $ 9,572 $ 8,764
12/31/2003 $10,125 $ 9,223
1/31/2004 $10,278 $ 9,393
2/29/2004 $10,328 $ 9,523
3/31/2004 $10,088 $ 9,380
4/30/2004 $10,098 $ 9,232
5/31/2004 $10,265 $ 9,359
6/30/2004 $10,684 $ 9,541
7/31/2004 $10,125 $ 9,225
8/31/2004 $10,039 $ 9,263
9/30/2004 $10,188 $ 9,363
10/31/2004 $10,315 $ 9,506
11/30/2004 $10,920 $ 9,891
12/31/2004 $11,293 $10,227
1/31/2005 $10,909 $ 9,978
2/28/2005 $11,102 $10,188
3/31/2005 $11,092 $10,007
4/30/2005 $10,828 $ 9,818
5/31/2005 $11,259 $10,130
6/30/2005 $11,139 $10,144
7/31/2005 $11,721 $10,522
8/31/2005 $11,684 $10,426
9/30/2005 $11,660 $10,510
10/31/2005 $11,574 $10,335
11/30/2005 $12,135 $10,726
12/31/2005 $12,269 $10,729
1/31/2006 $12,397 $11,014
2/28/2006 $12,564 $11,043
3/31/2006 $12,866 $11,181
4/30/2006 $12,967 $11,331
5/31/2006 $12,685 $11,005
6/30/2006 $12,618 $11,020
7/31/2006 $12,474 $11,088
8/31/2006 $12,773 $11,352
9/30/2006 $13,145 $11,644
10/31/2006 $13,685 $12,024
11/30/2006 $14,044 $12,252
12/31/2006 $14,038 $12,424
1/31/2007 $14,487 $12,612
2/28/2007 $14,224 $12,365
3/31/2007 $14,203 $12,504
4/30/2007 $14,780 $13,057
5/31/2007 $15,387 $13,513
6/30/2007 $15,249 $13,289
7/31/2007 $14,952 $12,877
8/31/2007 $15,117 $13,070
9/30/2007 $15,663 $13,558
10/31/2007 $16,193 $13,774
11/30/2007 $15,512 $13,198
12/31/2007 $15,076 $13,107
1/31/2008 $14,103 $12,321
2/29/2008 $13,870 $11,920
3/31/2008 $13,703 $11,869
4/30/2008 $14,341 $12,447
5/31/2008 $14,761 $12,608
6/30/2008 $13,429 $11,545
7/31/2008 $13,849 $11,448
8/31/2008 $14,147 $11,614
9/30/2008 $12,626 $10,579
10/31/2008 $10,555 $ 8,802
11/30/2008 $ 9,684 $ 8,171
12/31/2008 $10,070 $ 8,257
1/31/2009 $ 9,547 $ 7,561
2/28/2009 $ 8,566 $ 6,756
3/31/2009 $ 9,196 $ 7,348
4/30/2009 $10,232 $ 8,051
5/31/2009 $10,641 $ 8,502
6/30/2009 $10,683 $ 8,519
7/31/2009 $11,598 $ 9,163
8/31/2009 $11,966 $ 9,494
9/30/2009 $12,569 $ 9,848
ENDNOTES
HISTORICALLY, THE FUND HAS FOCUSED ON LARGER COMPANIES. THE FUND MAY ALSO INVEST
IN SMALL, RELATIVELY NEW AND/OR UNSEASONED COMPANIES, WHICH INVOLVES ADDITIONAL
RISKS, AS THE PRICES OF THESE SECURITIES CAN BE VOLATILE, PARTICULARLY OVER THE
SHORT TERM. IN ADDITION, THE FUND MAY INVEST UP TO 25% 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.
(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.) Source: (C) 2009 Morningstar. 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.
22 | Annual 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.
Annual Report | 23
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 ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING
VALUE VALUE PERIOD*
4/1/09 9/30/09 4/1/09-9/30/09
--------- --------- --------------
CLASS A
Actual $1,000 $1,365.30 $ 5.93
Hypothetical (5% return before expenses) $1,000 $1,020.05 $ 5.06
CLASS B
Actual $1,000 $1,360.20 $10.35
Hypothetical (5% return before expenses) $1,000 $1,016.29 $ 8.85
CLASS C
Actual $1,000 $1,360.10 $10.35
Hypothetical (5% return before expenses) $1,000 $1,016.29 $ 8.85
CLASS R
Actual $1,000 $1,363.30 $ 7.41
Hypothetical (5% return before expenses) $1,000 $1,018.80 $ 6.33
ADVISOR CLASS
Actual $1,000 $1,366.80 $ 4.45
Hypothetical (5% return before expenses) $1,000 $1,021.31 $ 3.80
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 1.00%; B: 1.75%; C: 1.75%; R: 1.25%; and
Advisor: 0.75%), multiplied by the average account value over the period,
multiplied by 183/365 to reflect the one-half year period.
24 | Annual 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.
We are pleased to bring you Franklin Income Fund's annual report for the fiscal
year ended September 30, 2009.
PERFORMANCE OVERVIEW
Franklin Income Fund - Class A posted a +10.56% cumulative total return for the
12 months under review. The Fund - Class A outperformed its equity benchmark,
the Standard & Poor's 500 Index (S&P 500), which had a -6.91% total return;
matched the performance of its fixed income benchmark, the Barclays Capital (BC)
U.S. Aggregate Index, which returned +10.56%; and outperformed its peers as
measured by the Lipper Mixed-Asset Target Allocation Moderate Funds
Classification Average, which had a +2.73% total return, for the same period.(1)
You can find the Fund's long-term performance data in the Performance Summary
beginning on page 30.
(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 BC U.S.
Aggregate Index is a market capitalization-weighted index representing the
U.S. investment-grade, fixed-rate, taxable bond market with index
components for government and corporate, mortgage pass-through and
asset-backed securities. All issues included are SEC registered, taxable,
dollar denominated and nonconvertible, must have at least one year to final
maturity and must be rated investment grade (Baa3/BBB-/BBB-or higher) by
Moody's, Standard & Poor's or Fitch, respectively.
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 12-month period ended 9/30/09,
there were 505 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, and an index is not
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 83.
Annual Report | 25
DIVIDEND DISTRIBUTIONS*
Franklin Income Fund
10/1/08-9/30/09
DIVIDEND PER SHARE (CENTS)
------------------------------------------------------------
ADVISOR
MONTH CLASS A CLASS B CLASS B1** CLASS C CLASS R 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
April 1.25 1.14 1.20 1.19 1.20 1.27
May 1.25 1.14 1.20 1.19 1.20 1.27
June 1.25 1.15 1.19 1.19 1.21 1.27
July 1.25 1.15 1.19 1.19 1.21 1.27
August 1.25 1.15 1.19 1.19 1.21 1.27
September 1.25 1.10 1.16 1.17 1.19 1.27
----- ----- ----- ----- ----- -----
TOTAL 15.95 14.55 15.14 15.12 15.38 16.22
* 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
During the period under review, the global financial and credit crises and
significant decline in economic activity led to severe financial market
volatility. During the first half of the year, stocks plummeted as the S&P 500
declined 41.17% from September 30, 2008, to its low on March 9, 2009.1 Stocks
recovered in the second half of the year and the S&P 500 gained 58.25% from
March 9, 2009, through period-end.(1)
26 | Annual Report
After a period of unprecedented fixed income market dislocation in the second
half of 2008 -- particularly with widening investment-grade and high yield
corporate bonds' credit spreads -- markets bottomed in December 2008. Then bonds
began a gradual recovery process spurred in part by coordinated action from
central banks and governments to support the functioning of financial markets.
We increased our fixed income allocation during the Fund's fiscal year in
response to what we considered attractive risk-adjusted pricing for
investment-grade corporate and high yield bonds particularly when compared with
other similar markets offering high current income and potential positive total
return. The Fund's fixed income exposure increased from 52.8% of total net
assets on September 30, 2008, to 66.4% on September 30, 2009. Its equity
exposure declined from 40.9% to 30.5% during the same time. Short-term
investments and other net assets (cash) declined from 6.3% to 3.1% as we sought
to take advantage of what we believed were attractive market opportunities.
Within fixed income, auto finance companies Ford Motor Credit Company (FMCC) and
GMAC rose over the past 12 months as credit markets began to return to normal
functioning and the economy responded to government stimulus measures. For
example, the "Cash for Clunkers" program boosted auto sales. FMCC benefited from
parent company Ford Motor's ability to manage through the downturn without
seeking government rescue financing while GMAC saw former parent General Motors
undergo a government-led restructuring, which could leave the car maker in a
more competitive position going forward.
Other large fixed income holdings that drove strong performance included high
yield bond positions in Tenet Healthcare, Dynegy Holdings and Dollar General.
Hospital operator Tenet Healthcare benefited from improved operating and
financial performance as well as a series of capital market transactions that
enabled the company to refinance near-term debt maturities and reduce total debt
outstanding. Independent power producer Dynegy Holdings benefited from strong
liquidity and no near-term debt maturities, while discount retailer Dollar
General's bonds appreciated due to strong store performance amid the overall
weak economic backdrop.
Several investment-grade bond positions appreciated as that market recovered
from October 2008 low prices. Strong performers included Altria Group, Allied
Waste North America and Freeport-McMoRan Copper & Gold.
PORTFOLIO BREAKDOWN
Franklin Income Fund
Based on Total Net Assets as of 9/30/09
Consumer Discretionary Bonds 15.5%
Utilities Stocks 11.3%
Energy Bonds 8.9%
Financials Stocks 8.5%
Financials Bonds 7.8%
Utilities Bonds 6.9%
Health Care Bonds 6.2%
Senior Floating Rate Interests 5.7%
Industrials Bonds 5.4%
Energy Stocks 4.2%
Materials Bonds 3.5%
Health Care Stocks 2.8%
Information Technology Bonds 2.6%
Corporate Convertible Bonds 2.0%
Other Stocks 3.7%
Other Bonds 1.9%
Short-Term Investments & Other Net Assets 3.1%
Annual Report | 27
TOP 5 EQUITY HOLDINGS
Franklin Income Fund
9/30/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Bank of America Corp. 2.6%
FINANCIALS
Wells Fargo & Co. 2.1%
FINANCIALS
Canadian Oil Sands Trust (Canada) 1.6%
ENERGY
Merck & Co. Inc. 1.5%
HEALTH CARE
Duke Energy Corp. 1.1%
UTILITIES
TOP 5 BOND HOLDINGS*
Franklin Income Fund
9/30/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Ford Motor Credit Co. LLC 4.1%
CONSUMER DISCRETIONARY
Tenet Healthcare Corp. 2.6%
HEALTH CARE
Dynegy Holdings Inc. 2.4%
UTILITIES
HCA Inc. 2.4%
HEALTH CARE
Chesapeake Energy Corp. 1.9%
ENERGY
* Does not include convertible bonds.
Despite the strong rebound in fixed income markets, several positions negatively
impacted Fund results including cable company Charter Communications and
publisher R.H. Donnelley. Both companies sought bankruptcy protection to deal
with overleveraged corporate structures.
Although the Fund's total equity exposure declined meaningfully during the year,
we continued to actively look for opportunities in common stocks, preferred
stocks and convertible securities that may help us meet the Fund's investment
objective over the long term.
Common stock and convertible holdings in several banks including JPMorgan Chase,
Wells Fargo and Citigroup appreciated as credit markets stabilized and these
companies took steps to ensure adequate capital reserves as part of the
government's required stress test for financial institutions.
Certain convertible security holdings aided Fund performance. SandRidge Energy,
an oil and gas company, rose due to improved outlooks for oil and gas prices,
while Vornado Realty Trust, an office property REIT, benefited from normalized
access to credit for this leading office property owner.
Although several utility positions helped Fund results, particularly FPL Group
and PG&E, the sector as a whole lagged significantly behind the broader market
advance so far in 2009. From December 31, 2008, through September 30, 2009, the
S&P 500 posted a +19.26% total return while the S&P 500 Utility Index had only a
+4.33% total return.2 The Fund's large weighting in the sector negatively
impacted results as several holdings declined in value, including The Southern
Co., Dominion Resources and FirstEnergy.
(2.) Source: (C) 2009 Morningstar. See footnote 1 for a description of the S&P
500. The S&P 500 Utilities Index is a market capitalization-weighted index
consisting of all utility stocks in the S&P 500.
28 | Annual 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 SEPTEMBER 30, 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.
Annual Report | 29
Performance Summary as of 9/30/09
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKINX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.01 $1.99 $1.98
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.1595
Short-Term Capital Gain $0.0012
TOTAL $0.1607
CLASS B (SYMBOL: FBICX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.01 $1.98 $1.97
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.1455
Short-Term Capital Gain $0.0012
TOTAL $0.1467
CLASS B1 (SYMBOL: FICBX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.01 $1.99 $1.98
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.1514
Short-Term Capital Gain $0.0012
TOTAL $0.1526
CLASS C (SYMBOL: FCISX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.01 $2.00 $1.99
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.1512
Short-Term Capital Gain $0.0012
TOTAL $0.1524
CLASS R (SYMBOL: FISRX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.01 $1.96 $1.95
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.1538
Short-Term Capital Gain $0.0012
TOTAL $0.1550
30 | Annual Report
Performance Summary (CONTINUED)
PRICE AND DISTRIBUTION INFORMATION (CONTINUED)
ADVISOR CLASS (SYMBOL: FRIAX) CHANGE 9/30/09 9/30/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.01 $1.98 $1.97
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.1622
Short-Term Capital Gain $0.0012
TOTAL $0.1634
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 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) +10.56% +20.26% +96.69%
Average Annual Total Return(2) +5.75% +2.84% +6.53%
Value of $10,000 Investment(3) $10,575 $11,504 $18,829
Distribution Rate(4) 7.21%
30-Day Standardized Yield(5) 7.06%
Total Annual Operating Expenses(6) 0.62%
INCEPTION
CLASS B 1-YEAR 5-YEAR (11/1/01)
- ------- ------- ------- ---------
Cumulative Total Return(1) +9.70% +15.33% +57.86%
Average Annual Total Return(2) +5.70% +2.60% +5.94%
Value of $10,000 Investment(3) $10,570 $11,369 $15,786
Distribution Rate(4) 6.67%
30-Day Standardized Yield(5) 6.54%
Total Annual Operating Expenses(6) 1.47%
CLASS B1 1-YEAR 5-YEAR 10-YEAR
- -------- ------- ------- -------
Cumulative Total Return(1) +10.03% +17.28% +88.97%
Average Annual Total Return(2) +6.03% +2.95% +6.57%
Value of $10,000 Investment(3) $10,603 $11,564 $18,897
Distribution Rate(4) 6.99%
30-Day Standardized Yield(5) 6.92%
Total Annual Operating Expenses(6) 1.12%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------- ------- -------
Cumulative Total Return(1) +9.93% +17.12% +87.27%
Average Annual Total Return(2) +8.93% +3.21% +6.47%
Value of $10,000 Investment(3) $10,893 $11,712 $18,727
Distribution Rate(4) 7.02%
30-Day Standardized Yield(5) 6.90%
Total Annual Operating Expenses(6) 1.12%
Annual Report | 31
Performance Summary (CONTINUED)
PERFORMANCE (CONTINUED)
INCEPTION
CLASS R 1-YEAR 5-YEAR (1/1/02)
- ------- ------- ------- ---------
Cumulative Total Return(1) +10.31% +17.82% +58.46%
Average Annual Total Return(2) +10.31% +3.33% +6.13%
Value of $10,000 Investment(3) $11,031 $11,782 $15,846
Distribution Rate(4) 7.29%
30-Day Standardized Yield(5) 7.06%
Total Annual Operating Expenses(6) 0.97%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- ------- ------- --------
Cumulative Total Return(1) +10.79% +21.26% +100.21%
Average Annual Total Return(2) +10.79% +3.93% +7.19%
Value of $10,000 Investment(3) $11,079 $12,126 $ 20,021
Distribution Rate(4) 7.70%
30-Day Standardized Yield(5) 7.53%
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.
32 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 9/30/09
- ------- -------
1-Year +5.75%
5-Year +2.84%
10-Year +6.53%
CLASS A (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
BARCLAYS CAPITAL LIPPER MIXED-ASSET TARGET
FRANKLIN INCOME S&P 500 U.S. AGGREGATE ALLOCATION MODERATE FUNDS
DATE FUND - CLASS A INDEX INDEX CLASSIFICATION AVERAGE
- ---- --------------- ------- ---------------- -------------------------
10/1/1999 $ 9,573 $10,000 $10,000 $10,000
10/31/1999 $ 9,551 $10,633 $10,037 $10,254
11/30/1999 $ 9,400 $10,849 $10,036 $10,385
12/31/1999 $ 9,439 $11,488 $ 9,988 $10,722
1/31/2000 $ 9,506 $10,911 $ 9,955 $10,462
2/29/2000 $ 9,351 $10,704 $10,076 $10,503
3/31/2000 $ 9,508 $11,751 $10,208 $10,998
4/30/2000 $ 9,846 $11,398 $10,179 $10,801
5/31/2000 $10,005 $11,164 $10,174 $10,706
6/30/2000 $10,073 $11,439 $10,386 $10,889
7/31/2000 $10,188 $11,260 $10,480 $10,838
8/31/2000 $10,768 $11,960 $10,632 $11,294
9/30/2000 $10,978 $11,328 $10,699 $11,076
10/31/2000 $10,813 $11,281 $10,770 $11,023
11/30/2000 $10,741 $10,391 $10,946 $10,616
12/31/2000 $11,383 $10,442 $11,149 $10,903
1/31/2001 $11,360 $10,812 $11,331 $11,099
2/28/2001 $11,579 $ 9,827 $11,430 $10,689
3/31/2001 $11,407 $ 9,204 $11,487 $10,346
4/30/2001 $11,630 $ 9,919 $11,440 $10,772
5/31/2001 $11,853 $ 9,986 $11,509 $10,835
6/30/2001 $11,578 $ 9,743 $11,552 $10,695
7/31/2001 $11,452 $ 9,647 $11,811 $10,668
8/31/2001 $11,578 $ 9,043 $11,946 $10,415
9/30/2001 $11,042 $ 8,313 $12,085 $ 9,892
10/31/2001 $11,119 $ 8,471 $12,338 $10,077
11/30/2001 $11,352 $ 9,121 $12,168 $10,411
12/31/2001 $11,457 $ 9,201 $12,090 $10,491
1/31/2002 $11,536 $ 9,067 $12,188 $10,406
2/28/2002 $11,615 $ 8,892 $12,307 $10,345
3/31/2002 $11,964 $ 9,226 $12,102 $10,565
4/30/2002 $12,034 $ 8,667 $12,337 $10,404
5/31/2002 $11,995 $ 8,603 $12,442 $10,384
6/30/2002 $11,248 $ 7,990 $12,549 $ 9,988
7/31/2002 $10,715 $ 7,367 $12,701 $ 9,509
8/31/2002 $11,064 $ 7,416 $12,915 $ 9,603
9/30/2002 $10,580 $ 6,610 $13,124 $ 9,082
10/31/2002 $10,652 $ 7,192 $13,064 $ 9,388
11/30/2002 $11,233 $ 7,615 $13,061 $ 9,716
12/31/2002 $11,335 $ 7,167 $13,331 $ 9,519
1/31/2003 $11,409 $ 6,980 $13,342 $ 9,390
2/28/2003 $11,253 $ 6,875 $13,527 $ 9,328
3/31/2003 $11,502 $ 6,942 $13,516 $ 9,368
4/30/2003 $12,221 $ 7,514 $13,628 $ 9,840
5/31/2003 $12,885 $ 7,909 $13,882 $10,260
6/30/2003 $13,139 $ 8,010 $13,854 $10,353
7/31/2003 $12,979 $ 8,152 $13,389 $10,349
8/31/2003 $13,177 $ 8,310 $13,478 $10,506
9/30/2003 $13,555 $ 8,222 $13,834 $10,566
10/31/2003 $13,937 $ 8,687 $13,705 $10,874
11/30/2003 $14,138 $ 8,764 $13,738 $10,983
12/31/2003 $14,845 $ 9,223 $13,878 $11,346
1/31/2004 $15,049 $ 9,393 $13,990 $11,493
2/29/2004 $15,067 $ 9,523 $14,141 $11,634
3/31/2004 $15,086 $ 9,380 $14,247 $11,612
4/30/2004 $14,853 $ 9,232 $13,876 $11,345
5/31/2004 $14,808 $ 9,359 $13,821 $11,386
6/30/2004 $15,019 $ 9,541 $13,899 $11,549
7/31/2004 $15,102 $ 9,225 $14,037 $11,358
8/31/2004 $15,443 $ 9,263 $14,304 $11,460
9/30/2004 $15,656 $ 9,363 $14,343 $11,594
10/31/2004 $15,870 $ 9,506 $14,463 $11,739
11/30/2004 $16,217 $ 9,891 $14,348 $12,042
12/31/2004 $16,652 $10,227 $14,480 $12,320
1/31/2005 $16,341 $ 9,978 $14,571 $12,168
2/28/2005 $16,758 $10,188 $14,485 $12,334
3/31/2005 $16,439 $10,007 $14,411 $12,165
4/30/2005 $16,186 $ 9,818 $14,606 $12,045
5/31/2005 $16,542 $10,130 $14,764 $12,281
6/30/2005 $17,036 $10,144 $14,844 $12,385
7/31/2005 $17,395 $10,522 $14,709 $12,633
8/31/2005 $17,343 $10,426 $14,898 $12,665
9/30/2005 $17,292 $10,510 $14,744 $12,720
10/31/2005 $16,753 $10,335 $14,628 $12,515
11/30/2005 $16,701 $10,726 $14,692 $12,777
12/31/2005 $16,961 $10,729 $14,832 $12,896
1/31/2006 $17,475 $11,014 $14,833 $13,217
2/28/2006 $17,631 $11,043 $14,882 $13,224
3/31/2006 $17,717 $11,181 $14,736 $13,333
4/30/2006 $17,948 $11,331 $14,709 $13,477
5/31/2006 $17,890 $11,005 $14,693 $13,200
6/30/2006 $18,050 $11,020 $14,725 $13,206
7/31/2006 $18,503 $11,088 $14,924 $13,287
8/31/2006 $18,812 $11,352 $15,152 $13,513
9/30/2006 $18,974 $11,644 $15,285 $13,692
10/31/2006 $19,434 $12,024 $15,386 $13,992
11/30/2006 $19,970 $12,252 $15,565 $14,244
12/31/2006 $20,203 $12,424 $15,474 $14,351
1/31/2007 $20,371 $12,612 $15,468 $14,496
2/28/2007 $20,616 $12,365 $15,707 $14,467
3/31/2007 $20,862 $12,504 $15,707 $14,586
4/30/2007 $21,496 $13,057 $15,792 $14,937
5/31/2007 $21,822 $13,513 $15,672 $15,200
6/30/2007 $21,370 $13,289 $15,626 $15,043
7/31/2007 $20,836 $12,877 $15,756 $14,788
8/31/2007 $21,009 $13,070 $15,949 $14,905
9/30/2007 $21,657 $13,558 $16,070 $15,316
10/31/2007 $21,831 $13,774 $16,215 $15,579
11/30/2007 $21,290 $13,198 $16,506 $15,215
12/31/2007 $21,277 $13,107 $16,553 $15,149
1/31/2008 $20,799 $12,321 $16,831 $14,678
2/29/2008 $20,321 $11,920 $16,854 $14,479
3/31/2008 $20,092 $11,869 $16,911 $14,361
4/30/2008 $21,201 $12,447 $16,876 $14,778
5/31/2008 $21,305 $12,608 $16,752 $14,906
6/30/2008 $20,142 $11,545 $16,739 $14,195
7/31/2008 $19,739 $11,448 $16,725 $14,011
8/31/2008 $19,675 $11,614 $16,884 $14,036
9/30/2008 $17,030 $10,579 $16,657 $13,048
10/31/2008 $14,975 $ 8,802 $16,264 $11,463
11/30/2008 $13,776 $ 8,171 $16,794 $10,917
12/31/2008 $14,784 $ 8,257 $17,420 $11,278
1/31/2009 $14,448 $ 7,561 $17,266 $10,815
2/28/2009 $13,302 $ 6,756 $17,201 $10,181
3/31/2009 $14,053 $ 7,348 $17,440 $10,685
4/30/2009 $15,172 $ 8,051 $17,524 $11,398
5/31/2009 $16,207 $ 8,502 $17,651 $11,963
6/30/2009 $16,693 $ 8,519 $17,751 $12,011
7/31/2009 $17,744 $ 9,163 $18,038 $12,669
8/31/2009 $18,142 $ 9,494 $18,224 $12,982
9/30/2009 $18,829 $ 9,848 $18,416 $13,399
AVERAGE ANNUAL TOTAL RETURN
CLASS B 9/30/09
- ------- -------
1-Year +5.70%
5-Year +2.60%
Since Inception (11/1/01) +5.94%
CLASS B (11/1/01-9/30/09)
(PERFORMANCE GRAPH)
BARCLAYS CAPITAL LIPPER MIXED-ASSET TARGET
FRANKLIN INCOME S&P 500 U.S. AGGREGATE ALLOCATION MODERATE FUNDS
DATE FUND - CLASS B INDEX INDEX CLASSIFICATION AVERAGE
- ---- --------------- ------- ---------------- -------------------------
11/1/2001 $10,000 $10,000 $10,000 $10,000
11/30/2001 $10,186 $10,767 $ 9,862 $10,332
12/31/2001 $10,229 $10,861 $ 9,799 $10,411
1/31/2002 $10,344 $10,703 $ 9,879 $10,326
2/28/2002 $10,411 $10,496 $ 9,975 $10,266
3/31/2002 $10,671 $10,891 $ 9,809 $10,484
4/30/2002 $10,774 $10,231 $ 9,999 $10,325
5/31/2002 $10,731 $10,156 $10,084 $10,305
6/30/2002 $10,006 $ 9,432 $10,171 $ 9,911
7/31/2002 $ 9,571 $ 8,697 $10,294 $ 9,437
8/31/2002 $ 9,875 $ 8,754 $10,468 $ 9,530
9/30/2002 $ 9,437 $ 7,803 $10,637 $ 9,013
10/31/2002 $ 9,445 $ 8,489 $10,589 $ 9,316
11/30/2002 $ 9,955 $ 8,989 $10,586 $ 9,642
12/31/2002 $10,091 $ 8,461 $10,805 $ 9,447
1/31/2003 $10,098 $ 8,239 $10,814 $ 9,318
2/28/2003 $10,004 $ 8,116 $10,964 $ 9,257
3/31/2003 $10,167 $ 8,194 $10,955 $ 9,296
4/30/2003 $10,851 $ 8,869 $11,046 $ 9,765
5/31/2003 $11,382 $ 9,337 $11,251 $10,182
6/30/2003 $11,653 $ 9,456 $11,229 $10,274
7/31/2003 $11,502 $ 9,623 $10,852 $10,270
8/31/2003 $11,671 $ 9,810 $10,924 $10,426
9/30/2003 $11,944 $ 9,706 $11,213 $10,485
10/31/2003 $12,273 $10,255 $11,108 $10,791
11/30/2003 $12,496 $10,345 $11,135 $10,899
12/31/2003 $13,057 $10,888 $11,248 $11,260
1/31/2004 $13,228 $11,088 $11,339 $11,405
2/29/2004 $13,290 $11,242 $11,461 $11,545
3/31/2004 $13,242 $11,072 $11,547 $11,523
4/30/2004 $13,082 $10,899 $11,247 $11,258
5/31/2004 $12,979 $11,048 $11,202 $11,299
6/30/2004 $13,210 $11,263 $11,265 $11,460
7/31/2004 $13,219 $10,890 $11,377 $11,271
8/31/2004 $13,508 $10,934 $11,594 $11,373
9/30/2004 $13,687 $11,053 $11,625 $11,506
10/31/2004 $13,866 $11,221 $11,723 $11,650
11/30/2004 $14,160 $11,675 $11,629 $11,950
12/31/2004 $14,531 $12,073 $11,736 $12,226
1/31/2005 $14,306 $11,779 $11,810 $12,075
2/28/2005 $14,602 $12,026 $11,740 $12,240
3/31/2005 $14,313 $11,813 $11,680 $12,072
4/30/2005 $14,082 $11,589 $11,838 $11,953
5/31/2005 $14,381 $11,958 $11,966 $12,187
6/30/2005 $14,803 $11,975 $12,031 $12,291
7/31/2005 $15,107 $12,420 $11,922 $12,537
8/31/2005 $15,053 $12,307 $12,075 $12,568
9/30/2005 $14,996 $12,407 $11,950 $12,623
10/31/2005 $14,516 $12,200 $11,856 $12,420
11/30/2005 $14,459 $12,661 $11,908 $12,680
12/31/2005 $14,675 $12,666 $12,021 $12,798
1/31/2006 $15,111 $13,001 $12,022 $13,116
2/28/2006 $15,236 $13,036 $12,062 $13,123
3/31/2006 $15,300 $13,199 $11,944 $13,232
4/30/2006 $15,488 $13,376 $11,922 $13,375
5/31/2006 $15,427 $12,991 $11,909 $13,099
6/30/2006 $15,555 $13,009 $11,935 $13,106
7/31/2006 $15,936 $13,089 $12,096 $13,186
8/31/2006 $16,191 $13,400 $12,281 $13,410
9/30/2006 $16,320 $13,746 $12,389 $13,588
10/31/2006 $16,706 $14,193 $12,471 $13,886
11/30/2006 $17,157 $14,463 $12,615 $14,136
12/31/2006 $17,346 $14,666 $12,542 $14,242
1/31/2007 $17,479 $14,888 $12,537 $14,385
2/28/2007 $17,677 $14,597 $12,730 $14,357
3/31/2007 $17,875 $14,760 $12,731 $14,474
4/30/2007 $18,408 $15,414 $12,800 $14,823
5/31/2007 $18,675 $15,952 $12,703 $15,084
6/30/2007 $18,273 $15,687 $12,665 $14,929
7/31/2007 $17,803 $15,200 $12,771 $14,675
8/31/2007 $17,938 $15,428 $12,927 $14,791
9/30/2007 $18,479 $16,005 $13,025 $15,199
10/31/2007 $18,616 $16,260 $13,142 $15,460
11/30/2007 $18,140 $15,580 $13,379 $15,099
12/31/2007 $18,114 $15,472 $13,416 $15,034
1/31/2008 $17,691 $14,544 $13,641 $14,566
2/29/2008 $17,270 $14,072 $13,660 $14,368
3/31/2008 $17,062 $14,011 $13,707 $14,252
4/30/2008 $17,995 $14,693 $13,678 $14,665
5/31/2008 $18,071 $14,883 $13,578 $14,793
6/30/2008 $17,070 $13,629 $13,567 $14,087
7/31/2008 $16,714 $13,514 $13,556 $13,904
8/31/2008 $16,720 $13,710 $13,685 $13,929
9/30/2008 $14,389 $12,488 $13,501 $12,948
10/31/2008 $12,633 $10,391 $13,182 $11,375
11/30/2008 $11,679 $ 9,645 $13,612 $10,834
12/31/2008 $12,451 $ 9,748 $14,119 $11,192
1/31/2009 $12,235 $ 8,926 $13,995 $10,732
2/28/2009 $11,182 $ 7,976 $13,942 $10,103
3/31/2009 $11,807 $ 8,674 $14,136 $10,603
4/30/2009 $12,822 $ 9,505 $14,203 $11,311
5/31/2009 $13,610 $10,036 $14,306 $11,872
6/30/2009 $14,013 $10,056 $14,388 $11,919
7/31/2009 $14,969 $10,817 $14,620 $12,572
8/31/2009 $15,218 $11,207 $14,771 $12,883
9/30/2009 $15,786 $15,786 $15,786 $15,786
Annual Report | 33
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS B1 9/30/09
- -------- -------
1-Year +6.03%
5-Year +2.95%
10-Year +6.57%
CLASS B1 (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
BARCLAYS CAPITAL LIPPER MIXED-ASSET TARGET
FRANKLIN INCOME S&P 500 U.S. AGGREGATE ALLOCATION MODERATE FUNDS
DATE FUND - CLASS B1 INDEX INDEX CLASSIFICATION AVERAGE
- ---- --------------- ------- ---------------- -------------------------
10/1/1999 $10,000 $10,000 $10,000 $10,000
10/31/1999 $ 9,974 $10,633 $10,037 $10,254
11/30/1999 $ 9,811 $10,849 $10,036 $10,385
12/31/1999 $ 9,849 $11,488 $ 9,988 $10,722
1/31/2000 $ 9,915 $10,911 $ 9,955 $10,462
2/29/2000 $ 9,748 $10,704 $10,076 $10,503
3/31/2000 $ 9,907 $11,751 $10,208 $10,998
4/30/2000 $10,255 $11,398 $10,179 $10,801
5/31/2000 $10,416 $11,164 $10,174 $10,706
6/30/2000 $10,482 $11,439 $10,386 $10,889
7/31/2000 $10,597 $11,260 $10,480 $10,838
8/31/2000 $11,194 $11,960 $10,632 $11,294
9/30/2000 $11,408 $11,328 $10,699 $11,076
10/31/2000 $11,232 $11,281 $10,770 $11,023
11/30/2000 $11,203 $10,391 $10,946 $10,616
12/31/2000 $11,815 $10,442 $11,149 $10,903
1/31/2001 $11,787 $10,812 $11,331 $11,099
2/28/2001 $12,009 $ 9,827 $11,430 $10,689
3/31/2001 $11,826 $ 9,204 $11,487 $10,346
4/30/2001 $12,051 $ 9,919 $11,440 $10,772
5/31/2001 $12,278 $ 9,986 $11,509 $10,835
6/30/2001 $11,988 $ 9,743 $11,552 $10,695
7/31/2001 $11,853 $ 9,647 $11,811 $10,668
8/31/2001 $11,980 $ 9,043 $11,946 $10,415
9/30/2001 $11,420 $ 8,313 $12,085 $ 9,892
10/31/2001 $11,496 $ 8,471 $12,338 $10,077
11/30/2001 $11,731 $ 9,121 $12,168 $10,411
12/31/2001 $11,836 $ 9,201 $12,090 $10,491
1/31/2002 $11,913 $ 9,067 $12,188 $10,406
2/28/2002 $11,990 $ 8,892 $12,307 $10,345
3/31/2002 $12,345 $ 9,226 $12,102 $10,565
4/30/2002 $12,412 $ 8,667 $12,337 $10,404
5/31/2002 $12,367 $ 8,603 $12,442 $10,384
6/30/2002 $11,590 $ 7,990 $12,549 $ 9,988
7/31/2002 $11,036 $ 7,367 $12,701 $ 9,509
8/31/2002 $11,389 $ 7,416 $12,915 $ 9,603
9/30/2002 $10,887 $ 6,610 $13,124 $ 9,082
10/31/2002 $10,957 $ 7,192 $13,064 $ 9,388
11/30/2002 $11,550 $ 7,615 $13,061 $ 9,716
12/31/2002 $11,650 $ 7,167 $13,331 $ 9,519
1/31/2003 $11,721 $ 6,980 $13,342 $ 9,390
2/28/2003 $11,557 $ 6,875 $13,527 $ 9,328
3/31/2003 $11,808 $ 6,942 $13,516 $ 9,368
4/30/2003 $12,540 $ 7,514 $13,628 $ 9,840
5/31/2003 $13,216 $ 7,909 $13,882 $10,260
6/30/2003 $13,471 $ 8,010 $13,854 $10,353
7/31/2003 $13,301 $ 8,152 $13,389 $10,349
8/31/2003 $13,499 $ 8,310 $13,478 $10,506
9/30/2003 $13,881 $ 8,222 $13,834 $10,566
10/31/2003 $14,264 $ 8,687 $13,705 $10,874
11/30/2003 $14,464 $ 8,764 $13,738 $10,983
12/31/2003 $15,182 $ 9,223 $13,878 $11,346
1/31/2004 $15,383 $ 9,393 $13,990 $11,493
2/29/2004 $15,460 $ 9,523 $14,141 $11,634
3/31/2004 $15,408 $ 9,380 $14,247 $11,612
4/30/2004 $15,163 $ 9,232 $13,876 $11,345
5/31/2004 $15,110 $ 9,359 $13,821 $11,386
6/30/2004 $15,318 $ 9,541 $13,899 $11,549
7/31/2004 $15,396 $ 9,225 $14,037 $11,358
8/31/2004 $15,738 $ 9,263 $14,304 $11,460
9/30/2004 $15,949 $ 9,363 $14,343 $11,594
10/31/2004 $16,161 $ 9,506 $14,463 $11,739
11/30/2004 $16,507 $ 9,891 $14,348 $12,042
12/31/2004 $16,943 $10,227 $14,480 $12,320
1/31/2005 $16,685 $ 9,978 $14,571 $12,168
2/28/2005 $17,034 $10,188 $14,485 $12,334
3/31/2005 $16,704 $10,007 $14,411 $12,165
4/30/2005 $16,440 $ 9,818 $14,606 $12,045
5/31/2005 $16,793 $10,130 $14,764 $12,281
6/30/2005 $17,287 $10,144 $14,844 $12,385
7/31/2005 $17,645 $10,522 $14,709 $12,633
8/31/2005 $17,586 $10,426 $14,898 $12,665
