Utilities Equity Product Profile Product Details 1 Fund Assets $5,788,850,628.56 Fund Inception Date 09/30/1948 Number of Issuers 43 Investment Style Benchmark Lipper Classification Morningstar Category Dividend Frequency Third-Party Fund Data Overall Morningstar Rating TM Class A 3 Utilities S&P 500 Utilities Index;S&P 500 Index Utility Funds Utilities Quarterly in March, June, September and December Inception Date Class A 09/30/1948 Class C 05/01/1995 CUSIP NASDAQ Symbol Class A 353 496 409 FKUTX Class C 353 496 706 FRUSX Class A Class C Maximum 4.25% initial sales charge 1.00% contingent deferred sales charge (CDSC) in the first year only Total Annual Operating Expenses Class A 0.73% Class C 1.23% 30-Day Standardized Yield 2 Class A 2.88% Class C 2.52% As of 06/30/2018 the fund s Class A shares received a 4 star overall Morningstar Rating, measuring risk-adjusted returns against 59, 57 and 51 U.S.-domiciled Utilities mutual funds and exchange traded funds over the 3-, 5- and 10- year periods, respectively. A fund s overall rating is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) rating metrics. Fund Description The fund seeks capital appreciation and current income by investing predominantly in the securities of public utility companies, with a focus on companies operating in the US electricity and gas sectors. Performance Data 4,5 Average Annual Total Returns 6,7 (%) 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Class A - With -0.08-3.97-1.57 8.61 8.39 7.05 7.99 9.70 Class A - Without 4.34 0.30 2.77 10.19 9.34 7.52 8.23 9.77 Class C - With 3.23-0.95 1.23 9.62 8.79 6.98 7.69 8.67 Class C - Without 4.23 0.04 2.21 9.62 8.79 6.98 7.69 8.67 S&P 500 Utilities 3.74 0.32 3.41 11.68 10.58 6.64 6.71 - Index S&P 500 Index 3.43 2.65 14.37 11.93 13.42 10.17 6.46-20% 10% 0% -10% 4.34 3.74 3.43 2.65 0.30 0.32-0.08-1.57-3.97 3 Mths YTD 1 Yr 3 Yrs 5 Yrs 10 Yrs 20 Yrs Since Inception Class A - With Class A - Without S&P 500 Index 2.77 3.41 14.37 8.61 10.19 11.6811.93 13.42 8.39 9.34 10.58 10.17 7.05 7.99 9.70 7.52 8.23 9.77 6.64 6.71 6.46 Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/342-5236 or visit franklintempleton.com for the most recent month-end performance. Calendar Year Returns (% Without ) 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Class A 10.56 17.77-7.38 25.18 13.71 5.65 19.44 6.85 13.82-25.60 Class C 10.02 17.13-7.84 24.54 13.19 5.08 18.85 6.34 13.29-26.00 S&P 500 Utilities 12.11 16.29-4.85 28.98 13.21 1.29 19.91 5.46 11.91-28.98 Index S&P 500 Index 21.83 11.96 1.38 13.69 32.39 16.00 2.11 15.06 26.46-37.00 If the sales charge had been included, the returns would have been lower. 1. All holdings are subject to change. Holdings of the same issuers have been combined. 2. The fund s 30-day standardized yield is calculated over a trailing 30-day period using the yield to maturity on bonds and/or the dividends accrued on stocks. It may not equal the fund s actual income distribution rate, which reflects the fund s past dividends paid to shareholders. 4. Effective 05/01/1994, the fund implemented a Rule 12b-1 plan, which affects subsequent performance. Class C: Prior to 01/01/2004, these shares were offered with an initial sales charge; thus actual returns may differ. The fund offers other share classes subject to different fees and expenses, which will affect their performance. Please see the prospectus for details. 5. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. 6. Periods shorter than one year are shown as cumulative total returns. 7. Since inception return for the benchmark is calculated to the fund inception date. Not FDIC Insured May Lose Value No Bank Guarantee
Portfolio Manager Insight 8 Performance Review QUARTERLY KEY PERFORMANCE DRIVERS HELPED HURT Stocks The fund s off-index energy sector holdings, which averaged 4.6% of total net assets and remained focused on energy pipeline and infrastructure companies, enjoyed widespread gains that were, on average, four times higher than the S&P Utilities Index s return. In addition to Vectren, several other off-benchmark utilities companies were important contributors, including Great Plains Energy, Black Hills and OGE Energy. This spring, Great Plains received state regulatory approval for a proposed US$15 billion merger with a neighboring Midwest utility; the new entity will be named Evergy, serving one million customers in Kansas and roughly 600,000 in Missouri. Although Exelon was a modest detractor in relative terms, it was also by far the fund s top contributor on an absolute basis given its substantial 4.5% portfolio weighting and a quarterly return that nearly tripled the benchmark index. Public Service Enterprise Group had a similar outcome a small detractor versus the index, but a major contributor in the absolute. Outlook & Strategy The fund continues to seek the best opportunities within the regulated environments in which utilities operate. A highly constructive regulatory environment can provide for steady, long-term investment growth that exceeds industry averages while also producing returns on capital that exceed the regulatory allowed amounts. We maintain a small weighting in oil and natural gas pipeline companies that cover extensive North American geographies. While these holdings have historically had greater share price volatility than traditional utilities, especially as commodity prices move up and down, we believe they offer fundamental upside potential. We believe the valuation of existing pipeline capacity will continue to price higher as new capacities