As filed with the Securities & Exchange Commission April 27,
1995.
File Nos.
2-11346
811-537
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post Effective Amendment No. 71 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 17 (X)
FRANKLIN CUSTODIAN FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check
appropriate box)
[ ]immediately upon filing pursuant to paragraph (b)
[ x]on May 1, 1995 pursuant to paragraph (b)
[ ]60 days after filing pursuant to paragraph (a)(i)
[ ]on (date) pursuant to paragraph (a)(i)
[ ]75 days after filing pursuant to paragraph (a)(ii)
[ ]on (date) pursuant to paragraph (a)(ii) of rule 485
EXHIBIT INDEX PAGE
If appropriate, check the following box:
[ ]This post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Declaration Pursuant to Rule 24f-2. The Registrant has
registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. The Rule 24f-2 Notice for the
issuer's most recent fiscal year was filed on November 25, 1994.
FRANKLIN CUSTODIAN FUNDS, INC.
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in the Prospectus
(All Series Prospectus)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Fund";
"Investment Objectives and
Policies of Each Series";
"General Information"
5. Management of the "Management of the Fund";
Fund "Portfolio Operations"
5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "General
Information"
7. Purchase of "How to Buy Shares of the
Securities Being Fund"; "Taxation of the Fund
Offered and Its Shareholders";
"Purchasing Shares of the
Fund in Connection with
Retirement Plans Involving
Tax-Deferred Investments";
"Other Programs and
Privileges Available to Fund
Shareholders"; "Exchange
Privilege"; "Valuation of
Fund Shares"; "Telephone
Transactions"
8. Redemption or "How to Sell Shares of the
Repurchase Fund"; "Valuation of Fund
Shares"; "How to Get
Information Regarding an
Investment in the Fund";
"General Information";
"Telephone Transactions"
9. Pending Legal Not Applicable
Proceedings
FRANKLIN CUSTODIAN FUNDS, INC.
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in the Prospectus
(Franklin U.S. Government Securities Series)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Fund";
"Investment Objective and
Policies of the Fund";
"General Information"
5. Management of the "Management of the Fund";
Fund "Portfolio Operations"
5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "General
Information"
7. Purchase of "How to Buy Shares of the
Securities Being Fund"; "Taxation of the Fund
Offered and Its Shareholders";
"Purchasing Shares of the
Fund in Connection with
Retirement Plans Involving
Tax-Deferred Investments";
"Other Programs and
Privileges Available to Fund
Shareholders"; "Exchange
Privilege"; "Valuation of
Fund Shares"; "Telephone
Transactions"
8. Redemption or "How to Sell Shares of the
Repurchase Fund"; "Valuation of Fund
Shares"; "How to Get
Information Regarding an
Investment in the Fund";
"General Information";
"Telephone Transactions"
9. Pending Legal Not Applicable
Proceedings
FRANKLIN CUSTODIAN FUNDS, INC.
CROSS REFERENCE SHEET
FORM N-1A
Part A: Information Required in the Prospectus
(Income Series)
N-1A Location in
Item No. Item Registration Statement
1. Cover Page Cover Page
2. Synopsis Expense Table
3. Condensed Financial "Financial Highlights";
Information "Performance"
4. General Description "About the Fund";
"Investment Objective and
Policies of the Fund";
"General Information"
5. Management of the "Management of the Fund";
Fund "Portfolio Operations"
5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders
6. Capital Stock and "Distributions to
Other Securities Shareholders"; "General
Information"
7. Purchase of "How to Buy Shares of the
Securities Being Fund"; "Taxation of the Fund
Offered and Its Shareholders";
"Purchasing Shares of the
Fund in Connection with
Retirement Plans Involving
Tax-Deferred Investments";
"Other Programs and
Privileges Available to Fund
Shareholders"; "Exchange
Privilege"; "Valuation of
Fund Shares"; "Telephone
Transactions"
8. Redemption or "How to Sell Shares of the
Repurchase Fund"; "Valuation of Fund
Shares"; "How to Get
Information Regarding an
Investment in the Fund";
"General Information";
"Telephone Transactions"
9. Pending Legal N/A
Proceedings
Part B: Information Required in the
Statement of Additional Information
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information "About the Fund" (See also
and History the Prospectuses "About the
Fund")
13. Investment Objectives "The Investment Objectives
and Policies and Policies of the Fund"
(See also the section of the
Prospectuses entitled
"Investment Objectives and
Policies of Each Series" or
"Investment Objective and
Policies of the Fund")
14. Management of the "Officers and Directors"
Fund
15. Control Persons and "Officers and Directors"
Principal Holders of
Securities
16. Investment Advisory "Investment Advisory and
and Other Services Other Services" (See also
the Prospectuses "Management
of the Fund," "Portfolio
Operations")
17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"
18. Capital Stock and See section "General
Other Securities Information" in the
Prospectuses
19. Purchase, Redemption "Additional Information
and Pricing of Regarding Fund Shares" (See
Securities Being also the Prospectuses "How
Offered to Buy Shares of the Fund";
"How to Sell Shares of the
Fund"; "Valuation of Fund
Shares"; "Telephone
Transactions")
20. Tax Status "Additional Information
Regarding Taxation"
21. Underwriter "The Fund's Underwriter"
22. Performance Data "General Information"
23. Financial Statements Financial Statements
FCF P
SUPPLEMENT DATED MAY 1, 1995
TO THE PROSPECTUS FOR
FRANKLIN CUSTODIAN FUNDS, INC.