9/30/2005 $17,527 $10,510 $14,744 $12,720
10/31/2005 $16,973 $10,335 $14,628 $12,515
11/30/2005 $16,912 $10,726 $14,692 $12,777
12/31/2005 $17,169 $10,729 $14,832 $12,896
1/31/2006 $17,682 $11,014 $14,833 $13,217
2/28/2006 $17,834 $11,043 $14,882 $13,224
3/31/2006 $17,913 $11,181 $14,736 $13,333
4/30/2006 $18,138 $11,331 $14,709 $13,477
5/31/2006 $18,071 $11,005 $14,693 $13,200
6/30/2006 $18,225 $11,020 $14,725 $13,206
7/31/2006 $18,675 $11,088 $14,924 $13,287
8/31/2006 $18,979 $11,352 $15,152 $13,513
9/30/2006 $19,135 $11,644 $15,285 $13,692
10/31/2006 $19,665 $12,024 $15,386 $13,992
11/30/2006 $20,123 $12,252 $15,565 $14,244
12/31/2006 $20,351 $12,424 $15,474 $14,351
1/31/2007 $20,511 $12,612 $15,468 $14,496
2/28/2007 $20,749 $12,365 $15,707 $14,467
3/31/2007 $20,988 $12,504 $15,707 $14,586
4/30/2007 $21,616 $13,057 $15,792 $14,937
5/31/2007 $22,011 $13,513 $15,672 $15,200
6/30/2007 $21,470 $13,289 $15,626 $15,043
7/31/2007 $20,926 $12,877 $15,756 $14,788
8/31/2007 $21,171 $13,070 $15,949 $14,905
9/30/2007 $21,732 $13,558 $16,070 $15,316
10/31/2007 $21,906 $13,774 $16,215 $15,579
11/30/2007 $21,363 $13,198 $16,506 $15,215
12/31/2007 $21,350 $13,107 $16,553 $15,149
1/31/2008 $20,870 $12,321 $16,831 $14,678
2/29/2008 $20,390 $11,920 $16,854 $14,479
3/31/2008 $20,159 $11,869 $16,911 $14,361
4/30/2008 $21,272 $12,447 $16,876 $14,778
5/31/2008 $21,376 $12,608 $16,752 $14,906
6/30/2008 $20,209 $11,545 $16,739 $14,195
7/31/2008 $19,805 $11,448 $16,725 $14,011
8/31/2008 $19,742 $11,614 $16,884 $14,036
9/30/2008 $17,088 $10,579 $16,657 $13,048
10/31/2008 $15,026 $ 8,802 $16,264 $11,463
11/30/2008 $13,822 $ 8,171 $16,794 $10,917
12/31/2008 $14,834 $ 8,257 $17,420 $11,278
1/31/2009 $14,496 $ 7,561 $17,266 $10,815
2/28/2009 $13,346 $ 6,756 $17,201 $10,181
3/31/2009 $14,100 $ 7,348 $17,440 $10,685
4/30/2009 $15,224 $ 8,051 $17,524 $11,398
5/31/2009 $16,262 $ 8,502 $17,651 $11,963
6/30/2009 $16,750 $ 8,519 $17,751 $12,011
7/31/2009 $17,804 $ 9,163 $18,038 $12,669
8/31/2009 $18,203 $ 9,494 $18,224 $12,982
9/30/2009 $18,897 $ 9,848 $18,416 $13,399
AVERAGE ANNUAL TOTAL RETURN
CLASS C 9/30/09
- ------- -------
1-Year +8.93%
5-Year +3.21%
10-Year +6.47%
CLASS C (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
BARCLAYS CAPITAL LIPPER MIXED-ASSET TARGET
FRANKLIN INCOME S&P 500 U.S. AGGREGATE ALLOCATION MODERATE FUNDS
DATE FUND - CLASS C INDEX INDEX CLASSIFICATION AVERAGE
- ---- --------------- ------- ---------------- -------------------------
10/1/1999 $10,000 $10,000 $10,000 $10,000
10/31/1999 $10,018 $10,633 $10,037 $10,254
11/30/1999 $ 9,856 $10,849 $10,036 $10,385
12/31/1999 $ 9,893 $11,488 $ 9,988 $10,722
1/31/2000 $ 9,912 $10,911 $ 9,955 $10,462
2/29/2000 $ 9,791 $10,704 $10,076 $10,503
3/31/2000 $ 9,951 $11,751 $10,208 $10,998
4/30/2000 $10,299 $11,398 $10,179 $10,801
5/31/2000 $10,412 $11,164 $10,174 $10,706
6/30/2000 $10,479 $11,439 $10,386 $10,889
7/31/2000 $10,642 $11,260 $10,480 $10,838
8/31/2000 $11,240 $11,960 $10,632 $11,294
9/30/2000 $11,454 $11,328 $10,699 $11,076
10/31/2000 $11,278 $11,281 $10,770 $11,023
11/30/2000 $11,200 $10,391 $10,946 $10,616
12/31/2000 $11,860 $10,442 $11,149 $10,903
1/31/2001 $11,831 $10,812 $11,331 $11,099
2/28/2001 $12,054 $ 9,827 $11,430 $10,689
3/31/2001 $11,870 $ 9,204 $11,487 $10,346
4/30/2001 $12,096 $ 9,919 $11,440 $10,772
5/31/2001 $12,322 $ 9,986 $11,509 $10,835
6/30/2001 $12,033 $ 9,743 $11,552 $10,695
7/31/2001 $11,897 $ 9,647 $11,811 $10,668
8/31/2001 $12,024 $ 9,043 $11,946 $10,415
9/30/2001 $11,464 $ 8,313 $12,085 $ 9,892
10/31/2001 $11,538 $ 8,471 $12,338 $10,077
11/30/2001 $11,773 $ 9,121 $12,168 $10,411
12/31/2001 $11,877 $ 9,201 $12,090 $10,491
1/31/2002 $11,954 $ 9,067 $12,188 $10,406
2/28/2002 $12,031 $ 8,892 $12,307 $10,345
3/31/2002 $12,385 $ 9,226 $12,102 $10,565
4/30/2002 $12,452 $ 8,667 $12,337 $10,404
5/31/2002 $12,408 $ 8,603 $12,442 $10,384
6/30/2002 $11,633 $ 7,990 $12,549 $ 9,988
7/31/2002 $11,080 $ 7,367 $12,701 $ 9,509
8/31/2002 $11,433 $ 7,416 $12,915 $ 9,603
9/30/2002 $10,931 $ 6,610 $13,124 $ 9,082
10/31/2002 $11,001 $ 7,192 $13,064 $ 9,388
11/30/2002 $11,593 $ 7,615 $13,061 $ 9,716
12/31/2002 $11,695 $ 7,167 $13,331 $ 9,519
1/31/2003 $11,708 $ 6,980 $13,342 $ 9,390
2/28/2003 $11,603 $ 6,875 $13,527 $ 9,328
3/31/2003 $11,853 $ 6,942 $13,516 $ 9,368
4/30/2003 $12,585 $ 7,514 $13,628 $ 9,840
5/31/2003 $13,260 $ 7,909 $13,882 $10,260
6/30/2003 $13,515 $ 8,010 $13,854 $10,353
7/31/2003 $13,345 $ 8,152 $13,389 $10,349
8/31/2003 $13,542 $ 8,310 $13,478 $10,506
9/30/2003 $13,923 $ 8,222 $13,834 $10,566
10/31/2003 $14,306 $ 8,687 $13,705 $10,874
11/30/2003 $14,505 $ 8,764 $13,738 $10,983
12/31/2003 $15,222 $ 9,223 $13,878 $11,346
1/31/2004 $15,424 $ 9,393 $13,990 $11,493
2/29/2004 $15,501 $ 9,523 $14,141 $11,634
3/31/2004 $15,449 $ 9,380 $14,247 $11,612
4/30/2004 $15,269 $ 9,232 $13,876 $11,345
5/31/2004 $15,152 $ 9,359 $13,821 $11,386
6/30/2004 $15,425 $ 9,541 $13,899 $11,549
7/31/2004 $15,439 $ 9,225 $14,037 $11,358
8/31/2004 $15,780 $ 9,263 $14,304 $11,460
9/30/2004 $15,990 $ 9,363 $14,343 $11,594
10/31/2004 $16,202 $ 9,506 $14,463 $11,739
11/30/2004 $16,547 $ 9,891 $14,348 $12,042
12/31/2004 $16,982 $10,227 $14,480 $12,320
1/31/2005 $16,726 $ 9,978 $14,571 $12,168
2/28/2005 $17,074 $10,188 $14,485 $12,334
3/31/2005 $16,743 $10,007 $14,411 $12,165
4/30/2005 $16,480 $ 9,818 $14,606 $12,045
5/31/2005 $16,833 $10,130 $14,764 $12,281
6/30/2005 $17,395 $10,144 $14,844 $12,385
7/31/2005 $17,683 $10,522 $14,709 $12,633
8/31/2005 $17,624 $10,426 $14,898 $12,665
9/30/2005 $17,563 $10,510 $14,744 $12,720
10/31/2005 $17,010 $10,335 $14,628 $12,515
11/30/2005 $16,950 $10,726 $14,692 $12,777
12/31/2005 $17,206 $10,729 $14,832 $12,896
1/31/2006 $17,717 $11,014 $14,833 $13,217
2/28/2006 $17,868 $11,043 $14,882 $13,224
3/31/2006 $17,947 $11,181 $14,736 $13,333
4/30/2006 $18,173 $11,331 $14,709 $13,477
5/31/2006 $18,107 $11,005 $14,693 $13,200
6/30/2006 $18,260 $11,020 $14,725 $13,206
7/31/2006 $18,783 $11,088 $14,924 $13,287
8/31/2006 $19,086 $11,352 $15,152 $13,513
9/30/2006 $19,242 $11,644 $15,285 $13,692
10/31/2006 $19,696 $12,024 $15,386 $13,992
11/30/2006 $20,152 $12,252 $15,565 $14,244
12/31/2006 $20,455 $12,424 $15,474 $14,351
1/31/2007 $20,616 $12,612 $15,468 $14,496
2/28/2007 $20,854 $12,365 $15,707 $14,467
3/31/2007 $21,093 $12,504 $15,707 $14,586
4/30/2007 $21,641 $13,057 $15,792 $14,937
5/31/2007 $22,037 $13,513 $15,672 $15,200
6/30/2007 $21,574 $13,289 $15,626 $15,043
7/31/2007 $21,031 $12,877 $15,756 $14,788
8/31/2007 $21,194 $13,070 $15,949 $14,905
9/30/2007 $21,834 $13,558 $16,070 $15,316
10/31/2007 $21,999 $13,774 $16,215 $15,579
11/30/2007 $21,449 $13,198 $16,506 $15,215
12/31/2007 $21,345 $13,107 $16,553 $15,149
1/31/2008 $20,940 $12,321 $16,831 $14,678
2/29/2008 $20,453 $11,920 $16,854 $14,479
3/31/2008 $20,133 $11,869 $16,911 $14,361
4/30/2008 $21,314 $12,447 $16,876 $14,778
5/31/2008 $21,410 $12,608 $16,752 $14,906
6/30/2008 $20,242 $11,545 $16,739 $14,195
7/31/2008 $19,747 $11,448 $16,725 $14,011
8/31/2008 $19,760 $11,614 $16,884 $14,036
9/30/2008 $17,035 $10,579 $16,657 $13,048
10/31/2008 $14,982 $ 8,802 $16,264 $11,463
11/30/2008 $13,782 $ 8,171 $16,794 $10,917
12/31/2008 $14,777 $ 8,257 $17,420 $11,278
1/31/2009 $14,526 $ 7,561 $17,266 $10,815
2/28/2009 $13,293 $ 6,756 $17,201 $10,181
3/31/2009 $14,032 $ 7,348 $17,440 $10,685
4/30/2009 $15,227 $ 8,051 $17,524 $11,398
5/31/2009 $16,157 $ 8,502 $17,651 $11,963
6/30/2009 $16,632 $ 8,519 $17,751 $12,011
7/31/2009 $17,759 $ 9,163 $18,038 $12,669
8/31/2009 $18,055 $ 9,494 $18,224 $12,982
9/30/2009 $18,727 $ 9,848 $18,416 $13,399
34 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS R 9/30/09
- ------- -------
1-Year +10.31%
5-Year +3.33%
Since Inception (1/1/02) +6.13%
CLASS R (1/1/02-9/30/09)
(PERFORMANCE GRAPH)
BARCLAYS CAPITAL LIPPER MIXED-ASSET TARGET
FRANKLIN INCOME S&P 500 U.S. AGGREGATE ALLOCATION MODERATE FUNDS
DATE FUND - CLASS R INDEX INDEX CLASSIFICATION AVERAGE
- ---- --------------- ------- ---------------- -------------------------
1/1/2002 $10,000 $10,000 $10,000 $10,000
1/31/2002 $10,069 $ 9,854 $10,081 $ 9,919
2/28/2002 $10,136 $ 9,664 $10,179 $ 9,861
3/31/2002 $10,390 $10,027 $10,009 $10,071
4/30/2002 $10,448 $ 9,420 $10,204 $ 9,917
5/31/2002 $10,412 $ 9,350 $10,290 $ 9,899
6/30/2002 $ 9,709 $ 8,684 $10,379 $ 9,520
7/31/2002 $ 9,289 $ 8,007 $10,505 $ 9,064
8/31/2002 $ 9,590 $ 8,060 $10,682 $ 9,154
9/30/2002 $ 9,166 $ 7,184 $10,855 $ 8,657
10/31/2002 $ 9,178 $ 7,816 $10,806 $ 8,949
11/30/2002 $ 9,681 $ 8,276 $10,803 $ 9,262
12/31/2002 $ 9,817 $ 7,790 $11,026 $ 9,074
1/31/2003 $ 9,829 $ 7,586 $11,035 $ 8,951
2/28/2003 $ 9,741 $ 7,472 $11,188 $ 8,892
3/31/2003 $ 9,905 $ 7,545 $11,179 $ 8,930
4/30/2003 $10,577 $ 8,166 $11,272 $ 9,380
5/31/2003 $11,102 $ 8,596 $11,482 $ 9,780
6/30/2003 $11,319 $ 8,706 $11,459 $ 9,868
7/31/2003 $11,227 $ 8,859 $11,074 $ 9,865
8/31/2003 $11,344 $ 9,032 $11,147 $10,014
9/30/2003 $11,670 $ 8,936 $11,442 $10,072
10/31/2003 $11,997 $ 9,442 $11,336 $10,366
11/30/2003 $12,168 $ 9,525 $11,363 $10,469
12/31/2003 $12,779 $10,024 $11,478 $10,816
1/31/2004 $12,953 $10,208 $11,571 $10,955
2/29/2004 $12,966 $10,350 $11,696 $11,090
3/31/2004 $12,978 $10,194 $11,784 $11,069
4/30/2004 $12,772 $10,034 $11,477 $10,814
5/31/2004 $12,730 $10,172 $11,431 $10,853
6/30/2004 $12,908 $10,370 $11,496 $11,009
7/31/2004 $12,977 $10,026 $11,610 $10,827
8/31/2004 $13,268 $10,067 $11,831 $10,924
9/30/2004 $13,449 $10,176 $11,863 $11,052
10/31/2004 $13,631 $10,332 $11,963 $11,190
11/30/2004 $13,927 $10,750 $11,867 $11,479
12/31/2004 $14,299 $11,115 $11,976 $11,744
1/31/2005 $14,026 $10,844 $12,052 $11,599
2/28/2005 $14,383 $11,073 $11,981 $11,757
3/31/2005 $14,102 $10,877 $11,919 $11,596
4/30/2005 $13,879 $10,670 $12,080 $11,482
5/31/2005 $14,182 $11,010 $12,211 $11,707
6/30/2005 $14,605 $11,025 $12,278 $11,806
7/31/2005 $14,912 $11,435 $12,166 $12,042
8/31/2005 $14,864 $11,331 $12,322 $12,072
9/30/2005 $14,814 $11,423 $12,195 $12,125
10/31/2005 $14,344 $11,232 $12,098 $11,930
11/30/2005 $14,295 $11,657 $12,152 $12,180
12/31/2005 $14,516 $11,661 $12,267 $12,293
1/31/2006 $14,955 $11,970 $12,268 $12,599
2/28/2006 $15,087 $12,003 $12,309 $12,605
3/31/2006 $15,156 $12,152 $12,188 $12,710
4/30/2006 $15,350 $12,315 $12,166 $12,847
5/31/2006 $15,233 $11,961 $12,153 $12,582
6/30/2006 $15,366 $11,977 $12,179 $12,589
7/31/2006 $15,815 $12,051 $12,343 $12,666
8/31/2006 $16,077 $12,338 $12,532 $12,881
9/30/2006 $16,212 $12,655 $12,642 $13,052
10/31/2006 $16,603 $13,068 $12,726 $13,338
11/30/2006 $16,997 $13,316 $12,874 $13,578
12/31/2006 $17,192 $13,503 $12,799 $13,680
1/31/2007 $17,397 $13,707 $12,794 $13,818
2/28/2007 $17,536 $13,439 $12,991 $13,790
3/31/2007 $17,810 $13,590 $12,991 $13,904
4/30/2007 $18,284 $14,192 $13,061 $14,239
5/31/2007 $18,626 $14,687 $12,962 $14,489
6/30/2007 $18,232 $14,443 $12,924 $14,340
7/31/2007 $17,702 $13,995 $13,032 $14,096
8/31/2007 $17,912 $14,205 $13,192 $14,208
9/30/2007 $18,395 $14,736 $13,292 $14,600
10/31/2007 $18,607 $14,970 $13,411 $14,851
11/30/2007 $18,138 $14,345 $13,652 $14,503
12/31/2007 $18,051 $14,245 $13,691 $14,441
1/31/2008 $17,705 $13,391 $13,921 $13,992
2/29/2008 $17,219 $12,956 $13,940 $13,802
3/31/2008 $17,017 $12,900 $13,987 $13,690
4/30/2008 $17,963 $13,528 $13,958 $14,087
5/31/2008 $18,048 $13,703 $13,856 $14,209
6/30/2008 $17,046 $12,548 $13,845 $13,532
7/31/2008 $16,694 $12,442 $13,833 $13,356
8/31/2008 $16,708 $12,622 $13,965 $13,380
9/30/2008 $14,365 $11,498 $13,777 $12,438
10/31/2008 $12,674 $ 9,567 $13,452 $10,927
11/30/2008 $11,643 $ 8,880 $13,890 $10,406
12/31/2008 $12,503 $ 8,975 $14,408 $10,751
1/31/2009 $12,288 $ 8,218 $14,281 $10,309
2/28/2009 $11,228 $ 7,343 $14,227 $ 9,705
3/31/2009 $11,866 $ 7,986 $14,425 $10,185
4/30/2009 $12,897 $ 8,751 $14,494 $10,865
5/31/2009 $13,700 $ 9,240 $14,599 $11,404
6/30/2009 $14,113 $ 9,259 $14,682 $11,449
7/31/2009 $15,008 $ 9,959 $14,919 $12,077
8/31/2009 $15,345 $10,318 $15,073 $12,375
9/30/2009 $15,846 $10,703 $15,232 $12,772
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 9/30/09
- ------------- -------
1-Year +10.79%
5-Year +3.93%
10-Year +7.19%
ADVISOR CLASS (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN INCOME BARCLAYS CAPITAL LIPPER MIXED-ASSET TARGET
FUND - S&P 500 U.S. AGGREGATE ALLOCATION MODERATE FUNDS
DATE ADVISOR CLASS INDEX INDEX CLASSIFICATION AVERAGE
- ---- --------------- ------- ---------------- -------------------------
10/1/1999 $10,000 $10,000 $10,000 $10,000
10/31/1999 $10,024 $10,633 $10,037 $10,254
11/30/1999 $ 9,866 $10,849 $10,036 $10,385
12/31/1999 $ 9,909 $11,488 $ 9,988 $10,722
1/31/2000 $ 9,935 $10,911 $ 9,955 $10,462
2/29/2000 $ 9,819 $10,704 $10,076 $10,503
3/31/2000 $ 9,985 $11,751 $10,208 $10,998
4/30/2000 $10,294 $11,398 $10,179 $10,801
5/31/2000 $10,462 $11,164 $10,174 $10,706
6/30/2000 $10,535 $11,439 $10,386 $10,889
7/31/2000 $10,657 $11,260 $10,480 $10,838
8/31/2000 $11,267 $11,960 $10,632 $11,294
9/30/2000 $11,490 $11,328 $10,699 $11,076
10/31/2000 $11,318 $11,281 $10,770 $11,023
11/30/2000 $11,294 $10,391 $10,946 $10,616
12/31/2000 $11,920 $10,442 $11,149 $10,903
1/31/2001 $11,948 $10,812 $11,331 $11,099
2/28/2001 $12,181 $ 9,827 $11,430 $10,689
3/31/2001 $11,950 $ 9,204 $11,487 $10,346
4/30/2001 $12,238 $ 9,919 $11,440 $10,772
5/31/2001 $12,423 $ 9,986 $11,509 $10,835
6/30/2001 $12,135 $ 9,743 $11,552 $10,695
7/31/2001 $12,003 $ 9,647 $11,811 $10,668
8/31/2001 $12,138 $ 9,043 $11,946 $10,415
9/30/2001 $11,628 $ 8,313 $12,085 $ 9,892
10/31/2001 $11,657 $ 8,471 $12,338 $10,077
11/30/2001 $11,904 $ 9,121 $12,168 $10,411
12/31/2001 $12,016 $ 9,201 $12,090 $10,491
1/31/2002 $12,156 $ 9,067 $12,188 $10,406
2/28/2002 $12,242 $ 8,892 $12,307 $10,345
3/31/2002 $12,554 $ 9,226 $12,102 $10,565
4/30/2002 $12,687 $ 8,667 $12,337 $10,404
5/31/2002 $12,649 $ 8,603 $12,442 $10,384
6/30/2002 $11,805 $ 7,990 $12,549 $ 9,988
7/31/2002 $11,302 $ 7,367 $12,701 $ 9,509
8/31/2002 $11,613 $ 7,416 $12,915 $ 9,603
9/30/2002 $11,104 $ 6,610 $13,124 $ 9,082
10/31/2002 $11,182 $ 7,192 $13,064 $ 9,388
11/30/2002 $11,796 $ 7,615 $13,061 $ 9,716
12/31/2002 $11,905 $ 7,167 $13,331 $ 9,519
1/31/2003 $11,984 $ 6,980 $13,342 $ 9,390
2/28/2003 $11,882 $ 6,875 $13,527 $ 9,328
3/31/2003 $12,086 $ 6,942 $13,516 $ 9,368
4/30/2003 $12,846 $ 7,514 $13,628 $ 9,840
5/31/2003 $13,550 $ 7,909 $13,882 $10,260
6/30/2003 $13,820 $ 8,010 $13,854 $10,353
7/31/2003 $13,652 $ 8,152 $13,389 $10,349
8/31/2003 $13,863 $ 8,310 $13,478 $10,506
9/30/2003 $14,265 $ 8,222 $13,834 $10,566
10/31/2003 $14,670 $ 8,687 $13,705 $10,874
11/30/2003 $14,884 $ 8,764 $13,738 $10,983
12/31/2003 $15,634 $ 9,223 $13,878 $11,346
1/31/2004 $15,851 $ 9,393 $13,990 $11,493
2/29/2004 $15,939 $ 9,523 $14,141 $11,634
3/31/2004 $15,894 $ 9,380 $14,247 $11,612
4/30/2004 $15,650 $ 9,232 $13,876 $11,345
5/31/2004 $15,605 $ 9,359 $13,821 $11,386
6/30/2004 $15,829 $ 9,541 $13,899 $11,549
7/31/2004 $15,919 $ 9,225 $14,037 $11,358
8/31/2004 $16,282 $ 9,263 $14,304 $11,460
9/30/2004 $16,510 $ 9,363 $14,343 $11,594
10/31/2004 $16,739 $ 9,506 $14,463 $11,739
11/30/2004 $17,109 $ 9,891 $14,348 $12,042
12/31/2004 $17,572 $10,227 $14,480 $12,320
1/31/2005 $17,244 $ 9,978 $14,571 $12,168
2/28/2005 $17,688 $10,188 $14,485 $12,334
3/31/2005 $17,352 $10,007 $14,411 $12,165
4/30/2005 $17,086 $ 9,818 $14,606 $12,045
5/31/2005 $17,466 $10,130 $14,764 $12,281
6/30/2005 $17,991 $10,144 $14,844 $12,385
7/31/2005 $18,374 $10,522 $14,709 $12,633
8/31/2005 $18,322 $10,426 $14,898 $12,665
9/30/2005 $18,269 $10,510 $14,744 $12,720
10/31/2005 $17,700 $10,335 $14,628 $12,515
11/30/2005 $17,647 $10,726 $14,692 $12,777
12/31/2005 $17,926 $10,729 $14,832 $12,896
1/31/2006 $18,473 $11,014 $14,833 $13,217
2/28/2006 $18,642 $11,043 $14,882 $13,224
3/31/2006 $18,736 $11,181 $14,736 $13,333
4/30/2006 $18,983 $11,331 $14,709 $13,477
5/31/2006 $18,847 $11,005 $14,693 $13,200
6/30/2006 $19,019 $11,020 $14,725 $13,206
7/31/2006 $19,580 $11,088 $14,924 $13,287
8/31/2006 $19,910 $11,352 $15,152 $13,513
9/30/2006 $20,085 $11,644 $15,285 $13,692
10/31/2006 $20,576 $12,024 $15,386 $13,992
11/30/2006 $21,149 $12,252 $15,565 $14,244
12/31/2006 $21,401 $12,424 $15,474 $14,351
1/31/2007 $21,582 $12,612 $15,468 $14,496
2/28/2007 $21,844 $12,365 $15,707 $14,467
3/31/2007 $22,109 $12,504 $15,707 $14,586
4/30/2007 $22,703 $13,057 $15,792 $14,937
5/31/2007 $23,135 $13,513 $15,672 $15,200
6/30/2007 $22,656 $13,289 $15,626 $15,043
7/31/2007 $22,091 $12,877 $15,756 $14,788
8/31/2007 $22,278 $13,070 $15,949 $14,905
9/30/2007 $22,970 $13,558 $16,070 $15,316
10/31/2007 $23,159 $13,774 $16,215 $15,579
11/30/2007 $22,587 $13,198 $16,506 $15,215
12/31/2007 $22,488 $13,107 $16,553 $15,149
1/31/2008 $22,069 $12,321 $16,831 $14,678
2/29/2008 $21,563 $11,920 $16,854 $14,479
3/31/2008 $21,233 $11,869 $16,911 $14,361
4/30/2008 $22,506 $12,447 $16,876 $14,778
5/31/2008 $22,620 $12,608 $16,752 $14,906
6/30/2008 $21,383 $11,545 $16,739 $14,195
7/31/2008 $20,864 $11,448 $16,725 $14,011
8/31/2008 $20,890 $11,614 $16,884 $14,036
9/30/2008 $18,071 $10,579 $16,657 $13,048
10/31/2008 $15,880 $ 8,802 $16,264 $11,463
11/30/2008 $14,603 $ 8,171 $16,794 $10,917
12/31/2008 $15,682 $ 8,257 $17,420 $11,278
1/31/2009 $15,420 $ 7,561 $17,266 $10,815
2/28/2009 $14,104 $ 6,756 $17,201 $10,181
3/31/2009 $14,907 $ 7,348 $17,440 $10,685
4/30/2009 $16,202 $ 8,051 $17,524 $11,398
5/31/2009 $17,212 $ 8,502 $17,651 $11,963
6/30/2009 $17,733 $ 8,519 $17,751 $12,011
7/31/2009 $18,858 $ 9,163 $18,038 $12,669
8/31/2009 $19,285 $ 9,494 $18,224 $12,982
9/30/2009 $20,021 $ 9,848 $18,416 $13,399
Annual Report | 35
Performance Summary (CONTINUED)
ENDNOTES
THE FUND'S PORTFOLIO INCLUDES A SUBSTANTIAL PORTION OF HIGHER YIELDING, LOWER
RATED CORPORATE BONDS BECAUSE OF THE RELATIVELY HIGHER YIELDS THEY OFFER. THESE
SECURITIES CARRY A GREATER DEGREE OF CREDIT RISK RELATIVE TO INVESTMENT-GRADE
SECURITIES. THE FUND'S SHARE PRICE AND YIELD WILL BE AFFECTED BY INTEREST RATE
MOVEMENTS. BOND PRICES 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 MORE DRAMATICALLY
OVER THE SHORTER 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.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(4.) Distribution rate is based on an annualization of the respective class's
September dividend and the maximum offering price (NAV for Classes B, B1,
C, R and Advisor) per share on 9/30/09.
(5.) The 30-day standardized yield for the 30 days ended 9/30/09 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(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.
(7.) Sources: (C) 2009 Morningstar; Lipper Inc. The S&P 500 consists of 500
stocks chosen for market size, liquidity and industry group representation.
Each stock's weight in the index is proportionate to its market value. The
S&P 500 is one of the most widely used benchmarks of U.S. equity
performance. The BC U.S. Aggregate Index is a market
capitalization-weighted index representing the U.S. investment-grade,
fixed-rate, taxable bond market with index components for government and
corporate, mortgage pass-through and asset-backed securities. All issues
included are SEC registered, taxable, dollar denominated and
nonconvertible, must have at least one year to final maturity and must be
rated investment grade (Baa3/BBB-/BBB- or higher) by Moody's, Standard &
Poor's or Fitch, respectively. The Lipper Mixed-Asset Target Allocation
Moderate Funds Classification Average is calculated by averaging the total
returns of all funds within the Lipper Mixed-Asset Target Allocation
Moderate Funds classification in the Lipper Open-End underlying funds
universe. Lipper Mixed-Asset Target Allocation Moderate Funds are defined
as funds that, by portfolio practice, maintain a mix of between 40%-60%
equity securities, with the remainder invested in bonds, cash and cash
equivalents. For the 12-month period ended 9/30/09, there were 505 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.
36 | Annual 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.
Annual Report | 37
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 4/1/09 VALUE 9/30/09 PERIOD* 4/1/09-9/30/09
----------------- -------------- ----------------------
CLASS A
Actual $1,000 $1,339.90 $3.93
Hypothetical (5% return before expenses) $1,000 $1,021.71 $3.40
CLASS B
Actual $1,000 $1,336.90 $8.90
Hypothetical (5% return before expenses) $1,000 $1,017.45 $7.69
CLASS B1
Actual $1,000 $1,337.10 $6.80
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.87
CLASS C
Actual $1,000 $1,334.60 $6.85
Hypothetical (5% return before expenses) $1,000 $1,019.20 $5.92
CLASS R
Actual $1,000 $1,335.40 $5.97
Hypothetical (5% return before expenses) $1,000 $1,019.95 $5.16
ADVISOR CLASS
Actual $1,000 $1,343.10 $3.05
Hypothetical (5% return before expenses) $1,000 $1,022.46 $2.64
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.67%; B: 1.52%; B1; 1.16%; C: 1.17%; R:
1.02%; and Advisor: 0.52%), multiplied by the average account value over
the period, multiplied by 183/365 to reflect the one-half year period.
38 | Annual 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.
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 U.S. Government Securities Fund
Based on Total Net Assets as of
9/30/09
(PIE CHART)
GNMA 92.6%
Short-Term Investments &
Other Net Assets 7.4%
This annual report for Franklin U.S. Government Securities Fund covers the
fiscal year ended September 30, 2009.
PERFORMANCE OVERVIEW
Franklin U.S. Government Securities Fund - Class A posted a cumulative total
return of +8.50% for the 12 months under review. The Fund under-performed the
+9.87% total return of its peers as measured by the Lipper GNMA Funds
Classification Average.(2) In comparison, the Barclays Capital (BC) U.S.
Government: Intermediate Index returned +6.26% for the same
(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 12-month period ended 9/30/09,
there were 64 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, and an index is not 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 102.
Annual Report | 39
DIVIDEND DISTRIBUTIONS*
Franklin U.S. Government Securities Fund
10/1/08-9/30/09
DIVIDEND PER SHARE
-------------------------------------------------------------------
ADVISOR
MONTH CLASS A CLASS B CLASS C CLASS R 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
April 2.39 cents 2.10 cents 2.11 cents 2.19 cents 2.46 cents
May 2.39 cents 2.10 cents 2.11 cents 2.19 cents 2.46 cents
June 2.39 cents 2.11 cents 2.12 cents 2.19 cents 2.46 cents
July 2.39 cents 2.11 cents 2.12 cents 2.19 cents 2.46 cents
August 2.39 cents 2.11 cents 2.12 cents 2.19 cents 2.46 cents
September 2.39 cents 2.10 cents 2.13 cents 2.20 cents 2.47 cents
----------- ----------- ----------- ----------- -----------
TOTAL 29.64 CENTS 26.28 CENTS 26.40 CENTS 27.32 CENTS 30.55 CENTS
* All Fund distributions will vary depending upon current market conditions,
and past distributions are not indicative of future trends.
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 43.
INVESTMENT STRATEGY
We currently invest the Fund's assets predominantly in GNMA (Ginnie Mae)
obligations. We analyze securities using proprietary models to help us identify
attractive investment opportunities. The Fund's short-term investments may
include short-term government securities and cash or cash equivalents.
(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. The index includes
public obligations of the U.S. Treasury with at least one year to final
maturity 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, and an
index is not representative of the Fund's portfolio.
40 | Annual Report
MANAGER'S DISCUSSION
During the first half of the 12-month reporting period, economic conditions
continued to deteriorate, but the second half ended on a more favorable and
optimistic tone as certain economic data indicated the recession was ending. In
the ongoing effort to stabilize financial markets and restore confidence to
investors, the U.S. Treasury and the Federal Reserve Board (Fed) announced
several new initiatives aimed at increasing credit availability and reducing
mortgage rates. Many observers, however, faced with the prospects of a lengthy
housing market rebound, ongoing deleveraging and rising unemployment, harbored
concerns about the strength of the economy.
Ginnie Mae (GNMA) mortgage-backed securities (MBS) remained relatively
attractive in this environment as the GNMA current coupon yielded 4.25% at
period-end, an income opportunity over both 5- and 10-year Treasuries, which
yielded 2.31% and 3.31%.
The MBS market's positive performance began with the announcement of the Fed's
Agency Mortgage-Backed Securities Purchase Program in late 2008 and continued
during the reporting period. Although this program boosted agency MBS markets,
investors started to focus on how the program will end, which created less
favorable technical conditions. Prepayment risk for higher coupon MBS remained
restrained due to declining home price appreciation, loss of home equity and
tighter underwriting standards.
During the period, GNMA MBS outperformed comparable high credit-quality U.S.
Treasuries, but lagged their conventional Fannie Mae and Freddie Mac MBS
counterparts. Within the sector, lower coupon GNMAs (4.5% and 5.0%) outperformed
their higher coupon (6.0% and 6.5%) counterparts.
Franklin U.S. Government Securities Fund takes a consistent and disciplined
approach and invests in GNMA mortgage pass-throughs, which remained the only MBS
backed by the full faith and credit of the U.S. government.(1) The Fund took a
collateral intensive research approach to uncover opportunities across the GNMA
universe. We believe our experience and continual investment in new technologies
can help us identify specified pools and individual securities that offer strong
cash flow fundamentals and valuations. Over the period, performance was mixed
between GNMA I securities (comprising single-issuer pools) and the GNMA II
sector (comprising multiple-issuer pools). We decreased the Fund's allocation to
GNMA II securities, as we felt GNMA Is offered better value on a historical
price spread basis. We increased the portfolio's allocation to some higher
coupon MBS (5.0% through 6.5%) and reduced some lower coupon MBS (4.5%). Our
heaviest allocation was in coupons within the 5.0% through 6.0% range.
Annual Report | 41
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 SEPTEMBER 30, 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.
42 | Annual Report
Performance Summary as of 9/30/09
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKUSX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.24 $6.69 $6.45
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.2964
CLASS B (SYMBOL: FUGBX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.24 $6.68 $6.44
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.2628
CLASS C (SYMBOL: FRUGX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.24 $6.66 $6.42
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.2640
CLASS R (SYMBOL: FUSRX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) +$0.24 $6.69 $6.45
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.2732
ADVISOR CLASS (SYMBOL: FUSAX) CHANGE 9/30/09 9/30/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) +$0.24 $6.71 $6.47
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.3055
Annual Report | 43
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 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +8.50% +27.76% +73.19%
Average Annual Total Return(2) +3.83% +4.10% +5.19%
Distribution Rate(3) 4.10%
30-Day Standardized Yield(4) 3.70%
Total Annual Operating Expenses(5) 0.74%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +7.79% +24.51% +65.94%
Average Annual Total Return(2) +3.79% +4.14% +5.19%
Distribution Rate(3) 3.77%
30-Day Standardized Yield(4) 3.35%
Total Annual Operating Expenses(5) 1.26%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------ -------
Cumulative Total Return(1) +8.01% +24.65% +64.50%
Average Annual Total Return(2) +7.01% +4.50% +5.10%
Distribution Rate(3) 3.84%
30-Day Standardized Yield(4) 3.34%
Total Annual Operating Expenses(5) 1.26%
INCEPTION
CLASS R 1-YEAR 5-YEAR (1/1/02)
- ------- ------ ------ ---------
Cumulative Total Return(1) +8.12% +25.44% +41.57%
Average Annual Total Return(2) +8.12% +4.64% +4.59%
Distribution Rate(3) 3.95%
30-Day Standardized Yield(4) 3.50%
Total Annual Operating Expenses(5) 1.11%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- ------ ------ -------
Cumulative Total Return(1) +8.63% +28.70% +75.42%
Average Annual Total Return(2) +8.63% +5.18% +5.78%
Distribution Rate(3) 4.42%
30-Day Standardized Yield(4) 4.00%
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.