face permitting challenges, leading to steady, long-term, utility-like returns for these pipeline owners. Interest-rate sensitivity remains a key influence on utilities stock returns. However, we see a high level of engagement between utility companies and their regulators to ensure fair returns on capital for the sector s ever-increasing infrastructure investment needs. The sector appears to be better positioned today than it has been in recent memory to changing economic conditions, which could potentially help utilities adapt more quickly to a challenging inflationary environment, if one were to occur. The portfolio has maintained its concentration in domestic utilities holdings, with small exposures to foreign holdings that operate in regulatory jurisdictions that closely resemble US-style regulation. We do not expect our strategy to differ over the foreseeable future. 8. The information provided is not a complete analysis of every material fact regarding any country, market, industry, security or fund. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this material and may change without notice. A portfolio manager s assessment of a particular security, investment or strategy is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy; it is intended only to provide insight into the fund s portfolio selection process. Holdings are subject to change. Portfolio Characteristics 9,10,11 Kinder Morgan (Off-Benchmark Exposure) Vectren (Off-Benchmark Exposure) ONEOK (Off-Benchmark Exposure) Industries Oil, Gas & Consumable Fuels (Off-Benchmark Exposure) Multi-Utilities (Stock Selection) Electric Utilities (Stock Selection) Exelon (Underweight) Independent Power and Renewable Electricity Producers (Lack of Exposure) Public Service Enterprise Group (Underweight) Spire (Off-Benchmark Exposure) Portfolio Market Capitalization (Millions in USD) 28,961 34,420 Return on Equity 10.05% 9.84% 3-Year Sales Growth 0.48% -0.16% Estimated 3-5 Yr EPS Growth 7.43% 6.89% Price to Earnings (12 Month Forward) 17.73x 16.87x 9. The portfolio characteristics listed are based on the fund s underlying holdings, and do not necessarily reflect the fund s characteristics. Due to data limitations all equity holdings are assumed to be the primary equity issue (usually the ordinary or common shares) of each security s issuing company. This methodology may cause small differences between the portfolio s reported characteristics and the portfolio s actual characteristics. In practice, Franklin Templeton s portfolio managers invest in the class or type of security which they believe is most appropriate at the time of purchase. The market capitalization figures for both the portfolio and the benchmark are at the security level, not aggregated up to the main issuer. Source: Factset. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. Information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. 10. Source: FactSet. Price ratio calculations for weighted average use harmonic means. Any exceptions to this are noted. 11. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com 2
Portfolio Diversification Top Ten Holdings 12 Top Holdings % NEXTERA ENERGY INC 8.22 DOMINION ENERGY INC 4.95 EXELON CORP 4.93 SEMPRA ENERGY 4.81 AMERICAN ELECTRIC POWER CO 4.67 INC EVERGY INC 4.56 DUKE ENERGY CORP 4.37 CMS ENERGY CORP 4.17 EDISON INTERNATIONAL 3.93 XCEL ENERGY INC 3.63 Sector Weightings vs. 13,14 Percent of Total Electric Utilities Multi-Utilities Oil & Gas Storage & Transportation Water Utilities Gas Utilities Fixed Income Independent Power Producers & E 0% 10% 8.16 4.72 3.38 2.24 1.17 0.12 2.66 31.88 20% 30% 40% 50% 60% 70% 80% 90% 58.10 86.94 100% Franklin Utilities Fund Asset Allocation 15 Percent of Total Equity 99.25 Cash & Cash Equivalents 0.63 Fixed Income 0.12 0% 20% 40% 60% 80% 100% 120% 12. Holdings of the same issuers have been combined. Top ten holdings information is historical and may not reflect current or future portfolio characteristics. All holdings are subject to change. The information provided is not a recommendation to purchase, sell, or hold any particular security. The portfolio manager for the fund reserves the right to withhold release of information with respect to holdings that would otherwise be included. 13,15. Information is historical and may not reflect current or future portfolio characteristics. Percentage may not equal 100% due to rounding. All holdings are subject to change. 14. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com 3
Supplemental Performance Statistics Supplemental Risk Statistics 16,17 Class A 3 Yrs 5 Yrs 10 Yrs Standard Deviation (%) 11.65 11.85 12.66 Tracking Error (%) 2.10 2.28 2.36 Information Ratio -0.71-0.54 0.37 Beta 0.92 0.91 0.90 Sharpe Ratio 0.82 0.75 0.57 Performance data represents past performance, which does not guarantee future results. Current performance may differ from figures shown. The fund s investment return and principal value will change with market conditions, and you may have a gain or a loss when you sell your shares. Please call Franklin Templeton Investments at (800) DIAL BEN/342-5236 or visit franklintempleton.com for the most recent month-end performance. 