(Income Series, Growth Series, Utilities Series, DynaTech Series
and U.S. Government Securities Series)
dated February 1, 1995
INTRODUCTION. As of May 1, 1995, the Growth Series, Utilities
Series, Income Series, and U.S. Government Securities Series
offer two classes to their investors: the Growth Series - Class
I, Utilities Series - Class I, Income Series- Class I, and U.S.
Government Securities Series - Class I (individually or
collectively, "Class I") and the Growth Series - Class II,
Utilities Series - Class II, Income Series- Class II, and U.S.
Government Securities Series - Class II (collectively or
individually, "Class II"). THE DYNATECH SERIES OFFERS ONLY ONE
CLASS OF SHARES ("DYNATECH SERIES - CLASS I") AND IS INCLUDED IN
ALL DISCUSSIONS OF CLASS I SHARES IN THIS PROSPECTUS. Investors
can choose between Class I shares, which generally bear a higher
front-end sales charge and lower ongoing Rule 12b-1 distribution
fees ("Rule 12b-1 fees"), and Class II shares, which generally
have a lower front-end sales charge and higher ongoing Rule 12b-1
fees. Investors should consider the differences between the two
classes, including the impact of sales charges and distribution
fees, in choosing the more suitable class given their anticipated
investment amount and time horizon.
This Supplement must be read in conjunction with the Prospectus
for this Fund. All investment objectives and policies described
in the Prospectus apply equally to both classes of shares in the
new multiclass structure. Further, all operational procedures
apply equally to both classes, unless otherwise specified in the
following discussion.
THE NEW APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST BE
USED FOR ALL PURCHASES. DO NOT USE THE APPLICATION FORM INCLUDED
IN THE PROSPECTUS.
MULTICLASS FUND STRUCTURE. All of the Series of the Fund except
the DynaTech Series have two classes of shares available for
investment: Class I and Class II. ALL SHARES OF EACH SERIES
OUTSTANDING BEFORE THE IMPLEMENTATION OF THE MULTICLASS STRUCTURE
HAVE BEEN REDESIGNATED AS CLASS I SHARES, AND WILL RETAIN THEIR
PREVIOUS RIGHTS AND PRIVILEGES. VOTING RIGHTS ATTRIBUTABLE TO
EACH CLASS WILL, HOWEVER, BE DIFFERENT. See the Prospectus for
more details about Class I shares. Class II shares are explained
in detail in the following discussion. Except as described below,
shares of both classes represent identical interests in each
Series' investment portfolio.
EXPENSE TABLE
The purpose of these tables is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in each Series of the Fund. These figures are based on aggregate
operating expenses of the Class I shares for each Series for the
fiscal year ended September 30, 1994.
CLASS I
U.S.