44 | Annual Report
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 9/30/09
- ------- -------
1-Year +3.83%
5-Year +4.10%
10-Year +5.19%
CLASS A (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN U.S. BARCLAYS CAPITAL
GOVERNMENT SECURITIES LIPPER GNMA FUNDS U.S INTERMEDIATE
DATE FUND - CLASS A CLASSIFICATION AVERAGE GOVERNMENT INDEX CPI
- ---- --------------------- ---------------------- ---------------- -------
10/1/1999 $ 9,580 $10,000 $10,000 $10,000
10/31/1999 $ 9,631 $10,034 $10,020 $10,018
11/30/1999 $ 9,639 $10,041 $10,027 $10,024
12/31/1999 $ 9,602 $ 9,994 $ 9,995 $10,024
1/31/2000 $ 9,521 $ 9,917 $ 9,962 $10,054
2/29/2000 $ 9,632 $10,031 $10,044 $10,113
3/31/2000 $ 9,774 $10,182 $10,159 $10,197
4/30/2000 $ 9,751 $10,165 $10,155 $10,203
5/31/2000 $ 9,791 $10,202 $10,182 $10,214
6/30/2000 $ 9,951 $10,379 $10,344 $10,268
7/31/2000 $10,006 $10,425 $10,412 $10,292
8/31/2000 $10,155 $10,573 $10,529 $10,292
9/30/2000 $10,242 $10,665 $10,621 $10,345
10/31/2000 $10,314 $10,730 $10,694 $10,363
11/30/2000 $10,464 $10,887 $10,851 $10,369
12/31/2000 $10,616 $11,046 $11,042 $10,363
1/31/2001 $10,768 $11,217 $11,189 $10,429
2/28/2001 $10,826 $11,286 $11,292 $10,471
3/31/2001 $10,884 $11,352 $11,374 $10,494
4/30/2001 $10,895 $11,334 $11,338 $10,536
5/31/2001 $10,970 $11,406 $11,385 $10,584
6/30/2001 $10,996 $11,443 $11,421 $10,602
7/31/2001 $11,202 $11,669 $11,634 $10,572
8/31/2001 $11,279 $11,757 $11,738 $10,572
9/30/2001 $11,422 $11,925 $11,988 $10,619
10/31/2001 $11,579 $12,089 $12,175 $10,584
11/30/2001 $11,472 $11,962 $12,030 $10,566
12/31/2001 $11,430 $11,898 $11,972 $10,524
1/31/2002 $11,521 $12,014 $12,023 $10,548
2/28/2002 $11,662 $12,143 $12,123 $10,590
3/31/2002 $11,516 $11,991 $11,940 $10,649
4/30/2002 $11,728 $12,217 $12,164 $10,709
5/31/2002 $11,803 $12,297 $12,248 $10,709
6/30/2002 $11,895 $12,399 $12,402 $10,715
7/31/2002 $12,023 $12,546 $12,635 $10,727
8/31/2002 $12,134 $12,651 $12,780 $10,762
9/30/2002 $12,228 $12,765 $12,999 $10,780
10/31/2002 $12,270 $12,781 $12,990 $10,798
11/30/2002 $12,270 $12,775 $12,888 $10,798
12/31/2002 $12,411 $12,916 $13,126 $10,774
1/31/2003 $12,447 $12,943 $13,097 $10,822
2/28/2003 $12,500 $13,019 $13,245 $10,905
3/31/2003 $12,499 $13,011 $13,247 $10,971
4/30/2003 $12,535 $13,043 $13,285 $10,947
5/31/2003 $12,535 $13,074 $13,493 $10,929
6/30/2003 $12,571 $13,099 $13,471 $10,941
7/31/2003 $12,278 $12,816 $13,144 $10,953
8/31/2003 $12,370 $12,903 $13,168 $10,995
9/30/2003 $12,554 $13,117 $13,453 $11,030
10/31/2003 $12,498 $13,051 $13,321 $11,018
11/30/2003 $12,553 $13,091 $13,322 $10,989
12/31/2003 $12,632 $13,181 $13,426 $10,977
1/31/2004 $12,707 $13,247 $13,499 $11,030
2/29/2004 $12,782 $13,332 $13,628 $11,090
3/31/2004 $12,820 $13,377 $13,722 $11,161
4/30/2004 $12,610 $13,155 $13,416 $11,197
5/31/2004 $12,587 $13,119 $13,373 $11,263
6/30/2004 $12,698 $13,220 $13,407 $11,298
7/31/2004 $12,809 $13,321 $13,504 $11,281
8/31/2004 $12,979 $13,497 $13,704 $11,286
9/30/2004 $12,988 $13,505 $13,710 $11,310
10/31/2004 $13,081 $13,593 $13,794 $11,370
11/30/2004 $13,057 $13,548 $13,665 $11,376
12/31/2004 $13,112 $13,614 $13,740 $11,334
1/31/2005 $13,187 $13,681 $13,757 $11,358
2/28/2005 $13,143 $13,633 $13,681 $11,423
3/31/2005 $13,118 $13,600 $13,647 $11,513
4/30/2005 $13,234 $13,725 $13,806 $11,590
5/31/2005 $13,326 $13,805 $13,916 $11,578
6/30/2005 $13,338 $13,835 $13,962 $11,584
7/31/2005 $13,290 $13,777 $13,843 $11,638
8/31/2005 $13,404 $13,886 $13,996 $11,697
9/30/2005 $13,334 $13,812 $13,889 $11,840
10/31/2005 $13,285 $13,742 $13,830 $11,864
11/30/2005 $13,318 $13,778 $13,887 $11,769
12/31/2005 $13,475 $13,924 $13,971 $11,721
1/31/2006 $13,509 $13,953 $13,970 $11,811
2/28/2006 $13,521 $13,977 $13,973 $11,834
3/31/2006 $13,429 $13,890 $13,930 $11,900
4/30/2006 $13,379 $13,843 $13,943 $12,001
5/31/2006 $13,329 $13,804 $13,947 $12,061
6/30/2006 $13,342 $13,803 $13,972 $12,085
7/31/2006 $13,505 $13,978 $14,118 $12,120
8/31/2006 $13,689 $14,171 $14,277 $12,144
9/30/2006 $13,788 $14,263 $14,380 $12,085
10/31/2006 $13,868 $14,350 $14,448 $12,019
11/30/2006 $14,014 $14,475 $14,564 $12,001
12/31/2006 $13,972 $14,450 $14,508 $12,019
1/31/2007 $13,966 $14,443 $14,510 $12,056
2/28/2007 $14,135 $14,606 $14,692 $12,120
3/31/2007 $14,151 $14,634 $14,730 $12,231
4/30/2007 $14,234 $14,700 $14,795 $12,310
5/31/2007 $14,139 $14,612 $14,711 $12,385
6/30/2007 $14,066 $14,536 $14,731 $12,409
7/31/2007 $14,193 $14,651 $14,912 $12,406
8/31/2007 $14,344 $14,798 $15,122 $12,383
9/30/2007 $14,427 $14,907 $15,225 $12,418
10/31/2007 $14,579 $15,053 $15,317 $12,444
11/30/2007 $14,867 $15,337 $15,686 $12,518
12/31/2007 $14,860 $15,352 $15,737 $12,510
1/31/2008 $15,105 $15,610 $16,108 $12,572
2/29/2008 $15,167 $15,698 $16,283 $12,608
3/31/2008 $15,206 $15,723 $16,384 $12,718
4/30/2008 $15,176 $15,685 $16,165 $12,795
5/31/2008 $15,075 $15,593 $16,020 $12,902
6/30/2008 $15,088 $15,604 $16,082 $13,032
7/31/2008 $15,101 $15,596 $16,167 $13,101
8/31/2008 $15,232 $15,716 $16,291 $13,049
9/30/2008 $15,293 $15,728 $16,370 $13,031
10/31/2008 $15,091 $15,433 $16,429 $12,899
11/30/2008 $15,606 $15,811 $16,992 $12,652
12/31/2008 $15,883 $16,151 $17,378 $12,521
1/31/2009 $15,872 $16,204 $17,159 $12,576
2/28/2009 $15,982 $16,324 $17,128 $12,638
3/31/2009 $16,214 $16,590 $17,365 $12,669
4/30/2009 $16,223 $16,675 $17,240 $12,700
5/31/2009 $16,257 $16,753 $17,162 $12,737
6/30/2009 $16,218 $16,790 $17,115 $12,847
7/31/2009 $16,375 $16,995 $17,189 $12,826
8/31/2009 $16,509 $17,153 $17,298 $12,855
9/30/2009 $16,593 $17,280 $17,394 $12,863
AVERAGE ANNUAL TOTAL RETURN
CLASS B 9/30/09
- ------- -------
1-Year +3.79%
5-Year +4.14%
10-Year +5.19%
CLASS B (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN U.S. BARCLAYS CAPITAL
GOVERNMENT SECURITIES LIPPER GNMA FUNDS U.S INTERMEDIATE
DATE FUND - CLASS B CLASSIFICATION AVERAGE GOVERNMENT INDEX CPI
- ---- --------------------- ---------------------- ---------------- -------
10/1/1999 $10,000 $10,000 $10,000 $10,000
10/31/1999 $10,049 $10,034 $10,020 $10,018
11/30/1999 $10,037 $10,041 $10,027 $10,024
12/31/1999 $ 9,994 $ 9,994 $ 9,995 $10,024
1/31/2000 $ 9,921 $ 9,917 $ 9,962 $10,054
2/29/2000 $10,017 $10,031 $10,044 $10,113
3/31/2000 $10,160 $10,182 $10,159 $10,197
4/30/2000 $10,148 $10,165 $10,155 $10,203
5/31/2000 $10,184 $10,202 $10,182 $10,214
6/30/2000 $10,347 $10,379 $10,344 $10,268
7/31/2000 $10,384 $10,425 $10,412 $10,292
8/31/2000 $10,533 $10,573 $10,529 $10,292
9/30/2000 $10,635 $10,665 $10,621 $10,345
10/31/2000 $10,690 $10,730 $10,694 $10,363
11/30/2000 $10,841 $10,887 $10,851 $10,369
12/31/2000 $10,994 $11,046 $11,042 $10,363
1/31/2001 $11,163 $11,217 $11,189 $10,429
2/28/2001 $11,201 $11,286 $11,292 $10,471
3/31/2001 $11,273 $11,352 $11,374 $10,494
4/30/2001 $11,262 $11,334 $11,338 $10,536
5/31/2001 $11,335 $11,406 $11,385 $10,584
6/30/2001 $11,374 $11,443 $11,421 $10,602
7/31/2001 $11,566 $11,669 $11,634 $10,572
8/31/2001 $11,639 $11,757 $11,738 $10,572
9/30/2001 $11,799 $11,925 $11,988 $10,619
10/31/2001 $11,940 $12,089 $12,175 $10,584
11/30/2001 $11,841 $11,962 $12,030 $10,566
12/31/2001 $11,776 $11,898 $11,972 $10,524
1/31/2002 $11,881 $12,014 $12,023 $10,548
2/28/2002 $12,005 $12,143 $12,123 $10,590
3/31/2002 $11,849 $11,991 $11,940 $10,649
4/30/2002 $12,061 $12,217 $12,164 $10,709
5/31/2002 $12,133 $12,297 $12,248 $10,709
6/30/2002 $12,223 $12,399 $12,402 $10,715
7/31/2002 $12,350 $12,546 $12,635 $10,727
8/31/2002 $12,459 $12,651 $12,780 $10,762
9/30/2002 $12,550 $12,765 $12,999 $10,780
10/31/2002 $12,588 $12,781 $12,990 $10,798
11/30/2002 $12,582 $12,775 $12,888 $10,798
12/31/2002 $12,722 $12,916 $13,126 $10,774
1/31/2003 $12,753 $12,943 $13,097 $10,822
2/28/2003 $12,802 $13,019 $13,245 $10,905
3/31/2003 $12,795 $13,011 $13,247 $10,971
4/30/2003 $12,826 $13,043 $13,285 $10,947
5/31/2003 $12,839 $13,074 $13,493 $10,929
6/30/2003 $12,852 $13,099 $13,471 $10,941
7/31/2003 $12,547 $12,816 $13,144 $10,953
8/31/2003 $12,635 $12,903 $13,168 $10,995
9/30/2003 $12,818 $13,117 $13,453 $11,030
10/31/2003 $12,755 $13,051 $13,321 $11,018
11/30/2003 $12,807 $13,091 $13,322 $10,989
12/31/2003 $12,881 $13,181 $13,426 $10,977
1/31/2004 $12,952 $13,247 $13,499 $11,030
2/29/2004 $13,023 $13,332 $13,628 $11,090
3/31/2004 $13,056 $13,377 $13,722 $11,161
4/30/2004 $12,836 $13,155 $13,416 $11,197
5/31/2004 $12,806 $13,119 $13,373 $11,263
6/30/2004 $12,914 $13,220 $13,407 $11,298
7/31/2004 $13,021 $13,321 $13,504 $11,281
8/31/2004 $13,189 $13,497 $13,704 $11,286
9/30/2004 $13,192 $13,505 $13,710 $11,310
10/31/2004 $13,281 $13,593 $13,794 $11,370
11/30/2004 $13,251 $13,548 $13,665 $11,376
12/31/2004 $13,301 $13,614 $13,740 $11,334
1/31/2005 $13,371 $13,681 $13,757 $11,358
2/28/2005 $13,320 $13,633 $13,681 $11,423
3/31/2005 $13,289 $13,600 $13,647 $11,513
4/30/2005 $13,401 $13,725 $13,806 $11,590
5/31/2005 $13,489 $13,805 $13,916 $11,578
6/30/2005 $13,515 $13,835 $13,962 $11,584
7/31/2005 $13,440 $13,777 $13,843 $11,638
8/31/2005 $13,549 $13,886 $13,996 $11,697
9/30/2005 $13,473 $13,812 $13,889 $11,840
10/31/2005 $13,417 $13,742 $13,830 $11,864
11/30/2005 $13,444 $13,778 $13,887 $11,769
12/31/2005 $13,597 $13,924 $13,971 $11,721
1/31/2006 $13,625 $13,953 $13,970 $11,811
2/28/2006 $13,632 $13,977 $13,973 $11,834
3/31/2006 $13,533 $13,890 $13,930 $11,900
4/30/2006 $13,476 $13,843 $13,943 $12,001
5/31/2006 $13,420 $13,804 $13,947 $12,061
6/30/2006 $13,428 $13,803 $13,972 $12,085
7/31/2006 $13,585 $13,978 $14,118 $12,120
8/31/2006 $13,765 $14,171 $14,277 $12,144
9/30/2006 $13,859 $14,263 $14,380 $12,085
10/31/2006 $13,935 $14,350 $14,448 $12,019
11/30/2006 $14,075 $14,475 $14,564 $12,001
12/31/2006 $14,027 $14,450 $14,508 $12,019
1/31/2007 $14,037 $14,443 $14,510 $12,056
2/28/2007 $14,179 $14,606 $14,692 $12,120
3/31/2007 $14,189 $14,634 $14,730 $12,231
4/30/2007 $14,265 $14,700 $14,795 $12,310
5/31/2007 $14,163 $14,612 $14,711 $12,385
6/30/2007 $14,084 $14,536 $14,731 $12,409
7/31/2007 $14,206 $14,651 $14,912 $12,406
8/31/2007 $14,351 $14,798 $15,122 $12,383
9/30/2007 $14,428 $14,907 $15,225 $12,418
10/31/2007 $14,579 $15,053 $15,317 $12,444
11/30/2007 $14,868 $15,337 $15,686 $12,518
12/31/2007 $14,861 $15,352 $15,737 $12,510
1/31/2008 $15,106 $15,610 $16,108 $12,572
2/29/2008 $15,168 $15,698 $16,283 $12,608
3/31/2008 $15,207 $15,723 $16,384 $12,718
4/30/2008 $15,177 $15,685 $16,165 $12,795
5/31/2008 $15,077 $15,593 $16,020 $12,902
6/30/2008 $15,089 $15,604 $16,082 $13,032
7/31/2008 $15,102 $15,596 $16,167 $13,101
8/31/2008 $15,234 $15,716 $16,291 $13,049
9/30/2008 $15,295 $15,728 $16,370 $13,031
10/31/2008 $15,093 $15,433 $16,429 $12,899
11/30/2008 $15,607 $15,811 $16,992 $12,652
12/31/2008 $15,884 $16,151 $17,378 $12,521
1/31/2009 $15,873 $16,204 $17,159 $12,576
2/28/2009 $15,982 $16,324 $17,128 $12,638
3/31/2009 $16,214 $16,590 $17,365 $12,669
4/30/2009 $16,224 $16,675 $17,240 $12,700
5/31/2009 $16,258 $16,753 $17,162 $12,737
6/30/2009 $16,219 $16,790 $17,115 $12,847
7/31/2009 $16,376 $16,995 $17,189 $12,826
8/31/2009 $16,509 $17,153 $17,298 $12,855
9/30/2009 $16,594 $17,280 $17,394 $12,863
Annual Report | 45
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 9/30/09
- ------- -------
1-Year +7.01%
5-Year +4.50%
10-Year +5.10%
CLASS C (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN U.S. BARCLAYS CAPITAL
GOVERNMENT SECURITIES LIPPER GNMA FUNDS U.S INTERMEDIATE
DATE FUND - CLASS C CLASSIFICATION AVERAGE GOVERNMENT INDEX CPI
- ---- --------------------- ---------------------- ---------------- -------
10/1/1999 $10,000 $10,000 $10,000 $10,000
10/31/1999 $10,049 $10,034 $10,020 $10,018
11/30/1999 $10,052 $10,041 $10,027 $10,024
12/31/1999 $10,009 $ 9,994 $ 9,995 $10,024
1/31/2000 $ 9,920 $ 9,917 $ 9,962 $10,054
2/29/2000 $10,032 $10,031 $10,044 $10,113
3/31/2000 $10,176 $10,182 $10,159 $10,197
4/30/2000 $10,147 $10,165 $10,155 $10,203
5/31/2000 $10,184 $10,202 $10,182 $10,214
6/30/2000 $10,347 $10,379 $10,344 $10,268
7/31/2000 $10,384 $10,425 $10,412 $10,292
8/31/2000 $10,534 $10,573 $10,529 $10,292
9/30/2000 $10,636 $10,665 $10,621 $10,345
10/31/2000 $10,706 $10,730 $10,694 $10,363
11/30/2000 $10,842 $10,887 $10,851 $10,369
12/31/2000 $10,994 $11,046 $11,042 $10,363
1/31/2001 $11,164 $11,217 $11,189 $10,429
2/28/2001 $11,203 $11,286 $11,292 $10,471
3/31/2001 $11,275 $11,352 $11,374 $10,494
4/30/2001 $11,281 $11,334 $11,338 $10,536
5/31/2001 $11,337 $11,406 $11,385 $10,584
6/30/2001 $11,376 $11,443 $11,421 $10,602
7/31/2001 $11,568 $11,669 $11,634 $10,572
8/31/2001 $11,642 $11,757 $11,738 $10,572
9/30/2001 $11,802 $11,925 $11,988 $10,619
10/31/2001 $11,943 $12,089 $12,175 $10,584
11/30/2001 $11,844 $11,962 $12,030 $10,566
12/31/2001 $11,778 $11,898 $11,972 $10,524
1/31/2002 $11,884 $12,014 $12,023 $10,548
2/28/2002 $12,007 $12,143 $12,123 $10,590
3/31/2002 $11,851 $11,991 $11,940 $10,649
4/30/2002 $12,064 $12,217 $12,164 $10,709
5/31/2002 $12,136 $12,297 $12,248 $10,709
6/30/2002 $12,227 $12,399 $12,402 $10,715
7/31/2002 $12,354 $12,546 $12,635 $10,727
8/31/2002 $12,463 $12,651 $12,780 $10,762
9/30/2002 $12,573 $12,765 $12,999 $10,780
10/31/2002 $12,592 $12,781 $12,990 $10,798
11/30/2002 $12,587 $12,775 $12,888 $10,798
12/31/2002 $12,727 $12,916 $13,126 $10,774
1/31/2003 $12,758 $12,943 $13,097 $10,822
2/28/2003 $12,826 $13,019 $13,245 $10,905
3/31/2003 $12,802 $13,011 $13,247 $10,971
4/30/2003 $12,833 $13,043 $13,285 $10,947
5/31/2003 $12,828 $13,074 $13,493 $10,929
6/30/2003 $12,859 $13,099 $13,471 $10,941
7/31/2003 $12,553 $12,816 $13,144 $10,953
8/31/2003 $12,640 $12,903 $13,168 $10,995
9/30/2003 $12,824 $13,117 $13,453 $11,030
10/31/2003 $12,760 $13,051 $13,321 $11,018
11/30/2003 $12,811 $13,091 $13,322 $10,989
12/31/2003 $12,886 $13,181 $13,426 $10,977
1/31/2004 $12,958 $13,247 $13,499 $11,030
2/29/2004 $13,029 $13,332 $13,628 $11,090
3/31/2004 $13,061 $13,377 $13,722 $11,161
4/30/2004 $12,841 $13,155 $13,416 $11,197
5/31/2004 $12,811 $13,119 $13,373 $11,263
6/30/2004 $12,938 $13,220 $13,407 $11,298
7/31/2004 $13,026 $13,321 $13,504 $11,281
8/31/2004 $13,194 $13,497 $13,704 $11,286
9/30/2004 $13,197 $13,505 $13,710 $11,310
10/31/2004 $13,287 $13,593 $13,794 $11,370
11/30/2004 $13,257 $13,548 $13,665 $11,376
12/31/2004 $13,306 $13,614 $13,740 $11,334
1/31/2005 $13,376 $13,681 $13,757 $11,358
2/28/2005 $13,325 $13,633 $13,681 $11,423
3/31/2005 $13,295 $13,600 $13,647 $11,513
4/30/2005 $13,407 $13,725 $13,806 $11,590
5/31/2005 $13,495 $13,805 $13,916 $11,578
6/30/2005 $13,522 $13,835 $13,962 $11,584
7/31/2005 $13,446 $13,777 $13,843 $11,638
8/31/2005 $13,556 $13,886 $13,996 $11,697
9/30/2005 $13,479 $13,812 $13,889 $11,840
10/31/2005 $13,424 $13,742 $13,830 $11,864
11/30/2005 $13,451 $13,778 $13,887 $11,769
12/31/2005 $13,604 $13,924 $13,971 $11,721
1/31/2006 $13,632 $13,953 $13,970 $11,811
2/28/2006 $13,638 $13,977 $13,973 $11,834
3/31/2006 $13,539 $13,890 $13,930 $11,900
4/30/2006 $13,482 $13,843 $13,943 $12,001
5/31/2006 $13,426 $13,804 $13,947 $12,061
6/30/2006 $13,434 $13,803 $13,972 $12,085
7/31/2006 $13,592 $13,978 $14,118 $12,120
8/31/2006 $13,773 $14,171 $14,277 $12,144
9/30/2006 $13,868 $14,263 $14,380 $12,085
10/31/2006 $13,943 $14,350 $14,448 $12,019
11/30/2006 $14,084 $14,475 $14,564 $12,001
12/31/2006 $14,036 $14,450 $14,508 $12,019
1/31/2007 $14,024 $14,443 $14,510 $12,056
2/28/2007 $14,189 $14,606 $14,692 $12,120
3/31/2007 $14,198 $14,634 $14,730 $12,231
4/30/2007 $14,275 $14,700 $14,795 $12,310
5/31/2007 $14,172 $14,612 $14,711 $12,385
6/30/2007 $14,093 $14,536 $14,731 $12,409
7/31/2007 $14,216 $14,651 $14,912 $12,406
8/31/2007 $14,361 $14,798 $15,122 $12,383
9/30/2007 $14,438 $14,907 $15,225 $12,418
10/31/2007 $14,584 $15,053 $15,317 $12,444
11/30/2007 $14,845 $15,337 $15,686 $12,518
12/31/2007 $14,832 $15,352 $15,737 $12,510
1/31/2008 $15,071 $15,610 $16,108 $12,572
2/29/2008 $15,150 $15,698 $16,283 $12,608
3/31/2008 $15,183 $15,723 $16,384 $12,718
4/30/2008 $15,146 $15,685 $16,165 $12,795
5/31/2008 $15,038 $15,593 $16,020 $12,902
6/30/2008 $15,045 $15,604 $16,082 $13,032
7/31/2008 $15,027 $15,596 $16,167 $13,101
8/31/2008 $15,176 $15,716 $16,291 $13,049
9/30/2008 $15,230 $15,728 $16,370 $13,031
10/31/2008 $15,022 $15,433 $16,429 $12,899
11/30/2008 $15,531 $15,811 $16,992 $12,652
12/31/2008 $15,777 $16,151 $17,378 $12,521
1/31/2009 $15,760 $16,204 $17,159 $12,576
2/28/2009 $15,863 $16,324 $17,128 $12,638
3/31/2009 $16,088 $16,590 $17,365 $12,669
4/30/2009 $16,090 $16,675 $17,240 $12,700
5/31/2009 $16,117 $16,753 $17,162 $12,737
6/30/2009 $16,072 $16,790 $17,115 $12,847
7/31/2009 $16,246 $16,995 $17,189 $12,826
8/31/2009 $16,348 $17,153 $17,298 $12,855
9/30/2009 $16,450 $17,280 $17,394 $12,863
AVERAGE ANNUAL TOTAL RETURN
CLASS R 9/30/09
- ------- -------
1-Year +8.12%
5-Year +4.64%
Since Inception (1/1/02) +4.59%
CLASS R (1/1/02-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN U.S. BARCLAYS CAPITAL
GOVERNMENT SECURITIES LIPPER GNMA FUNDS U.S INTERMEDIATE
DATE FUND - CLASS R CLASSIFICATION AVERAGE GOVERNMENT INDEX CPI
- ---- --------------------- ---------------------- ---------------- -------
1/1/2002 $10,000 $10,000 $10,000 $10,000
1/31/2002 $10,109 $10,098 $10,043 $10,023
2/28/2002 $10,215 $10,206 $10,126 $10,062
3/31/2002 $10,098 $10,078 $ 9,974 $10,119
4/30/2002 $10,281 $10,268 $10,160 $10,175
5/31/2002 $10,343 $10,336 $10,231 $10,175
6/30/2002 $10,421 $10,422 $10,359 $10,181
7/31/2002 $10,530 $10,544 $10,554 $10,192
8/31/2002 $10,625 $10,633 $10,675 $10,226
9/30/2002 $10,704 $10,729 $10,858 $10,243
10/31/2002 $10,722 $10,743 $10,851 $10,260
11/30/2002 $10,733 $10,737 $10,765 $10,260
12/31/2002 $10,854 $10,855 $10,964 $10,238
1/31/2003 $10,866 $10,878 $10,940 $10,283
2/28/2003 $10,924 $10,942 $11,063 $10,362
3/31/2003 $10,921 $10,936 $11,065 $10,424
4/30/2003 $10,948 $10,962 $11,097 $10,402
5/31/2003 $10,945 $10,988 $11,271 $10,385
6/30/2003 $10,958 $11,009 $11,252 $10,396
7/31/2003 $10,715 $10,771 $10,979 $10,407
8/31/2003 $10,791 $10,845 $10,999 $10,447
9/30/2003 $10,948 $11,025 $11,237 $10,481
10/31/2003 $10,897 $10,970 $11,127 $10,470
11/30/2003 $10,926 $11,003 $11,128 $10,441
12/31/2003 $11,008 $11,078 $11,215 $10,430
1/31/2004 $11,053 $11,134 $11,276 $10,481
2/29/2004 $11,115 $11,205 $11,383 $10,538
3/31/2004 $11,160 $11,243 $11,462 $10,606
4/30/2004 $10,975 $11,057 $11,206 $10,640
5/31/2004 $10,950 $11,027 $11,170 $10,702
6/30/2004 $11,044 $11,112 $11,199 $10,736
7/31/2004 $11,121 $11,196 $11,280 $10,719
8/31/2004 $11,265 $11,344 $11,447 $10,724
9/30/2004 $11,286 $11,351 $11,452 $10,747
10/31/2004 $11,364 $11,424 $11,522 $10,804
11/30/2004 $11,323 $11,387 $11,415 $10,809
12/31/2004 $11,384 $11,443 $11,477 $10,770
1/31/2005 $11,445 $11,499 $11,491 $10,792
2/28/2005 $11,386 $11,458 $11,427 $10,855
3/31/2005 $11,361 $11,431 $11,399 $10,939
4/30/2005 $11,475 $11,536 $11,532 $11,013
5/31/2005 $11,534 $11,603 $11,624 $11,002
6/30/2005 $11,559 $11,628 $11,662 $11,007
7/31/2005 $11,513 $11,580 $11,563 $11,058
8/31/2005 $11,590 $11,671 $11,691 $11,115
9/30/2005 $11,544 $11,609 $11,601 $11,251
10/31/2005 $11,481 $11,550 $11,552 $11,273
11/30/2005 $11,505 $11,580 $11,600 $11,183
12/31/2005 $11,638 $11,703 $11,670 $11,138
1/31/2006 $11,663 $11,727 $11,669 $11,222
2/28/2006 $11,670 $11,747 $11,671 $11,245
3/31/2006 $11,604 $11,674 $11,635 $11,307
4/30/2006 $11,539 $11,635 $11,646 $11,404
5/31/2006 $11,510 $11,602 $11,650 $11,460
6/30/2006 $11,500 $11,601 $11,671 $11,483
7/31/2006 $11,655 $11,748 $11,793 $11,517
8/31/2006 $11,810 $11,911 $11,925 $11,539
9/30/2006 $11,892 $11,988 $12,012 $11,483
10/31/2006 $11,957 $12,061 $12,069 $11,420
11/30/2006 $12,061 $12,166 $12,165 $11,404
12/31/2006 $12,040 $12,145 $12,119 $11,420
1/31/2007 $12,031 $12,139 $12,120 $11,455
2/28/2007 $12,173 $12,276 $12,272 $11,517
3/31/2007 $12,183 $12,300 $12,304 $11,622
4/30/2007 $12,230 $12,355 $12,358 $11,697
5/31/2007 $12,164 $12,281 $12,288 $11,768
6/30/2007 $12,079 $12,217 $12,304 $11,791
7/31/2007 $12,185 $12,314 $12,456 $11,788
8/31/2007 $12,311 $12,438 $12,631 $11,767
9/30/2007 $12,398 $12,529 $12,718 $11,799
10/31/2007 $12,504 $12,652 $12,794 $11,824
11/30/2007 $12,749 $12,891 $13,103 $11,895
12/31/2007 $12,739 $12,904 $13,145 $11,887
1/31/2008 $12,944 $13,120 $13,455 $11,946
2/29/2008 $13,014 $13,194 $13,601 $11,980
3/31/2008 $13,024 $13,215 $13,685 $12,084
4/30/2008 $13,014 $13,183 $13,502 $12,157
5/31/2008 $12,923 $13,105 $13,381 $12,260
6/30/2008 $12,930 $13,115 $13,433 $12,383
7/31/2008 $12,917 $13,108 $13,504 $12,448
8/31/2008 $13,025 $13,209 $13,608 $12,399
9/30/2008 $13,093 $13,220 $13,674 $12,382
10/31/2008 $12,917 $12,971 $13,723 $12,257
11/30/2008 $13,355 $13,289 $14,194 $12,022
12/31/2008 $13,567 $13,575 $14,516 $11,897
1/31/2009 $13,553 $13,619 $14,333 $11,949
2/28/2009 $13,643 $13,720 $14,307 $12,009
3/31/2009 $13,837 $13,944 $14,505 $12,038
4/30/2009 $13,841 $14,015 $14,400 $12,068
5/31/2009 $13,866 $14,081 $14,335 $12,103
6/30/2009 $13,828 $14,112 $14,296 $12,207
7/31/2009 $13,979 $14,284 $14,358 $12,187
8/31/2009 $14,068 $14,417 $14,449 $12,215
9/30/2009 $14,157 $14,523 $14,529 $12,222
46 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 9/30/09
- ------------- -------
1-Year +8.63%
5-Year +5.18%
10-Year +5.78%
ADVISOR CLASS (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN U.S. BARCLAYS CAPITAL
GOVERNMENT SECURITIES LIPPER GNMA FUNDS U.S INTERMEDIATE
DATE FUND - ADVISOR CLASS CLASSIFICATION AVERAGE GOVERNMENT INDEX CPI
- ---- --------------------- ---------------------- ---------------- -------
10/1/1999 $10,000 $10,000 $10,000 $10,000
10/31/1999 $10,054 $10,034 $10,020 $10,018
11/30/1999 $10,048 $10,041 $10,027 $10,024
12/31/1999 $10,010 $ 9,994 $ 9,995 $10,024
1/31/2000 $ 9,942 $ 9,917 $ 9,962 $10,054
2/29/2000 $10,044 $10,031 $10,044 $10,113
3/31/2000 $10,193 $10,182 $10,159 $10,197
4/30/2000 $10,186 $10,165 $10,155 $10,203
5/31/2000 $10,228 $10,202 $10,182 $10,214
6/30/2000 $10,396 $10,379 $10,344 $10,268
7/31/2000 $10,439 $10,425 $10,412 $10,292
8/31/2000 $10,594 $10,573 $10,529 $10,292
9/30/2000 $10,702 $10,665 $10,621 $10,345
10/31/2000 $10,778 $10,730 $10,694 $10,363
11/30/2000 $10,920 $10,887 $10,851 $10,369
12/31/2000 $11,096 $11,046 $11,042 $10,363
1/31/2001 $11,256 $11,217 $11,189 $10,429
2/28/2001 $11,300 $11,286 $11,292 $10,471
3/31/2001 $11,379 $11,352 $11,374 $10,494
4/30/2001 $11,391 $11,334 $11,338 $10,536
5/31/2001 $11,453 $11,406 $11,385 $10,584
6/30/2001 $11,516 $11,443 $11,421 $10,602
7/31/2001 $11,715 $11,669 $11,634 $10,572
8/31/2001 $11,796 $11,757 $11,738 $10,572
9/30/2001 $11,946 $11,925 $11,988 $10,619
10/31/2001 $12,112 $12,089 $12,175 $10,584
11/30/2001 $12,018 $11,962 $12,030 $10,566
12/31/2001 $11,959 $11,898 $11,972 $10,524
1/31/2002 $12,055 $12,014 $12,023 $10,548
2/28/2002 $12,204 $12,143 $12,123 $10,590
3/31/2002 $12,052 $11,991 $11,940 $10,649
4/30/2002 $12,274 $12,217 $12,164 $10,709
5/31/2002 $12,354 $12,297 $12,248 $10,709
6/30/2002 $12,452 $12,399 $12,402 $10,715
7/31/2002 $12,587 $12,546 $12,635 $10,727
8/31/2002 $12,704 $12,651 $12,780 $10,762
9/30/2002 $12,822 $12,765 $12,999 $10,780
10/31/2002 $12,848 $12,781 $12,990 $10,798
11/30/2002 $12,849 $12,775 $12,888 $10,798
12/31/2002 $12,999 $12,916 $13,126 $10,774
1/31/2003 $13,037 $12,943 $13,097 $10,822
2/28/2003 $13,113 $13,019 $13,245 $10,905
3/31/2003 $13,114 $13,011 $13,247 $10,971
4/30/2003 $13,134 $13,043 $13,285 $10,947
5/31/2003 $13,154 $13,074 $13,493 $10,929
6/30/2003 $13,174 $13,099 $13,471 $10,941
7/31/2003 $12,869 $12,816 $13,144 $10,953
8/31/2003 $12,966 $12,903 $13,168 $10,995
9/30/2003 $13,180 $13,117 $13,453 $11,030
10/31/2003 $13,122 $13,051 $13,321 $11,018
11/30/2003 $13,162 $13,091 $13,322 $10,989
12/31/2003 $13,246 $13,181 $13,426 $10,977
1/31/2004 $13,326 $13,247 $13,499 $11,030
2/29/2004 $13,406 $13,332 $13,628 $11,090
3/31/2004 $13,447 $13,377 $13,722 $11,161
4/30/2004 $13,228 $13,155 $13,416 $11,197
5/31/2004 $13,226 $13,119 $13,373 $11,263
6/30/2004 $13,343 $13,220 $13,407 $11,298
7/31/2004 $13,441 $13,321 $13,504 $11,281
8/31/2004 $13,621 $13,497 $13,704 $11,286
9/30/2004 $13,631 $13,505 $13,710 $11,310
10/31/2004 $13,750 $13,593 $13,794 $11,370
11/30/2004 $13,706 $13,548 $13,665 $11,376
12/31/2004 $13,786 $13,614 $13,740 $11,334
1/31/2005 $13,866 $13,681 $13,757 $11,358
2/28/2005 $13,800 $13,633 $13,681 $11,423
3/31/2005 $13,776 $13,600 $13,647 $11,513
4/30/2005 $13,898 $13,725 $13,806 $11,590
5/31/2005 $13,997 $13,805 $13,916 $11,578
6/30/2005 $14,032 $13,835 $13,962 $11,584
7/31/2005 $13,983 $13,777 $13,843 $11,638
8/31/2005 $14,082 $13,886 $13,996 $11,697
9/30/2005 $14,032 $13,812 $13,889 $11,840
10/31/2005 $13,961 $13,742 $13,830 $11,864
11/30/2005 $13,997 $13,778 $13,887 $11,769
12/31/2005 $14,163 $13,924 $13,971 $11,721
1/31/2006 $14,199 $13,953 $13,970 $11,811
2/28/2006 $14,214 $13,977 $13,973 $11,834
3/31/2006 $14,119 $13,890 $13,930 $11,900
4/30/2006 $14,067 $13,843 $13,943 $12,001
5/31/2006 $14,039 $13,804 $13,947 $12,061
6/30/2006 $14,032 $13,803 $13,972 $12,085
7/31/2006 $14,226 $13,978 $14,118 $12,120
8/31/2006 $14,422 $14,171 $14,277 $12,144
9/30/2006 $14,528 $14,263 $14,380 $12,085
10/31/2006 $14,614 $14,350 $14,448 $12,019
11/30/2006 $14,746 $14,475 $14,564 $12,001
12/31/2006 $14,726 $14,450 $14,508 $12,019
1/31/2007 $14,721 $14,443 $14,510 $12,056
2/28/2007 $14,900 $14,606 $14,692 $12,120
3/31/2007 $14,918 $14,634 $14,730 $12,231
4/30/2007 $14,982 $14,700 $14,795 $12,310
5/31/2007 $14,907 $14,612 $14,711 $12,385
6/30/2007 $14,809 $14,536 $14,731 $12,409
7/31/2007 $14,945 $14,651 $14,912 $12,406
8/31/2007 $15,105 $14,798 $15,122 $12,383
9/30/2007 $15,218 $14,907 $15,225 $12,418
10/31/2007 $15,355 $15,053 $15,317 $12,444
11/30/2007 $15,660 $15,337 $15,686 $12,518
12/31/2007 $15,654 $15,352 $15,737 $12,510
1/31/2008 $15,913 $15,610 $16,108 $12,572
2/29/2008 $16,004 $15,698 $16,283 $12,608
3/31/2008 $16,047 $15,723 $16,384 $12,718
4/30/2008 $16,018 $15,685 $16,165 $12,795
5/31/2008 $15,914 $15,593 $16,020 $12,902
6/30/2008 $15,928 $15,604 $16,082 $13,032
7/31/2008 $15,919 $15,596 $16,167 $13,101
8/31/2008 $16,058 $15,716 $16,291 $13,049
9/30/2008 $16,149 $15,728 $16,370 $13,031
10/31/2008 $15,938 $15,433 $16,429 $12,899
11/30/2008 $16,482 $15,811 $16,992 $12,652
12/31/2008 $16,751 $16,151 $17,378 $12,521
1/31/2009 $16,741 $16,204 $17,159 $12,576
2/28/2009 $16,859 $16,324 $17,128 $12,638
3/31/2009 $17,105 $16,590 $17,365 $12,669
4/30/2009 $17,143 $16,675 $17,240 $12,700
5/31/2009 $17,155 $16,753 $17,162 $12,737
6/30/2009 $17,141 $16,790 $17,115 $12,847
7/31/2009 $17,309 $16,995 $17,189 $12,826
8/31/2009 $17,451 $17,153 $17,298 $12,855
9/30/2009 $17,542 $17,280 $17,394 $12,863
ENDNOTES
THE FUND'S SHARE PRICE AND YIELD WILL BE AFFECTED BY INTEREST RATE MOVEMENTS AND
MORTGAGE PREPAYMENTS. BOND PRICES GENERALLY MOVE IN THE OPPOSITE DIRECTION OF
INTEREST RATES. THUS, AS PRICES OF BONDS IN THE FUND ADJUST TO A RISE IN
INTEREST RATES, THE FUND'S SHARE PRICE MAY DECLINE. THE FUND'S PROSPECTUS ALSO
INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial sales
charge; thus actual total returns would have differed. These
shares have higher annual fees and expenses than Class A shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) Distribution rate is based on an annualization of the respective class's
September dividend and the maximum offering price (NAV for Classes B, C, R
and Advisor) per share on 9/30/09.
(4.) The 30-day standardized yield for the 30 days ended 9/30/09 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(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.
(6.) Sources: (C) 2009 Morningstar; Lipper Inc. The BC U.S. Government:
Intermediate Index is the intermediate component of the BC U.S. Government
Index. The index includes public obligations of the U.S. Treasury with at
least one year to final maturity and publicly issued debt of U.S.
government agencies, quasi-federal corporations, and corporate or foreign
debt guaranteed by the U.S. government. 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 Government National Mortgage
Association securities. For the 12-month period ended 9/30/09, there were
64 funds in this category. Lipper calculations do not include sales charges
or expense subsidization by a fund's manager. The Fund's performance
relative to the average may have differed if these or other factors had
been considered. The Consumer Price Index (CPI), calculated by the U.S.
Bureau of Labor Statistics, is a commonly used measure of the inflation
rate.
Annual Report | 47
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.
48 | Annual Report
Your Fund's Expenses (CONTINUED)
PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES.
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.
EXPENSES
PAID DURING
BEGINNING ACCOUNT ENDING ACCOUNT PERIOD*
VALUE 4/1/09 VALUE 9/30/09 4/1/09-9/30/09
----------------- -------------- --------------
CLASS A
Actual $1,000 $1,023.40 $3.75
Hypothetical (5% return before expenses) $1,000 $1,021.36 $3.75
CLASS B
Actual $1,000 $1,020.80 $6.28
Hypothetical (5% return before expenses) $1,000 $1,018.85 $6.28
CLASS C
Actual $1,000 $1,022.50 $6.34
Hypothetical (5% return before expenses) $1,000 $1,018.80 $6.33
CLASS R
Actual $1,000 $1,023.10 $5.58
Hypothetical (5% return before expenses) $1,000 $1,019.55 $5.57
ADVISOR CLASS
Actual $1,000 $1,025.50 $3.05
Hypothetical (5% return before expenses) $1,000 $1,022.06 $3.04
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.74%; B: 1.24%; C: 1.25%; R: 1.10%; and
Advisor: 0.60%), multiplied by the average account value over the period,
multiplied by 183/365 to reflect the one-half year period.
Annual Report | 49
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 9/30/09
(BAR CHART)
Electric Utilities 49.9%
Multi-Utilities 36.5%
Independent Power Producers & Energy Traders 3.9%
Oil, Gas & Consumable Fuels 3.0%
Diversified Telecommunication Services 2.7%
Water Utilities 1.3%
Gas Utilities 0.4%
Short-Term Investments & Other Net Assets 2.3%
This annual report for Franklin Utilities Fund covers the fiscal year ended
September 30, 2009.
PERFORMANCE OVERVIEW
Franklin Utilities Fund - Class A had a -5.20% cumulative total return for the
12 months under review. The Fund performed better than its broad benchmark, the
Standard & Poor's 500 Index (S&P 500), which had a -6.91% total return for the
same period.(1) The Fund also performed better than the -7.06% 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 52.
INVESTMENT STRATEGY
We search for the best return opportunities available in the global utilities
arena with a specific focus on the U.S. electricity and gas sector. Generally,
we look for companies producing a high percentage of earnings from regulated
utility franchise operations.
MANAGER'S DISCUSSION
As investors' risk appetite increased during the period's latter half, investors
moved out of more defensive investments, such as utilities, and into more
cyclical sectors. Largely as a result, utilities stocks underperformed most
other sectors during the Fund's fiscal year.
(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.
(2.) Source: (C) 2009 Morningstar. The S&P 500 Utilities Index is a market
capitalization-weighted index that includes utility stocks in the S&P 500.
The indexes are unmanaged and include reinvested dividends. One cannot invest
directly in an index, and an index is not 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 109.
50 | Annual Report
Some of the Fund's largest detractors from performance were electric utilities
FirstEnergy, which serves a region including Ohio, Pennsylvania and New Jersey,
and Exelon, which operates in northern Illinois and southeastern Pennsylvania.
Other electric utility holdings that hurt results were Entergy and Pepco
Holdings. Declining electricity prices caused a potential hindrance to these
companies' profitability as they sell some power at market-based pricing.
Another under-performer was The Southern Co., whose Georgia service territory
experienced a significant economic downturn, which caused Southern's operations
to weaken.
Several holdings posted gains during the fiscal year, which helped mitigate the
Fund's losses from other securities. Among the most significant contributors to
performance were Constellation Energy Group, a Baltimore-based utility company,
FPL Group, a Florida-based electric utility, and NV Energy, an electric utility
company serving parts of California and Nevada. Constellation's share price
increased following negotiations conducted in late 2008 to shore up the
company's balance sheet. The company's credit quality was severely impacted in
2008 as its energy marketing business required significant capital contributions
to maintain its viability. FPL benefited from increased interest in renewable
energy, as it is the country's largest operator of wind-powered generation. NV
Energy's share price increased as the company maneuvered through regulatory
proceedings allowing for recovery of recent capital investments.
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 SEPTEMBER 30, 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
9/30/09
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
- --------------- ----------
Exelon Corp.
ELECTRIC UTILITIES 4.8%
Entergy Corp.
ELECTRIC UTILITIES 4.2%
PG&E Corp.
MULTI-UTILITIES 4.1%
Sempra Energy
MULTI-UTILITIES 4.1%
The Southern Co.
ELECTRIC UTILITIES 4.0%
PPL Corp.
ELECTRIC UTILITIES 3.8%
FirstEnergy Corp.
ELECTRIC UTILITIES 3.8%
FPL Group Inc.
ELECTRIC UTILITIES 3.7%
American Electric Power Company Inc.
ELECTRIC UTILITIES 3.3%
Public Service Enterprise Group Inc.
MULTI-UTILITIES 3.2%
Annual Report | 51
Performance Summary as of 9/30/09
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 and graphs do not reflect any taxes
that a shareholder would pay on Fund dividends, capital gain distributions, if
any, or any realized gains on the sale of Fund shares. Total return reflects
reinvestment of the Fund's dividends and capital gain distributions, if any, and
any unrealized gains or losses.
PRICE AND DISTRIBUTION INFORMATION
CLASS A (SYMBOL: FKUTX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.18 $10.74 $11.92
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.4240
Long-Term Capital Gain $0.0773
TOTAL $0.5013
CLASS B (SYMBOL: FRUBX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.17 $10.74 $11.91
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.3691
Long-Term Capital Gain $0.0773
TOTAL $0.4464
CLASS C (SYMBOL: FRUSX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.17 $10.71 $11.88
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.3713
Long-Term Capital Gain $0.0773
TOTAL $0.4486
CLASS R (SYMBOL: FRURX) CHANGE 9/30/09 9/30/08
- ----------------------- ------ ------- -------
Net Asset Value (NAV) -$1.18 $10.71 $11.89
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.3874
Long-Term Capital Gain $0.0773
TOTAL $0.4647
ADVISOR CLASS (SYMBOL: FRUAX) CHANGE 9/30/09 9/30/08
- ----------------------------- ------ ------- -------
Net Asset Value (NAV) -$1.19 $10.79 $11.98
DISTRIBUTIONS (10/1/08-9/30/09)
Dividend Income $0.4391
Long-Term Capital Gain $0.0773
TOTAL $0.5164
52 | Annual 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 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- ---------
Cumulative Total Return(1) -5.20% +38.52% +102.58%
Average Annual Total Return(2) -9.24% +5.81% +6.85%
Value of $10,000 Investment(3) $9,076 $13,265 $ 19,389
Distribution Rate(4) 3.74%
30-Day Standardized Yield(5) 3.59%
Total Annual Operating Expenses(6) 0.74%
CLASS B 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- ---------
Cumulative Total Return(1) -5.65% +35.16% +94.76%
Average Annual Total Return(2) -9.26% +5.89% +6.89%
Value of $10,000 Investment(3) $9,074 $13,316 $ 19,476
Distribution Rate(4) 3.40%
30-Day Standardized Yield(5) 3.24%
Total Annual Operating Expenses(6) 1.24%
CLASS C 1-YEAR 5-YEAR 10-YEAR
- ------- ------ ------- ---------
Cumulative Total Return(1) -5.64% +35.20% +92.80%
Average Annual Total Return(2) -6.55% +6.22% +6.79%
Value of $10,000 Investment(3) $9,345 $13,520 $ 19,280
Distribution Rate(4) 3.42%
30-Day Standardized Yield(5) 3.24%
Total Annual Operating Expenses(6) 1.24%
INCEPTION
CLASS R 1-YEAR 5-YEAR (1/1/02)
- ------- ------ ------- ---------
Cumulative Total Return(1) -5.57% +36.07% +59.06%
Average Annual Total Return(2) -5.57% +6.35% +6.18%
Value of $10,000 Investment(3) $9,443 $13,607 $ 15,906
Distribution Rate(4) 3.58%
30-Day Standardized Yield(5) 3.40%
Total Annual Operating Expenses(6) 1.09%
ADVISOR CLASS 1-YEAR 5-YEAR 10-YEAR
- ------------- ------ ------- ---------
Cumulative Total Return(1) -5.12% +39.50% +105.63%
Average Annual Total Return(2) -5.12% +6.89% +7.48%
Value of $10,000 Investment(3) $9,488 $13,950 $ 20,563
Distribution Rate(4) 4.03%
30-Day Standardized Yield(5) 3.90%
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.