10-Year Risk vs. Return 18,19 Class A Without vs. Return (%) 8 6 4 2 0 0 5 10 15 20 Risk (Standard Deviation) (%) Franklin Utilities Fund If the sales charge had been included, the returns would have been lower. Investment Philosophy & Process Investment Team Portfolio Manager Years with Firm Years Experience John Kohli, CFA, Portfolio Manager/Research Analyst 25 25 Blair Schmicker, CFA, Portfolio Manager/Research Analyst 10 14 Beta: A measure of the magnitude of a portfolio s past share-price fluctuations in relation to the ups and downs of the overall market (or appropriate market index). The market (or index) is assigned a beta of 1.00, so a portfolio with a beta of 1.20 would have seen its share price rise or fall by 12% when the overall market rose or fell by 10%. 16. Beta, Information Ratio and Tracking Error information are measured against the. 17. Information Ratio is a way to evaluate a manager s ability to outperform a benchmark in relation to the risk that manager is assuming, with risk defined as deviation from the benchmark. This measure is calculated by dividing the portfolio s excess return (portfolio return less the benchmark return) by the tracking error (derived by taking the standard deviation of the monthly differences between the portfolio return and the benchmark return over time). 18. Risk is measured by the annualized standard deviation of monthly total returns. Performance of the fund does not include sales charges (if applicable), but it does include dividends and capital gains reinvested at net asset value. 19. Source for Index: FactSet. Indexes are unmanaged, and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges. franklintempleton.com 4
Estimated 3-5 Year EPS Growth: An estimated measure of the growth of earnings per share over a forward-looking period. For a portfolio, the value represents a weighted average of the stocks it holds. Historical 3 Yr Sales Growth: The rate at which sales have increased for the fund s underlying holdings over the last three years. Information Ratio: In investing terminology, the ratio of expected return to risk. Usually, this statistical technique is used to measure a manager s performance against a benchmark. This measure explicitly relates the degree by which an investment has beaten the benchmark to the consistency by which the investment has beaten the benchmark. Market Capitalization: A determination of a company s value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Market capitalization is expressed in millions of USD. Price to Earnings (12-mo Forward): A measure of the price to earnings ratio (P/E) using the forecasted earnings for the next 12 months. Return on Equity: A measure of a corporation s profitability that reveals how much profit a company generates with the money shareholders have invested. For a portfolio, the value represents a weighted average of the stocks it holds. Sharpe Ratio: To calculate a Sharpe ratio, an asset s excess returns (its return in excess of the return generated by risk-free assets such as Treasury bills) are divided by the asset s standard deviation. Standard Deviation: A measure of the degree to which returns vary from the average of its previous returns. The larger the standard deviation, the greater the likelihood (and risk) that performance will fluctuate from the average return. Tracking Error: Measure of the deviation of the return of a product compared to the return of a benchmark over a fixed period of time. Expressed as a percentage. The more passively the investment is managed, the smaller the tracking error. franklintempleton.com 5
What Are The Risks? All investments involve risks, including possible loss of principal. Investing in a fund concentrating in the utilities sector involves special risks, including increased susceptibility to adverse economic and regulatory developments affecting the sector. Stocks historically have outperformed other asset classes over the long term, but tend to fluctuate more dramatically over the short term. 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. These and other risks are described more fully in the fund s prospectus. Important Legal Information Investors should carefully consider a fund s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) DIAL BEN/342-5236 or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money. CFA and Chartered Financial Analyst are trademarks owned by CFA Institute. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. S&P does not sponsor, endorse, sell or promote and S&P index-based product. Important data provider notices and terms available at www.franklintempletondatasources.com. 3. Source: Morningstar, 06/30/2018. For each mutual fund and exchange traded fund with at least a 3-year history, Morningstar calculates a Morningstar Rating based on how a fund ranks on a Morningstar Risk-Adjusted Return measure against other funds in the same category. This measure takes into account variations in a fund s monthly performance, and does not take into account the effects of sales charges and loads, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive 1 star. The weights are: 100% 3-year rating for 36-59 months of total returns, 60% 5-year rating/40% 3-year rating for 60-119 months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent 3-year period actually has the greatest impact because it is included in all three rating periods. The Fund s Class A shares received a Morningstar Rating of 3, 3 and 4 star(s) for the 3-, 5- and 10-year periods, respectively. Morningstar Rating is for the named share class only; other classes may have different performance characteristics. Past performance is not an indicator or a guarantee of future performance. Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA 94403-1906 (800) DIAL BEN/342-5236 franklintempleton.com 2018 Franklin Templeton Investments. All rights reserved. 107 PP 06/18