Annual Report | 53
Performance Summary (CONTINUED)
TOTAL RETURN INDEX COMPARISON FOR A HYPOTHETICAL $10,000 INVESTMENT
Total return represents the change in value of an investment over the periods
shown. It includes any current, applicable, maximum sales charge, Fund expenses,
account fees and reinvested distributions. The unmanaged indexes include
reinvestment of any income or distributions. They differ from the Fund in
composition and do not pay management fees or expenses. One cannot invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURN
CLASS A 9/30/09
- ------- -------
1-Year -9.24%
5-Year +5.81%
10-Year +6.85%
CLASS A (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN S&P 500
UTILITIES S&P 500 UTILITIES
DATE FUND - CLASS A INDEX INDEX
- ---------- -------------- ------- ---------
10/1/1999 $ 9,571 $10,000 $10,000
10/31/1999 $ 9,741 $10,633 $10,144
11/30/1999 $ 9,172 $10,849 $ 9,391
12/31/1999 $ 9,042 $11,488 $ 9,484
1/31/2000 $ 9,558 $10,911 $10,513
2/29/2000 $ 8,853 $10,704 $ 9,864
3/31/2000 $ 9,154 $11,751 $10,193
4/30/2000 $ 9,698 $11,398 $10,986
5/31/2000 $ 9,826 $11,164 $11,467
6/30/2000 $ 9,385 $11,439 $10,784
7/31/2000 $ 9,774 $11,260 $11,548
8/31/2000 $10,811 $11,960 $13,129
9/30/2000 $11,894 $11,328 $14,335
10/31/2000 $11,839 $11,281 $13,783
11/30/2000 $12,265 $10,391 $13,625
12/31/2000 $12,805 $10,442 $14,907
1/31/2001 $11,491 $10,812 $13,459
2/28/2001 $12,165 $ 9,827 $13,948
3/31/2001 $12,323 $ 9,204 $13,854
4/30/2001 $12,836 $ 9,919 $14,661
5/31/2001 $12,903 $ 9,986 $14,193
6/30/2001 $12,253 $ 9,743 $13,062
7/31/2001 $11,824 $ 9,647 $12,460
8/31/2001 $11,982 $ 9,043 $12,121
9/30/2001 $11,414 $ 8,313 $10,718
10/31/2001 $11,425 $ 8,471 $10,679
11/30/2001 $11,323 $ 9,121 $10,106
12/31/2001 $11,770 $ 9,201 $10,370
1/31/2002 $11,625 $ 9,067 $ 9,772
2/28/2002 $11,588 $ 8,892 $ 9,557
3/31/2002 $12,250 $ 9,226 $10,720
4/30/2002 $12,164 $ 8,667 $10,521
5/31/2002 $11,871 $ 8,603 $ 9,587
6/30/2002 $11,343 $ 7,990 $ 8,906
7/31/2002 $10,365 $ 7,367 $ 7,661
8/31/2002 $10,774 $ 7,416 $ 7,949
9/30/2002 $ 9,989 $ 6,610 $ 6,922
10/31/2002 $ 9,989 $ 7,192 $ 6,796
11/30/2002 $10,189 $ 7,615 $ 6,976
12/31/2002 $10,537 $ 7,167 $ 7,259
1/31/2003 $10,104 $ 6,980 $ 7,037
2/28/2003 $ 9,824 $ 6,875 $ 6,704
3/31/2003 $10,174 $ 6,942 $ 7,032
4/30/2003 $10,730 $ 7,514 $ 7,640
5/31/2003 $11,672 $ 7,909 $ 8,437
6/30/2003 $11,712 $ 8,010 $ 8,533
7/31/2003 $11,176 $ 8,152 $ 7,982
8/31/2003 $11,189 $ 8,310 $ 8,134
9/30/2003 $11,625 $ 8,222 $ 8,496
10/31/2003 $11,836 $ 8,687 $ 8,586
11/30/2003 $11,955 $ 8,764 $ 8,595
12/31/2003 $12,570 $ 9,223 $ 9,172
1/31/2004 $12,784 $ 9,393 $ 9,366
2/29/2004 $13,118 $ 9,523 $ 9,550
3/31/2004 $13,212 $ 9,380 $ 9,646
4/30/2004 $12,821 $ 9,232 $ 9,291
5/31/2004 $12,970 $ 9,359 $ 9,377
6/30/2004 $13,176 $ 9,541 $ 9,523
7/31/2004 $13,312 $ 9,225 $ 9,680
8/31/2004 $13,844 $ 9,263 $10,078
9/30/2004 $13,997 $ 9,363 $10,164
10/31/2004 $14,575 $ 9,506 $10,660
11/30/2004 $14,988 $ 9,891 $11,110
12/31/2004 $15,479 $10,227 $11,403
1/31/2005 $15,619 $ 9,978 $11,636
2/28/2005 $15,744 $10,188 $11,887
3/31/2005 $15,787 $10,007 $12,021
4/30/2005 $16,139 $ 9,818 $12,395
5/31/2005 $16,435 $10,130 $12,418
6/30/2005 $17,160 $10,144 $13,141
7/31/2005 $17,430 $10,522 $13,435
8/31/2005 $17,586 $10,426 $13,558
9/30/2005 $18,030 $10,510 $14,099
10/31/2005 $16,998 $10,335 $13,206
11/30/2005 $17,041 $10,726 $13,179
12/31/2005 $17,142 $10,729 $13,326
1/31/2006 $17,594 $11,014 $13,653
2/28/2006 $17,885 $11,043 $13,806
3/31/2006 $17,314 $11,181 $13,172
4/30/2006 $17,505 $11,331 $13,381
5/31/2006 $17,711 $11,005 $13,594
6/30/2006 $18,096 $11,020 $13,921
7/31/2006 $18,910 $11,088 $14,605
8/31/2006 $19,399 $11,352 $15,021
9/30/2006 $19,236 $11,644 $14,771
10/31/2006 $20,236 $12,024 $15,570
11/30/2006 $20,923 $12,252 $15,942
12/31/2006 $21,237 $12,424 $16,123
1/31/2007 $21,206 $12,612 $16,076
2/28/2007 $21,999 $12,365 $16,926
3/31/2007 $22,893 $12,504 $17,621
4/30/2007 $23,613 $13,057 $18,362
5/31/2007 $23,817 $13,513 $18,490
6/30/2007 $22,684 $13,289 $17,553
7/31/2007 $21,864 $12,877 $16,895
8/31/2007 $22,384 $13,070 $17,282
9/30/2007 $23,145 $13,558 $17,896
10/31/2007 $24,590 $13,774 $19,091
11/30/2007 $24,606 $13,198 $19,198
12/31/2007 $24,725 $13,107 $19,247
1/31/2008 $23,047 $12,321 $17,931
2/29/2008 $21,924 $11,920 $17,051
3/31/2008 $22,178 $11,869 $17,335
4/30/2008 $23,310 $12,447 $18,250
5/31/2008 $24,054 $12,608 $18,863
6/30/2008 $23,547 $11,545 $18,717
7/31/2008 $22,559 $11,448 $17,567
8/31/2008 $22,474 $11,614 $17,321
9/30/2008 $20,453 $10,579 $15,345
10/31/2008 $18,137 $ 8,802 $13,550
11/30/2008 $18,634 $ 8,171 $13,964
12/31/2008 $18,396 $ 8,257 $13,669
1/31/2009 $18,203 $ 7,561 $13,580
2/28/2009 $16,035 $ 6,756 $11,895
3/31/2009 $16,433 $ 7,348 $12,194
4/30/2009 $16,752 $ 8,051 $12,271
5/31/2009 $17,335 $ 8,502 $12,729
6/30/2009 $18,251 $ 8,519 $13,435
7/31/2009 $19,001 $ 9,163 $13,956
8/31/2009 $19,234 $ 9,494 $14,066
9/30/2009 $19,389 $ 9,848 $14,262
AVERAGE ANNUAL TOTAL RETURN
CLASS B 9/30/09
- ------- -------
1-Year -9.26%
5-Year +5.89%
10-Year +6.89%
CLASS B (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN S&P 500
UTILITIES S&P 500 UTILITIES
DATE FUND - CLASS B INDEX INDEX
- ---------- -------------- ------- ---------
10/1/1999 $10,000 $10,000 $10,000
10/31/1999 $10,188 $10,633 $10,144
11/30/1999 $ 9,593 $10,849 $ 9,391
12/31/1999 $ 9,458 $11,488 $ 9,484
1/31/2000 $ 9,997 $10,911 $10,513
2/29/2000 $ 9,239 $10,704 $ 9,864
3/31/2000 $ 9,563 $11,751 $10,193
4/30/2000 $10,119 $11,398 $10,986
5/31/2000 $10,252 $11,164 $11,467
6/30/2000 $ 9,781 $11,439 $10,784
7/31/2000 $10,186 $11,260 $11,548
8/31/2000 $11,254 $11,960 $13,129
9/30/2000 $12,379 $11,328 $14,335
10/31/2000 $12,310 $11,281 $13,783
11/30/2000 $12,753 $10,391 $13,625
12/31/2000 $13,310 $10,442 $14,907
1/31/2001 $11,945 $10,812 $13,459
2/28/2001 $12,633 $ 9,827 $13,948
3/31/2001 $12,793 $ 9,204 $13,854
4/30/2001 $13,314 $ 9,919 $14,661
5/31/2001 $13,384 $ 9,986 $14,193
6/30/2001 $12,706 $ 9,743 $13,062
7/31/2001 $12,250 $ 9,647 $12,460
8/31/2001 $12,414 $ 9,043 $12,121
9/30/2001 $11,812 $ 8,313 $10,718
10/31/2001 $11,823 $ 8,471 $10,679
11/30/2001 $11,717 $ 9,121 $10,106
12/31/2001 $12,177 $ 9,201 $10,370
1/31/2002 $12,015 $ 9,067 $ 9,772
2/28/2002 $11,977 $ 8,892 $ 9,557
3/31/2002 $12,646 $ 9,226 $10,720
4/30/2002 $12,557 $ 8,667 $10,521
5/31/2002 $12,254 $ 8,603 $ 9,587
6/30/2002 $11,710 $ 7,990 $ 8,906
7/31/2002 $10,676 $ 7,367 $ 7,661
8/31/2002 $11,098 $ 7,416 $ 7,949
9/30/2002 $10,290 $ 6,610 $ 6,922
10/31/2002 $10,290 $ 7,192 $ 6,796
11/30/2002 $10,497 $ 7,615 $ 6,976
12/31/2002 $10,842 $ 7,167 $ 7,259
1/31/2003 $10,397 $ 6,980 $ 7,037
2/28/2003 $10,109 $ 6,875 $ 6,704
3/31/2003 $10,458 $ 6,942 $ 7,032
4/30/2003 $11,016 $ 7,514 $ 7,640
5/31/2003 $11,985 $ 7,909 $ 8,437
6/30/2003 $12,027 $ 8,010 $ 8,533
7/31/2003 $11,478 $ 8,152 $ 7,982
8/31/2003 $11,478 $ 8,310 $ 8,134
9/30/2003 $11,926 $ 8,222 $ 8,496
10/31/2003 $12,129 $ 8,687 $ 8,586
11/30/2003 $12,251 $ 8,764 $ 8,595
12/31/2003 $12,866 $ 9,223 $ 9,172
1/31/2004 $13,085 $ 9,393 $ 9,366
2/29/2004 $13,427 $ 9,523 $ 9,550
3/31/2004 $13,522 $ 9,380 $ 9,646
4/30/2004 $13,108 $ 9,232 $ 9,291
5/31/2004 $13,246 $ 9,359 $ 9,377
6/30/2004 $13,455 $ 9,541 $ 9,523
7/31/2004 $13,594 $ 9,225 $ 9,680
8/31/2004 $14,138 $ 9,263 $10,078
9/30/2004 $14,276 $ 9,363 $10,164
10/31/2004 $14,867 $ 9,506 $10,660
11/30/2004 $15,275 $ 9,891 $11,110
12/31/2004 $15,780 $10,227 $11,403
1/31/2005 $15,908 $ 9,978 $11,636
2/28/2005 $16,036 $10,188 $11,887
3/31/2005 $16,072 $10,007 $12,021
4/30/2005 $16,416 $ 9,818 $12,395
5/31/2005 $16,703 $10,130 $12,418
6/30/2005 $17,441 $10,144 $13,141
7/31/2005 $17,716 $10,522 $13,435
8/31/2005 $17,860 $10,426 $13,558
9/30/2005 $18,289 $10,510 $14,099
10/31/2005 $17,256 $10,335 $13,206
11/30/2005 $17,285 $10,726 $13,179
12/31/2005 $17,380 $10,729 $13,326
1/31/2006 $17,838 $11,014 $13,653
2/28/2006 $18,119 $11,043 $13,806
3/31/2006 $17,532 $11,181 $13,172
4/30/2006 $17,726 $11,331 $13,381
5/31/2006 $17,919 $11,005 $13,594
6/30/2006 $18,287 $11,020 $13,921
7/31/2006 $19,111 $11,088 $14,605
8/31/2006 $19,606 $11,352 $15,021
9/30/2006 $19,431 $11,644 $14,771
10/31/2006 $20,427 $12,024 $15,570
11/30/2006 $21,121 $12,252 $15,942
12/31/2006 $21,413 $12,424 $16,123
1/31/2007 $21,381 $12,612 $16,076
2/28/2007 $22,182 $12,365 $16,926
3/31/2007 $23,056 $12,504 $17,621
4/30/2007 $23,782 $13,057 $18,362
5/31/2007 $23,972 $13,513 $18,490
6/30/2007 $22,831 $13,289 $17,553
7/31/2007 $21,990 $12,877 $16,895
8/31/2007 $22,514 $13,070 $17,282
9/30/2007 $23,251 $13,558 $17,896
10/31/2007 $24,702 $13,774 $19,091
11/30/2007 $24,717 $13,198 $19,198
12/31/2007 $24,835 $13,107 $19,247
1/31/2008 $23,151 $12,321 $17,931
2/29/2008 $22,022 $11,920 $17,051
3/31/2008 $22,277 $11,869 $17,335
4/30/2008 $23,416 $12,447 $18,250
5/31/2008 $24,162 $12,608 $18,863
6/30/2008 $23,653 $11,545 $18,717
7/31/2008 $22,662 $11,448 $17,567
8/31/2008 $22,575 $11,614 $17,321
9/30/2008 $20,546 $10,579 $15,345
10/31/2008 $18,218 $ 8,802 $13,550
11/30/2008 $18,717 $ 8,171 $13,964
12/31/2008 $18,478 $ 8,257 $13,669
1/31/2009 $18,284 $ 7,561 $13,580
2/28/2009 $16,106 $ 6,756 $11,895
3/31/2009 $16,506 $ 7,348 $12,194
4/30/2009 $16,826 $ 8,051 $12,271
5/31/2009 $17,411 $ 8,502 $12,729
6/30/2009 $18,331 $ 8,519 $13,435
7/31/2009 $19,084 $ 9,163 $13,956
8/31/2009 $19,317 $ 9,494 $14,066
9/30/2009 $19,476 $ 9,848 $14,262
54 | Annual Report
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
CLASS C 9/30/09
- ------- -------
1-Year -6.55%
5-Year +6.22%
10-Year +6.79%
CLASS C (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN S&P 500
UTILITIES S&P 500 UTILITIES
DATE FUND - CLASS C INDEX INDEX
- ---------- -------------- ------- ---------
10/1/1999 $10,000 $10,000 $10,000
10/31/1999 $10,177 $10,633 $10,144
11/30/1999 $ 9,572 $10,849 $ 9,391
12/31/1999 $ 9,434 $11,488 $ 9,484
1/31/2000 $ 9,972 $10,911 $10,513
2/29/2000 $ 9,225 $10,704 $ 9,864
3/31/2000 $ 9,548 $11,751 $10,193
4/30/2000 $10,104 $11,398 $10,986
5/31/2000 $10,238 $11,164 $11,467
6/30/2000 $ 9,766 $11,439 $10,784
7/31/2000 $10,171 $11,260 $11,548
8/31/2000 $11,240 $11,960 $13,129
9/30/2000 $12,365 $11,328 $14,335
10/31/2000 $12,297 $11,281 $13,783
11/30/2000 $12,740 $10,391 $13,625
12/31/2000 $13,297 $10,442 $14,907
1/31/2001 $11,930 $10,812 $13,459
2/28/2001 $12,619 $ 9,827 $13,948
3/31/2001 $12,780 $ 9,204 $13,854
4/30/2001 $13,301 $ 9,919 $14,661
5/31/2001 $13,370 $ 9,986 $14,193
6/30/2001 $12,692 $ 9,743 $13,062
7/31/2001 $12,236 $ 9,647 $12,460
8/31/2001 $12,400 $ 9,043 $12,121
9/30/2001 $11,809 $ 8,313 $10,718
10/31/2001 $11,820 $ 8,471 $10,679
11/30/2001 $11,703 $ 9,121 $10,106
12/31/2001 $12,162 $ 9,201 $10,370
1/31/2002 $12,012 $ 9,067 $ 9,772
2/28/2002 $11,974 $ 8,892 $ 9,557
3/31/2002 $12,643 $ 9,226 $10,720
4/30/2002 $12,542 $ 8,667 $10,521
5/31/2002 $12,238 $ 8,603 $ 9,587
6/30/2002 $11,694 $ 7,990 $ 8,906
7/31/2002 $10,671 $ 7,367 $ 7,661
8/31/2002 $11,093 $ 7,416 $ 7,949
9/30/2002 $10,285 $ 6,610 $ 6,922
10/31/2002 $10,272 $ 7,192 $ 6,796
11/30/2002 $10,492 $ 7,615 $ 6,976
12/31/2002 $10,837 $ 7,167 $ 7,259
1/31/2003 $10,392 $ 6,980 $ 7,037
2/28/2003 $10,104 $ 6,875 $ 6,704
3/31/2003 $10,455 $ 6,942 $ 7,032
4/30/2003 $11,013 $ 7,514 $ 7,640
5/31/2003 $11,982 $ 7,909 $ 8,437
6/30/2003 $12,013 $ 8,010 $ 8,533
7/31/2003 $11,463 $ 8,152 $ 7,982
8/31/2003 $11,476 $ 8,310 $ 8,134
9/30/2003 $11,908 $ 8,222 $ 8,496
10/31/2003 $12,112 $ 8,687 $ 8,586
11/30/2003 $12,248 $ 8,764 $ 8,595
12/31/2003 $12,850 $ 9,223 $ 9,172
1/31/2004 $13,069 $ 9,393 $ 9,366
2/29/2004 $13,411 $ 9,523 $ 9,550
3/31/2004 $13,507 $ 9,380 $ 9,646
4/30/2004 $13,106 $ 9,232 $ 9,291
5/31/2004 $13,231 $ 9,359 $ 9,377
6/30/2004 $13,439 $ 9,541 $ 9,523
7/31/2004 $13,579 $ 9,225 $ 9,680
8/31/2004 $14,123 $ 9,263 $10,078
9/30/2004 $14,262 $ 9,363 $10,164
10/31/2004 $14,853 $ 9,506 $10,660
11/30/2004 $15,261 $ 9,891 $11,110
12/31/2004 $15,767 $10,227 $11,403
1/31/2005 $15,895 $ 9,978 $11,636
2/28/2005 $16,023 $10,188 $11,887
3/31/2005 $16,059 $10,007 $12,021
4/30/2005 $16,403 $ 9,818 $12,395
5/31/2005 $16,690 $10,130 $12,418
6/30/2005 $17,429 $10,144 $13,141
7/31/2005 $17,689 $10,522 $13,435
8/31/2005 $17,848 $10,426 $13,558
9/30/2005 $18,278 $10,510 $14,099
10/31/2005 $17,229 $10,335 $13,206
11/30/2005 $17,273 $10,726 $13,179
12/31/2005 $17,370 $10,729 $13,326
1/31/2006 $17,813 $11,014 $13,653
2/28/2006 $18,109 $11,043 $13,806
3/31/2006 $17,522 $11,181 $13,172
4/30/2006 $17,716 $11,331 $13,381
5/31/2006 $17,895 $11,005 $13,594
6/30/2006 $18,279 $11,020 $13,921
7/31/2006 $19,104 $11,088 $14,605
8/31/2006 $19,584 $11,352 $15,021
9/30/2006 $19,410 $11,644 $14,771
10/31/2006 $20,407 $12,024 $15,570
11/30/2006 $21,102 $12,252 $15,942
12/31/2006 $21,394 $12,424 $16,123
1/31/2007 $21,362 $12,612 $16,076
2/28/2007 $22,164 $12,365 $16,926
3/31/2007 $23,041 $12,504 $17,621
4/30/2007 $23,768 $13,057 $18,362
5/31/2007 $23,958 $13,513 $18,490
6/30/2007 $22,816 $13,289 $17,553
7/31/2007 $21,974 $12,877 $16,895
8/31/2007 $22,498 $13,070 $17,282
9/30/2007 $23,238 $13,558 $17,896
10/31/2007 $24,693 $13,774 $19,091
11/30/2007 $24,693 $13,198 $19,198
12/31/2007 $24,795 $13,107 $19,247
1/31/2008 $23,107 $12,321 $17,931
2/29/2008 $21,976 $11,920 $17,051
3/31/2008 $22,221 $11,869 $17,335
4/30/2008 $23,342 $12,447 $18,250
5/31/2008 $24,072 $12,608 $18,863
6/30/2008 $23,549 $11,545 $18,717
7/31/2008 $22,558 $11,448 $17,567
8/31/2008 $22,473 $11,614 $17,321
9/30/2008 $20,435 $10,579 $15,345
10/31/2008 $18,113 $ 8,802 $13,550
11/30/2008 $18,594 $ 8,171 $13,964
12/31/2008 $18,347 $ 8,257 $13,669
1/31/2009 $18,155 $ 7,561 $13,580
2/28/2009 $16,001 $ 6,756 $11,895
3/31/2009 $16,374 $ 7,348 $12,194
4/30/2009 $16,674 $ 8,051 $12,271
5/31/2009 $17,258 $ 8,502 $12,729
6/30/2009 $18,169 $ 8,519 $13,435
7/31/2009 $18,919 $ 9,163 $13,956
8/31/2009 $19,115 $ 9,494 $14,066
9/30/2009 $19,280 $ 9,848 $14,262
AVERAGE ANNUAL TOTAL RETURN
CLASS R 9/30/09
- ------- -------
1-Year -5.57%
5-Year +6.35%
Since Inception (1/1/02) +6.18%
CLASS R (1/1/02-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN S&P 500
UTILITIES S&P 500 UTILITIES
DATE FUND - CLASS R INDEX INDEX
- ---------- -------------- ------- ---------
1/1/2002 $10,000 $10,000 $10,000
1/31/2002 $ 9,796 $ 9,854 $ 9,424
2/28/2002 $ 9,766 $ 9,664 $ 9,216
3/31/2002 $10,304 $10,027 $10,338
4/30/2002 $10,231 $ 9,420 $10,146
5/31/2002 $ 9,984 $ 9,350 $ 9,245
6/30/2002 $ 9,543 $ 8,684 $ 8,588
7/31/2002 $ 8,720 $ 8,007 $ 7,388
8/31/2002 $ 9,053 $ 8,060 $ 7,666
9/30/2002 $ 8,399 $ 7,184 $ 6,675
10/31/2002 $ 8,399 $ 7,816 $ 6,554
11/30/2002 $ 8,568 $ 8,276 $ 6,727
12/31/2002 $ 8,852 $ 7,790 $ 7,001
1/31/2003 $ 8,489 $ 7,586 $ 6,786
2/28/2003 $ 8,254 $ 7,472 $ 6,465
3/31/2003 $ 8,546 $ 7,545 $ 6,781
4/30/2003 $ 9,001 $ 8,166 $ 7,368
5/31/2003 $ 9,794 $ 8,596 $ 8,137
6/30/2003 $ 9,819 $ 8,706 $ 8,229
7/31/2003 $ 9,369 $ 8,859 $ 7,697
8/31/2003 $ 9,380 $ 9,032 $ 7,844
9/30/2003 $ 9,739 $ 8,936 $ 8,194
10/31/2003 $ 9,917 $ 9,442 $ 8,280
11/30/2003 $10,017 $ 9,525 $ 8,289
12/31/2003 $10,524 $10,024 $ 8,845
1/31/2004 $10,692 $10,208 $ 9,032
2/29/2004 $10,971 $10,350 $ 9,209
3/31/2004 $11,053 $10,194 $ 9,302
4/30/2004 $10,725 $10,034 $ 8,960
5/31/2004 $10,838 $10,172 $ 9,043
6/30/2004 $11,013 $10,370 $ 9,184
7/31/2004 $11,127 $10,026 $ 9,335
8/31/2004 $11,572 $10,067 $ 9,719
9/30/2004 $11,690 $10,176 $ 9,802
10/31/2004 $12,174 $10,332 $10,280
11/30/2004 $12,508 $10,750 $10,714
12/31/2004 $12,922 $11,115 $10,996
1/31/2005 $13,028 $10,844 $11,221
2/28/2005 $13,133 $11,073 $11,463
3/31/2005 $13,163 $10,877 $11,592
4/30/2005 $13,458 $10,670 $11,953
5/31/2005 $13,693 $11,010 $11,975
6/30/2005 $14,300 $11,025 $12,672
7/31/2005 $14,513 $11,435 $12,956
8/31/2005 $14,644 $11,331 $13,075
9/30/2005 $15,003 $11,423 $13,596
10/31/2005 $14,144 $11,232 $12,736
11/30/2005 $14,168 $11,657 $12,710
12/31/2005 $14,254 $11,661 $12,851
1/31/2006 $14,618 $11,970 $13,167
2/28/2006 $14,861 $12,003 $13,313
3/31/2006 $14,387 $12,152 $12,703
4/30/2006 $14,545 $12,315 $12,904
5/31/2006 $14,704 $11,961 $13,109
6/30/2006 $15,012 $11,977 $13,425
7/31/2006 $15,690 $12,051 $14,085
8/31/2006 $16,084 $12,338 $14,485
9/30/2006 $15,947 $12,655 $14,245
10/31/2006 $16,778 $13,068 $15,015
11/30/2006 $17,348 $13,316 $15,374
12/31/2006 $17,584 $13,503 $15,548
1/31/2007 $17,559 $13,707 $15,503
2/28/2007 $18,217 $13,439 $16,322
3/31/2007 $18,944 $13,590 $16,993
4/30/2007 $19,541 $14,192 $17,707
5/31/2007 $19,698 $14,687 $17,831
6/30/2007 $18,754 $14,443 $16,928
7/31/2007 $18,074 $13,995 $16,293
8/31/2007 $18,506 $14,205 $16,666
9/30/2007 $19,124 $14,736 $17,258
10/31/2007 $20,320 $14,970 $18,410
11/30/2007 $20,320 $14,345 $18,513
12/31/2007 $20,412 $14,245 $18,561
1/31/2008 $19,024 $13,391 $17,292
2/29/2008 $18,093 $12,956 $16,443
3/31/2008 $18,288 $12,900 $16,717
4/30/2008 $19,224 $13,528 $17,600
5/31/2008 $19,825 $13,703 $18,190
6/30/2008 $19,403 $12,548 $18,050
7/31/2008 $18,586 $12,442 $16,941
8/31/2008 $18,516 $12,622 $16,704
9/30/2008 $16,844 $11,498 $14,798
10/31/2008 $14,932 $ 9,567 $13,067
11/30/2008 $15,329 $ 8,880 $13,466
12/31/2008 $15,131 $ 8,975 $13,182
1/31/2009 $14,973 $ 8,218 $13,096
2/28/2009 $13,184 $ 7,343 $11,471
3/31/2009 $13,513 $ 7,986 $11,759
4/30/2009 $13,760 $ 8,751 $11,833
5/31/2009 $14,241 $ 9,240 $12,275
6/30/2009 $14,998 $ 9,259 $12,956
7/31/2009 $15,601 $ 9,959 $13,459
8/31/2009 $15,777 $10,318 $13,565
9/30/2009 $15,906 $10,703 $13,753
Annual Report | 55
Performance Summary (CONTINUED)
AVERAGE ANNUAL TOTAL RETURN
ADVISOR CLASS 9/30/09
- ------------- -------
1-Year -5.12%
5-Year +6.89%
10-Year +7.48%
ADVISOR CLASS (10/1/99-9/30/09)
(PERFORMANCE GRAPH)
FRANKLIN S&P 500
UTILITIES FUND - S&P 500 UTILITIES
DATE ADVISOR CLASS INDEX INDEX
- ---------- ---------------- ------- ---------
10/1/1999 $10,000 $10,000 $10,000
10/31/1999 $10,187 $10,633 $10,144
11/30/1999 $ 9,584 $10,849 $ 9,391
12/31/1999 $ 9,463 $11,488 $ 9,484
1/31/2000 $10,001 $10,911 $10,513
2/29/2000 $ 9,255 $10,704 $ 9,864
3/31/2000 $ 9,583 $11,751 $10,193
4/30/2000 $10,151 $11,398 $10,986
5/31/2000 $10,284 $11,164 $11,467
6/30/2000 $ 9,816 $11,439 $10,784
7/31/2000 $10,233 $11,260 $11,548
8/31/2000 $11,315 $11,960 $13,129
9/30/2000 $12,450 $11,328 $14,335
10/31/2000 $12,393 $11,281 $13,783
11/30/2000 $12,849 $10,391 $13,625
12/31/2000 $13,406 $10,442 $14,907
1/31/2001 $12,033 $10,812 $13,459
2/28/2001 $12,737 $ 9,827 $13,948
3/31/2001 $12,906 $ 9,204 $13,854
4/30/2001 $13,442 $ 9,919 $14,661
5/31/2001 $13,524 $ 9,986 $14,193
6/30/2001 $12,837 $ 9,743 $13,062
7/31/2001 $12,390 $ 9,647 $12,460
8/31/2001 $12,555 $ 9,043 $12,121
9/30/2001 $11,966 $ 8,313 $10,718
10/31/2001 $11,978 $ 8,471 $10,679
11/30/2001 $11,870 $ 9,121 $10,106
12/31/2001 $12,342 $ 9,201 $10,370
1/31/2002 $12,190 $ 9,067 $ 9,772
2/28/2002 $12,165 $ 8,892 $ 9,557
3/31/2002 $12,848 $ 9,226 $10,720
4/30/2002 $12,759 $ 8,667 $10,521
5/31/2002 $12,464 $ 8,603 $ 9,587
6/30/2002 $11,905 $ 7,990 $ 8,906
7/31/2002 $10,868 $ 7,367 $ 7,661
8/31/2002 $11,309 $ 7,416 $ 7,949
9/30/2002 $10,491 $ 6,610 $ 6,922
10/31/2002 $10,491 $ 7,192 $ 6,796
11/30/2002 $10,715 $ 7,615 $ 6,976
12/31/2002 $11,069 $ 7,167 $ 7,259
1/31/2003 $10,616 $ 6,980 $ 7,037
2/28/2003 $10,323 $ 6,875 $ 6,704
3/31/2003 $10,693 $ 6,942 $ 7,032
4/30/2003 $11,275 $ 7,514 $ 7,640
5/31/2003 $12,275 $ 7,909 $ 8,437
6/30/2003 $12,320 $ 8,010 $ 8,533
7/31/2003 $11,759 $ 8,152 $ 7,982
8/31/2003 $11,773 $ 8,310 $ 8,134
9/30/2003 $12,234 $ 8,222 $ 8,496
10/31/2003 $12,441 $ 8,687 $ 8,586
11/30/2003 $12,580 $ 8,764 $ 8,595
12/31/2003 $13,215 $ 9,223 $ 9,172
1/31/2004 $13,439 $ 9,393 $ 9,366
2/29/2004 $13,803 $ 9,523 $ 9,550
3/31/2004 $13,907 $ 9,380 $ 9,646
4/30/2004 $13,496 $ 9,232 $ 9,291
5/31/2004 $13,638 $ 9,359 $ 9,377
6/30/2004 $13,859 $ 9,541 $ 9,523
7/31/2004 $14,016 $ 9,225 $ 9,680
8/31/2004 $14,574 $ 9,263 $10,078
9/30/2004 $14,739 $ 9,363 $10,164
10/31/2004 $15,346 $ 9,506 $10,660
11/30/2004 $15,780 $ 9,891 $11,110
12/31/2004 $16,306 $10,227 $11,403
1/31/2005 $16,452 $ 9,978 $11,636
2/28/2005 $16,599 $10,188 $11,887
3/31/2005 $16,635 $10,007 $12,021
4/30/2005 $17,020 $ 9,818 $12,395
5/31/2005 $17,315 $10,130 $12,418
6/30/2005 $18,097 $10,144 $13,141
7/31/2005 $18,381 $10,522 $13,435
8/31/2005 $18,545 $10,426 $13,558
9/30/2005 $19,014 $10,510 $14,099
10/31/2005 $17,931 $10,335 $13,206
11/30/2005 $17,976 $10,726 $13,179
12/31/2005 $18,090 $10,729 $13,326
1/31/2006 $18,564 $11,014 $13,653
2/28/2006 $18,870 $11,043 $13,806
3/31/2006 $18,276 $11,181 $13,172
4/30/2006 $18,477 $11,331 $13,381
5/31/2006 $18,693 $11,005 $13,594
6/30/2006 $19,105 $11,020 $13,921
7/31/2006 $19,961 $11,088 $14,605
8/31/2006 $20,491 $11,352 $15,021
9/30/2006 $20,322 $11,644 $14,771
10/31/2006 $21,374 $12,024 $15,570
11/30/2006 $22,111 $12,252 $15,942
12/31/2006 $22,425 $12,424 $16,123
1/31/2007 $22,409 $12,612 $16,076
2/28/2007 $23,243 $12,365 $16,926
3/31/2007 $24,191 $12,504 $17,621
4/30/2007 $24,966 $13,057 $18,362
5/31/2007 $25,164 $13,513 $18,490
6/30/2007 $23,980 $13,289 $17,553
7/31/2007 $23,117 $12,877 $16,895
8/31/2007 $23,681 $13,070 $17,282
9/30/2007 $24,474 $13,558 $17,896
10/31/2007 $26,012 $13,774 $19,091
11/30/2007 $26,045 $13,198 $19,198
12/31/2007 $26,164 $13,107 $19,247
1/31/2008 $24,379 $12,321 $17,931
2/29/2008 $23,213 $11,920 $17,051
3/31/2008 $23,472 $11,869 $17,335
4/30/2008 $24,683 $12,447 $18,250
5/31/2008 $25,467 $12,608 $18,863
6/30/2008 $24,923 $11,545 $18,717
7/31/2008 $23,882 $11,448 $17,567
8/31/2008 $23,811 $11,614 $17,321
9/30/2008 $21,671 $10,579 $15,345
10/31/2008 $19,211 $ 8,802 $13,550
11/30/2008 $19,736 $ 8,171 $13,964
12/31/2008 $19,492 $ 8,257 $13,669
1/31/2009 $19,289 $ 7,561 $13,580
2/28/2009 $17,002 $ 6,756 $11,895
3/31/2009 $17,430 $ 7,348 $12,194
4/30/2009 $17,747 $ 8,051 $12,271
5/31/2009 $18,382 $ 8,502 $12,729
6/30/2009 $19,354 $ 8,519 $13,435
7/31/2009 $20,165 $ 9,163 $13,956
8/31/2009 $20,391 $ 9,494 $14,066
9/30/2009 $20,563 $ 9,848 $14,262
ENDNOTES
IN ADDITION TO SENSITIVITY TO OTHER FACTORS, SECURITIES ISSUED BY UTILITY
COMPANIES HAVE BEEN HISTORICALLY SENSITIVE TO INTEREST RATE CHANGES. WHEN
INTEREST RATES FALL, UTILITY SECURITIES PRICES, AND THUS A UTILITIES FUND'S
SHARE PRICE, TEND TO RISE; WHEN INTEREST RATES RISE, THEIR PRICES GENERALLY
FALL. THE FUND'S PROSPECTUS ALSO INCLUDES A DESCRIPTION OF THE MAIN INVESTMENT
RISKS.
CLASS B: These shares have higher annual fees and expenses than Class A
shares.
CLASS C: Prior to 1/1/04, these shares were offered with an initial
sales charge; thus actual total returns would have differed.
These shares have higher annual fees and expenses than Class A
shares.
CLASS R: Shares are available to certain eligible investors as described
in the prospectus. These shares have higher annual fees and
expenses than Class A shares.
ADVISOR CLASS: Shares are available to certain eligible investors as described
in the prospectus.
(1.) Cumulative total return represents the change in value of an investment
over the periods indicated.
(2.) Average annual total return represents the average annual change in value
of an investment over the periods indicated.
(3.) These figures represent the value of a hypothetical $10,000 investment in
the Fund over the periods indicated.
(4.) Distribution rate is based on an annualization of the respective class's
current quarterly dividend and the maximum offering price (NAV for Classes
B, C, R and Advisor) per share on 9/30/09.
(5.) The 30-day standardized yield for the 30 days ended 9/30/09 reflects an
estimated yield to maturity (assuming all portfolio securities are held to
maturity). It should be regarded as an estimate of the Fund's rate of
investment income, and it may not equal the Fund's actual income
distribution rate (which reflects the Fund's past dividends paid to
shareholders) or the income reported in the Fund's financial statements.
(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.
(7.) Source: (C) 2009 Morningstar. The S&P 500 consists of 500 stocks chosen for
market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is
one of the most widely used benchmarks of U.S. equity performance. The S&P
500 Utilities Index is a market capitalization-weighted index consisting of
all utility stocks in the S&P 500.
56 | Annual 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.
Annual Report | 57
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 ENDING EXPENSES PAID
ACCOUNT ACCOUNT DURING
VALUE VALUE PERIOD*
4/1/09 9/30/09 4/1/09-9/30/09
--------- --------- --------------
CLASS A
Actual $1,000 $1,179.90 $4.48
Hypothetical (5% return before expenses) $1,000 $1,020.96 $4.15
CLASS B
Actual $1,000 $1,176.90 $7.15
Hypothetical (5% return before expenses) $1,000 $1,018.50 $6.63
CLASS C
Actual $1,000 $1,177.60 $7.15
Hypothetical (5% return before expenses) $1,000 $1,018.50 $6.63
CLASS R
Actual $1,000 $1,177.20 $6.33
Hypothetical (5% return before expenses) $1,000 $1,019.25 $5.87
ADVISOR CLASS
Actual $1,000 $1,179.70 $3.61
Hypothetical (5% return before expenses) $1,000 $1,021.76 $3.35
* Expenses are calculated using the most recent six-month expense ratio,
annualized for each class (A: 0.82%; B: 1.31%; C: 1.31%; R: 1.16%; and
Advisor: 0.66%), multiplied by the average account value over the period,
multiplied by 183/365 to reflect the one-half year period.
58 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN DYNATECH FUND
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 24.87 $ 32.33 $ 25.80 $ 24.98 $ 22.01
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) .. (0.06) (0.08) (0.08) (0.05) (0.01)
Net realized and unrealized gains
(losses) ...................... (0.03) (6.67) 6.61 0.87 2.98
-------- -------- -------- -------- --------
Total from investment operations .... (0.09) (6.75) 6.53 0.82 2.97
-------- -------- -------- -------- --------
Less distributions from net realized
gains ............................ (1.58) (0.71) -- -- --
-------- -------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 23.20 $ 24.87 $ 32.33 $ 25.80 $ 24.98
======== ======== ======== ======== ========
Total return(e) ..................... 2.71% (21.36)% 25.31% 3.28% 13.49%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.16% 0.97% 0.99% 0.97% 1.00%
Net investment income (loss) ........ (0.34)% (0.26)% (0.30)% (0.20)% (0.02)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $503,472 $388,843 $553,347 $590,633 $628,732
Portfolio turnover rate ............. 46.05% 41.01% 18.03% 18.61% 17.26%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 59
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 23.48 $ 30.78 $ 24.75 $ 24.15 $ 21.43
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) .. (0.19) (0.29) (0.28) (0.23) (0.18)
Net realized and unrealized gains
(losses) ...................... (0.11) (6.30) 6.31 0.83 2.90
------- ------- ------- ------- -------
Total from investment operations .... (0.30) (6.59) 6.03 0.60 2.72
------- ------- ------- ------- -------
Less distributions from net realized
gains ............................ (1.58) (0.71) -- -- --
------- ------- ------- ------- -------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year ........ $ 21.60 $ 23.48 $ 30.78 $ 24.75 $ 24.15
======= ======= ======= ======= =======
Total return(e) ..................... 1.96% (21.96)% 24.36% 2.48% 12.69%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.91% 1.73% 1.75% 1.72% 1.74%
Net investment income (loss) ........ (1.09)% (1.02)% (1.06)% (0.95)% (0.76)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $13,682 $10,704 $16,625 $18,718 $19,497
Portfolio turnover rate ............. 46.05% 41.01% 18.03% 18.61% 17.26%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
60 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 23.23 $ 30.46 $ 24.50 $ 23.90 $ 21.21
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income (loss)(b) .. (0.19) (0.28) (0.28) (0.23) (0.17)
Net realized and unrealized gains
(losses) ...................... (0.12) (6.24) 6.24 0.83 2.86
------- ------- ------- ------- -------
Total from investment operations .... (0.31) (6.52) 5.96 0.60 2.69
------- ------- ------- ------- -------
Less distributions from net realized
gains ............................ (1.58) (0.71) -- -- --
------- ------- ------- ------- -------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year ........ $ 21.34 $ 23.23 $ 30.46 $ 24.50 $ 23.90
======= ======= ======= ======= =======
Total return(e) ..................... 1.89% (21.93)% 24.33% 2.51% 12.68%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.91% 1.73% 1.74% 1.71% 1.74%
Net investment income (loss) ........ (1.09)% (1.02)% (1.05)% (0.94)% (0.76)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $83,435 $53,289 $70,413 $69,069 $73,587
Portfolio turnover rate ............. 46.05% 41.01% 18.03% 18.61% 17.26%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 61
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
PERIOD ENDED
SEPTEMBER 30,
CLASS R 2009(a)
- ------- -------------
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) .. (0.09)
Net realized and unrealized gains
(losses) ...................... 7.56
------
Total from investment operations .... 7.47
------
Net asset value, end of period ...... $23.13
======
Total return(d) ..................... 47.70%
RATIOS TO AVERAGE NET ASSETS(e)
Expenses(f) ......................... 1.41%
Net investment income (loss) ........ (0.59)%
SUPPLEMENTAL DATA
Net assets, end of period (000's) ... $6,345
Portfolio turnover rate ............. 46.05%
(a) For the period December 1, 2008 (effective date) to September 30, 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%.
The accompanying notes are an integral part of these financial statements.
62 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN DYNATECH FUND
YEAR ENDED SEPTEMBER 30,
------------------------
ADVISOR CLASS 2009 2008(a)
- ------------- ------ -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $24.90 $ 31.40
------ -------
Income from investment operations(b):
Net investment income (loss)(c) .. (0.02) (0.01)
Net realized and unrealized gains
(losses) ...................... (0.02) (6.49)
------ -------
Total from investment operations .... (0.04) (6.50)
------ -------
Less distributions from net realized
gains ............................ (1.58) --
------ -------
Redemption fees(d) .................. -- --(e)
------ -------
Net asset value, end of year ........ $23.28 $ 24.90
====== =======
Total return(f) ..................... 2.92% (20.70)%
RATIOS TO AVERAGE NET ASSETS(g)
Expenses(h) ......................... 0.91% 0.73%
Net investment income (loss) ........ (0.09)% (0.02)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $8,208 $ 1,938
Portfolio turnover rate ............. 46.05% 41.01%
(a) For the period May 15, 2008 (effective date) to September 30, 2008.
(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) Effective September 1, 2008, the redemption fee was eliminated.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is not annualized for periods less than one year.
(g) Ratios are annualized for periods less than one year.
(h) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 63
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009
FRANKLIN DYNATECH FUND COUNTRY SHARES VALUE
---------------------- -------------- ------------------- ----------------
COMMON STOCKS 100.1%
AEROSPACE & DEFENSE 1.7%
Precision Castparts Corp. .................................. United States 100,000 $ 10,187,000
----------------
AIR FREIGHT & LOGISTICS 1.4%
C.H. Robinson Worldwide Inc. ............................... United States 150,000 8,662,500
----------------
BIOTECHNOLOGY 6.6%
(a) Amgen Inc. ................................................. United States 50,000 3,011,500
(a) Celgene Corp. .............................................. United States 250,000 13,975,000
(a) Gilead Sciences Inc. ....................................... United States 369,600 17,215,968
(a) Myriad Genetics Inc. ....................................... United States 175,000 4,795,000
(b) Talecris Biotherapeutics Holdings Corp. .................... United States 93,300 1,866,000
----------------
40,863,468
----------------
CAPITAL MARKETS 2.6%
The Goldman Sachs Group Inc. ............................... United States 55,000 10,139,250
Invesco Ltd. ............................................... United States 250,000 5,690,000
----------------
15,829,250
----------------
CHEMICALS 3.6%
Monsanto Co. ............................................... United States 125,000 9,675,000
Sigma-Aldrich Corp. ........................................ United States 225,000 12,145,500
----------------
21,820,500
----------------
COMMERCIAL BANKS 0.2%
Industrial and Commercial Bank of China Ltd., H ............ China 2,000,000 1,507,097
----------------
COMMERCIAL SERVICES & SUPPLIES 0.8%
(a) Stericycle Inc. ............................................ United States 100,000 4,845,000
----------------
COMMUNICATIONS EQUIPMENT 7.4%
(a) Cisco Systems Inc. ......................................... United States 500,000 11,770,000
(a) Juniper Networks Inc. ...................................... United States 60,000 1,621,200
QUALCOMM Inc. .............................................. United States 310,000 13,943,800
(a) Research In Motion Ltd. .................................... Canada 120,000 8,106,000
Tandberg ASA ............................................... Norway 400,000 9,574,247
ZTE Corp., H ............................................... China 100,000 527,742
----------------
45,542,989
----------------
COMPUTERS & PERIPHERALS 8.9%
(a) Apple Inc. ................................................. United States 220,000 40,781,400
Hewlett-Packard Co. ........................................ United States 300,000 14,163,000
----------------
54,944,400
----------------
CONSUMER FINANCE 0.6%
American Express Co. ....................................... United States 100,000 3,390,000
----------------
DIVERSIFIED FINANCIAL SERVICES 1.0%
CME Group Inc. ............................................. United States 20,000 6,163,800
----------------
ELECTRICAL EQUIPMENT 0.2%
(a) A123 System Inc. ........................................... United States 63,100 1,345,292
----------------
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS 0.9%
(a) Dolby Laboratories Inc., A ................................. United States 150,000 5,728,500
----------------
64 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN DYNATECH FUND COUNTRY SHARES VALUE
---------------------- -------------- ------------------- ----------------
COMMON STOCKS (CONTINUED)
ENERGY EQUIPMENT & SERVICES 6.4%
(a) FMC Technologies Inc. ...................................... United States 300,000 $ 15,672,000
(a) National Oilwell Varco Inc. ................................ United States 200,000 8,626,000
Schlumberger Ltd. .......................................... United States 200,000 11,920,000
(a) Weatherford International Ltd. ............................. United States 150,000 3,109,500
----------------
39,327,500
----------------
HEALTH CARE EQUIPMENT & SUPPLIES 4.4%
Alcon Inc. ................................................. Switzerland 50,000 6,933,500
Baxter International Inc. .................................. United States 100,000 5,701,000
(a) Edwards Lifesciences Corp. ................................. United States 30,000 2,097,300
(a) Intuitive Surgical Inc. .................................... United States 20,000 5,245,000
Stryker Corp. .............................................. United States 150,000 6,814,500
----------------
26,791,300
----------------
HEALTH CARE PROVIDERS & SERVICES 2.3%
(a) Express Scripts Inc. ....................................... United States 150,000 11,637,000
(a) VCA Antech Inc. ............................................ United States 100,000 2,689,000
----------------
14,326,000
----------------
HEALTH CARE TECHNOLOGY 1.8%
(a) Cerner Corp. ............................................... United States 150,000 11,220,000
----------------
INDUSTRIAL CONGLOMERATES 1.3%
General Electric Co. ....................................... United States 500,000 8,210,000
----------------
INTERNET & CATALOG RETAIL 3.9%
(a) Amazon.com Inc. ............................................ United States 150,000 14,004,000
(a) Priceline.com Inc. ......................................... United States 60,000 9,949,200
----------------
23,953,200
----------------
INTERNET SOFTWARE & SERVICES 9.3%
(a) Baidu Inc., ADR ............................................ China 25,000 9,776,250
(a) Google Inc., A ............................................. United States 50,200 24,891,670
(a) MercadoLibre Inc. .......................................... Argentina 100,000 3,846,000
(a) NetEase.com Inc., ADR ...................................... China 25,000 1,142,000
(a) Sohu.com Inc. .............................................. China 100,000 6,878,000
Tencent Holdings Ltd. ...................................... China 650,000 10,576,129
----------------
57,110,049
----------------
IT SERVICES 4.2%
MasterCard Inc., A ......................................... United States 42,000 8,490,300
Visa Inc., A ............................................... United States 250,000 17,277,500
----------------
25,767,800
----------------
LIFE SCIENCES TOOLS & SERVICES 2.9%
(a) Illumina Inc. .............................................. United States 100,000 4,250,000
(a) Thermo Fisher Scientific Inc. .............................. United States 125,000 5,458,750
(a) Waters Corp. ............................................... United States 150,000 8,379,000
----------------
18,087,750
----------------
MACHINERY 1.6%
Flowserve Corp. ............................................ United States 100,000 9,854,000
----------------
Annual Report | 65
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN DYNATECH FUND COUNTRY SHARES VALUE
---------------------- -------------- ------------------- ----------------
COMMON STOCKS (CONTINUED)
OIL, GAS & CONSUMABLE FUELS 0.8%
Petroleo Brasileiro SA, ADR ................................ Brazil 100,000 $ 4,590,000
----------------
PHARMACEUTICALS 5.9%
Allergan Inc. .............................................. United States 100,000 5,676,000
Johnson & Johnson .......................................... United States 75,000 4,566,750
Roche Holding AG ........................................... Switzerland 50,000 8,079,298
Teva Pharmaceutical Industries Ltd., ADR ................... Israel 350,000 17,696,000
----------------
36,018,048
----------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 9.1%
(a) Hittite Microwave Corp. .................................... United States 100,000 3,678,000
Intel Corp. ................................................ United States 1,125,000 22,016,250
(a) Lam Research Corp. ......................................... United States 200,000 6,832,000
Microchip Technology Inc. .................................. United States 175,000 4,637,500
(a) Netlogic Microsystems Inc. ................................. United States 125,000 5,625,000
(a) NVIDIA Corp. ............................................... United States 125,000 1,878,750
Power Integrations Inc. .................................... United States 100,000 3,333,000
(a) Silicon Laboratories Inc. .................................. United States 175,000 8,113,000
----------------
56,113,500
----------------
SOFTWARE 8.5%
(a) Activision Blizzard Inc. ................................... United States 500,000 6,195,000
(a) Adobe Systems Inc. ......................................... United States 400,000 13,216,000
(a) ANSYS Inc. ................................................. United States 150,000 5,620,500
(a) Autodesk Inc. .............................................. United States 175,000 4,165,000
(a) Concur Technologies Inc. ................................... United States 125,000 4,970,000
FactSet Research Systems Inc. .............................. United States 10,000 662,400
Microsoft Corp. ............................................ United States 250,000 6,472,500
Oracle Corp. ............................................... United States 250,000 5,210,000
(a) Salesforce.com Inc. ........................................ United States 100,000 5,693,000
----------------
52,204,400
----------------
WIRELESS TELECOMMUNICATION SERVICES 1.8%
America Movil SAB de CV, L, ADR ............................ Mexico 47,600 2,086,308
(a) American Tower Corp., A .................................... United States 250,000 9,100,000
----------------
11,186,308
----------------
TOTAL COMMON STOCKS (COST $357,160,889) .................... 615,589,651
OTHER ASSETS, LESS LIABILITIES (0.1)% ...................... (447,159)
----------------
NET ASSETS 100.0% .......................................... $ 615,142,492
================
See Abbreviations on page 143.
(a) Non-income producing.
(b) Security purchased on a delayed delivery basis. See Note 1(d).
The accompanying notes are an integral part of these financial statements.
66 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN GROWTH FUND
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 37.17 $ 46.36 $ 39.10 $ 34.83 $ 30.58
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) ......... 0.29 0.24 0.16 0.12 0.13
Net realized and unrealized gains
(losses) ...................... (0.67) (9.30) 7.21 4.21 4.20
---------- ---------- ---------- ---------- ----------
Total from investment operations .... (0.38) (9.06) 7.37 4.33 4.33
---------- ---------- ---------- ---------- ----------
Less distributions from net
investment income ................ (0.31) (0.13) (0.11) (0.06) (0.08)
---------- ---------- ---------- ---------- ----------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........ $ 36.48 $ 37.17 $ 46.36 $ 39.10 $ 34.83
========== ========== ========== ========== ==========
Total return(e) ..................... (0.71)% (19.59)% 18.87% 12.46% 14.17%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.00% 0.89% 0.93% 0.91% 0.94%
Net investment income ............... 0.95% 0.56% 0.37% 0.34% 0.40%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $2,173,714 $1,708,612 $2,123,419 $1,695,802 $1,567,675
Portfolio turnover rate ............. 3.92% 5.64% 0.37% 2.21% 1.16%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 67
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 35.44 $ 44.42 $ 37.65 $ 33.73 $ 29.77
------- ------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) .. 0.07 (0.08) (0.16) (0.15) (0.11)
Net realized and unrealized gains
(losses) ...................... (0.58) (8.90) 6.93 4.07 4.07
------- ------- -------- -------- --------
Total from investment operations .... (0.51) (8.98) 6.77 3.92 3.96
------- ------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
------- ------- -------- -------- --------
Net asset value, end of year ........ $ 34.93 $ 35.44 $ 44.42 $ 37.65 $ 33.73
======= ======= ======== ======== ========
Total return(e) ..................... (1.44)% (20.22)% 17.98% 11.62% 13.30%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.75% 1.64% 1.69% 1.67% 1.69%
Net investment income (loss) ........ 0.20% (0.19)% (0.39)% (0.42)% (0.35)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $87,790 $89,779 $138,640 $122,871 $123,926
Portfolio turnover rate ............. 3.92% 5.64% 0.37% 2.21% 1.16%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
68 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 35.14 $ 44.03 $ 37.32 $ 33.43 $ 29.51
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income (loss)(b) .. 0.06 (0.08) (0.16) (0.15) (0.11)
Net realized and unrealized gains
(losses) ...................... (0.57) (8.81) 6.87 4.04 4.03
-------- -------- -------- -------- --------
Total from investment operations .... (0.51) (8.89) 6.71 3.89 3.92
-------- -------- -------- -------- --------
Less distributions from net
investment income ................ (0.02) -- -- -- --
-------- -------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 34.61 $ 35.14 $ 44.03 $ 37.32 $ 33.43
======== ======== ======== ======== ========
Total return(e) ..................... (1.45)% (20.19)% 17.98% 11.60% 13.32%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.75% 1.64% 1.69% 1.66% 1.69%
Net investment income (loss) ........ 0.20% (0.19)% (0.39)% (0.41)% (0.35)%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $315,305 $255,425 $340,671 $273,512 $270,538
Portfolio turnover rate ............. 3.92% 5.64% 0.37% 2.21% 1.16%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 69
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
CLASS R 2009 2008 2007 2006 2005
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 36.87 $ 45.99 $ 38.80 $ 34.59 $ 30.39
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ......... 0.20 0.14 0.04 0.02 0.05
Net realized and unrealized gains
(losses) ...................... (0.59) (9.23) 7.16 4.19 4.16
------- ------- ------- ------- -------
Total from investment operations .... (0.39) (9.09) 7.20 4.21 4.21
------- ------- ------- ------- -------
Less distributions from net
investment income ................ (0.11) (0.03) (0.01) --(c) (0.01)
------- ------- ------- ------- -------
Redemption fees(d) .................. -- --(c) --(c) --(c) --(c)
------- ------- ------- ------- -------
Net asset value, end of year ........ $ 36.37 $ 36.87 $ 45.99 $ 38.80 $ 34.59
======= ======= ======= ======= =======
Total return(e) ..................... (0.98)% (19.78)% 18.55% 12.18% 13.87%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.25% 1.14% 1.19% 1.17% 1.19%
Net investment income ............... 0.70% 0.31% 0.11% 0.08% 0.15%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $65,113 $30,175 $53,134 $37,804 $27,818
Portfolio turnover rate ............. 3.92% 5.64% 0.37% 2.21% 1.16%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
70 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN GROWTH FUND
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 37.25 $ 46.45 $ 39.17 $ 34.89 $ 30.63
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.36 0.34 0.27 0.22 0.21
Net realized and unrealized gains
(losses) ...................... (0.68) (9.31) 7.21 4.21 4.21
-------- -------- -------- -------- --------
Total from investment operations .... (0.32) (8.97) 7.48 4.43 4.42
-------- -------- -------- -------- --------
Less distributions from net
investment income ................ (0.40) (0.23) (0.20) (0.15) (0.16)
-------- -------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 36.53 $ 37.25 $ 46.45 $ 39.17 $ 34.89
======== ======== ======== ======== ========
Total return ........................ (0.45)% (19.39)% 19.16% 12.73% 14.45%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) ......................... 0.75% 0.64% 0.69% 0.67% 0.69%
Net investment income ............... 1.20% 0.81% 0.61% 0.58% 0.65%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $430,926 $256,988 $363,221 $274,603 $221,752
Portfolio turnover rate ............. 3.92% 5.64% 0.37% 2.21% 1.16%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 71
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009
FRANKLIN GROWTH FUND SHARES VALUE
-------------------- ------------------- ----------------
COMMON STOCKS 99.5%
AUTOMOBILES & COMPONENTS 2.1%
(a) Ford Motor Co. .............................................................. 1,100,000 $ 7,931,000
Harley-Davidson Inc. ........................................................ 838,096 19,276,208
Johnson Controls Inc. ....................................................... 1,400,000 35,784,000
Toyota Motor Corp., ADR (Japan) ............................................. 30,000 2,357,100
----------------
65,348,308
----------------
BANKS 0.5%
Wells Fargo & Co. ........................................................... 505,600 14,247,808
----------------
CAPITAL GOODS 21.8%
3M Co. ...................................................................... 855,000 63,099,000
ABB Ltd., ADR (Switzerland) ................................................. 850,000 17,034,000
The Boeing Co. .............................................................. 1,045,000 56,586,750
Caterpillar Inc. ............................................................ 200,000 10,266,000
Danaher Corp. ............................................................... 275,000 18,513,000
Deere & Co. ................................................................. 100,000 4,292,000
Emerson Electric Co. ........................................................ 1,000,000 40,080,000
General Dynamics Corp. ...................................................... 1,000,000 64,600,000
General Electric Co. ........................................................ 370,000 6,075,400
Illinois Tool Works Inc. .................................................... 1,000,000 42,710,000
Ingersoll-Rand PLC. ......................................................... 1,002,000 30,731,340
Lockheed Martin Corp. ....................................................... 500,000 39,040,000
Northrop Grumman Corp. ...................................................... 1,000,000 51,750,000
Pall Corp. .................................................................. 500,000 16,140,000
Precision Castparts Corp. ................................................... 240,000 24,448,800
Raytheon Co. ................................................................ 600,000 28,782,000
Rockwell Collins Inc. ....................................................... 350,000 17,780,000
(a) SunPower Corp., A ........................................................... 2,000 59,780
(a) SunPower Corp., B ........................................................... 48,000 1,211,040
Textron Inc. ................................................................ 1,050,000 19,929,000
(a) Thomas & Betts Corp. ........................................................ 500,000 15,040,000
United Technologies Corp. ................................................... 850,000 51,790,500
W.W. Grainger Inc. .......................................................... 550,000 49,148,000
----------------
669,106,610
----------------
COMMERCIAL & PROFESSIONAL SERVICES 1.5%
Avery Dennison Corp. ........................................................ 462,000 16,636,620
Dun & Bradstreet Corp. ...................................................... 122,000 9,189,040
Equifax Inc. ................................................................ 400,000 11,656,000
Robert Half International Inc. .............................................. 150,000 3,753,000
(a) Stericycle Inc. ............................................................. 100,000 4,845,000
----------------
46,079,660
----------------
CONSUMER DURABLES & APPAREL 1.3%
NIKE Inc., B ................................................................ 75,000 4,852,500
VF Corp. .................................................................... 500,000 36,215,000
----------------
41,067,500
----------------
72 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN GROWTH FUND SHARES VALUE
-------------------- ------------------- ----------------
COMMON STOCKS (CONTINUED)
CONSUMER SERVICES 1.4%
Carnival Corp. .............................................................. 1,065,000 $ 35,443,200
(a) Interval Leisure Group Inc. ................................................. 60,020 749,050
Starwood Hotels & Resorts Worldwide Inc. .................................... 250,000 8,257,500
----------------
44,449,750
----------------
DIVERSIFIED FINANCIALS 1.4%
American Express Co. ........................................................ 242,300 8,213,970
BlackRock Inc. .............................................................. 100,000 21,682,000
JPMorgan Chase & Co. ........................................................ 334,300 14,649,026
----------------
44,544,996
----------------
ENERGY 4.9%
BP PLC, ADR (United Kingdom) ................................................ 350,200 18,641,146
ConocoPhillips .............................................................. 35,000 1,580,600
Devon Energy Corp. .......................................................... 290,000 19,525,700
Exxon Mobil Corp. ........................................................... 70,000 4,802,700
(a) FMC Technologies Inc. ....................................................... 337,400 17,625,776
Halliburton Co. ............................................................. 600,000 16,272,000
(a) National Oilwell Varco Inc. ................................................. 175,000 7,547,750
Occidental Petroleum Corp. .................................................. 200,000 15,680,000
Peabody Energy Corp. ........................................................ 350,000 13,027,000
Royal Dutch Shell PLC, A, ADR (Netherlands) ................................. 280,000 16,013,200
Schlumberger Ltd. ........................................................... 309,100 18,422,360
(a) Transocean Ltd. ............................................................. 15,222 1,301,938
----------------
150,440,170
----------------
FOOD & STAPLES RETAILING 0.6%
CVS Caremark Corp. .......................................................... 503,200 17,984,368
----------------
FOOD, BEVERAGE & TOBACCO 1.4%
Bunge Ltd. .................................................................. 211,500 13,242,015
(a) Hansen Natural Corp. ........................................................ 300,000 11,022,000
PepsiCo Inc. ................................................................ 300,000 17,598,000
----------------
41,862,015
----------------
HEALTH CARE EQUIPMENT & SERVICES 4.6%
Baxter International Inc. ................................................... 400,000 22,804,000
Cardinal Health Inc. ........................................................ 300,000 8,040,000
(a) CareFusion Corp. ............................................................ 150,000 3,270,000
Covidien PLC ................................................................ 350,000 15,141,000
(a) Edwards Lifesciences Corp. .................................................. 50,000 3,495,500
IMS Health Inc. ............................................................. 500,000 7,675,000
(a) Intuitive Surgical Inc. ..................................................... 34,000 8,916,500
(a) Medco Health Solutions Inc. ................................................. 96,480 5,336,309
Medtronic Inc. .............................................................. 60,000 2,208,000
Quest Diagnostics Inc. ...................................................... 500,000 26,095,000
Teleflex Inc. ............................................................... 500,000 24,155,000
(a) Varian Medical Systems Inc. ................................................. 300,000 12,639,000
(a) Zimmer Holdings Inc. ........................................................ 64,000 3,420,800
----------------
143,196,109
----------------
Annual Report | 73
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN GROWTH FUND SHARES VALUE
-------------------- ------------------- ----------------
COMMON STOCKS (CONTINUED)
HOUSEHOLD & PERSONAL PRODUCTS 0.6%
The Procter & Gamble Co. .................................................... 335,000 $ 19,403,200
----------------
INSURANCE 1.1%
Aflac Inc. .................................................................. 333,300 14,245,242
(a) Berkshire Hathaway Inc., A 184 18,584,000
----------------
32,829,242
----------------
MATERIALS 3.3%
Air Products and Chemicals Inc. ............................................. 500,000 38,790,000
Ecolab Inc. ................................................................. 353,700 16,351,551
Goldcorp Inc. (Canada) ...................................................... 275,000 11,101,750
Martin Marietta Materials Inc. .............................................. 90,000 8,286,300
Praxair Inc. ................................................................ 60,000 4,901,400
Sigma-Aldrich Corp. ......................................................... 400,000 21,592,000
----------------
101,023,001
----------------
MEDIA 1.5%
The Walt Disney Co. ......................................................... 1,687,290 46,332,983
----------------
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES 16.4%
Abbott Laboratories ......................................................... 400,000 19,788,000
Allergan Inc. ............................................................... 997,300 56,606,748
(a) Amgen Inc. .................................................................. 932,000 56,134,360
(a) Biogen Idec Inc. ............................................................ 400,000 20,208,000
(a) Celgene Corp. ............................................................... 324,400 18,133,960
(a) Covance Inc. ................................................................ 200,000 10,830,000
(a) Dionex Corp. ................................................................ 250,000 16,242,500
Eli Lilly and Co. ........................................................... 400,000 13,212,000
(a) Gilead Sciences Inc. ........................................................ 250,000 11,645,000
Johnson & Johnson ........................................................... 1,261,010 76,782,899
Merck & Co. Inc. ............................................................ 500,000 15,815,000
(a) Mettler-Toledo International Inc. ........................................... 50,000 4,529,500
(a) Millipore Corp. ............................................................. 400,000 28,132,000
(a) Onyx Pharmaceuticals Inc. ................................................... 26,418 791,747
Pfizer Inc. ................................................................. 2,170,000 35,913,500
Pharmaceutical Product Development Inc. ..................................... 200,000 4,388,000
Roche Holding AG, ADR (Switzerland) ......................................... 530,000 21,518,000
Schering-Plough Corp. ....................................................... 500,000 14,125,000
(b) Talecris Biotherapeutics Holdings Corp. ..................................... 460,000 9,200,000
Teva Pharmaceutical Industries Ltd., ADR (Israel) ........................... 275,000 13,904,000
(a) Waters Corp. ................................................................ 500,000 27,930,000
Wyeth ....................................................................... 600,000 29,148,000
----------------
504,978,214
----------------
RETAILING 0.6%
(a) Expedia Inc. ................................................................ 300,100 7,187,395
(a) HSN Inc. .................................................................... 60,020 977,125
Lowe's Cos. Inc. ............................................................ 400,000 8,376,000
(a) Ticketmaster Entertainment Inc. ............................................. 60,020 701,634
----------------
17,242,154
----------------
74 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN GROWTH FUND SHARES VALUE
-------------------- ------------------- ----------------
COMMON STOCKS (CONTINUED)
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT 0.7%
Intel Corp. ................................................................. 750,000 $ 14,677,500
Texas Instruments Inc. ...................................................... 250,000 5,922,500
----------------
20,600,000
----------------
SOFTWARE & SERVICES 8.6%
(a) Activision Blizzard Inc. .................................................... 900,000 11,151,000
(a) Adobe Systems Inc. .......................................................... 527,900 17,441,816
(a) Autodesk Inc. ............................................................... 800,000 19,040,000
Automatic Data Processing Inc. .............................................. 700,000 27,510,000
(a) Computer Sciences Corp. ..................................................... 1,000,000 52,710,000
(a) Google Inc., A .............................................................. 76,300 37,833,355
(a) IAC/InterActiveCorp ......................................................... 150,050 3,029,509
MasterCard Inc., A .......................................................... 80,000 16,172,000
Microsoft Corp. ............................................................. 325,000 8,414,250
Oracle Corp. ................................................................ 500,000 10,420,000
Paychex Inc. ................................................................ 425,000 12,346,250
Visa Inc., A ................................................................ 291,900 20,173,209
(a) Yahoo! Inc. ................................................................. 1,600,000 28,496,000
----------------
264,737,389
----------------
TECHNOLOGY HARDWARE & EQUIPMENT 15.0%
(a) Agilent Technologies Inc. ................................................... 1,250,000 34,787,500
(a) Apple Inc. .................................................................. 875,000 162,198,750
(a) Cisco Systems Inc. .......................................................... 2,695,000 63,440,300
(a) EMC Corp. ................................................................... 1,000,000 17,040,000
(a) FLIR Systems Inc. ........................................................... 350,000 9,789,500
Hewlett-Packard Co. ......................................................... 1,156,250 54,586,563
International Business Machines Corp. ....................................... 580,000 69,373,800
(a) Logitech International SA (Switzerland) ..................................... 150,000 2,757,000
Molex Inc. .................................................................. 71,483 1,492,565
Molex Inc., A ............................................................... 133,100 2,500,949
QUALCOMM Inc. ............................................................... 660,000 29,686,800
(a) Research In Motion Ltd. (Canada) ............................................ 200,000 13,510,000
----------------
461,163,727
----------------
TELECOMMUNICATION SERVICES 1.2%
America Movil SAB de CV, L, ADR (Mexico) .................................... 259,300 11,365,119
(a) American Tower Corp., A ..................................................... 715,000 26,026,000
----------------
37,391,119
----------------
TRANSPORTATION 7.7%
(a) Air France-KLM, ADR (France) ................................................ 550,000 9,960,500
(a) Alaska Air Group Inc. ....................................................... 500,000 13,395,000
(a) AMR Corp. ................................................................... 2,000,000 15,900,000
Arkansas Best Corp. ......................................................... 500,000 14,970,000
(a) British Airways PLC, ADR (United Kingdom) ................................... 500,000 17,715,000
C.H. Robinson Worldwide Inc. ................................................ 267,300 15,436,575
Canadian National Railway Co. (Canada) ...................................... 500,000 24,495,000
Canadian Pacific Railway Ltd. (Canada) ...................................... 500,000 23,375,000
Annual Report | 75
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN GROWTH FUND SHARES VALUE
-------------------- ------------------- ----------------
COMMON STOCKS (CONTINUED)
TRANSPORTATION (CONTINUED)
(a) Continental Airlines Inc., B ................................................ 1,000,000 $ 16,440,000
Expeditors International of Washington Inc. ................................. 404,200 14,207,630
Forward Air Corp. ........................................................... 495,333 11,466,959
Heartland Express Inc. ...................................................... 500,000 7,200,000
(a) Ryanair Holdings PLC, ADR (Ireland) ......................................... 239,200 6,946,368
Southwest Airlines Co. ...................................................... 65,200 625,920
Union Pacific Corp. ......................................................... 600,000 35,010,000
Werner Enterprises Inc. ..................................................... 462,000 8,607,060
----------------
235,751,012
----------------
UTILITIES 1.3%
American Water Works Co. Inc. ............................................... 700,000 13,958,000
FPL Group Inc. .............................................................. 200,000 11,046,000
International Power PLC (United Kingdom) .................................... 3,058,904 14,131,138
----------------
39,135,138
----------------
TOTAL COMMON STOCKS (COST $1,754,852,162) ................................... 3,058,914,473
----------------
PRINCIPAL AMOUNT
-------------------
CONVERTIBLE BONDS (COST $4,144,568) 0.2%
CAPITAL GOODS 0.2%
SunPower Corp., cvt., senior bond, 1.25%, 2/15/27 ........................... $ 5,825,000 5,140,563
----------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS (COST $1,758,996,730) ....... 3,064,055,036
----------------
SHARES
-------------------
SHORT TERM INVESTMENTS (COST $23,763,290) 0.8%
MONEY MARKET FUNDS 0.8%
(c) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ................. 23,763,290 23,763,290
----------------
TOTAL INVESTMENTS (COST $1,782,760,020) 100.5% .............................. 3,087,818,326
OTHER ASSETS, LESS LIABILITIES (0.5)% ....................................... (14,970,652)
----------------
NET ASSETS 100.0% ........................................................... $ 3,072,847,674
================
See Abbreviations on page 143.
(a) Non-income producing.
(b) Security purchased on a delayed delivery basis. See Note 1(d).
(c) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
The accompanying notes are an integral part of these financial statements.
76 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN INCOME FUND
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- ----------- ----------- ----------- ----------- -----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 1.98 $ 2.74 $ 2.57 $ 2.50 $ 2.42
----------- ----------- ----------- ----------- -----------
Income from investment operations(a):
Net investment income(b) ......... 0.13 0.16 0.14 0.14 0.14
Net realized and unrealized gains
(losses) ...................... 0.04 (0.71) 0.21 0.09 0.10
----------- ----------- ----------- ----------- -----------
Total from investment operations .... 0.17 (0.55) 0.35 0.23 0.24
----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income ............ (0.16) (0.15) (0.14) (0.15) (0.15)
Net realized gains ............... --(c) (0.06) (0.04) (0.01) (0.01)
----------- ----------- ----------- ----------- -----------
Total distributions ................. (0.16) (0.21) (0.18) (0.16) (0.16)
----------- ----------- ----------- ----------- -----------
Redemption fees(d) .................. -- --(c) --(c) --(c) --(c)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ........ $ 1.99 $ 1.98 $ 2.74 $ 2.57 $ 2.50
=========== =========== =========== =========== ===========
Total return(e) ..................... 10.56% (21.36)% 14.14% 9.73% 10.45%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................ 0.68%(f) 0.62%(f) 0.63%(f) 0.64%(g) 0.65%(g)
Net investment income ............... 7.93% 6.44% 5.31% 5.61% 5.54%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $27,773,006 $26,892,973 $35,476,603 $26,641,398 $21,934,575
Portfolio turnover rate ............. 51.36% 39.92% 25.45% 28.35% 28.51%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 77
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 1.97 $ 2.73 $ 2.56 $ 2.49 $ 2.41
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) ......... 0.12 0.14 0.12 0.12 0.11
Net realized and unrealized gains
(losses) ...................... 0.04 (0.71) 0.21 0.08 0.11
---------- ---------- ---------- ---------- ----------
Total from investment operations .... 0.16 (0.57) 0.33 0.20 0.22
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ............ (0.15) (0.13) (0.12) (0.12) (0.13)
Net realized gains ............... --(c) (0.06) (0.04) (0.01) (0.01)
---------- ---------- ---------- ---------- ----------
Total distributions ................. (0.15) (0.19) (0.16) (0.13) (0.14)
---------- ---------- ---------- ---------- ----------
Redemption fees(d) .................. -- --(c) --(c) --(c) --(c)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........ $ 1.98 $ 1.97 $ 2.73 $ 2.56 $ 2.49
========== ========== ========== ========== ==========
Total return(e) ..................... 9.70% (22.13)% 13.23% 8.83% 9.57%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................ 1.53%(f) 1.47%(f) 1.48%(f) 1.49%(g) 1.50%(g)
Net investment income ............... 7.08% 5.59% 4.46% 4.76% 4.69%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $2,051,280 $2,428,765 $3,745,636 $3,743,374 $3,922,396
Portfolio turnover rate ............. 51.36% 39.92% 25.45% 28.35% 28.51%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
The accompanying notes are an integral part of these financial statements.
78 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------
CLASS B1 2009 2008 2007 2006 2005
- -------- ------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 1.98 $ 2.74 $ 2.57 $ 2.50 $ 2.42
------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.13 0.15 0.13 0.13 0.12
Net realized and unrealized gains
(losses) ...................... 0.03 (0.71) 0.21 0.08 0.11
------- -------- -------- -------- --------
Total from investment operations .... 0.16 (0.56) 0.34 0.21 0.23
------- -------- -------- -------- --------
Less distributions from:
Net investment income ............ (0.15) (0.14) (0.13) (0.13) (0.14)
Net realized gains ............... --(c) (0.06) (0.04) (0.01) (0.01)
------- -------- -------- -------- --------
Total distributions ................. (0.15) (0.20) (0.17) (0.14) (0.15)
------- -------- -------- -------- --------
Redemption fees(d) .................. -- --(c) --(c) --(c) --(c)
------- -------- -------- -------- --------
Net asset value, end of year ........ $ 1.99 $ 1.98 $ 2.74 $ 2.57 $ 2.50
======= ======== ======== ======== ========
Total return(e) ..................... 10.03% (21.77)% 13.57% 9.17% 9.90%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................ 1.17%(f) 1.12%(f) 1.13%(f) 1.14%(g) 1.15%(g)
Net investment income ............... 7.44% 5.94% 4.81% 5.11% 5.04%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $68,825 $224,713 $397,224 $459,302 $493,063
Portfolio turnover rate ............. 51.36% 39.92% 25.45% 28.35% 28.51%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 79
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- ----------- ----------- ----------- ----------- -----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 1.99 $ 2.76 $ 2.59 $ 2.51 $ 2.43
----------- ----------- ----------- ----------- -----------
Income from investment operations(a):
Net investment income(b) ......... 0.13 0.15 0.13 0.13 0.13
Net realized and unrealized gains
(losses) ...................... 0.03 (0.72) 0.21 0.09 0.10
----------- ----------- ----------- ----------- -----------
Total from investment operations .... 0.16 (0.57) 0.34 0.22 0.23
----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income ............ (0.15) (0.14) (0.13) (0.13) (0.14)
Net realized gains ............... --(c) (0.06) (0.04) (0.01) (0.01)
----------- ----------- ----------- ----------- -----------
Total distributions ................. (0.15) (0.20) (0.17) (0.14) (0.15)
----------- ----------- ----------- ----------- -----------
Redemption fees(d) .................. -- --(c) --(c) --(c) --(c)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ........ $ 2.00 $ 1.99 $ 2.76 $ 2.59 $ 2.51
=========== =========== =========== =========== ===========
Total return(e) ..................... 9.93% (21.98)% 13.47% 9.56% 9.84%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................ 1.18%(f) 1.12%(f) 1.13%(f) 1.14%(g) 1.15%(g)
Net investment income ............... 7.43% 5.94% 4.81% 5.11% 5.04%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $13,054,203 $12,443,143 $16,203,796 $12,138,969 $10,113,365
Portfolio turnover rate ............. 51.36% 39.92% 25.45% 28.35% 28.51%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
The accompanying notes are an integral part of these financial statements.
80 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
CLASS R 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 1.95 $ 2.71 $ 2.55 $ 2.48 $ 2.40
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.13 0.15 0.13 0.13 0.13
Net realized and unrealized gains
(losses) ...................... 0.03 (0.71) 0.20 0.09 0.10
-------- -------- -------- -------- --------
Total from investment operations .... 0.16 (0.56) 0.33 0.22 0.23
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ............ (0.15) (0.14) (0.13) (0.14) (0.14)
Net realized gains ............... --(c) (0.06) (0.04) (0.01) (0.01)
-------- -------- -------- -------- --------
Total distributions ................. (0.15) (0.20) (0.17) (0.15) (0.15)
-------- -------- -------- -------- --------
Redemption fees(d) .................. -- --(c) --(c) --(c) --(c)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 1.96 $ 1.95 $ 2.71 $ 2.55 $ 2.48
======== ======== ======== ======== ========
Total return(e) ..................... 10.31% (21.91)% 13.47% 9.43% 10.15%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................ 1.03%(f) 0.97%(f) 0.98%(f) 0.99%(g) 1.00%(g)
Net investment income ............... 7.58% 6.09% 4.96% 5.26% 5.19%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $315,298 $267,956 $286,670 $183,609 $122,222
Portfolio turnover rate ............. 51.36% 39.92% 25.45% 28.35% 28.51%
(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.
(f) Benefit of expense reduction rounds to less than 0.01%.
(g) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 81
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN INCOME FUND
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 1.97 $ 2.73 $ 2.56 $ 2.49 $ 2.41
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) ......... 0.14 0.16 0.15 0.14 0.14
Net realized and unrealized gains
(losses) ...................... 0.03 (0.70) 0.21 0.09 0.11
---------- ---------- ---------- ---------- ----------
Total from investment operations .... 0.17 (0.54) 0.36 0.23 0.25
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ............ (0.16) (0.16) (0.15) (0.15) (0.16)
Net realized gains ............... --(c) (0.06) (0.04) (0.01) (0.01)
---------- ---------- ---------- ---------- ----------
Total distributions ................. (0.16) (0.22) (0.19) (0.16) (0.17)
---------- ---------- ---------- ---------- ----------
Redemption fees(d) .................. -- --(c) --(c) --(c) --(c)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........ $ 1.98 $ 1.97 $ 2.73 $ 2.56 $ 2.49
========== ========== ========== ========== ==========
Total return ........................ 10.79% (21.33)% 14.36% 9.94% 10.65%
RATIOS TO AVERAGE NET ASSETS
Expenses ............................ 0.53%(e) 0.47%(e) 0.48%(e) 0.49%(f) 0.50%(f)
Net investment income ............... 8.08% 6.59% 5.46% 5.76% 5.69%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $4,183,925 $4,259,806 $6,195,966 $3,786,643 $2,280,318
Portfolio turnover rate ............. 51.36% 39.92% 25.45% 28.35% 28.51%
(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) Benefit of expense reduction rounds to less than 0.01%.
(f) Benefit of waiver and payment by affiliate and expense reduction rounds to
less than 0.01%.
The accompanying notes are an integral part of these financial statements.
82 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
-------------------- -------------- ------------------- ----------------
COMMON STOCKS 23.8%
CONSUMER STAPLES 0.3%
Diageo PLC ................................................. United Kingdom 10,000,000 $ 153,403,202
----------------
ENERGY 2.8%
(a) Canadian Oil Sands Trust ................................... Canada 25,847,400 742,776,085
ConocoPhillips ............................................. United States 8,000,000 361,280,000
Spectra Energy Corp. ....................................... United States 12,500,000 236,750,000
----------------
1,340,806,085
----------------
FINANCIALS 5.4%
Bank of America Corp. ...................................... United States 46,000,000 778,320,000
(b) Barclays PLC ............................................... United Kingdom 15,000,000 88,686,226
Citigroup Inc. ............................................. United States 25,000,000 121,000,000
(a,b) Colony Financial Inc. ...................................... United States 1,250,000 24,437,500
Duke Realty Corp. .......................................... United States 5,000,000 60,050,000
HSBC Holdings PLC .......................................... United Kingdom 35,000,000 400,334,419
(a,b) iStar Financial Inc. ....................................... United States 5,213,500 15,849,040
JPMorgan Chase & Co. ....................................... United States 10,000,000 438,200,000
Legg Mason Inc. ............................................ United States 2,331,262 72,339,060
Wells Fargo & Co. .......................................... United States 20,000,000 563,600,000
----------------
2,562,816,245
----------------
HEALTH CARE 2.3%
Abbott Laboratories ........................................ United States 1,500,000 74,205,000
Johnson & Johnson .......................................... United States 5,000,000 304,450,000
Merck & Co. Inc. ........................................... United States 23,000,000 727,490,000
----------------
1,106,145,000
----------------
MATERIALS 0.5%
AngloGold Ashanti Ltd., ADR ................................ South Africa 2,884,064 117,554,449
Newmont Mining Corp. ....................................... United States 2,000,000 88,040,000
----------------
205,594,449
----------------
TELECOMMUNICATION SERVICES 1.3%
AT&T Inc. .................................................. United States 15,000,000 405,150,000
Verizon Communications Inc. ................................ United States 4,360,074 131,979,440
Vodafone Group PLC ......................................... United Kingdom 30,000,000 67,209,778
----------------
604,339,218
----------------
UTILITIES 11.2%
AGL Resources Inc. ......................................... United States 3,000,000 105,810,000
(a) Ameren Corp. ............................................... United States 12,100,000 305,888,000
American Electric Power Co. Inc. ........................... United States 10,000,000 309,900,000
CenterPoint Energy Inc. .................................... United States 6,000,000 74,580,000
Consolidated Edison Inc. ................................... United States 5,300,000 216,982,000
Dominion Resources Inc. .................................... United States 10,500,000 362,250,000
DTE Energy Co. ............................................. United States 4,300,000 151,102,000
Duke Energy Corp. .......................................... United States 33,500,000 527,290,000
FirstEnergy Corp. .......................................... United States 3,000,000 137,160,000
FPL Group Inc. ............................................. United States 6,000,000 331,380,000
NiSource Inc. .............................................. United States 2,900,000 40,281,000
PG&E Corp. ................................................. United States 10,200,000 412,998,000
Annual Report | 83
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
-------------------- -------------- ------------------- ----------------
COMMON STOCKS (CONTINUED)
UTILITIES (CONTINUED)
Pinnacle West Capital Corp. ................................ United States 4,800,000 $ 157,536,000
Portland General Electric Co. .............................. United States 2,950,000 58,174,000
PPL Corp. .................................................. United States 1,000,000 30,340,000
Progress Energy Inc. ....................................... United States 9,400,000 367,164,000
Public Service Enterprise Group Inc. ....................... United States 15,000,000 471,600,000
Sempra Energy .............................................. United States 5,900,000 293,879,000
The Southern Co. ........................................... United States 14,516,704 459,744,016
TECO Energy Inc. ........................................... United States 10,000,000 140,800,000
Xcel Energy Inc. United States 19,000,000 365,560,000
----------------
5,320,418,016
----------------
TOTAL COMMON STOCKS (COST $10,768,096,788) ................. 11,293,522,215
----------------
CONVERTIBLE PREFERRED STOCKS 3.0%
CONSUMER DISCRETIONARY 0.1%
(b) General Motors Corp., 6.25%, cvt. pfd., C .................. United States 11,000,000 35,750,000
----------------
ENERGY 0.2%
(c) SandRidge Energy Inc., 8.50%, cvt. pfd., 144A .............. United States 550,000 99,000,000
----------------
FINANCIALS 2.1%
Bank of America Corp., 7.25%, cvt. pfd., L ................. United States 562,000 477,694,380
(b) Fannie Mae, 5.375%, cvt. pfd. .............................. United States 4,700 28,787,500
(b) Fannie Mae, 8.75%, cvt. pfd. ............................... United States 3,239,000 7,773,600
(b) Felcor Lodging Trust Inc., 7.80%, cvt. pfd., A ............. United States 3,000,000 36,690,000
(b) Lehman Brothers Holdings Inc., 7.25%, cvt. pfd., P ......... United States 1,000,650 6,053,932
(b) Lehman Brothers Holdings Inc., 8.75%, cvt. pfd., Q ......... United States 550,000 2,805,000
Wells Fargo & Co., 7.50%, cvt. pfd., A ..................... United States 463,516 413,919,788
----------------
973,724,200
----------------
HEALTH CARE 0.5%
Tenet Healthcare Corp., 7.00%, cvt. pfd. ................... United States 250,000 256,250,000
----------------
UTILITIES 0.1%
FPL Group Inc., 8.375%, cvt. pfd. .......................... United States 865,000 43,301,900
----------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(COST $3,604,733,259) ................................... 1,408,026,100
----------------
(d) EQUITY-LINKED SECURITIES 3.3%
CONSUMER DISCRETIONARY 0.1%
(c) Morgan Stanley into Comcast Corp., 10.00%, 144A ............ United States 3,000,000 51,345,000
----------------
ENERGY 1.2%
Credit Suisse into Halliburtun Co., 12.00%, 3(A)2 .......... United States 4,000,000 94,063,600
Credit Suisse into Weatherford International Ltd.,11.00%,
3(A)2 ................................................... United States 6,315,000 131,499,139
(c) Deutsche Bank AG into ConocoPhilips, 12.00%, 144A .......... United States 2,200,000 101,112,000
(c) The Goldman Sachs Group Inc. into Devon Energy Corp.,
10.55%, 144A ............................................ United States 1,600,000 93,600,000
(c) The Goldman Sachs Group Inc. into XTO Energy Inc., 9.00%,
144A .................................................... United States 3,600,000 149,261,760
----------------
569,536,499
----------------
84 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY SHARES VALUE
-------------------- -------------- ------------------- ----------------
(d) EQUITY LINKED SECURITIES (CONTINUED)
FINANCIALS 0.6%
Barclays Bank PLC into Citigroup Inc., 17.00% .............. United States 21,506,000 $ 99,142,660
(c) JPMorgan Chase & Co., into Wells Fargo & Co., 10.00%,
144A .................................................... United States 3,575,000 101,588,988
(c) Morgan Stanley into Bank of America Corp., 8.00%, 144A ..... United States 5,685,000 98,533,557
----------------
299,265,205
----------------
INFORMATION TECHNOLOGY 0.8%
Credit Suisse into Texas Instruments Corp.,13.50%, 3(A)2 ... United States 5,650,000 116,451,585
(c) The Goldman Sachs Group Inc. into Intel Corp., 10.00%,
144A .................................................... United States 7,500,000 135,030,000
(c) Morgan Stanley into Intel Corp.,12.00%, 144A ............... United States 6,350,000 117,974,745
----------------
369,456,330
----------------
MATERIALS 0.6%
Deutsche Bank AG into Newmont Mining Corp., 12.00% ......... United States 1,600,000 72,404,160
(c) The Goldman Sachs Group Inc. into Barrick Gold Corp.,
12.5%, 144A ............................................. United States 5,000,000 201,805,000
----------------
274,209,160
----------------
TOTAL EQUITY-LINKED SECURITIES
(COST $1,460,851,215) ................................... 1,563,812,194
----------------
PREFERRED STOCKS 0.4%
FINANCIALS 0.4%
(b) Fannie Mae, 6.75%, pfd. .................................... United States 3,000,000 4,710,000
(b) Fannie Mae, 7.625%, pfd., R ................................ United States 2,399,400 3,959,010
(b) Fannie Mae, 8.25%, pfd. .................................... United States 11,784,000 18,972,240
(b) Freddie Mac, 8.375%, pfd., Z ............................... United States 16,608,000 30,060,480
(c) Preferred Blocker Inc., 7.00%, pfd., 144A .................. United States 267,636 155,655,438
----------------
TOTAL PREFERRED STOCKS (COST $928,695,780) ................. 213,357,168
----------------
PRINCIPAL AMOUNT(e)
-------------------
(f,g) SENIOR FLOATING RATE INTERESTS 5.7%
CONSUMER DISCRETIONARY 1.6%
Clear Channel Communications Inc., Term Loan B, 3.896%,
11/13/15 ................................................ United States 635,000,000 483,658,545
Dex Media West LLC, Term Loan B, 7.00%, 10/24/14 ........... United States 9,416,463 8,098,158
(h) Harrah's Operating Co. Inc., Incremental Term Loan, 3.25%,
10/01/16 ................................................ United States 75,000,000 74,274,000
(i) Idearc Inc.,
Term Loan A, 5.75%, 11/17/13 ............................ United States 43,684,879 18,857,321
Term Loan B, 4.25%, 11/17/14 ............................ United States 24,146,182 10,349,319
Jarden Corp., Term Loan B-3, 2.783%, 1/24/12 ............... United States 94,675,548 93,644,247
R.H. Donnelley Inc., Term Loan D-2, 6.75%, 6/30/11 ......... United States 50,201,148 42,963,147
Univision Communications Inc., Initial Term Loan, 4.50%,
9/29/14 ................................................. United States 20,000,000 16,987,500
----------------
748,832,237
----------------
HEALTH CARE 0.3%
Bausch and Lomb Inc.,
Delayed Draw Term Loan, 3.496% - 3.533%, 4/28/15 ........ United States 8,315,392 7,960,807
Parent Term Loan, 3.533%, 4/28/15 ....................... United States 34,242,000 32,781,853
Annual Report | 85
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
(f,g) SENIOR FLOATING RATE INTERESTS (CONTINUED)
HEALTH CARE (CONTINUED)
HCA Inc.,
Term Loan A-1, 1.783%, 11/19/12 ......................... United States 61,200,717 $ 57,398,623
Term Loan B-1, 2.533%, 11/18/13 ......................... United States 56,515,435 53,417,711
----------------
151,558,994
----------------
INDUSTRIALS 0.7%
Allison Transmission Inc., Term Loan B, 3.00%, 8/07/14 ..... United States 173,180,254 151,821,414
Altegrity Inc., Term Loan B, 3.292%, 2/21/15 ............... United States 107,794,486 100,949,536
Ceva Group PLC,
Dollar Pre-Refunded L/C Commitment, 3.283%, 8/01/12 ..... United States 13,684,211 11,243,864
EGL Term Loans, 3.246%, 8/01/12 ......................... United States 113,698,684 95,554,307
----------------
359,569,121
----------------
INFORMATION TECHNOLOGY 1.9%
First Data Corp.,
Term Loan B-2, 3.033% - 3.036%, 9/24/14 ................. United States 245,000,000 211,547,945
Term Loan B-3, 3.033% - 3.036%, 9/24/14 ................. United States 328,447,368 283,373,550
Freescale Semiconductor Inc.,
Incremental Term Loan, 12.50%, 12/15/14 ................. United States 354,421,746 357,965,964
Term Loan, 2.011%, 12/01/13 ............................. United States 77,431,762 62,393,042
----------------
915,280,501
----------------
MATERIALS 0.3%
Novelis Corp., U.S. Term Loan, 2.25% - 2.29%, 7/07/14 ...... United States 133,541,280 122,810,303
----------------
UTILITIES 0.9%
Texas Competitive Electric Holdings Co. LLC,
Term Loan B-1, 3.754% - 3.783%, 10/10/14 ................ United States 172,115,896 136,660,021
Term Loan B-2, 3.754% - 3.783%, 10/10/14 ................ United States 100,685,407 79,969,385
Term Loan B-3, 3.754% - 3.783%, 10/10/14 ................ United States 269,500,000 212,905,000
----------------
429,534,406
----------------
TOTAL SENIOR FLOATING RATE INTERESTS
(COST $3,420,035,428) ................................... 2,727,585,562
----------------
CORPORATE BONDS 58.7%
CONSUMER DISCRETIONARY 15.5%
Cablevision Systems Corp., senior note,
(c) 144A, 8.625%, 9/15/17 ............................... United States 98,325,000 102,012,188
B, 8.00%, 4/15/12 ....................................... United States 450,000,000 471,375,000
CBS Corp., senior note,
8.20%, 5/15/14 .......................................... United States 15,000,000 16,351,575
8.875%, 5/15/19 ......................................... United States 100,000,000 110,475,000
(i,j) CCH I Holdings LLC, senior note,
13.50%, 1/15/14 ......................................... United States 375,000,000 7,500,000
9.92%, 4/01/14 .......................................... United States 117,380,000 1,320,642
11.75%, 5/15/14 ......................................... United States 342,000,000 5,130,000
(i,j) CCH I LLC, senior secured note, 11.00%, 10/01/15 ........... United States 767,000,000 145,730,000
(i,j) CCH II LLC, senior note, 10.25%, 9/15/10 ................... United States 310,000,000 350,300,000
(i,j) CCO Holdings LLC, senior note, 8.75%, 11/15/13 ............. United States 80,000,000 81,600,000
(c) Cinemark USA Inc., senior note, 144A, 8.625%, 6/15/19 ...... United States 25,000,000 25,968,750
86 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CORPORATE BONDS (CONTINUED)
CONSUMER DISCRETIONARY (CONTINUED)
(c) CSC Holdings Inc., senior note, 144A, 8.50%, 4/15/14 ....... United States 67,300,000 $ 71,001,500
(i,j) Dex Media Inc.,
senior disc. note, 9.00%, 11/15/13 ...................... United States 290,000,000 50,750,000
senior note, B, 8.00%, 11/15/13 ......................... United States 95,600,000 16,730,000
(i,j) Dex Media West Finance,
senior note, B, 8.50%, 8/15/10 .......................... United States 106,500,000 91,590,000
senior sub. note, 9.875%, 8/15/13 ....................... United States 114,100,000 20,823,250
DIRECTV Holdings LLC, senior note, 7.625%, 5/15/16 ......... United States 126,600,000 136,095,000
(c) DISH DBS Corp., senior note, 144A, 7.875%, 9/01/19 ......... United States 200,000,000 203,000,000
Dollar General Corp.,
senior note, 10.625%, 7/15/15 ........................... United States 470,000,000 521,700,000
(k) senior sub. note, PIK, 11.875%, 7/15/17 ............. United States 200,000,000 226,000,000
EchoStar DBS Corp., senior note,
6.375%, 10/01/11 ........................................ United States 55,000,000 56,237,500
7.75%, 5/31/15 .......................................... United States 133,000,000 136,325,000
7.125%, 2/01/16 ......................................... United States 265,000,000 264,337,500
Ford Motor Credit Co. LLC,
7.375%, 2/01/11 ......................................... United States 405,000,000 403,987,500
8.00%, 6/01/14 .......................................... United States 400,000,000 384,909,200
senior note, 9.75%, 9/15/10 ............................. United States 203,000,000 207,489,751
senior note, 9.875%, 8/10/11 ............................ United States 75,000,000 76,875,000
senior note, 7.25%, 10/25/11 ............................ United States 185,000,000 179,786,515
senior note, 7.50%, 8/01/12 ............................. United States 285,000,000 273,863,055
senior note, 8.70%, 10/01/14 ............................ United States 20,000,000 19,618,180
senior note, 12.00%, 5/15/15 ............................ United States 120,000,000 133,200,000
(f) senior note, FRN, 5.549%, 6/15/11 ................... United States 190,000,000 182,875,000
(f) senior note, FRN, 3.26%, 1/13/12 .................... United States 80,000,000 72,200,000
(i) General Motors Corp., senior deb., 8.375%, 7/15/33 ......... United States 510,000,000 85,425,000
(c) Harrah's Operating Co. Inc., senior secured note, 144A,
11.25%, 6/01/17 ......................................... United States 50,000,000 50,750,000
(c) Harrah's Operating Escrow, senior secured note, 144A,
11.25%, 6/01/17 ......................................... United States 100,000,000 103,250,000
Host Hotels & Resorts LP, senior note,
(c) 144A, 9.00%, 5/15/17 ................................ United States 125,750,000 133,923,750
K, 7.125%, 11/01/13 ..................................... United States 85,500,000 84,858,750
M, 7.00%, 8/15/12 ....................................... United States 15,500,000 15,713,125
O, 6.375%, 3/15/15 ...................................... United States 240,000,000 228,600,000
Q, 6.75%, 6/01/16 ....................................... United States 193,200,000 184,506,000
S, 6.875%, 11/01/14 ..................................... United States 110,000,000 108,075,000
Jarden Corp., senior note, 8.00%, 5/01/16 .................. United States 34,000,000 35,020,000
KB Home, senior note,
6.375%, 8/15/11 ......................................... United States 8,346,000 8,471,190
5.75%, 2/01/14 .......................................... United States 75,000,000 72,375,000
6.25%, 6/15/15 .......................................... United States 90,000,000 86,400,000
9.10%, 9/15/17 .......................................... United States 49,000,000 52,920,000
7.25%, 6/15/18 .......................................... United States 70,500,000 69,090,000
Lamar Media Corp., senior note, 9.75%, 4/01/14 ............. United States 30,000,000 32,625,000
(c) Limited Brands Inc., senior note, 144A, 8.50%, 6/15/19 ..... United States 40,000,000 41,914,480
Annual Report | 87
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CORPORATE BONDS (CONTINUED)
CONSUMER DISCRETIONARY (CONTINUED)
MGM MIRAGE,
senior note, 8.50%, 9/15/10 ............................. United States 50,000,000 $ 49,875,000
senior note, 6.75%, 4/01/13 ............................. United States 70,000,000 57,750,000
(c) senior note, 144A, 11.375%, 3/01/18 ................. United States 25,000,000 23,625,000
(c) senior secured note, 144A, 13.00%, 11/15/13 ......... United States 70,000,000 80,500,000
Pinnacle Entertainment Inc., senior sub. note, 7.50%,
6/15/15 ................................................. United States 10,702,000 9,524,780
(c) QVC Inc., senior secured note, 144A, 7.50%, 10/01/19 ....... United States 43,800,000 44,073,750
(i) R.H. Donnelley Corp.,
senior disc. note, A-1, 6.875%, 1/15/13 ................. United States 142,000,000 8,875,000
senior disc. note, A-2, 6.875%, 1/15/13 ................. United States 209,450,000 13,090,625
senior note, 6.875%, 1/15/13 ............................ United States 55,000,000 3,437,500
senior note, 8.875%, 10/15/17 ........................... United States 501,500,000 31,343,750
senior note, A-3, 8.875%, 1/15/16 ....................... United States 213,100,000 13,318,750
(c) Regal Cinemas Corp., senior note, 144A, 8.625%, 7/15/19 .... United States 21,400,000 22,256,000
Starwood Hotels & Resorts Worldwide Inc., senior note,
7.875%, 10/15/14 ........................................ United States 65,000,000 68,412,500
(c) Univision Communications Inc.,
(k) senior note, 144A, PIK, 10.50%, 3/15/15 ............. United States 278,912,500 216,157,187
senior secured note, 144A, 12.00%, 7/01/14 .............. United States 26,500,000 28,818,750
(c) UPC Holding BV, senior note, 144A, 9.875%, 4/15/18 ......... Netherlands 12,200,000 12,871,000
Visant Holding Corp., senior note, 8.75%, 12/01/13 ......... United States 50,000,000 51,125,000
(c) Wendy's/Arby's Group Inc., senior note, 144A, 10.00%,
7/15/16 ................................................. United States 37,500,000 40,031,250
(c) WMG Acquisition Corp., senior secured note, 144A, 9.50%,
6/15/16 ................................................. United States 42,700,000 45,262,000
Wyndham Worldwide Corp., senior note,
9.875%, 5/01/14 ......................................... United States 75,000,000 80,690,025
6.00%, 12/01/16 ......................................... United States 21,727,000 19,597,950
----------------
7,361,710,218
----------------
CONSUMER STAPLES 0.8%
(c) Alliance One International Inc., senior note, 144A, 10.00%,
7/15/16 ................................................. United States 33,100,000 34,341,250
Altria Group Inc., senior note, 8.50%, 11/10/13 ............ United States 30,000,000 34,838,070
(c) Dole Food Co. Inc., senior secured note, 144A, 8.00%,
10/01/16 ................................................ United States 30,000,000 30,262,500
(c) JBS USA LLC, senior note, 144A, 11.625%, 5/01/14 ........... United States 144,500,000 156,060,000
SUPERVALU Inc., senior note, 8.00%, 5/01/16 ................ United States 108,500,000 112,840,000
Tyson Foods Inc., senior note, 10.50%, 3/01/14 ............. United States 20,000,000 22,750,000
----------------
391,091,820
----------------
ENERGY 8.9%
Berry Petroleum Co., senior note, 10.25%, 6/01/14 .......... United States 15,300,000 16,409,250
Bill Barrett Corp., senior note, 9.875%, 7/17/16 ........... United States 15,000,000 15,862,500
Callon Petroleum Co., senior note, 9.75%, 12/08/10 ......... United States 110,000,000 43,450,000
Chesapeake Energy Corp., senior note,
7.625%, 7/15/13 ......................................... United States 55,000,000 54,931,250
9.50%, 2/15/15 .......................................... United States 220,000,000 232,650,000
6.50%, 8/15/17 .......................................... United States 175,000,000 161,437,500
6.25%, 1/15/18 .......................................... United States 150,000,000 135,000,000
88 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CORPORATE BONDS (CONTINUED)
ENERGY (CONTINUED)
Chesapeake Energy Corp., senior note, (continued)
7.25%, 12/15/18 ......................................... United States 175,000,000 $ 166,250,000
6.875%, 11/15/20 ........................................ United States 144,250,000 129,103,750
El Paso Corp., senior note,
12.00%, 12/12/13 ........................................ United States 176,600,000 202,207,000
7.25%, 4/01/18 .......................................... United States 50,000,000 49,441,800
MTN, 7.75%, 1/15/32 ..................................... United States 250,000,000 230,345,500
Encore Acquisition Co., senior sub. note, 9.50%, 5/01/16 ... United States 20,000,000 21,200,000
Forest Oil Corp., senior note,
7.25%, 6/15/19 .......................................... United States 41,000,000 38,540,000
(c) 144A, 8.50%, 2/15/14 ................................ United States 100,000,000 101,250,000
(c) Holly Corp., senior note, 144A, 9.875%, 6/15/17 ..... United States 35,000,000 35,962,500
Mariner Energy Inc., senior note,
7.50%, 4/15/13 .......................................... United States 46,500,000 45,105,000
11.75%, 6/30/16 ......................................... United States 25,800,000 27,831,750
8.00%, 5/15/17 .......................................... United States 36,600,000 33,672,000
Newfield Exploration Co., senior sub. note,
6.625%, 4/15/16 ......................................... United States 128,000,000 126,080,000
7.125%, 5/15/18 ......................................... United States 12,600,000 12,631,500
OPTI Canada Inc., senior note, 7.875%, 12/15/14 ............ Canada 75,000,000 57,750,000
Penn Virginia Corp., senior note, 10.375%, 6/15/16 ......... United States 20,000,000 21,600,000
Petrohawk Energy Corp., senior note,
9.125%, 7/15/13 ......................................... United States 85,000,000 87,762,500
7.875%, 6/01/15 ......................................... United States 135,000,000 133,650,000
(c) 144A, 10.50%, 8/01/14 ...................................... United States 129,050,000 139,374,000
(c) Petroplus Finance Ltd., senior note, 144A,
6.75%, 5/01/14 .......................................... Switzerland 89,800,000 83,289,500
7.00%, 5/01/17 .......................................... Switzerland 32,000,000 29,120,000
9.375%, 9/15/19 ......................................... Bermuda 60,840,000 59,319,000
Pioneer Natural Resources Co.,
6.65%, 3/15/17 .......................................... United States 25,000,000 23,921,100
senior bond, 6.875%, 5/01/18 ............................ United States 110,000,000 105,550,940
Plains Exploration & Production Co.,
senior note, 10.00%, 3/01/16 ............................ United States 80,000,000 86,600,000
senior bond, 8.625%, 10/15/19 ........................... United States 50,000,000 50,875,000
senior note, 7.75%, 6/15/15 ............................. United States 95,500,000 95,261,250
Pride International Inc., senior note, 8.50%, 6/15/19 ...... United States 80,000,000 88,400,000
Quicksilver Resources Inc., senior note,
11.75%, 1/01/16 ......................................... United States 36,800,000 40,756,000
9.125%, 8/15/19 ......................................... United States 90,000,000 89,887,500
Range Resources Corp., senior sub. note, 8.00%, 5/15/19 .... United States 40,000,000 41,200,000
Sabine Pass LNG LP, senior secured note,
7.25%, 11/30/13 ......................................... United States 105,000,000 94,237,500
7.50%, 11/30/16 ......................................... United States 280,000,000 240,450,000
SandRidge Energy Inc., senior note,
(c) 144A, 9.875%, 5/15/16 ............................... United States 106,300,000 111,349,250
(c) 144A, 8.00%, 6/01/18 ................................ United States 81,205,000 78,565,837
(f) FRN, 4.222%, 4/01/14 ................................ United States 25,480,000 22,730,020
(k) PIK, 8.625%, 4/01/15 ................................ United States 10,170,000 10,131,862
Annual Report | 89
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CORPORATE BONDS (CONTINUED)
ENERGY (CONTINUED)
SEACOR Holdings Inc., senior note, 7.375%, 10/01/19 ........ United States 35,000,000 $ 35,218,610
SESI LLC, senior note, 6.875%, 6/01/14 ..................... United States 117,000,000 112,320,000
Tesoro Corp., senior note,
6.50%, 6/01/17 .......................................... United States 16,000,000 14,560,000
9.75%, 6/01/19 .......................................... United States 41,400,000 43,263,000
(c) W&T Offshore Inc., senior note, 144A, 8.25%, 6/15/14 ....... United States 153,000,000 139,995,000
Weatherford International Ltd.,
senior bond, 9.875%, 3/01/39 ............................ United States 30,000,000 40,331,970
senior note, 9.625%, 3/01/19 ............................ United States 30,000,000 37,616,400
(c) Western Refining Inc.,
(f) senior note, 144A, FRN, 10.75%, 6/15/14 ............. United States 25,000,000 23,625,000
senior secured note, 144A, 11.25%, 6/15/17 .............. United States 15,000,000 14,175,000
(c) Woodside Finance Ltd.,
144A, 8.75%, 3/01/19 .................................... Australia 27,100,000 32,009,355
senior note, 144A, 8.125%, 3/01/14 ...................... Australia 41,700,000 46,862,794
----------------
4,211,119,688
----------------
FINANCIALS 7.8%
Aflac Inc., senior note, 8.50%, 5/15/19 .................... United States 60,000,000 71,504,824
American Express Co., senior note, 7.00%, 3/19/18 .......... United States 90,000,000 99,166,770
American Express Credit Corp., senior note, C, 7.30%,
8/20/13 ................................................. United States 115,000,000 127,685,880
(l) Bank of America Corp., pfd., sub. bond, M, 8.125%,
Perpetual ............................................... United States 100,000,000 89,029,000
Capital One Capital V, pfd., 10.25%, 8/15/39 ............... United States 24,000,000 26,586,888
(c) CB Richard Ellis Services Inc., senior sub. note, 144A,
11.625%, 6/15/17 ........................................ United States 35,000,000 37,362,500
Duke Realty LP, senior note,
6.25%, 5/15/13 .......................................... United States 24,000,000 23,840,712
5.95%, 2/15/17 .......................................... United States 37,500,000 33,939,917
6.50%, 1/15/18 .......................................... United States 35,500,000 33,018,638
8.25%, 8/15/19 .......................................... United States 59,400,000 62,125,331
(c,h) FelCor Lodging Trust Inc., senior secured note, 144A,
10.00%, 10/01/14 ........................................ United States 109,750,000 106,731,875
Forest City Enterprises Inc., senior note, 7.625%,
6/01/15 ................................................. United States 42,250,000 34,433,750
(c) GMAC LLC, senior note, 144A,
7.75%, 1/19/10 .......................................... United States 115,000,000 115,287,500
7.25%, 3/02/11 .......................................... United States 148,000,000 143,930,000
6.875%, 9/15/11 ......................................... United States 310,000,000 296,050,000
6.875%, 8/28/12 ......................................... United States 170,000,000 158,100,000
HCP Inc., senior note,
5.65%, 12/15/13 ......................................... United States 500,000 495,305
6.30%, 9/15/16 .......................................... United States 23,000,000 22,173,886
6.00%, 1/30/17 .......................................... United States 33,325,000 31,180,103
5.625%, 5/01/17 ......................................... United States 15,040,000 13,788,557
6.70%, 1/30/18 .......................................... United States 70,500,000 69,146,905
G, 5.625%, 2/28/13 ...................................... United States 25,615,000 25,357,006
(a) iStar Financial Inc.,
8.625%, 6/01/13 ......................................... United States 169,100,000 108,224,000
(c) senior secured note, 144A, 10.00%, 6/15/14 ............. United States 54,850,000 45,114,125
90 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CORPORATE BONDS (CONTINUED)
FINANCIALS (CONTINUED)
(l) JPMorgan Chase & Co., junior sub. note, 1, 7.90%,
Perpetual ............................................... United States 865,000,000 $ 833,078,905
(i) Lehman Brothers Holdings Inc., senior note,
6.20%, 9/26/14 .......................................... United States 286,300,000 50,102,500
I, 7.50%, 1/21/09 ....................................... United States 900,000,000 55,930,500
(c) 144A, 7.50%, 12/03/08 ............................... United States 400,000,000 40,739,500
(c,f) Liberty Mutual Group, junior sub. note, 144A, FRN, 10.75%,
6/15/88 ................................................. United States 100,000,000 96,628,278
Merrill Lynch & Co. Inc., 6.875%, 4/25/18 .................. United States 48,000,000 50,563,152
Morgan Stanley, 5.05%, 1/21/11 ............................. United States 88,000,000 91,055,360
Morgan Stanley Dean Witter & Co.,
6.60%, 4/01/12 .......................................... United States 25,000,000 27,182,875
5.30%, 3/01/13 .......................................... United States 100,000,000 104,897,300
Simon Property Group LP, senior note, 10.35%, 4/01/19 ...... United States 30,000,000 37,453,006
(l) Wells Fargo Capital XIII, pfd., 7.70%, Perpetual ........... United States 44,500,000 39,382,500
(l) Wells Fargo Capital XV, pfd., 9.75%, Perpetual ............. United States 449,600,000 469,832,000
----------------
3,671,119,348
----------------
HEALTH CARE 6.2%
(c) Apria Healthcare Group Inc., senior secured note, 144A,
11.25%, 11/01/14 ........................................ United States 50,000,000 54,000,000
12.375%, 11/01/14 ....................................... United States 25,000,000 26,812,500
Community Health Systems Inc., senior sub. note, 8.875%,
7/15/15 ................................................. United States 353,500,000 363,221,250
DaVita Inc.,
senior note, 6.625%, 3/15/13 ............................ United States 49,100,000 48,854,500
senior sub. note, 7.25%, 3/15/15 ........................ United States 52,000,000 51,740,000
HCA Inc.,
6.75%, 7/15/13 .......................................... United States 62,320,000 59,983,000
6.375%, 1/15/15 ......................................... United States 158,750,000 142,081,250
senior note, 6.50%, 2/15/16 ............................. United States 188,104,000 167,882,820
senior secured note, 9.25%, 11/15/16 .................... United States 300,000,000 310,875,000
(c) senior secured note, 144A, 8.50%, 4/15/19 ........... United States 160,000,000 168,000,000
(c) senior secured note, 144A, 7.875%, 2/15/20 .......... United States 160,550,000 161,553,437
Tenet Healthcare Corp.,
senior note, 7.375%, 2/01/13 ............................ United States 430,000,000 427,850,000
(c) senior note, 144A, 9.00%, 05/01/15 .................. United States 300,000,000 315,000,000
(c) senior note, 144A, 10.00%, 5/01/18 .................. United States 300,000,000 332,250,000
(f) senior note, FRN, 9.25%, 2/01/15 .................... United States 115,000,000 120,606,250
(c) senior secured note, 144A, 8.875%, 7/01/19 .......... United States 30,000,000 31,950,000
(f,k) US Oncology Holdings Inc., senior note, PIK, FRN, 6.904%,
3/15/12 ................................................. United States 87,311,473 76,397,539
US Oncology Inc.,
senior note, 10.75%, 8/15/14 ............................ United States 15,000,000 15,750,000
(c) senior secured note, 144A, 9.125%, 8/15/17 .......... United States 40,000,000 42,300,000
Vanguard Health Holding Co. I LLC, senior disc. note, zero
cpn. to 10/01/09, 11.25% thereafter, 10/01/15 ........... United States 23,900,000 24,975,500
----------------
2,942,083,046
----------------
Annual Report | 91
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CORPORATE BONDS (CONTINUED)
INDUSTRIALS 5.4%
Allied Waste North America Inc.,
senior note, B, 7.375%, 4/15/14 ......................... United States 175,000,000 $ 182,306,425
senior note, B, 7.125%, 5/15/16 ......................... United States 72,500,000 76,588,420
senior secured note, 6.125%, 2/15/14 .................... United States 21,500,000 22,054,851
senior secured note, 6.875%, 6/01/17 .................... United States 65,000,000 68,770,130
(c) Altegrity Inc., senior note, 144A, 10.50%, 11/01/15 ........ United States 20,600,000 17,510,000
(c,h) American Airlines Inc., senior secured note, 144A, 10.50%,
10/15/12 ................................................ United States 67,500,000 69,525,000
Browning-Ferris Industries Inc., 7.40%, 9/15/35 ............ United States 50,000,000 57,532,550
(c) Case New Holland Inc., senior note, 144A, 7.75%, 9/01/13 ... United States 201,050,000 201,050,000
(c) Ceva Group PLC,
senior note, 144A, 10.00%, 9/01/14 ...................... United Kingdom 100,000,000 89,500,000
(h) senior secured note, 144A, 11.625%, 10/01/16 ........... United Kingdom 11,800,000 11,460,986
(c) Delta Air Lines Inc., senior secured note, 144A,
9.50%, 9/15/14 .......................................... United States 83,150,000 84,813,000
11.75%, 3/15/15 ......................................... United States 130,000,000 124,150,000
Hertz Corp.,
senior note, 8.875%, 1/01/14 ............................ United States 440,000,000 446,600,000
senior sub. note, 10.50%, 1/01/16 ....................... United States 140,000,000 146,300,000
Ingersoll-Rand Global Holding Co. Ltd., senior note, 9.50%,
4/15/14 ................................................. United States 23,100,000 27,331,573
JohnsonDiversey Holdings Inc., senior disc. note, 10.67%,
5/15/13 ................................................. United States 168,400,000 162,506,000
JohnsonDiversey Inc., senior sub. note, B, 9.625%,
5/15/12 ................................................. United States 128,000,000 130,560,000
Nortek Inc., senior note, 10.00%, 12/01/13 ................. United States 40,000,000 41,000,000
RBS Global & Rexnord Corp.,
(c) 144A, 9.50%, 8/01/14 ................................ United States 98,206,000 95,750,850
senior note, 9.50%, 8/01/14 ............................. United States 173,274,000 168,942,150
senior sub. note, 11.75%, 8/01/16 ....................... United States 97,000,000 88,270,000
(c) RSC Equipment Rental Inc., senior secured note, 144A,
10.00%, 7/15/17 ......................................... United States 30,000,000 32,400,000
Terex Corp., senior sub. note, 8.00%, 11/15/17 ............. United States 185,000,000 170,662,500
(c,h) Transdigm Inc., senior sub. note, 144A, 7.75%, 7/15/14 ..... United States 50,000,000 48,562,500
----------------
2,564,146,935
----------------
INFORMATION TECHNOLOGY 2.6%
Ceridian Corp., senior note, 11.50%, 11/15/15 .............. United States 75,000,000 67,593,750
First Data Corp., senior note, 9.875%, 9/24/15 ............. United States 270,000,000 250,762,500
Flextronics International Ltd., senior sub. note, 6.25%,
11/15/14 ................................................ Singapore 75,000,000 72,562,500
Freescale Semiconductor Inc., senior note,
8.875%, 12/15/14 ........................................ United States 126,685,000 97,547,450
10.125%, 12/15/16 ....................................... United States 162,500,000 108,875,000
Jabil Circuit Inc., senior note,
7.75%, 7/15/16 .......................................... United States 45,400,000 46,308,000
8.25%, 3/15/18 .......................................... United States 5,000,000 5,100,000
Lucent Technologies Inc., 6.45%, 3/15/29 ................... United States 180,000,000 137,925,000
(i) Nortel Networks Ltd., senior note, 10.75%, 7/15/16 ......... Canada 77,100,000 44,332,500
Sanmina-SCI Corp., senior sub. note,
6.75%, 3/01/13 .......................................... United States 150,000,000 143,250,000
8.125%, 3/01/16 ......................................... United States 100,000,000 94,000,000
92 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CORPORATE BONDS (CONTINUED)
INFORMATION TECHNOLOGY (CONTINUED)
SunGard Data Systems Inc.,
senior note, 9.125%, 8/15/13 ............................ United States 35,000,000 $ 35,525,000
(c) senior note, 144A, 10.625%, 5/15/15 ................. United States 55,000,000 58,575,000
senior sub. note, 10.25%, 8/15/15 ....................... United States 85,000,000 87,125,000
----------------
1,249,481,700
----------------
MATERIALS 3.5%
(c) Anglo American Capital PLC,
144A, 9.375%, 4/08/19 ................................... United Kingdom 56,900,000 69,247,641
senior note, 144A, 9.375%, 4/08/14 ...................... United Kingdom 75,000,000 87,456,900
ArcelorMittal, senior note, 9.85%, 6/01/19 ................. Luxembourg 50,000,000 59,141,751
(c) Ashland Inc., senior note, 144A, 9.125%, 6/01/17 ........... United States 35,000,000 37,537,500
Ball Corp., senior note,
7.125%, 9/01/16 ......................................... United States 15,400,000 15,785,000
7.375%, 9/01/19 ......................................... United States 14,800,000 15,096,000
Boise Cascade LLC, senior sub. note, 7.125%, 10/15/14 ...... United States 15,000,000 12,000,000
Freeport-McMoRan Copper & Gold Inc., senior note,
8.25%, 4/01/15 .......................................... United States 82,400,000 87,749,655
8.375%, 4/01/17 ......................................... United States 110,000,000 117,175,630
Huntsman International LLC,
(c) senior note, 144A, 5.50%, 6/30/16 ................... United States 56,000,000 47,880,000
senior sub. note, 7.875%, 11/15/14 ...................... United States 10,000,000 9,350,000
(c) Ineos Group Holdings PLC, senior sub. note, 144A, 7.875%,
2/15/16 ................................................. United Kingdom 180,000,000 EUR 128,387,022
(c) Nalco Co., senior note, 144A, 8.25%, 5/15/17 ............... United States 34,650,000 36,555,750
Nalco Finance Holdings, senior note, 9.00%, 2/01/14 ........ United States 380,000,000 394,250,000
NewPage Corp., senior secured note,
10.00%, 5/01/12 ......................................... United States 60,000,000 39,900,000
(c) 144A, 11.375%, 12/31/14 ............................. United States 35,150,000 34,710,625
Owens-Brockway Glass Container Inc., senior note, 7.375%,
5/15/16 ................................................. United States 51,850,000 52,887,000
Rio Tinto Finance USA Ltd., senior note,
8.95%, 5/01/14 .......................................... Australia 50,000,000 59,077,250
9.00%, 5/01/19 .......................................... Australia 35,000,000 43,101,351
(c) Sealed Air Corp., senior note, 144A, 7.875%, 6/15/17 ....... United States 25,000,000 26,404,800
Teck Resources Ltd.,
senior note, 9.75%, 5/15/14 ............................. Canada 81,900,000 90,499,500
senior secured note, 10.25%, 5/15/16 .................... Canada 81,300,000 92,275,500
senior secured note, 10.75%, 5/15/19 .................... Canada 71,675,000 83,680,563
----------------
1,640,149,438
----------------
TELECOMMUNICATION SERVICES 1.1%
(c) CC Holdings GS V LLC, senior secured note, 144A, 7.75%,
5/01/17 ................................................. United States 72,250,000 75,140,000
Crown Castle International Corp., senior note, 9.00%,
1/15/15 ................................................. United States 55,000,000 57,887,500
(c) Digicel Group Ltd., senior note, 144A, 8.875%, 1/15/15 ..... Jamaica 65,000,000 60,775,000
(c) Qwest Corp., senior note, 144A, 8.375%, 5/01/16 ............ United States 87,750,000 91,260,000
Virgin Media Finance PLC, senior note, 1, 9.50%, 8/15/16 ... United Kingdom 74,800,000 79,101,000
Annual Report | 93
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
(c) Wind Acquisition Finance SA, senior note, 144A, 11.75%,
7/15/17 ................................................. Italy 68,500,000 $ 77,233,750
(c,h) Windstream Corp., senior note, 144A, 7.875%, 11/01/17 ...... United States 70,750,000 69,710,683
----------------
511,107,933
----------------
UTILITIES 6.9%
The AES Corp., senior note, 8.00%, 10/15/17 ................ United States 61,000,000 61,686,250
(a) Ameren Corp., senior note, 8.875%, 5/15/14 ................. United States 58,200,000 65,494,555
Aquila Inc., senior note, 11.875%, 7/01/12 ................. United States 53,500,000 61,825,403
Arizona Public Service Co., senior note, 8.75%, 3/01/19 .... United States 55,000,000 66,719,730
(c) Calpine Construction Finance, senior secured note, 144A,
8.00%, 6/01/16 .......................................... United States 100,000,000 103,000,000
CMS Energy Corp., senior note, 8.75%, 6/15/19 .............. United States 71,850,000 78,537,726
Dynegy Holdings Inc., senior note,
6.875%, 4/01/11 ......................................... United States 353,020,000 360,080,400
8.75%, 2/15/12 .......................................... United States 341,905,000 350,452,625
7.50%, 6/01/15 .......................................... United States 128,000,000 119,040,000
8.375%, 5/01/16 ......................................... United States 243,700,000 229,078,000
7.75%, 6/01/19 .......................................... United States 105,000,000 90,037,500
Energy Future Holdings Corp., senior note,
10.875%, 11/01/17 ....................................... United States 187,500,000 142,500,000
P, 5.55%, 11/15/14 ...................................... United States 378,260,000 260,086,280
(k) PIK, 12.00%, 11/01/17 ............................... United States 320,000,000 212,800,000
(c) Intergen NV, senior secured note, 144A, 9.00%, 6/30/17 ..... Netherlands 80,000,000 82,800,000
Public Service Co. of New Mexico, senior note, 7.95%,
5/15/18 ................................................. United States 55,000,000 55,571,725
Reliant Energy Inc., senior note,
7.625%, 6/15/14 ......................................... United States 150,000,000 147,937,500
7.875%, 6/15/17 ......................................... United States 153,100,000 150,229,375
Texas Competitive Electric Holdings Co. LLC, senior note,
A, 10.25%, 11/01/15 ..................................... United States 445,000,000 322,625,000
B, 10.25%, 11/01/15 ..................................... United States 242,900,000 176,102,500
(k) PIK, 10.50%, 11/01/16 ............................... United States 221,937,500 149,807,813
----------------
3,286,412,382
----------------
TOTAL CORPORATE BONDS (COST $29,955,201,053) ............... 27,828,422,508
----------------
CONVERTIBLE BONDS 2.0%
CONSUMER DISCRETIONARY 0.4%
(c) Host Hotels & Resorts LP, cvt., senior note, 144A, 2.625%,
4/15/12 ................................................. United States 120,956,000 111,733,105
(c) Host Marriott LP, cvt., senior deb., 144A, 3.25%, 3/15/24 .. United States 89,033,000 89,478,165
----------------
201,211,270
----------------
FINANCIALS 0.9%
(a,f) iStar Financial Inc., cvt., senior note, FRN, 1.097%,
10/01/12 ................................................ United States 250,000,000 126,250,000
Vornado Realty Trust, cvt., senior bond,
3.625%, 11/15/26 ........................................ United States 75,000,000 73,218,750
2.85%, 4/01/27 .......................................... United States 222,500,000 212,765,625
----------------
412,234,375
----------------
94 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND COUNTRY PRINCIPAL AMOUNT(e) VALUE
-------------------- -------------- ------------------- ----------------
CONVERTIBLE BONDS (CONTINUED)
INFORMATION TECHNOLOGY 0.6%
(c) Advanced Micro Devices Inc., cvt., senior note, 144A, 5.75%,
8/15/12 ................................................. United States 325,000,000 $ 274,218,750
UTILITIES 0.1%
CMS Energy Corp., cvt., senior note, 5.50%, 6/15/29 ........ United States 50,000,000 57,437,500
----------------
TOTAL CONVERTIBLE BONDS (COST $1,015,319,025) .............. 945,101,895
----------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $51,152,932,548) .................................. 45,979,827,642
----------------
SHORT TERM INVESTMENTS 3.1%
U.S. GOVERNMENT AND AGENCY SECURITIES (COST $309,999,991)
0.6%
(m) FHLB, 10/01/09 ............................................. 310,000,000 310,000,000
----------------
TOTAL INVESTMENTS BEFORE MONEY MARKET FUNDS AND
REPURCHASE AGREEMENTS (COST $51,462,932,539) ............ 46,289,827,642
----------------
SHARES
-------------------
MONEY MARKET FUNDS 0.6%
(b) Bank of New York Institutional Cash Reserve Fund,
Series B ................................................ United States 451,668 361,334
(n) Institutional Fiduciary Trust Money Market Portfolio,
0.00% ................................................... United States 269,928,515 269,928,515
----------------
TOTAL MONEY MARKET FUNDS (COST $270,380,182) ............... 270,289,849
----------------
PRINCIPAL AMOUNT
-------------------
REPURCHASE AGREEMENTS (COST $906,056,891) 1.9%
(o) Joint Repurchase Agreement, 0.029%, 10/01/09 ............... United States $ 906,056,891 906,056,891
(Maturity Value $906,057,617)
Banc of America Securities LLC (Maturity Value
$114,253,866)
Barclays Capital Inc. (Maturity Value $134,241,497)
BNP Paribas Securities Corp. (Maturity
Value $228,498,669)
Credit Suisse Securities (USA) LLC (Maturity Value
$142,812,802)
Deutsche Bank Securities Inc. (Maturity Value
$86,320,109)
HSBC Securities (USA) Inc. (Maturity Value $85,685,869)
Morgan Stanley & Co. Inc. (Maturity Value $85,685,869)
UBS Securities LLC (Maturity Value $28,558,936)
Collateralized by U.S. Government Agency Securities,
0.50% - 5.00%, 3/19/09 - 2/13/17; (m)U.S. Government
Agency Discount Notes, 12/31/09 - 4/26/10; (m)U.S.
Treasury Bills, 6/10/20; and U.S. Treasury Notes,
1.50% - 4.125%, 7/15/10 - 8/31/14
----------------
TOTAL SHORT TERM INVESTMENTS
(COST $1,486,437,064) ................................... 1,486,346,740
----------------
TOTAL INVESTMENTS (COST $52,639,369,612) 100.0% ............ 47,466,174,382
OTHER ASSETS, LESS LIABILITIES (0.0)%(p) ................... (19,637,554)
----------------
NET ASSETS 100.0% .......................................... $ 47,446,536,828
================
Annual Report | 95
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN INCOME FUND
See Abbreviations on page 143.
(a) See Note 10 regarding holdings of 5% voting securities.
(b) Non-income producing.
(c) 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 September 30,
2009, the aggregate value of these securities was $8,174,519,821,
representing 17.23% of net assets.
(d) See Note 1(f) regarding equity-linked securities.
(e) The principal amount is stated in U.S. dollars unless otherwise indicated.
(f) The coupon rate shown represents the rate at period end.
(g) See Note 1(h) regarding senior floating rate interests.
(h) Security purchased on a delayed delivery basis. See Note 1(d).
(i) See Note 8 regarding defaulted securities.
(j) See Note 12 regarding other considerations.
(k) Income may be received in additional securities and/or cash.
(l) Perpetual security with no stated maturity date.
(m) The security is traded on a discount basis with no stated coupon rate.
(n) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(o) See Note 1(c) regarding joint repurchase agreement.
(p) Rounds to less than 0.1% of net assets.
The accompanying notes are an integral part of these financial statements.
96 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 6.45 $ 6.39 $ 6.43 $ 6.53 $ 6.68
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) ......... 0.27 0.30 0.31 0.30 0.28
Net realized and unrealized gains
(losses) ...................... 0.27 0.08 (0.02) (0.09) (0.11)
---------- ---------- ---------- ---------- ----------
Total from investment operations .... 0.54 0.38 0.29 0.21 0.17
---------- ---------- ---------- ---------- ----------
Less distributions from net
investment income ................ (0.30) (0.32) (0.33) (0.31) (0.32)
---------- ---------- ---------- ---------- ----------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........ $ 6.69 $ 6.45 $ 6.39 $ 6.43 $ 6.53
========== ========== ========== ========== ==========
Total return(e) ..................... 8.50% 6.00% 4.63% 3.40% 2.67%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 0.73% 0.72% 0.72% 0.72% 0.72%
Net investment income ............... 4.11% 4.64% 4.78% 4.64% 4.29%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $6,275,792 $5,353,961 $5,073,449 $5,291,117 $5,901,449
Portfolio turnover rate ............. 34.74% 21.66% 12.34% 20.54% 29.14%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 97
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 6.44 $ 6.38 $ 6.42 $ 6.52 $ 6.67
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.24 0.27 0.27 0.26 0.25
Net realized and unrealized gains
(losses) ...................... 0.26 0.07 (0.01) (0.08) (0.11)
-------- -------- -------- -------- --------
Total from investment operations .... 0.50 0.34 0.26 0.18 0.14
-------- -------- -------- -------- --------
Less distributions from net
investment income ................ (0.26) (0.28) (0.30) (0.28) (0.29)
-------- -------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 6.68 $ 6.44 $ 6.38 $ 6.42 $ 6.52
======== ======== ======== ======== ========
Total return(e) ..................... 7.79% 5.61% 4.10% 2.87% 2.13%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.24% 1.24% 1.25% 1.24% 1.25%
Net investment income ............... 3.60% 4.12% 4.25% 4.12% 3.76%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $230,575 $284,649 $316,720 $388,807 $478,788
Portfolio turnover rate ............. 34.74% 21.66% 12.34% 20.54% 29.14%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
98 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- ---------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 6.42 $ 6.36 $ 6.40 $ 6.50 $ 6.65
---------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.23 0.27 0.27 0.26 0.25
Net realized and unrealized gains
(losses) ...................... 0.27 0.07 (0.01) (0.08) (0.11)
---------- -------- -------- -------- --------
Total from investment operations .... 0.50 0.34 0.26 0.18 0.14
---------- -------- -------- -------- --------
Less distributions from net
investment income ................ (0.26) (0.28) (0.30) (0.28) (0.29)
---------- -------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
---------- -------- -------- -------- --------
Net asset value, end of year ........ $ 6.66 $ 6.42 $ 6.36 $ 6.40 $ 6.50
========== ======== ======== ======== ========
Total return(e) ..................... 8.01% 5.48% 4.12% 2.88% 2.14%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.24% 1.24% 1.25% 1.23% 1.25%
Net investment income ............... 3.60% 4.12% 4.25% 4.13% 3.76%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $1,464,614 $610,148 $418,951 $424,462 $508,539
Portfolio turnover rate ............. 34.74% 21.66% 12.34% 20.54% 29.14%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 99
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
CLASS R 2009 2008 2007 2006 2005
- ------- -------- -------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 6.45 $ 6.39 $ 6.43 $ 6.53 $ 6.68
-------- -------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ......... 0.25 0.28 0.28 0.27 0.26
Net realized and unrealized gains
(losses) ...................... 0.26 0.07 (0.01) (0.08) (0.11)
-------- -------- ------- ------- -------
Total from investment operations .... 0.51 0.35 0.27 0.19 0.15
-------- -------- ------- ------- -------
Less distributions from net
investment income ................ (0.27) (0.29) (0.31) (0.29) (0.30)
-------- -------- ------- ------- -------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
-------- -------- ------- ------- -------
Net asset value, end of year ........ $ 6.69 $ 6.45 $ 6.39 $ 6.43 $ 6.53
======== ======== ======= ======= =======
Total return(e) ..................... 8.12% 5.61% 4.25% 3.01% 2.29%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.09% 1.09% 1.10% 1.09% 1.10%
Net investment income ............... 3.75% 4.27% 4.40% 4.27% 3.91%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $138,548 $104,648 $74,537 $71,104 $65,790
Portfolio turnover rate ............. 34.74% 21.66% 12.34% 20.54% 29.14%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
100 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 6.47 $ 6.41 $ 6.45 $ 6.55 $ 6.69
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.28 0.31 0.31 0.31 0.29
Net realized and unrealized gains
(losses) ...................... 0.27 0.08 (0.01) (0.09) (0.10)
-------- -------- -------- -------- --------
Total from investment operations .... 0.55 0.39 0.30 0.22 0.19
-------- -------- -------- -------- --------
Less distributions from net
investment income ................ (0.31) (0.33) (0.34) (0.32) (0.33)
-------- -------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 6.71 $ 6.47 $ 6.41 $ 6.45 $ 6.55
======== ======== ======== ======== ========
Total return ........................ 8.63% 6.11% 4.75% 3.53% 2.95%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) ......................... 0.59% 0.59% 0.60% 0.59% 0.60%
Net investment income ............... 4.25% 4.77% 4.90% 4.77% 4.41%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $863,951 $612,026 $470,751 $387,239 $334,681
Portfolio turnover rate ............. 34.74% 21.66% 12.34% 20.54% 29.14%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 101
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009
FRANKLIN U.S. GOVERNMENT SECURITIES FUND PRINCIPAL AMOUNT VALUE
---------------------------------------- ------------------- ----------------
MORTGAGE-BACKED SECURITIES 92.6%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) FIXED RATE 92.6%
GNMA GP 30 Year, 8.25%, 3/15/17 - 10/15/17 .................................. $ 96,046 $ 105,191
GNMA GP 30 Year, 9.25%, 5/15/16 - 12/15/16 .................................. 210,951 232,450
GNMA GP 30 Year, 10.00%, 11/15/09 - 1/15/10 ................................. 6,529 6,595
GNMA GP 30 Year, 11.00%, 1/15/10 - 11/15/10 ................................. 63,946 65,831
GNMA GP 30 Year, 11.25%, 7/15/13 - 1/15/16 .................................. 166,065 185,230
GNMA GP 30 Year, 11.50%, 2/15/13 - 5/15/13 .................................. 24,286 26,919
GNMA GP 30 Year, 11.75%, 7/15/13 - 8/15/13 .................................. 26,624 29,412
GNMA GP 30 Year, 12.00%, 3/15/11 - 12/15/12 ................................. 7,527 8,141
GNMA GP 30 Year, 12.50%, 5/15/10 - 6/15/10 .................................. 3,998 4,147
GNMA GP 30 Year, 12.75%, 5/15/14 ............................................ 4,046 4,646
GNMA I SF 15 Year, 6.50%, 5/15/18 ........................................... 947,624 1,020,485
GNMA I SF 30 Year, 4.50%, 3/15/39 ........................................... 112,359,480 114,290,658
GNMA I SF 30 Year, 4.50%, 1/15/39 - 6/15/39 ................................. 764,146,355 777,267,028
GNMA I SF 30 Year, 5.00%, 8/15/39 ........................................... 187,189,656 194,121,366
GNMA I SF 30 Year, 5.00%, 2/15/33 - 9/15/39 ................................. 1,157,383,587 1,203,462,716
GNMA I SF 30 Year, 5.50%, 2/15/39 ........................................... 167,612,097 176,228,406
GNMA I SF 30 Year, 5.50%, 5/15/28 - 6/15/39 ................................. 1,531,989,084 1,614,700,547
GNMA I SF 30 Year, 6.00%, 11/15/38 .......................................... 89,063,381 94,325,875
GNMA I SF 30 Year, 6.00%, 10/15/23 - 2/15/39 ................................ 1,208,132,805 1,282,191,739
GNMA I SF 30 Year, 6.50%, 5/15/23 - 2/15/38 ................................. 301,024,291 322,818,996
GNMA I SF 30 Year, 6.75%, 3/15/26 ........................................... 39,395 43,101
GNMA I SF 30 Year, 7.00%, 4/15/16 - 9/15/32 ................................. 159,653,071 175,973,472
GNMA I SF 30 Year, 7.25%, 11/15/25 - 1/15/26 ................................ 526,091 584,373
GNMA I SF 30 Year, 7.50%, 7/15/16 - 8/15/33 ................................. 51,410,136 57,165,312
GNMA I SF 30 Year, 7.70%, 1/15/21 - 1/15/22 ................................. 389,142 435,199
GNMA I SF 30 Year, 8.00%, 11/15/15 - 9/15/30 ................................ 30,748,682 34,484,619
GNMA I SF 30 Year, 8.25%, 3/15/27 ........................................... 36,145 41,225
GNMA I SF 30 Year, 8.50%, 12/15/09 - 6/15/25 ................................ 6,839,624 7,732,692
GNMA I SF 30 Year, 9.00%, 9/15/13 - 7/15/23 ................................. 8,293,864 9,285,919
GNMA I SF 30 Year, 9.50%, 10/15/09 - 8/15/22 ................................ 4,937,758 5,576,826
GNMA I SF 30 Year, 10.00%, 2/15/16 - 3/15/25 ................................ 6,784,420 7,608,218
GNMA I SF 30 Year, 10.50%, 2/15/12 - 10/15/21 ............................... 4,948,359 5,550,783
GNMA I SF 30 Year, 11.00%, 12/15/09 - 5/15/21 ............................... 3,275,637 3,638,528
GNMA I SF 30 Year, 11.50%, 3/15/13 - 2/15/16 ................................ 936,736 1,043,215
GNMA I SF 30 Year, 12.00%, 5/15/11 - 1/15/18 ................................ 4,515,495 5,073,595
GNMA I SF 30 Year, 12.50%, 4/15/10 - 8/15/18 ................................ 3,032,669 3,411,823
GNMA I SF 30 Year, 13.00%, 1/15/11 - 9/15/15 ................................ 3,477,666 3,924,436
GNMA II GP 30 Year, 8.75%, 3/20/17 - 7/20/17 ................................ 38,497 42,413
GNMA II GP 30 Year, 11.50%, 8/20/13 ......................................... 10,992 12,151
GNMA II SF 30 Year, 4.50%, 5/20/33 - 10/20/34 ............................... 33,480,593 34,109,585
GNMA II SF 30 Year, 5.00%, 9/20/33 .......................................... 160,896,482 167,744,554
GNMA II SF 30 Year, 5.00%, 7/20/33 - 3/20/36 ................................ 244,620,181 254,572,285
GNMA II SF 30 Year, 5.50%, 12/20/34 ......................................... 107,179,112 113,243,704
GNMA II SF 30 Year, 5.50%, 6/20/38 .......................................... 91,453,271 96,251,910
GNMA II SF 30 Year, 5.50%, 6/20/34 - 3/20/39 ................................ 539,644,298 569,512,178
GNMA II SF 30 Year, 6.00%, 10/20/23 - 12/20/38 .............................. 683,607,096 726,537,204
GNMA II SF 30 Year, 6.50%, 11/20/38 ......................................... 98,600,462 104,838,318
GNMA II SF 30 Year, 6.50%, 6/20/24 - 1/20/39 ................................ 89,222,911 95,716,560
GNMA II SF 30 Year, 7.00%, 2/20/28 - 7/20/33 ................................ 29,031,823 31,825,069
102 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (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, 7.50%, 10/20/22 - 4/20/32 ............................... $ 5,383,708 $ 6,001,659
GNMA II SF 30 Year, 8.00%, 8/20/16 - 6/20/30 ................................ 2,620,735 2,944,990
GNMA II SF 30 Year, 8.50%, 4/20/16 - 6/20/25 ................................ 1,306,000 1,466,223
GNMA II SF 30 Year, 9.00%, 8/20/16 - 11/20/21 ............................... 440,953 495,866
GNMA II SF 30 Year, 9.50%, 3/20/18 - 4/20/25 ................................ 256,253 290,536
GNMA II SF 30 Year, 10.00%, 8/20/15 - 3/20/21 ............................... 539,541 604,318
GNMA II SF 30 Year, 10.50%, 9/20/13 - 3/20/21 ............................... 1,383,268 1,541,495
GNMA II SF 30 Year, 11.00%, 8/20/13 - 1/20/21 ............................... 218,089 243,724
GNMA II SF 30 Year, 11.50%, 9/20/13 - 2/20/18 ............................... 117,528 130,628
GNMA II SF 30 Year, 12.00%, 9/20/13 - 2/20/16 ............................... 195,366 218,596
GNMA II SF 30 Year, 12.50%, 10/20/13 - 11/20/15 ............................. 128,841 146,216
GNMA II SF 30 Year, 13.00%, 10/20/13 - 9/20/15 .............................. 158,462 182,372
----------------
TOTAL MORTGAGE-BACKED SECURITIES (COST $8,010,231,955) ...................... 8,311,342,268
----------------
SHARES
-------------------
SHORT TERM INVESTMENTS 6.7%
MONEY MARKET FUNDS (COST $269,928,515) 3.0%
(a) Institutional Fiduciary Trust Money Market Portfolio, 0.00% ................. 269,928,515 269,928,515
----------------
PRINCIPAL AMOUNT
-------------------
REPURCHASE AGREEMENTS (COST $330,020,000) 3.7%
(b) Barclays Capital Inc., 0.02%, 10/01/09 (Maturity Value $330,020,183)
Collateralized by U.S. Treasury Notes, 1.25%, 11/30/10 ................... $ 330,020,000 330,020,000
----------------
TOTAL INVESTMENTS (COST $8,610,180,470) 99.3% ............................... 8,911,290,783
OTHER ASSETS, LESS LIABILITIES 0.7% ......................................... 62,190,345
----------------
NET ASSETS 100.0% ........................................................... $ 8,973,481,128
================
See Abbreviations on page 143.
(a) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
(b) See Note 1(c) regarding repurchase agreements.
The accompanying notes are an integral part of these financial statements.
Annual Report | 103
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS
FRANKLIN UTILITIES FUND
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------
CLASS A 2009 2008 2007 2006 2005
- ------- ---------- ---------- --------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 11.92 $ 14.58 $ 12.89 $ 12.59 $ 10.16
---------- ---------- ---------- ---------- ----------
Income from investment operations(a):
Net investment income(b) ......... 0.43 0.41 0.40 0.43 0.45
Net realized and unrealized gains
(losses) ...................... (1.11) (1.93) 2.16 0.37 2.42
---------- ---------- ---------- ---------- ----------
Total from investment operations .... (0.68) (1.52) 2.56 0.80 2.87
---------- ---------- ---------- ---------- ----------
Less distributions from:
Net investment income ............ (0.42) (0.40) (0.40) (0.41) (0.44)
Net realized gains ............... (0.08) (0.74) (0.47) (0.09) --
---------- ---------- ---------- ---------- ----------
Total distributions ................. (0.50) (1.14) (0.87) (0.50) (0.44)
---------- ---------- ---------- ---------- ----------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........ $ 10.74 $ 11.92 $ 14.58 $ 12.89 $ 12.59
========== ========== ========== ========== ==========
Total return(e) ..................... (5.20)% (11.63)% 20.32% 6.69% 28.81%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 0.80% 0.74% 0.75% 0.76% 0.78%
Net investment income ............... 4.29% 2.92% 2.83% 3.54% 3.92%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $1,543,060 $1,769,397 $2,157,614 $1,926,732 $1,986,034
Portfolio turnover rate ............. 15.49% 8.32% 10.84% 7.97% 13.53%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
104 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
CLASS B 2009 2008 2007 2006 2005
- ------- ------- ------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 11.91 $ 14.56 $ 12.88 $ 12.57 $ 10.15
------- ------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.38 0.33 0.33 0.37 0.39
Net realized and unrealized gains
(losses) ...................... (1.10) (1.91) 2.15 0.38 2.42
------- ------- -------- -------- --------
Total from investment operations .... (0.72) (1.58) 2.48 0.75 2.81
------- ------- -------- -------- --------
Less distributions from:
Net investment income ............ (0.37) (0.33) (0.33) (0.35) (0.39)
Net realized gains ............... (0.08) (0.74) (0.47) (0.09) --
------- ------- -------- -------- --------
Total distributions ................. (0.45) (1.07) (0.80) (0.44) (0.39)
------- ------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
------- ------- -------- -------- --------
Net asset value, end of year ........ $ 10.74 $ 11.91 $ 14.56 $ 12.88 $ 12.57
======= ======= ======== ======== ========
Total return(e) ..................... (5.65)% (12.04)% 19.66% 6.25% 28.11%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.30% 1.24% 1.26% 1.26% 1.28%
Net investment income ............... 3.79% 2.42% 2.32% 3.04% 3.42%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $64,176 $92,695 $127,587 $133,824 $154,277
Portfolio turnover rate ............. 15.49% 8.32% 10.84% 7.97% 13.53%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 105
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
CLASS C 2009 2008 2007 2006 2005
- ------- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 11.88 $ 14.53 $ 12.85 $ 12.55 $ 10.13
-------- -------- -------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.38 0.33 0.33 0.37 0.39
Net realized and unrealized gains
(losses) ...................... (1.10) (1.91) 2.15 0.37 2.42
-------- -------- -------- -------- --------
Total from investment operations .... (0.72) (1.58) 2.48 0.74 2.81
-------- -------- -------- -------- --------
Less distributions from:
Net investment income ............ (0.37) (0.33) (0.33) (0.35) (0.39)
Net realized gains ............... (0.08) (0.74) (0.47) (0.09) --
-------- -------- -------- -------- --------
Total distributions ................. (0.45) (1.07) (0.80) (0.44) (0.39)
-------- -------- -------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 10.71 $ 11.88 $ 14.53 $ 12.85 $ 12.55
======== ======== ======== ======== ========
Total return(e) ..................... (5.64)% (12.06)% 19.72% 6.19% 28.16%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.30% 1.24% 1.26% 1.25% 1.28%
Net investment income ............... 3.79% 2.42% 2.32% 3.05% 3.42%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $300,544 $339,247 $424,977 $391,509 $435,714
Portfolio turnover rate ............. 15.49% 8.32% 10.84% 7.97% 13.53%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
106 | Annual Report
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
CLASS R 2009 2008 2007 2006 2005
- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 11.89 $ 14.54 $ 12.86 $ 12.57 $ 10.15
------- ------- ------- ------- -------
Income from investment operations(a):
Net investment income(b) ......... 0.40 0.36 0.35 0.39 0.43
Net realized and unrealized gains
(losses) ...................... (1.11) (1.92) 2.16 0.36 2.40
------- ------- ------- ------- -------
Total from investment operations .... (0.71) (1.56) 2.51 0.75 2.83
------- ------- ------- ------- -------
Less distributions from:
Net investment income ............ (0.39) (0.35) (0.36) (0.37) (0.41)
Net realized gains ............... (0.08) (0.74) (0.47) (0.09) --
------- ------- ------- ------- -------
Total distributions ................. (0.47) (1.09) (0.83) (0.46) (0.41)
------- ------- ------- ------- -------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
------- ------- ------- ------- -------
Net asset value, end of year ........ $ 10.71 $ 11.89 $ 14.54 $ 12.86 $ 12.57
======= ======= ======= ======= =======
Total return(e) ..................... (5.57)% (11.92)% 19.92% 6.29% 28.35%
RATIOS TO AVERAGE NET ASSETS
Expenses(f) ......................... 1.15% 1.09% 1.11% 1.11% 1.13%
Net investment income ............... 3.94% 2.57% 2.47% 3.19% 3.57%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $37,795 $36,596 $41,845 $27,736 $14,649
Portfolio turnover rate ............. 15.49% 8.32% 10.84% 7.97% 13.53%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
Annual Report | 107
Franklin Custodian Funds
FINANCIAL HIGHLIGHTS (CONTINUED)
FRANKLIN UTILITIES FUND
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
ADVISOR CLASS 2009 2008 2007 2006 2005
- ------------- -------- ------- ------- -------- --------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the year)
Net asset value, beginning of year .. $ 11.98 $ 14.64 $ 12.95 $ 12.64 $ 10.20
-------- ------- ------- -------- --------
Income from investment operations(a):
Net investment income(b) ......... 0.45 0.42 0.42 0.45 0.48
Net realized and unrealized gains
(losses) ...................... (1.12) (1.92) 2.17 0.38 2.42
-------- ------- ------- -------- --------
Total from investment operations .... (0.67) (1.50) 2.59 0.83 2.90
-------- ------- ------- -------- --------
Less distributions from:
Net investment income ............ (0.44) (0.42) (0.43) (0.43) (0.46)
Net realized gains ............... (0.08) (0.74) (0.47) (0.09) --
-------- ------- ------- -------- --------
Total distributions ................. (0.52) (1.16) (0.90) (0.52) (0.46)
-------- ------- ------- -------- --------
Redemption fees(c) .................. -- --(d) --(d) --(d) --(d)
-------- ------- ------- -------- --------
Net asset value, end of year ........ $ 10.79 $ 11.98 $ 14.64 $ 12.95 $ 12.64
======== ======= ======= ======== ========
Total return ........................ (5.12)% (11.45)% 20.43% 6.88% 29.00%
RATIOS TO AVERAGE NET ASSETS
Expenses(e) ......................... 0.65% 0.59% 0.61% 0.61% 0.63%
Net investment income ............... 4.44% 3.07% 2.97% 3.69% 4.07%
SUPPLEMENTAL DATA
Net assets, end of year (000's) ..... $124,454 $58,817 $86,823 $103,041 $110,249
Portfolio turnover rate ............. 15.49% 8.32% 10.84% 7.97% 13.53%
(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) Benefit of expense reduction rounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements.
108 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009
FRANKLIN UTILITIES FUND COUNTRY SHARES VALUE
----------------------- -------------- ------------------- ----------------
COMMON STOCKS 94.0%
DIVERSIFIED TELECOMMUNICATION SERVICES 2.7%
AT&T Inc. .................................................. United States 1,200,000 $ 32,412,000
Verizon Communications Inc. ................................ United States 800,000 24,216,000
----------------
56,628,000
----------------
ELECTRIC UTILITIES 48.0%
Allegheny Energy Inc. ...................................... United States 1,000,000 26,520,000
American Electric Power Co. Inc. ........................... United States 2,200,000 68,178,000
Cleco Corp. ................................................ United States 1,000,000 25,080,000
Duke Energy Corp. .......................................... United States 3,800,000 59,812,000
Edison International ....................................... United States 1,800,000 60,444,000
Entergy Corp. .............................................. United States 1,100,000 87,846,000
Exelon Corp. ............................................... United States 2,000,000 99,240,000
FirstEnergy Corp. .......................................... United States 1,700,000 77,724,000
FPL Group Inc. ............................................. United States 1,400,000 77,322,000
Great Plains Energy Inc. ................................... United States 767,400 13,774,830
Hawaiian Electric Industries Inc. .......................... United States 600,000 10,872,000
Northeast Utilities ........................................ United States 600,000 14,244,000
NV Energy Inc. ............................................. United States 5,000,000 57,950,000
Pepco Holdings Inc. ........................................ United States 1,000,000 14,880,000
Pinnacle West Capital Corp. ................................ United States 600,000 19,692,000
PNM Resources Inc. ......................................... United States 855,720 9,994,810
Portland General Electric Co. .............................. United States 1,500,000 29,580,000
PPL Corp. .................................................. United States 2,600,000 78,884,000
Progress Energy Inc. ....................................... United States 1,500,000 58,590,000
The Southern Co. ........................................... United States 2,600,000 82,342,000
Westar Energy Inc. ......................................... United States 1,080,600 21,082,506
----------------
994,052,146
----------------
GAS UTILITIES 0.4%
Southwest Gas Corp. ........................................ United States 300,000 7,674,000
----------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 2.7%
Constellation Energy Group ................................. United States 1,700,000 55,029,000
----------------
MULTI-UTILITIES 35.9%
Alliant Energy Corp. ....................................... United States 1,200,000 33,420,000
Ameren Corp. ............................................... United States 1,350,000 34,128,000
CenterPoint Energy Inc. .................................... United States 3,121,100 38,795,273
CMS Energy Corp. ........................................... United States 1,000,000 13,400,000
Consolidated Edison Inc. ................................... United States 800,000 32,752,000
Dominion Resources Inc. .................................... United States 1,500,000 51,750,000
DTE Energy Co. ............................................. United States 500,000 17,570,000
GDF Suez ................................................... France 700,000 31,078,438
National Grid PLC .......................................... United Kingdom 4,987,755 48,100,056
NiSource Inc. .............................................. United States 1,500,000 20,835,000
PG&E Corp. ................................................. United States 2,100,000 85,029,000
Public Service Enterprise Group Inc. ....................... United States 2,100,000 66,024,000
RWE AG ..................................................... Germany 300,000 27,951,062
SCANA Corp. ................................................ United States 775,000 27,047,500
Sempra Energy .............................................. United States 1,700,000 84,677,000
Annual Report | 109
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN UTILITIES FUND COUNTRY SHARES VALUE
----------------------- -------------- ------------------- ----------------
COMMON STOCKS (CONTINUED)
MULTI-UTILITIES (CONTINUED)
TECO Energy Inc. ........................................... United States 700,000 $ 9,856,000
United Utilities Group PLC ................................. United Kingdom 2,960,189 21,593,518
Vectren Corp. .............................................. United States 600,000 13,824,000
Wisconsin Energy Corp. ..................................... United States 800,000 36,136,000
Xcel Energy Inc. ........................................... United States 2,600,000 50,024,000
----------------
743,990,847
----------------
OIL, GAS & CONSUMABLE FUELS 3.0%
Spectra Energy Corp. ....................................... United States 2,197,600 41,622,544
The Williams Cos. Inc. ..................................... United States 1,105,190 19,749,745
----------------
61,372,289
----------------
WATER UTILITIES 1.3%
American Water Works Co. Inc. .............................. United States 1,400,000 27,916,000
----------------
TOTAL COMMON STOCKS (COST $1,553,762,688) .................. 1,946,662,282
----------------
PRINCIPAL AMOUNT
-------------------
CORPORATE BONDS 3.7%
ELECTRIC UTILITIES 1.9%
MidAmerican Energy Holdings Co., senior note, 8.48%,
9/15/28 ................................................. United States $ 25,000,000 32,910,225
Northeast Generation Co., senior secured note, B-1, 8.812%,
10/15/26 ................................................ United States 7,218,750 6,406,663
----------------
39,316,888
----------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 1.2%
Energy Future Holdings Corp., senior note,
P, 5.55%, 11/15/14 ...................................... United States 32,300,000 22,209,028
R, 6.55%, 11/15/34 ...................................... United States 5,700,000 2,592,787
----------------
24,801,815
----------------
MULTI-UTILITIES 0.6%
Aquila Inc., senior note,
9.95%, 2/01/11 .......................................... United States 6,000,000 6,307,782
8.27%, 11/15/21 ......................................... United States 6,100,000 6,094,504
----------------
12,402,286
----------------
TOTAL CORPORATE BONDS (COST $77,506,993) ................... 76,520,989
----------------
TOTAL INVESTMENTS BEFORE SHORT TERM INVESTMENTS
(COST $1,631,269,681) ................................... 2,023,183,271
----------------
110 | Annual Report
Franklin Custodian Funds
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2009 (CONTINUED)
FRANKLIN UTILITIES FUND COUNTRY SHARES VALUE
----------------------- -------------- ------------------- ----------------
SHORT TERM INVESTMENTS (COST $38,378,710) 1.9%
MONEY MARKET FUNDS 1.9%
(a) Institutional Fiduciary Trust Money Market Portfolio,
0.00% ................................................... United States 38,378,710 $ 38,378,710
----------------
TOTAL INVESTMENTS (COST $1,669,648,391) 99.6% .............. 2,061,561,981
OTHER ASSETS, LESS LIABILITIES 0.4% ........................ 8,467,998
----------------
NET ASSETS 100.0% .......................................... $ 2,070,029,979
================
(a) See Note 7 regarding investments in the Institutional Fiduciary Trust Money
Market Portfolio. The rate shown is the annualized seven-day yield at
period end.
The accompanying notes are an integral part of these financial statements.
Annual Report | 111
Franklin Custodian Funds
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 2009
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- -------------- ---------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ........................... $357,160,889 $1,758,996,730 $50,189,231,436
Cost - Non-controlled affiliated issuers (Note 10) .... -- -- 1,274,152,770
Cost - Sweep Money Fund (Note 7) ...................... -- 23,763,290 269,928,515
Cost - Repurchase agreements .......................... -- -- 906,056,891
------------ -------------- ---------------
Total cost of investments ............................. $357,160,889 $1,782,760,020 $52,639,369,612
============ ============== ===============
Value - Unaffiliated issuers .......................... $615,589,651 $3,064,055,036 $44,856,155,671
Value - Non-controlled affiliated issuers (Note 10) ... -- -- 1,434,033,305
Value - Sweep Money Fund (Note 7) ..................... -- 23,763,290 269,928,515
Value - Repurchase agreements ......................... -- -- 906,056,891
------------ -------------- ---------------
Total value of investments ............................ 615,589,651 3,087,818,326 47,466,174,382
Cash ..................................................... -- 100,179 9,781,993
Receivables:
Investment securities sold ............................ 6,371,068 -- 12,474,250
Capital shares sold ................................... 544,301 3,676,583 126,776,722
Dividends and interest ................................ 388,359 2,439,965 632,461,153
Other assets ............................................. 392 372,832 29,138
------------ -------------- ---------------
Total assets ....................................... 622,893,771 3,094,407,885 48,247,697,638
------------ -------------- ---------------
Liabilities:
Payables:
Investment securities purchased ....................... 1,772,700 12,154,795 669,962,523
Capital shares redeemed ............................... 780,246 5,733,648 83,654,756
Affiliates ............................................ 708,697 3,065,981 39,869,586
Allocator Funds (Note 11) ............................. -- 32,284 240,665
Unaffiliated transfer agent fees ...................... 99,980 353,056 5,002,832
Funds advanced by custodian .............................. 4,321,427 -- --
Accrued expenses and other liabilities ................... 68,229 220,447 2,430,448
------------ -------------- ---------------
Total liabilities .................................. 7,751,279 21,560,211 801,160,810
------------ -------------- ---------------
Net assets, at value ............................ $615,142,492 $3,072,847,674 $47,446,536,828
============ ============== ===============
Net assets consist of:
Paid-in capital .......................................... $437,917,559 $1,885,579,915 $57,887,357,824
Undistributed net investment income (loss) ............... -- 12,735,382 --
Distributions in excess of net investment income ......... -- -- (293,103,420)
Net unrealized appreciation (depreciation) ............... 258,435,046 1,305,058,677 (5,173,388,123)
Accumulated net realized gain (loss) ..................... (81,210,113) (130,526,300) (4,974,329,453)
------------ -------------- ---------------
Net assets, at value ............................ $615,142,492 $3,072,847,674 $47,446,536,828
============ ============== ===============
The accompanying notes are an integral part of these financial statements.
112 | Annual Report
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
September 30, 2009
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- -------------- ---------------
CLASS A:
Net assets, at value ..................................... $503,472,319 $2,173,714,147 $27,773,005,958
------------ -------------- ---------------
Shares outstanding ....................................... 21,704,520 59,584,056 13,976,201,310
------------ -------------- ---------------
Net asset value per share(a) ............................. $ 23.20 $ 36.48 $ 1.99
------------ -------------- ---------------
Maximum offering price per share (net asset value per
share / 94.25%, 94.25% and 95.75%, respectively) ...... $ 24.62 $ 38.71 $ 2.08
------------ -------------- ---------------
CLASS B:
Net assets, at value ..................................... $ 13,681,845 $ 87,789,658 $ 2,051,279,546
------------ -------------- ---------------
Shares outstanding ....................................... 633,479 2,512,961 1,036,951,759
------------ -------------- ---------------
Net asset value and maximum offering price per share(a) .. $ 21.60 $ 34.93 $ 1.98
------------ -------------- ---------------
CLASS B1:
Net assets, at value ..................................... -- -- $ 68,825,024
------------ -------------- ---------------
Shares outstanding ....................................... -- -- 34,637,234
------------ -------------- ---------------
Net asset value and maximum offering price per share(a) .. -- -- $ 1.99
------------ -------------- ---------------
CLASS C:
Net assets, at value ..................................... $ 83,435,039 $ 315,305,450 $13,054,203,262
------------ -------------- ---------------
Shares outstanding ....................................... 3,909,046 9,111,131 6,519,997,050
------------ -------------- ---------------
Net asset value and maximum offering price per share(a) .. $ 21.34 $ 34.61 $ 2.00
------------ -------------- ---------------
CLASS R:
Net assets, at value ..................................... $ 6,344,896 $ 65,112,783 $ 315,297,612
------------ -------------- ---------------
Shares outstanding ....................................... 274,297 1,790,276 160,536,949
------------ -------------- ---------------
Net asset value and maximum offering price per share ..... $ 23.13 $ 36.37 $ 1.96
------------ -------------- ---------------
ADVISOR CLASS:
Net assets, at value ..................................... $ 8,208,393 $ 430,925,636 $ 4,183,925,426
------------ -------------- ---------------
Shares outstanding ....................................... 352,591 11,797,872 2,116,859,447
------------ -------------- ---------------
Net asset value and maximum offering price per share ..... $ 23.28 $ 36.53 $ 1.98
------------ -------------- ---------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 113
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
September 30, 2009
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
--------------- ---------------
Assets:
Investments in securities:
Cost - Unaffiliated issuers ........................... $8,010,231,955 $1,631,269,681
Cost - Sweep Money Fund (Note 7) ...................... 269,928,515 38,378,710
Cost - Repurchase agreements .......................... 330,020,000 --
-------------- --------------
Total cost of investments ............................. $8,610,180,470 $1,669,648,391
============== ==============
Value - Unaffiliated issuers .......................... $8,311,342,268 $2,023,183,271
Value - Sweep Money Fund (Note 7) ..................... 269,928,515 38,378,710
Value - Repurchase agreements ......................... 330,020,000 --
-------------- --------------
Total value of investments ............................ 8,911,290,783 2,061,561,981
Cash ..................................................... 2,570 --
Receivables:
Investment securities sold ............................ 1,171,710 3,227,407
Capital shares sold ................................... 49,508,981 3,602,845
Dividends and interest ................................ 35,351,730 7,089,096
Other assets ............................................. 6,009 1,556
-------------- --------------
Total assets ....................................... 8,997,331,783 2,075,482,885
-------------- --------------
Liabilities:
Payables:
Capital shares redeemed ............................... 15,365,627 3,289,879
Affiliates ............................................ 6,908,429 1,695,442
Allocator Funds (Note 11) ............................. 25,130 --
Unaffiliated transfer agent fees ...................... 1,027,805 282,737
Accrued expenses and other liabilities ................... 523,664 184,848
-------------- --------------
Total liabilities .................................. 23,850,655 5,452,906
-------------- --------------
Net assets, at value ............................ $8,973,481,128 $2,070,029,979
============== ==============
Net assets consist of:
Paid-in capital .......................................... $9,049,489,178 $1,640,904,962
Undistributed net investment income ...................... 2,451,318 9,424,658
Net unrealized appreciation (depreciation) ............... 301,110,313 391,938,665
Accumulated net realized gain (loss) ..................... (379,569,681) 27,761,694
-------------- --------------
Net assets, at value ............................ $8,973,481,128 $2,070,029,979
============== ==============
The accompanying notes are an integral part of these financial statements.
114 | Annual Report
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)
September 30, 2009
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
--------------- --------------
CLASS A:
Net assets, at value ..................................... $6,275,792,138 $1,543,060,221
-------------- --------------
Shares outstanding ....................................... 937,618,858 143,670,463
-------------- --------------
Net asset value per share(a) ............................. $ 6.69 $ 10.74
-------------- --------------
Maximum offering price per share (net asset value per
share / 95.75%) ....................................... $ 6.99 $ 11.22
-------------- --------------
CLASS B:
Net assets, at value ..................................... $ 230,575,004 $ 64,176,298
-------------- --------------
Shares outstanding ....................................... 34,502,328 5,976,756
-------------- --------------
Net asset value and maximum offering price per share(a) .. $ 6.68 $ 10.74
-------------- --------------
CLASS C:
Net assets, at value ..................................... $1,464,614,329 $ 300,543,667
-------------- --------------
Shares outstanding ....................................... 220,039,543 28,071,931
-------------- --------------
Net asset value and maximum offering price per share(a) .. $ 6.66 $ 10.71
-------------- --------------
CLASS R:
Net assets, at value ..................................... $ 138,548,237 $ 37,795,393
-------------- --------------
Shares outstanding ....................................... 20,718,388 3,527,886
-------------- --------------
Net asset value and maximum offering price per share ..... $ 6.69 $ 10.71
-------------- --------------
ADVISOR CLASS:
Net assets, at value ..................................... $ 863,951,420 $ 124,454,400
-------------- --------------
Shares outstanding ....................................... 128,743,908 11,529,995
-------------- --------------
Net asset value and maximum offering price per share .. $ 6.71 $ 10.79
-------------- --------------
(a) Redemption price is equal to net asset value less contingent deferred sales
charges, if applicable.
The accompanying notes are an integral part of these financial statements.
Annual Report | 115
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the year ended September 30, 2009
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- ----------- ---------------
Investment income:
Dividends:
Unaffiliated issuers .................................. $ 3,983,102 $42,074,382 $ 601,657,137
Non-controlled affiliated issuers (Note 10) ........... -- -- 85,716,598
Sweep Money Fund (Note 7) ............................. 58,680 26,450 878,847
Interest:
Unaffiliated issuers .................................. 991 369,450 2,638,125,462
Non-controlled affiliated issuers (Note 10) ........... -- -- 23,885,429
Income from securities loaned ............................ -- -- 126,217
------------ ----------- ---------------
Total investment income ......................... 4,042,773 42,470,282 3,350,389,690
------------ ----------- ---------------
Expenses:
Management fees (Note 3a) ................................ 2,438,021 10,043,480 154,587,133
Distribution fees: (Note 3c)
Class A ............................................... 988,278 3,873,497 34,060,658
Class B ............................................... 124,667 717,334 18,626,075
Class B1 .............................................. -- -- 872,974
Class C ............................................... 650,549 2,298,522 68,370,970
Class R ............................................... 21,542 191,943 1,255,611
Transfer agent fees (Note 3e) ............................ 1,596,062 5,275,869 42,203,321
Special servicing agreement fees (Note 11) ............... -- 179,844 1,255,659
Custodian fees (Note 4) .................................. 6,489 32,266 659,658
Reports to shareholders .................................. 140,801 446,422 4,563,502
Registration and filing fees ............................. 94,748 124,584 823,741
Professional fees ........................................ 66,260 64,211 551,215
Trustees' fees and expenses .............................. 4,099 28,933 320,888
Other .................................................... 114,981 158,575 1,097,415
------------ ----------- ---------------
Total expenses .................................. 6,246,497 23,435,480 329,248,820
Expense reductions (Note 4) ..................... (273) (623) (44,913)
------------ ----------- ---------------
Net expenses ................................. 6,246,224 23,434,857 329,203,907
------------ ----------- ---------------
Net investment income (loss) .............. (2,203,451) 19,035,425 3,021,185,783
------------ ----------- ---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments:
Unaffiliated issuers ............................... (59,172,321) 18,506,599 (4,668,830,585)
Non-controlled affiliated issuers (Note 10) ........ -- -- (21,316,715)
Realized gain distributions from REITs ................ -- -- 9,156,789
Written options ....................................... -- -- 742,674
Foreign currency transactions ......................... 132,070 437,749 1,246,385
------------ ----------- ---------------
Net realized gain (loss) .................. (59,040,251) 18,944,348 (4,679,001,452)
------------ ----------- ---------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................... 117,987,659 50,707,225 5,364,130,813
Translation of other assets and liabilities denominated
in foreign currencies .............................. 6,283 371 (37,801)
------------ ----------- ---------------
Net change in unrealized appreciation
(depreciation) ......................... 117,993,942 50,707,596 5,364,093,012
------------ ----------- ---------------
Net realized and unrealized gain (loss) ..................... 58,953,691 69,651,944 685,091,560
------------ ----------- ---------------
Net increase (decrease) in net assets resulting from
operations ............................................... $ 56,750,240 $88,687,369 $ 3,706,277,343
============ =========== ===============
The accompanying notes are an integral part of these financial statements.
116 | Annual Report
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS (CONTINUED)
for the year ended September 30, 2009
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES FUND UTILITIES FUND
--------------- --------------
Investment income:
Dividends:
Unaffiliated issuers .................................. $ -- $ 90,154,712
Sweep Money Fund (Note 7) ............................. 929,103 48,725
Interest ................................................. 390,847,149 6,603,751
------------ -------------
Total investment income ............................ 391,776,252 96,807,188
------------ -------------
Expenses:
Management fees (Note 3a) ................................ 36,146,029 8,828,381
Distribution fees: (Note 3c)
Class A ............................................... 8,200,746 2,135,713
Class B ............................................... 1,768,888 441,074
Class C ............................................... 6,573,306 1,827,613
Class R ............................................... 624,150 159,797
Transfer agent fees (Note 3e) ............................ 9,611,066 2,969,977
Special servicing agreement fees (Note 11) ............... 117,698 448
Custodian fees (Note 4) .................................. 117,473 40,895
Reports to shareholders .................................. 656,413 293,112
Registration and filing fees ............................. 338,605 124,203
Professional fees ........................................ 151,456 56,367
Trustees' fees and expenses .............................. 62,108 16,173
Other .................................................... 488,563 103,708
------------ -------------
Total expenses ..................................... 64,856,501 16,997,461
Expense reductions (Note 4) ........................ (26,719) (863)
------------ -------------
Net expenses .................................... 64,829,782 16,996,598
------------ -------------
Net investment income ........................ 326,946,470 79,810,590
------------ -------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................... 8,947,805 28,107,856
Foreign currency transactions ......................... -- (98,256)
------------ -------------
Net realized gain (loss) ..................... 8,947,805 28,009,600
------------ -------------
Net change in unrealized appreciation (depreciation) on:
Investments ........................................... 306,262,342 (249,467,928)
Translation of other assets and liabilities denominated
in foreign currencies .............................. -- 35,561
------------ -------------
Net change in unrealized appreciation
(depreciation) ............................ 306,262,342 (249,432,367)
------------ -------------
Net realized and unrealized gain (loss) ..................... 315,210,147 (221,422,767)
------------ -------------
Net increase (decrease) in net assets resulting from
operations ............................................... $642,156,617 $(141,612,177)
============ =============
The accompanying notes are an integral part of these financial statements.
Annual Report | 117
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FRANKLIN DYNATECH FUND FRANKLIN GROWTH FUND
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
---------------------------- -------------------------------
2009 2008 2009 2008
------------ ------------- -------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income (loss) .......................... $ (2,203,451) $ (2,101,251) $ 19,035,425 $ 13,118,571
Net realized gain (loss) from investments and
foreign currency transactions ...................... (59,040,251) 43,383,275 18,944,348 93,118,459
Net change in unrealized appreciation
(depreciation) on investments and translation
of other assets and liabilities denominated in
foreign currencies ................................. 117,993,942 (169,942,555) 50,707,596 (703,968,727)
------------ ------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations .................... 56,750,240 (128,660,531) 88,687,369 (597,731,697)
------------ ------------- -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ............................................ -- -- (13,937,611) (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 ............................................ (23,817,251) (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 ...................... (28,203,722) (13,704,578) (17,031,967) (7,929,729)
------------ ------------- -------------- --------------
Capital share transactions: (Note 2)
Class A ............................................ 95,693,757 (43,399,423) 423,439,580 15,676,618
Class B ............................................ 2,223,304 (2,207,134) 64,703 (23,505,949)
Class C ............................................ 24,245,692 (13,103) 55,014,386 (17,756,728)
Class R ............................................ 4,561,511 -- 30,600,261 (9,619,605)
Advisor Class ...................................... 5,097,576 2,370,407 151,094,118 (37,246,106)
------------ ------------- -------------- --------------
Total capital share transactions ......................... 131,821,840 (43,249,253) 660,213,048 (72,451,770)
------------ ------------- -------------- --------------
Redemption fees .......................................... -- 2,715 -- 7,384
------------ ------------- -------------- --------------
Net increase (decrease) in net assets ........... 160,368,358 (185,611,647) 731,868,450 (678,105,812)
Net assets:
Beginning of year ........................................ 454,774,134 640,385,781 2,340,979,224 3,019,085,036
------------ ------------- -------------- --------------
End of year .............................................. $615,142,492 $ 454,774,134 $3,072,847,674 $2,340,979,224
============ ============= ============== ==============
Undistributed net investment income included in net assets:
End of year ........................................... $ -- $ -- $ 12,735,382 $ 10,241,399
============ ============= ============== ==============
The accompanying notes are an integral part of these financial statements.
118 | Annual Report
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN
FRANKLIN INCOME FUND U.S. GOVERNMENT SECURITIES FUND
YEAR ENDED SEPTEMBER 30, YEAR ENDED SEPTEMBER 30,
---------------------------------- -------------------------------
2009 2008 2009 2008
--------------- ---------------- -------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................. $ 3,021,185,783 $ 3,656,589,855 $ 326,946,470 $ 305,138,958
Net realized gain (loss) from investments,
written options and foreign currency
transactions ....................................... (4,679,001,452) (73,189,382) 8,947,805 (4,950,231)
Net change in unrealized appreciation
(depreciation) on investments and
translation of other assets and liabilities
denominated in foreign currencies .................. 5,364,093,012 (16,753,818,156) 306,262,342 74,540,856
--------------- ---------------- -------------- --------------
Net increase (decrease) in net assets
resulting from operations .................... 3,706,277,343 (13,170,417,683) 642,156,617 374,729,583
--------------- ---------------- -------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ............................................ (2,122,519,292) (2,070,078,091) (266,824,581) (255,332,116)
Class B ............................................ (162,039,544) (175,223,876) (10,979,232) (13,147,734)
Class B1 ........................................... (12,892,120) (18,498,215) -- --
Class C ............................................ (924,754,117) (864,273,614) (39,006,086) (21,546,227)
Class R ............................................ (22,649,572) (17,491,311) (5,108,595) (3,921,392)
Advisor Class ...................................... (322,719,140) (358,190,789) (32,473,805) (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 ...................... (3,594,469,421) (4,907,307,772) (354,392,299) (321,154,039)
--------------- ---------------- -------------- --------------
Capital share transactions: (Note 2)
Class A ..................................................... 729,974,966 1,818,347,709 707,313,300 236,684,954
Class B ..................................................... (324,408,642) (326,601,311) (64,174,344) (35,014,568)
Class B1 .................................................... (136,813,461) (76,335,994) -- --
Class C ..................................................... 543,188,709 1,004,888,472 820,560,727 189,199,415
Class R ..................................................... 40,235,428 78,037,080 29,529,703 29,664,847
Advisor Class ............................................... (24,803,405) (219,327,033) 227,056,372 136,835,144
--------------- ---------------- -------------- --------------
Total capital share transactions ............................ 827,373,595 2,279,008,923 1,720,285,758 557,369,792
--------------- ---------------- -------------- --------------
Redemption fees ............................................. -- 176,722 -- 78,148
--------------- ---------------- -------------- --------------
Net increase (decrease) in net assets ........ 939,181,517 (15,798,539,810) 2,008,050,076 611,023,484
Net assets:
Beginning of year ........................................ 46,507,355,311 62,305,895,121 6,965,431,052 6,354,407,568
=============== ================ ============== ==============
End of year .............................................. $47,446,536,828 $ 46,507,355,311 $8,973,481,128 $6,965,431,052
=============== ================ ============== ==============
Undistributed net investment income
(distributions in excess of net investment
income) included in net assets:
End of year ........................................... $ (293,103,420) $ 151,244,134 $ 2,451,318 $ 3,642,998
=============== ================ ============== ==============
The accompanying notes are an integral part of these financial statements.
Annual Report | 119
Franklin Custodian Funds
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FRANKLIN UTILITIES FUND
YEAR ENDED SEPTEMBER 30,
--------------------------------
2009 2008
--------------- --------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................. $ 79,810,590 $ 77,610,616
Net realized gain (loss) from investments and foreign
currency transactions .............................. 28,009,600 55,226,870
Net change in unrealized appreciation (depreciation) on
investments and translation of other assets and
liabilities denominated in foreign currencies ...... (249,432,367) (444,647,745)
-------------- --------------
Net increase (decrease) in net assets resulting
from operations .............................. (141,612,177) (311,810,259)
-------------- --------------
Distributions to shareholders from:
Net investment income:
Class A ............................................ (60,897,517) (60,642,671)
Class B ............................................ (2,457,137) (2,772,274)
Class C ............................................ (10,325,076) (9,718,344)
Class R ............................................ (1,233,300) (1,082,816)
Advisor Class ...................................... (2,775,441) (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 ...................... (92,170,571) (218,186,554)
-------------- --------------
Capital share transactions: (Note 2)
Class A ............................................ (47,298,609) 15,831,422
Class B ............................................ (18,007,546) (12,918,491)
Class C ............................................ (4,044,700) (7,376,287)
Class R ............................................ 4,676,850 3,080,978
Advisor Class ...................................... 71,734,045 (10,722,085)
-------------- --------------
Total capital share transactions ......................... 7,060,040 (12,104,463)
-------------- --------------
Redemption fees .......................................... -- 8,502
-------------- --------------
Net increase (decrease) in net assets ........... (226,722,708) (542,092,774)
Net assets:
Beginning of year ........................................ 2,296,752,687 2,838,845,461
-------------- --------------
End of year .............................................. $2,070,029,979 $2,296,752,687
============== ==============
Undistributed net investment income included in net assets:
End of year .............................................. $ 9,424,658 $ 6,193,982
============== ==============
The accompanying notes are an integral part of these financial statements.
120 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS
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
Equity and other 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. Certain equity securities are valued based upon
fundamental characteristics or relationships to similar securities. Investments
in open-end mutual funds and non-registered money market funds are valued at the
closing net asset value. Short term investments are valued at cost.
Corporate debt securities, government securities, mortgage backed securities,
asset-backed securities, collateralized debt obligations and other debt
securities generally trade in the over-the-counter market rather than on a
securities exchange. The Funds may utilize independent pricing services,
quotations from bond dealers, and information with respect to bond and note
transactions, to assist in determining a current market value for each security.
The Funds' pricing services may use valuation models or matrix pricing which
considers information with respect to comparable bond and note transactions,
quotations from bond dealers, or by reference to other securities that are
considered comparable in such characteristics as rating, interest rate and
maturity date, option adjusted spread models, prepayment projections, interest
rate spreads and yield curves, to determine current value. Debt securities
denominated in a foreign currency are converted into their U.S. dollar
equivalent at the foreign exchange rate in effect at the close of the NYSE on
the date that the values of the foreign debt securities are determined.
Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Funds may utilize independent pricing services, quotations from
loan dealers and other financial institutions, and information
Annual Report | 121
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
with respect to bond and note transactions, to assist in determining a current
market value for each security. The Funds' pricing services use independent
market quotations from loan dealers or financial institutions and may
incorporate valuation methodologies that consider multiple bond characteristics
such as dealer quotes, issuer type, coupon, maturity, weighted average maturity,
interest rate spreads and yield curves, cash flow and credit risk/quality
analysis, to determine current value.
Foreign equity 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 equity 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 security is determined.
The Funds have procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis based upon the underlying investment book value,
anticipated future cash flows, market changes in comparable or similar
securities, 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 Funds' 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.
122 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
B. FOREIGN CURRENCY TRANSLATION (CONTINUED)
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.
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 year end had been
entered into on September 30, 2009. Repurchase agreements are valued at cost.
D. SECURITIES PURCHASED ON A DELAYED DELIVERY BASIS
The Funds may purchase securities on a delayed delivery 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. DERIVATIVE FINANCIAL INSTRUMENTS
The Funds may invest in derivative financial instruments (derivatives) in order
to manage risk or gain exposure to various other investments or markets.
Derivatives are financial contracts based on an underlying or notional amount,
require no initial investment or an initial net investment that is smaller than
would normally be required to have a similar response to changes in market
factors, and require or permit net settlement. Derivatives may contain various
risks including the
Annual Report | 123
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
potential inability of the counterparty to fulfill their obligations under the
terms of the contract, the potential for an illiquid secondary market, and the
potential for market movements which may expose the Funds to gains or losses in
excess of the amounts shown on the Statement of Assets and Liabilities.
Derivatives are marked to market daily based upon quotations from market makers
or the Funds' independent pricing services and the Fund's net benefit or
obligation under the contract, as measured by the fair market value of the
contract, is included in net assets. Realized gain and loss and unrealized
appreciation and depreciation on these contracts for the period are included in
the Statement of Operations.
The Franklin Income Fund purchases or writes option contracts in order to manage
equity price risk. An option is a contract entitling the holder to purchase or
sell a specific amount of shares or units of a particular security, currency or
index at a specified price. Options purchased are recorded as an asset while
options written are recorded as a liability. Upon exercise of an option, the
acquisition cost or sales proceeds of the security is adjusted by any premium
paid or received. Upon expiration of an option, any premium paid or received is
recorded as a realized loss or gain. Upon closing an option other than through
expiration or exercise, the difference between the premium and the cost to close
the position is recorded as a realized gain or loss.
See Note 9 regarding other derivative information.
F. EQUITY-LINKED SECURITIES
The Franklin Income Fund 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. Income received from equity
linked securities is recorded as realized gains in the Statement of Operations
and 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 guarantee 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. SECURITIES LENDING
The Franklin Income Fund participates 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
124 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
G. SECURITIES LENDING (CONTINUED)
delivered to the fund on the next business day. The collateral is invested in a
non-registered money fund (BNY Institutional Cash Reserve Fund or ICRF), 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 September 30, 2009, the Funds had no securities
on loan.
In September of 2008, the Bank of New York Mellon (BNYM) advised the fund that
the ICRF had exposure to certain defaulted debt obligations of Lehman Brothers
Holdings, Inc. and that they had created a separate sleeve (Series B) of the
ICRF to hold these securities apart from the main investments. Each investor in
the ICRF was allocated its pro-rata portion of Series B. The fund's position in
Series B is disclosed on the Statement of Investments at fair value and any
unrealized loss attributable to the position is included in net assets.
H. SENIOR FLOATING RATE INTERESTS
Senior secured corporate loans pay interest at rates which are periodically
reset by reference to a base lending rate plus a spread. These base lending
rates are generally the prime rate offered by a designated U.S. bank or the
London InterBank Offered Rate (LIBOR). Senior secured corporate loans often
require prepayment of principal from excess cash flows or at the discretion of
the borrower. As a result, actual maturity may be substantially less than the
stated maturity.
Senior secured corporate loans in which the fund invests are generally readily
marketable, but may be subject to some restrictions on resale.
I. 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 September 30, 2009, and have
determined that no provision for income tax is required in the Funds' financial
statements.
J. 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.
Annual Report | 125
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
J. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)
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.
K. 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.
L. 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.
M. 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.
126 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST
At September 30, 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:
Year ended September 30, 2009
Shares sold ................. 2,782,002 $ 53,411,677 12,015,889 $ 359,509,553
Shares issued on merger
(Note 13) ................ 7,598,915 126,195,671 14,593,037 451,362,637
Shares issued in reinvestment
of distributions ......... 1,359,432 21,288,705 486,462 12,711,248
Shares redeemed ............. (5,668,339) (105,202,296) (13,479,108) (400,143,858)
---------- ------------- ----------- -------------
Net increase (decrease) ..... 6,072,010 $ 95,693,757 13,616,280 $ 423,439,580
========== ============= =========== =============
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
========== ============= =========== =============
CLASS B SHARES:
Year ended September 30, 2009
Shares sold ................. 68,034 $ 1,166,470 269,458 $ 7,369,648
Shares issued on merger
(Note 13) ................ 471,140 7,329,289 897,036 26,650,945
Shares issued in reinvestment
of distributions ......... 39,296 576,475 -- --
Shares redeemed ............. (400,924) (6,848,930) (1,186,449) (33,955,890)
---------- ------------- ----------- -------------
Net increase (decrease) ..... 177,546 $ 2,223,304 (19,955) $ 64,703
========== ============= =========== =============
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:
Year ended September 30, 2009
Shares sold ................. 610,534 $ 10,952,317 1,769,875 $ 50,036,992
Shares issued on merger
(Note 13) ................ 1,986,027 30,539,237 2,280,868 67,125,954
Shares issued in reinvestment
of distributions ......... 219,790 3,186,956 5,806 144,797
Shares redeemed ............. (1,201,455) (20,432,818) (2,213,519) (62,293,357)
---------- ------------- ----------- -------------
Net increase (decrease) ..... 1,614,896 $ 24,245,692 1,843,030 $ 55,014,386
========== ============= =========== =============
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)
========== ============= =========== =============
Annual Report | 127
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN DYNATECH FUND FRANKLIN GROWTH FUND
---------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ---------- -------------
CLASS R SHARES:
Year ended September 30, 2009(a)
Shares sold ................. 105,135 $ 1,878,341 2,050,622 $ 61,397,829
Shares issued on merger
(Note 13) ................ 269,510 4,473,861 308,381 9,519,723
Shares issued in reinvestment
of distributions ......... -- -- 3,545 92,515
Shares redeemed ............. (100,348) (1,790,691) (1,390,720) (40,409,806)
-------- ----------- ---------- -------------
Net increase (decrease) ..... 274,297 $ 4,561,511 971,828 $ 30,600,261
======== =========== ========== =============
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)
========== =============
ADVISOR CLASS SHARES:
Year ended September 30, 2009
Shares sold ................. 193,916 $ 3,835,277 1,828,858 $ 54,651,357
Shares issued on merger
(Note 13) ................ 99,151 1,649,870 4,691,275 145,148,039
Shares issued in reinvestment
of distributions ......... 13,467 211,295 102,244 2,668,575
Shares redeemed ............. (31,772) (598,866) (1,722,646) (51,373,853)
-------- ----------- ---------- -------------
Net increase (decrease) ..... 274,762 $ 5,097,576 4,899,731 $ 151,094,118
======== =========== ========== =============
Year ended September 30, 2008(b)
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 September 30, 2009, for
Franklin DynaTech Fund.
(b) For the period May 15, 2008 (effective date) to September 30, 2008, for
Franklin DynaTech Fund.
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
-------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- ------------ ---------------
CLASS A SHARES:
Year ended September 30, 2009
Shares sold ................. 3,194,615,875 $ 5,446,582,263 327,684,616 $ 2,154,557,471
Shares issued in reinvestment
of distributions ......... 929,761,078 1,563,293,948 28,818,237 189,352,370
Shares redeemed ............. (3,760,506,184) (6,279,901,245) (248,416,455) (1,636,596,541)
-------------- --------------- ------------ ---------------
Net increase (decrease) ..... 363,870,769 $ 729,974,966 108,086,398 $ 707,313,300
============== =============== ============ ===============
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
============== =============== ============ ===============
128 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
-------------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------------- ----------- --------------
CLASS B SHARES:
Year ended September 30, 2009
Shares sold ................. 34,580,449 $ 58,074,216 8,056,168 $ 52,523,598
Shares issued in reinvestment
of distributions ......... 63,807,057 106,531,528 1,218,659 7,988,052
Shares redeemed ............. (295,644,541) (489,014,386) (18,942,006) (124,685,994)
-------------- --------------- ----------- --------------
Net increase (decrease) ..... (197,257,035) $ (324,408,642) (9,667,179) $ (64,174,344)
============== =============== =========== ==============
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)
============== =============== =========== ==============
CLASS B1 SHARES:
Year ended September 30, 2009
Shares sold ................. 616,259 $ 1,006,991
Shares issued in reinvestment
of distributions ......... 4,478,768 7,437,357
Shares redeemed ............. (84,121,447) (145,257,809)
-------------- ---------------
Net increase (decrease) ..... (79,026,420) (136,813,461)
============== ===============
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:
Year ended September 30, 2009
Shares sold ................. 1,490,228,499 $ 2,568,269,575 177,348,206 $1,163,765,108
Shares issued in reinvestment
of distributions ......... 372,417,014 631,594,234 4,298,963 28,151,041
Shares redeemed ............. (1,592,519,479) (2,656,675,100) (56,632,697) (371,355,422)
-------------- --------------- ----------- --------------
Net increase (decrease) ..... 270,126,034 $ 543,188,709 125,014,472 $ 820,560,727
============== =============== =========== ==============
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
============== =============== =========== ==============
Annual Report | 129
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
------------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT
------------ --------------- ----------- -------------
CLASS R SHARES:
Year ended September 30, 2009
Shares sold ................. 68,996,085 $ 115,848,208 13,507,302 $ 88,919,423
Shares issued in reinvestment
of distributions ......... 12,725,193 21,140,911 758,236 4,977,846
Shares redeemed ............. (58,266,413) (96,753,691) (9,774,179) (64,367,566)
------------ --------------- ----------- -------------
Net increase (decrease) ..... 23,454,865 $ 40,235,428 4,491,359 $ 29,529,703
============ =============== =========== =============
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
============ =============== =========== =============
ADVISOR CLASS SHARES:
Year ended September 30, 2009
Shares sold ................. 537,139,078 $ 923,014,317 56,386,916 $ 373,566,694
Shares issued in reinvestment
of distributions ......... 185,103,308 309,081,671 4,110,288 27,061,258
Shares redeemed ............. (772,328,637) (1,256,899,393) (26,340,863) (173,571,580)
------------ --------------- ----------- -------------
Net increase (decrease) ..... (50,086,251) $ (24,803,405) 34,156,341 $ 227,056,372
============ =============== =========== =============
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:
Year ended September 30, 2009
Shares sold ................. 21,564,244 $ 217,252,356
Shares issued in reinvestment
of distributions ......... 5,861,644 57,450,592
Shares redeemed ............. (32,180,738) (322,001,557)
----------- -------------
Net increase (decrease) ..... (4,754,850) $ (47,298,609)
=========== =============
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
=========== =============
130 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SHARES OF BENEFICIAL INTEREST (CONTINUED)
FRANKLIN UTILITIES FUND
-------------------------
SHARES AMOUNT
---------- ------------
CLASS B SHARES:
Year ended September 30, 2009
Shares sold ................. 320,985 $ 3,200,510
Shares issued in reinvestment
of distributions ......... 184,409 1,806,989
Shares redeemed ............. (2,310,669) (23,015,045)
---------- ------------
Net increase (decrease) ..... (1,805,275) $(18,007,546)
========== ============
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)
========== ============
CLASS C SHARES:
Year ended September 30, 2009
Shares sold ................. 6,347,474 $ 64,084,256
Shares issued in reinvestment
of distributions ......... 738,883 7,227,247
Shares redeemed ............. (7,568,351) (75,356,203)
---------- ------------
Net increase (decrease) ..... (481,994) $ (4,044,700)
========== ============
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:
Year ended September 30, 2009
Shares sold ................. 1,545,267 $ 15,712,097
Shares issued in reinvestment
of distributions ......... 147,603 1,446,259
Shares redeemed ............. (1,242,997) (12,481,506)
---------- ------------
Net increase (decrease) ..... 449,873 $ 4,676,850
========== ============
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:
Year ended September 30, 2009
Shares sold ................. 8,908,323 $ 94,646,702
Shares issued in reinvestment
of distributions ......... 267,630 2,655,239
Shares redeemed ............. (2,556,521) (25,567,896)
---------- ------------
Net increase (decrease) ..... 6,619,432 $ 71,734,045
========== ============
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)
========== ============
Annual Report | 131
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
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
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, the Franklin Growth Fund and the Franklin U.S.
Government Securities 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% In excess of $50 billion
132 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEES (CONTINUED)
Under a subadvisory agreement, Investment Advisory, an affiliate of Advisers,
provides subadvisory services to the Franklin Growth Fund and receives from
Advisers fees based on the average monthly net assets of the fund.
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Funds. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Funds.
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%
Annual Report | 133
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
D. SALES CHARGES/UNDERWRITING AGREEMENTS
Distributors has advised the Funds of the following commission transactions
related to the sales and redemptions of the Funds' shares for the year:
FRANKLIN FRANKLIN FRANKLIN
DYNATECH GROWTH INCOME
FUND FUND FUND
-------- -------- -----------
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................ $78,545 $673,118 $13,045,271
Contingent deferred sales charges retained ................... $ 7,768 $ 37,146 $ 1,976,431
FRANKLIN U.S.
GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
------------- ---------
Sales charges retained net of commissions paid to unaffiliated
broker/dealers ............................................ $2,889,031 $265,757
Contingent deferred sales charges retained ................... $ 473,655 $ 58,556
E. TRANSFER AGENT FEES
For the year ended September 30, 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 .. $1,124,107 $3,606,155 $22,261,872
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
--------------- ----------
Transfer agent fees .. $5,920,729 $1,863,270
4. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an arrangement with their custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Funds' custodian expenses. During the year ended September 30, 2009, the
custodian fees were reduced as noted in the Statements of Operations.
134 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
For tax purposes, capital losses may be carried over to offset future capital
gains, if any. At September 30, 2009, the capital loss carryforwards were as
follows:
FRANKLIN FRANKLIN
DYNATECH FRANKLIN FRANKLIN U.S. GOVERNMENT
FUND GROWTH FUND INCOME FUND SECURITIES FUND
----------- ------------ ------------ ---------------
Capital loss carryforwards expiring in:
2010 ............................... $ 7,950,525 $ -- $ -- $ 11,768,551
2011 ............................... 3,784,201 -- -- 33,556,845
2012 ............................... -- -- -- 129,102,166
2013 ............................... -- -- -- 74,283,298
2014 ............................... -- -- -- 47,763,112
2015 ............................... -- -- -- 28,034,940
2016 ............................... 9,095,484 120,221,975 -- 20,514,778
2017 ............................... 34,738,251 -- 589,874,490 18,668,917
----------- ------------ ------------ ------------
$55,568,461(a) $120,221,975(b) $589,874,490 $363,692,607
=========== ============ ============ ============
(a) Includes $46,198,980 from the merged Franklin Global Communications Fund,
Franklin Global Healthcare Fund and Franklin Technology Fund, which may be
carried over to offset future capital gains, subject to certain
limitations.
(b) Includes $123,319,972 from the merged Franklin Capital Growth Fund, which
may be carried over to offset future capital gains, subject to certain
limitations.
During the year ended September 30, 2009, the Franklin Growth Fund utilized
$19,786,282 of capital loss carryforwards.
On September 30, 2009, the Franklin DynaTech Fund and the Franklin U.S.
Government Securities Fund had expired capital loss carryforwards of
$134,438,159 and $46,256,951, respectively, which were reclassified to paid-in
capital.
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, 2009, deferred losses were as
follows:
FRANKLIN FRANKLIN
DYNATECH FRANKLIN U.S. GOVERNMENT FRANKLIN
FUND INCOME FUND SECURITIES FUND UTILITIES FUND
----------- -------------- --------------- --------------
Realized capital losses ... $25,202,354 $4,348,665,283 $15,877,074 $ --
Realized currency losses .. $ -- $ -- $ -- $85,988
The tax character of distributions paid during the years ended September 30,
2009 and 2008, was as follows:
FRANKLIN DYNATECH FUND FRANKLIN GROWTH FUND
------------------------- ------------------------
2009 2008 2009 2008
----------- ----------- ----------- ----------
Distributions paid from:
Ordinary income ......... $ -- $ -- $17,031,967 $7,929,729
Long term capital gain .. 28,203,722 13,704,578 -- --
----------- ----------- ----------- ----------
$28,203,722 $13,704,578 $17,031,967 $7,929,729
=========== =========== =========== ==========
Annual Report | 135
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
FRANKLIN U.S. GOVERNMENT
FRANKLIN INCOME FUND SECURITIES FUND
------------------------------- ---------------------------
2009 2008 2009 2008
-------------- -------------- ------------ ------------
Distributions paid from:
Ordinary income ......... $3,594,469,421 $3,900,167,557 $354,392,299 $321,154,039
Long term capital gain .. -- 1,007,140,215 -- --
-------------- -------------- ------------ ------------
$3,594,469,421 $4,907,307,772 $354,392,299 $321,154,039
============== ============== ============ ============
FRANKLIN UTILITIES FUND
--------------------------
2009 2008
----------- ------------
Distributions paid from:
Ordinary income ......... $77,688,471 $ 94,770,295
Long term capital gain .. 14,482,100 123,416,259
----------- ------------
$92,170,571 $218,186,554
=========== ============
At September 30, 2009, the cost of investments and net unrealized appreciation
(depreciation), undistributed ordinary income and undistributed long term
capital gains for income tax purposes were as follows:
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- -------------- ---------------
Cost of investments ........................... $357,594,287 $1,793,064,345 $52,775,364,954
============ ============== ===============
Unrealized appreciation ....................... $261,050,147 $1,405,134,914 $ 4,384,849,699
Unrealized depreciation ....................... (3,054,783) (110,380,933) (9,694,040,271)
------------ -------------- ---------------
Net unrealized appreciation (depreciation) .... $257,995,364 $1,294,753,981 $(5,309,190,572)
============ ============== ===============
Distributable earnings - undistributed ordinary
income ..................................... $ -- $ 12,735,383 $ 30,396,017
============ ============== ===============
FRANKLIN
U.S. GOVERNMENT
SECURITIES FRANKLIN
FUND UTILITIES FUND
--------------- --------------
Cost of investments ......................... $8,610,180,470 $1,667,550,127
============== ==============
Unrealized appreciation ..................... $ 302,059,033 $ 490,498,932
Unrealized depreciation ..................... (948,720) (96,487,078)
-------------- --------------
Net unrealized appreciation (depreciation) .. $ 301,110,313 $ 394,011,854
============== ==============
Undistributed ordinary income ............... $ 2,451,318 $ 5,835,683
Undistributed long term capital gains ....... -- 29,338,767
-------------- --------------
Distributable earnings ...................... $ 2,451,318 $ 35,174,450
============== ==============
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.
136 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions, paydown losses, payments-in-kind and bond discounts and premiums.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended September 30, 2009, were as follows:
FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND
------------- ------------ ---------------
Purchases .. $221,443,769 $ 85,858,823 $21,181,236,239
Sales ...... $239,381,275 $220,979,343 $19,764,595,494
FRANKLIN
U.S. GOVERNMENT FRANKLIN
SECURITIES UTILITIES
FUND FUND
--------------- ------------
Purchases .. $4,142,491,138 $297,591,220
Sales ...... $2,671,770,169 $342,644,092
Transactions in options written during the year ended September 30, 2009, were
as follows:
NUMBER OF PREMIUMS
CONTRACTS RECEIVED
--------- ---------
FRANKLIN INCOME FUND
Options outstanding at September 30, 2008 .. -- $ --
Options written ............................ 25,000 742,674
Options expired ............................ (25,000) (742,674)
Options exercised .......................... -- --
Options closed ............................. -- --
------- ---------
Options outstanding at September 30, 2009 .. -- $ --
------- ---------
7. INVESTMENTS IN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Funds may invest in the 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
At September 30, 2009, the Franklin Income Fund had 55.2% of its portfolio
invested in high yield, senior secured floating rate notes, or other securities
rated below investment grade.
Annual Report | 137
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. CREDIT RISK AND DEFAULTED SECURITIES (CONTINUED)
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 September 30, 2009, the
aggregate value of these securities was $1,147,276,157, representing 2.42% 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. OTHER DERIVATIVE INFORMATION
For the period ended September 30, 2009, the effect of derivative contracts on
the Franklin Income Fund's Statement of Operations was as follows:
REALIZED GAIN UNREALIZED AVERAGE
(LOSS) APPRECIATION NOTIONAL
FOR THE YEAR (DEPRECIATION) AMOUNT
DERIVATIVE CONTRACTS STATEMENT OF ENDED FOR THE YEAR ENDED OUTSTANDING
NOT ACCOUNTED FOR AS OPERATIONS SEPTEMBER 30, SEPTEMBER 30, DURING THE
HEDGING INSTRUMENTS LOCATIONS 2009 2009 YEAR(a)
- -------------------- ------------------------ ------------- ------------------ -----------
Net realized gain (loss)
Equity contracts from written options $742,674 $-- $1,758
(a) Notional amount represents the U.S. dollar equivalent based on the foreign
exchange rate at the time of contract entry.
See Note 1(e) regarding derivative financial instruments.
138 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
The 1940 Act defines "affiliated companies" to include investments in portfolio
companies in which a fund owns 5% or more of the outstanding voting securities.
Investments in "affiliated companies" for the Franklin Income Fund for the year
ended September 30, 2009, were as shown below.
NUMBER OF NUMBER OF
SHARES/ SHARES/ REALIZED
PRINCIPAL HELD PRINCIPAL VALUE CAPITAL
AT BEGINNING GROSS GROSS HELD AT END AT END INVESTMENT GAIN
NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS OF YEAR OF YEAR INCOME (LOSS)
- -------------- -------------- ---------- ---------- ----------- -------------- ------------ ------------
FRANKLIN INCOME FUND
NON-CONTROLLED AFFILIATES
AGL Resources Inc. ........... 4,000,000 -- 1,000,000 3,000,000 $ --(a) $ 6,238,000 $ (9,467,938)
Ameren Corp .................. 12,500,000 500,000 900,000 12,100,000 305,888,000 21,836,000 (27,087,256)
Ameren Corp., senior note,
8.875%, 5/15/14 ........... -- 68,200,000 10,000,000 58,200,000 65,494,555 1,936,969 799,569
Canadian Oil Sands Trust ..... 25,000,000 847,400 -- 25,847,400 742,776,085 23,766,468 --
Colony Financial Inc. ........ -- 1,250,000 -- 1,250,000 24,437,500 -- --
iStar Financial Inc. ......... 5,213,500 -- -- 5,213,500 15,849,040 -- --
iStar Financial Inc.,
8.625%, 6/01/13 ........... 160,000,000 9,100,000 -- 169,100,000 108,224,000 14,059,445 --
iStar Financial Inc.,
cvt., senior note, FRN,
1.097%, 10/01/12 .......... 250,000,000 -- -- 250,000,000 126,250,000 5,804,376 --
iStar Financial Inc.,
senior secured note,
144A, 10.00%, 6/15/14 ..... -- 54,850,000 -- 54,850,000 45,114,125 2,084,639 --
PG&E Corp. ................... 20,000,000 200,000 10,000,000 10,200,000 --(a) 19,037,592 (35,287,883)
Pinnacle West Capital
Corp ...................... 5,500,000 -- 700,000 4,800,000 --(a) 10,972,500 (11,853,461)
Puget Energy Inc. ............ 7,500,000 -- 7,500,000 -- --(a) 3,866,038 61,580,254
-------------- ------------ ------------
TOTAL AFFILIATED SECURITIES
(3.02% of Net Assets) .. $1,434,033,305 $109,602,027 $(21,316,715)
============== ============ ============
(a) As of September 30, 2009, no longer an affiliate.
11. SPECIAL SERVICING AGREEMENT
On May 1, 2009, the Funds, which are eligible underlying investments of one or
more of the Franklin Templeton Fund Allocator Series Funds (Allocator Funds),
entered into a Special Servicing Agreement (SSA) with the Allocator Funds and
certain service providers of the Funds and the Allocator Funds. Under the SSA,
the Funds pay a portion of the Allocator Funds' expenses, (other than any asset
allocation, administrative and distribution fees), to the extent such payments
are less than the amount of the benefits realized or expected to be realized by
the Funds from the investment in the Funds by the Allocator Funds. The Allocator
Funds and the Funds are either managed by Advisers or administered by FT
Services. For the year ended September 30, 2009, the funds were held by one or
more of the Allocator Funds and were allocated expenses as noted in
Annual Report | 139
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. SPECIAL SERVICING AGREEMENT (CONTINUED)
the Statements of Operations. At September 30, 2009, one or more of the
Allocator Funds owned a percentage of the funds' outstanding shares as follows:
FRANKLIN
FRANKLIN FRANKLIN U.S. GOVERNMENT FRANKLIN
GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
- ----------- ----------- --------------- --------------
7.39% 5.80% 2.59% 1.81%
12. OTHER CONSIDERATIONS
From time to time, officers, directors or employees of the Franklin Income
Fund's Investment Manager may have discussions or enter into agreements with
issuers, underwriters or creditors' committees which, pursuant to the funds'
policies and requirements of applicable securities laws, could prevent the funds
from trading in the securities of such company 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, the Franklin Global Health Care Fund, and
the Franklin Technology Fund pursuant to a plan of reorganization approved by
the Franklin Global Communications Fund's, the 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 UNREALIZED
BY FRANKLIN APPRECIATION
FUND NAME NET ASSETS DYNATECH FUND (DEPRECIATION)
- --------- ------------ ------------- --------------
Franklin Global Communications Fund .. $ 47,740,803 2,914,752 $(18,325,185)
Franklin Global Health Care Fund ..... 89,644,203 5,503,466 (8,804,887)
Franklin Technology Fund ............. 32,802,922 2,006,525 (10,136,675)
------------ ---------- ------------
Total ................................ $170,187,928 10,424,743 $(37,266,747)
============ ========== ============
The combined net assets of the Franklin Growth Fund immediately after the merger
were $475,468,843.
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 for the net
assets of the Franklin Capital Growth Fund which aggregate $699,807,298,
including $(9,584,107) of unrealized appreciation (depreciation). The combined
net assets of the Franklin Growth Fund immediately after the merger were
$2,586,155,713.
140 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 year ended September 30, 2009, the Funds did not utilize
the Global Credit Facility.
The commitment fees the Funds incurred for the period were as follows:
FRANKLIN
FRANKLIN FRANKLIN FRANKLIN U.S. GOVERNMENT FRANKLIN
DYNATECH GROWTH INCOME SECURITIES UTILITIES
FUND FUND FUND FUND FUND
-------- -------- -------- --------------- ---------
Commitment fees .. $873 $3,844 $65,142 $13,433 $3,480
15. FAIR VALUE MEASUREMENTS
The Funds follow a fair value hierarchy that distinguishes between market data
obtained from independent sources (observable inputs) and the Funds' 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)
The inputs or methodology used for valuing securities are not an indication of
the risk associated with investing in those securities.
Annual Report | 141
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUE MEASUREMENTS (CONTINUED)
The following is a summary of the inputs used as of September 30, 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:
Equity Investments(a) ................. $ 615,589,651 $ -- $-- $ 615,589,651
FRANKLIN GROWTH FUND
ASSETS:
Investments in Securities:
Equity Investments(a) ................. $ 3,058,914,473 $ -- $-- $ 3,058,914,473
Convertible Bonds ..................... -- 5,140,563 -- 5,140,563
Short Term Investments ................ 23,763,290 -- -- 23,763,290
--------------- --------------- --- ---------------
Total Investments in Securities .... $ 3,082,677,763 $ 5,140,563 $-- $ 3,087,818,326
=============== =============== === ===============
FRANKLIN INCOME FUND
ASSETS:
Investments in Securities:
Equity Investments:(b)
Consumer Discretionary ................ $ 35,750,000 $ 51,345,000 $-- $ 87,095,000
Energy ................................ 1,340,806,085 668,536,499 -- 2,009,342,584
Financials ............................ 3,554,876,075 494,286,743 -- 4,049,162,818
Health Care ........................... 1,106,145,000 256,250,000 -- 1,362,395,000
Information Technology ................ -- 369,456,330 -- 369,456,330
Materials ............................. 205,594,449 274,209,160 -- 479,803,609
Utilities ............................. 5,320,418,016 43,301,900 -- 5,363,719,916
Other Equity Investments(a) ........... 757,742,420 -- -- 757,742,420
Senior Floating Rate Interests ........ -- 2,727,585,562 -- 2,727,585,562
Corporate Bonds ....................... -- 27,828,422,508 -- 27,828,422,508
Convertible Bonds ..................... -- 945,101,895 -- 945,101,895
Short Term Investments ................ 579,928,515 906,418,225 -- 1,486,346,740
--------------- --------------- --- ---------------
Total Investments in Securities .... $12,901,260,560 $34,564,913,822 $-- $47,466,174,382
=============== =============== === ===============
142 | Annual Report
Franklin Custodian Funds
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUE MEASUREMENTS (CONTINUED)
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
-------------- -------------- ------- --------------
FRANKLIN U.S. GOVERNMENT SECURITIES FUND
ASSETS:
Investments in Securities:
Mortgage-Backed
Securities ............ $ -- $8,311,342,268 $-- $8,311,342,268
Short Term
Investments ........... 269,928,515 330,020,000 -- 599,948,515
-------------- -------------- --- --------------
Total Investments in
Securities ...... $ 269,928,515 $8,641,362,268 $-- $8,911,290,783
============== ============== === ==============
FRANKLIN UTILITIES FUND
ASSETS:
Investments in Securities:
Equity Investments(a) .... $1,946,662,282 $ -- $-- $1,946,662,282
Corporate Bonds .......... -- 76,520,989 -- 76,520,989
Short Term
Investments ........... 38,378,710 -- -- 38,378,710
-------------- -------------- --- --------------
Total Investments in
Securities ...... $1,985,040,992 $ 76,520,989 $-- $2,061,561,981
============== ============== === ==============
(a) For detailed industry descriptions, see the accompanying Statements of
Investments.
(b) Includes common and preferred stock as well as other equity investments.
16. SUBSEQUENT EVENTS
The Funds have evaluated subsequent events through November 16, 2009, the
issuance date of the financial statements and determined that no events have
occurred that require disclosure.
ABBREVIATIONS
CURRENCY
EUR - Euro
SELECTED PORTFOLIO
ADR - American Depository Receipt
FHLB - Federal Home Loan Bank
FRN - Floating Rate Note
GP - Graduated Payment
MTN - Medium Term Note
PIK - Payment-In-Kind
SF - Single Family
Annual Report | 143
Franklin Custodian Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN CUSTODIAN FUNDS
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin DynaTech Fund, Franklin
Growth Fund, Franklin Income Fund, Franklin U.S. Government Securities Fund and
Franklin Utilities Fund, separate portfolios of Franklin Custodian Funds,
(hereafter referred to as the "Funds") at September 30, 2009, the results of
each of their operations for the year then ended, the changes in each of their
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2009 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
November 16, 2009
144 | Annual Report
Franklin Custodian Funds
TAX DESIGNATION (UNAUDITED)
Under Section 852(b)(3)(C) of the Internal Revenue Code (Code), the Funds
designate the maximum amount allowable but no less than the following amounts as
long term capital gain dividends for the fiscal year ended September 30, 2009:
FRANKLIN FRANKLIN
DYNATECH FUND UTILITIES FUND
- ------------- --------------
$28,203,722 $14,482,099
Under Section 871(k)(2)(C) of the Code the Funds designate the maximum amount
allowable but no less than the following amounts as short term capital gain
dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code
for the fiscal year ended September 30, 2009:
FRANKLIN
INCOME FUND
- -----------
$24,482,792
Under Section 854(b)(2) of the Code, the Funds designate the following
percentage amounts of the ordinary income dividends as income qualifying for the
dividends received deduction for the fiscal year ended September 30, 2009:
FRANKLIN FRANKLIN FRANKLIN
GROWTH FUND INCOME FUND UTILITIES FUND
- ----------- ----------- --------------
100% 16.34% 100.00%
Under Section 854(b)(2) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as qualified dividends for
purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal
year ended September 30, 2009:
FRANKLIN FRANKLIN FRANKLIN FRANKLIN
DYNATECH FUND GROWTH FUND INCOME FUND UTILITIES FUND
- ------------- ----------- ------------ --------------
$4,093,495 $42,483,252 $609,834,198 $90,187,044
Distributions, including qualified dividend income, paid during calendar year
2009 will be reported to shareholders on Form 1099-DIV in January 2010.
Shareholders are advised to check with their tax advisors for information on the
treatment of these amounts on their individual income tax returns.
Under Section 871(k)(1)(C) of the Code, the Funds designate the maximum amount
allowable but no less than the following amounts as interest related dividends
for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the
fiscal year ended September 30, 2009:
FRANKLIN
FRANKLIN FRANKLIN U.S. GOVERNMENT FRANKLIN
GROWTH FUND INCOME FUND SECURITIES FUND UTILITIES FUND
- ----------- -------------- --------------- --------------
$181,689 $2,636,574,413 $352,121,192 $6,081,387
Annual Report | 145
Franklin Custodian Funds
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Generally, each board member
serves until that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (1932) Trustee Since 1976 134 Bar-S Foods (meat packing company).
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and
President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until
1998).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 2007 111 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Retired; and FORMERLY, Vice President, senior member and President, Board of Administration, California Public Employees
Retirement Systems (CALPERS) (1971-2008); member and Chairman of the Board, Sutter Community Hospitals; member, Corporate
Board, Blue Shield of California; and Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
SAM GINN (1937) Trustee Since 2007 111 ICO Global Communications (Holdings)
One Franklin Parkway Limited (satellite company).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Private investor; and FORMERLY, Chairman of the Board, Vodafone AirTouch, PLC (wireless company); Chairman of the Board and
Chief Executive Officer, AirTouch Communications (cellular communications) (1993-1998) and Pacific Telesis Groups (telephone
holding company) (1988-1994).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 1998 134 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas), H.J. Heinz
San Mateo, CA 94403-1906 Company (processed foods and allied
products), RTI International Metals,
Inc. (manufacture and distribution
of titanium), Canadian National
Railway (railroad) and White
Mountains Insurance Group, Ltd.
(holding company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and
Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to
the Secretary and Assistant Secretary for Public Affairs and Public Liaison - United States Treasury Department (1988-1989).
- ------------------------------------------------------------------------------------------------------------------------------------
146 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 2007 111 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture
capital).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK A. OLSON (1932) Trustee Since 2005 134 Hess Corporation (exploration and
One Franklin Parkway refining of oil and gas).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman Emeritus, The Hertz Corporation (car rental) (since 2000) (Chairman of the Board (1980-2000) and Chief Executive
Officer (1977-1999)); and FORMERLY, Chairman of the Board, President and Chief Executive Officer, UAL Corporation
(airlines).
- ------------------------------------------------------------------------------------------------------------------------------------
LARRY D. THOMPSON (1945) Trustee Since 2007 142 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (consumer products); and FORMERLY,
Director, Delta Airlines (aviation) (2003-2005) and Providian Financial Corp. (credit card provider) (1997-2001); Senior
Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy
Attorney General, U.S. Department of Justice (2001-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Lead Trustee since 111 None
One Franklin Parkway Independent 2007 and Lead
San Mateo, CA 94403-1906 Trustee Independent
Trustee since
2008
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and
non-profit boards; and FORMERLY, Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief
Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (office supplies) (1992-1996); Senior
Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain &
Company (consulting firm) (1986-1990).
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 147
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (1933) Trustee, Trustee since 134 None
One Franklin Parkway President, 1969, President
San Mateo, CA 94403-1906 Chief since 1984, Chief
Executive Executive Officer -
Officer - Investment
Investment Management
Management since 2002 and
and Chairman Chairman of the
of the Board Board since 2007
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Templeton
Worldwide, Inc.; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 41 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee and Trustee since 52 None
One Franklin Parkway Vice President 1983 and Vice
San Mateo, CA 94403-1906 President since
1982
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc. and
Templeton Worldwide, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee,
as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 43 of the investment companies in
Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance 2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of some of the other subsidiaries of Franklin Resources, Inc.
and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director of Compliance, Franklin
Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA F. FERGERSON (1962) Chief Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Executive
San Mateo, CA 94403-1906 Officer -
Finance and
Administration
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant
Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin
Templeton Services, LLC (1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
148 | Annual Report
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
GASTON GARDEY (1967) Treasurer, Since March 2009 Not Applicable Not Applicable
One Franklin Parkway Chief Financial
San Mateo, CA 94403-1906 Officer and
Chief
Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Fund Accounting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
ALIYA S. GORDON (1973) Vice President Since March 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Litigation Associate, Steefel, Levitt & Weiss, LLP (2000-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and/or director, as the case may be, of some of
the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
STEVEN J. GRAY (1955) Vice President Since August 2009 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc.; and
officer of 45 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT C. ROSSELOT (1960) Vice President Since August 2009 Not Applicable Not Applicable
500 East Broward Blvd.
Suite 2100
Fort Lauderdale, FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice
President and Secretary, Templeton Investment Counsel, LLC; Vice President, Secretary and Trust Officer, Fiduciary Trust
International of the South; and officer of 45 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Since 2006 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 149
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since 2005 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of some of the other subsidiaries of
Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments; and FORMERLY, Partner,
Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Fund under the federal securities laws due to
their positions as officers and directors and major shareholders of
Franklin Resources, Inc., which is the parent company of the Fund's
investment manager and distributor.
Note 1: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
Note 2: Officer information is current as of the date of this report. It is
possible that after this date, information about officers may change.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD HAS DETERMINED THAT THERE IS
AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED
JOHN B. WILSON AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT
MR. WILSON QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS
BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS CHIEF FINANCIAL OFFICER OF
STAPLES, INC. FROM 1992 TO 1996. MR. WILSON HAS BEEN A MEMBER AND CHAIRMAN OF
THE FUND'S AUDIT COMMITTEE SINCE 2007. AS A RESULT OF SUCH BACKGROUND AND
EXPERIENCE, THE BOARD BELIEVES THAT MR. WILSON HAS ACQUIRED AN UNDERSTANDING OF
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL
APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES,
ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT
PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY
COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL
CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT
COMMITTEE FUNCTIONS. MR. WILSON IS AN INDEPENDENT BOARD MEMBER AS THAT TERM IS
DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND
RELEASES.
THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL (800) DIAL BEN/(800) 342-5236 TO REQUEST THE SAI.
150 | Annual Report
Franklin Custodian Funds
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Trust's investment manager has established Proxy Voting Policies and
Procedures (Policies) that the Trust uses to determine how to vote proxies
relating to portfolio securities. Shareholders may view the Trust'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 Trust's proxy voting records are
also made available online at franklintempleton.com and posted on the U.S.
Securities and Exchange Commission's website at sec.gov and reflect the most
recent 12-month period ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Trust 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.
Annual Report | 151
This page intentionally left blank.
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 annual report
(FRANKLIN TEMPLETON INVESTMENTS(R) LOGO)
One Franklin Parkway
San Mateo, CA 94403-1906
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ANNUAL 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 A2009 11/09
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 expert is John B. Wilson and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $27,163 for the fiscal year ended September 30, 2009 and $38,402 for the
fiscal year ended September 30, 2008.
(b) Audit-Related Fees
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial
statements.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $2,762 for the fiscal year ended
September 30, 2009 and $4,000 for the fiscal year ended September 30, 2008. The
services for which these fees were paid included tax compliance and advice.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended September 30,
2009 and $152 for the fiscal year ended September 30, 2008. The services for
which these fees were paid include review of materials provided to the fund
Board in connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended September 30,
2009 and $283,925 for the fiscal year ended September 30, 2008. The services for
which these fees were paid include review of materials provided to the fund
Board in connection with the investment management contract renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to
the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to
the registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $2,762 for the fiscal year ended September 30, 2009 and $288,077
for the fiscal year ended September 30, 2008.
(h) The registrant's audit committee of the board has considered whether the
provision of non-audit services that were rendered to the registrant's
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
Item 5. Audit Committee of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. N/A
Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers. N/A
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no changes to the procedures by which shareholders may recommend
nominees to the Registrant's Board of 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 STRATEGIC MORTGAGE PORTFOLIO
By /s/LAURA F. FERGERSON
---------------------------
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date November 25, 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 November 25, 2009
By /s/GASTON GARDEY
----------------------------
Gaston Gardey
Chief Financial Officer and
Chief Accounting Officer
Date November 25, 2009