GOVERNMENT
GROWTH DYNATECH UTILITIES INCOME SECURITIES
SERIES SERIES SERIES SERIES SERIES
SHAREHOLDER
TRANSACTION
EXPENSES
Maximum Sales
Charge
Imposed on
Purchases
(as a
percentage
of Offering 4.50% 4.50% 4.25% 4.25% 4.25%
price)
Deferred Sales NONE* NONE* NONE* NONE* NONE*
Charge
Exchange Fee
(per NONE** NONE** $5.00** $5.00** $5.00**
transaction)
ANNUAL FUND
OPERATING
EXPENSES (as a
percentage of
average net
assets)
Management Fees 0.49% 0.62% 0.45% 0.46% 0.45%
Rule 12b-1 Fees 0.20%*** 0.20*** 0.12%*** 0.13%+ 0.07%+
Other Expenses:
Shareholder
Servicing costs 0.09% 0.10% 0.05% 0.04% 0.03%
Reports to 0.07% 0.09% 0.06% 0.04% 0.03%
Shareholders
Other 0.04% 0.05% 0.03% 0.05% 0.01%
Total Other
Expenses 0.20% 0.24% 0.14% 0.13% 0.07%
Total Fund
Operating
Expenses 0.89% 1.06% 0.71% 0.72%+ 0.59%+
*Investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1%
is generally imposed on certain redemptions within a contingency
period of 12 months of the calendar month following such
investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
**5.00 fee is only imposed on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
***Represents the initial rate under the Rule 12b-1 Plan
implemented on May 1, 1994 the initial rate as discussed in
"Management of the Fund - Plans of Distribution." Actual 12b-1
fees incurred by the Growth Series, DynaTech Series, and
Utilities Series for the period May 1, 1994 through September 30,
1994 were .08%, .08%, and .05%, respectively, which represent an
annualized rate of .19%, .18%, and .11%, respectively. Consistent
with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and
Rule 12b-1 fees could cause long-term shareholders to pay more
than the economic equivalent of the maximum front-end sales
charges permitted under those same rules.
+Annualized. Actual 12b-1 fees incurred by the Income Series and
U.S. Government Securities Series for the period May 1, 1994
through September 30, 1994 were .05% and .03%, respectively.
Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
CLASS II
U.S.
GOVERNMENT
GROWTH UTILITIES INCOME SECURITIES
SERIES SERIES SERIES SERIES
SHAREHOLDER
TRANSACTION
EXPENSES
Maximum Sales
Charge
Imposed on
Purchases
(as a
percentage
of Offering 1.00%^ 1.00%^ 1.00%^ 1.00%^
price)
Deferred Sales 1.00%* 1.00%* 1.00%* 1.00%*
Charge
Exchange Fee
(per NONE** $5.00** $5.00** $5.00**
transaction)
ANNUAL FUND
OPERATING
EXPENSES (as a
percentage of
average net
assets)
Management Fees 0.49% 0.45% 0.46% 0.45%
Rule 12b-1 Fees 1.00%*** 0.65%*** 0.65%*** 0.65%***
Other Expenses:
Shareholder
Servicing costs 0.09% 0.05% 0.04% 0.03%
Reports to 0.07% 0.06% 0.04% 0.03%
Shareholders
Other 0.04% 0.03% 0.05% 0.01%
Total Other
Expenses 0.20% 0.14% 0.13% 0.07%
Total Fund
Operating
Expenses 1.69%^ 1.24%^ 1.24%+^ 1.17%+*^
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fee for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take approximately six years or less for shareholders of the
Growth Series and seven years for shareholders of the Utilities
Series, Income Series, and U.S. Government Securities Series who
maintain total shares valued at less than $100,000 in the
Franklin Templeton Funds. Shareholders with larger investments in
the Franklin Templeton Funds will reach the crossover point more
quickly.
*Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
**5.00 fee is only imposed on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
***See the Class I Expense Table, above, for more information
about Class I's Rule 12b-1 expenses. Class II's plans were
effective May 1, 1995. "Other Expenses" for Class II shares are
estimates based on the actual expenses incurred by Class I shares
of the respective Series for the fiscal year ended September 30,
1994.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in any Series of the Fund. Rather,
the table has been provided only to assist investors in gaining a
more complete understanding of fees, charges and expenses that an
investor in the classes will bear directly or indirectly. For a
more detailed discussion of these matters, investors should refer
to the appropriate sections of this Prospectus and this
Supplement.
EXAMPLE
As required by SEC regulations, the following example illustrates
the expenses, including the maximum front-end sales charge and
applicable contingent deferred sales charges, that apply to a
$1,000 investment in each Series over various time periods
assuming (1) a 5% annual rate of return and (2) redemption at the
end of each time period.
CLASS I
U.S.
GOVERNMENT
GROWTH UTILITIES INCOME SECURITIES DYNATECH
SERIES SERIES SERIES SERIES SERIES
1 Year $ 54 $ 49 $ 50 $ 48 $ 55
3 Years $ 72 $ 64 $ 65 $ 61 $ 77
5 Years $ 92 $ 80 $ 81 $ 74 $101
10 Years $150 $127 $128 $113 $169
CLASS II
U.S.
GOVERNMENT
GROWTH UTILITIES INCOME SECURITIES
SERIES SERIES SERIES SERIES
1 Year $ 37 $ 32 $ 32 $ 32
3 Years $ 63 $ 49 $ 49 $ 47
5 Years $101 $ 77 $ 77 $ 74
10 Years $208 $158 $158 $151
THIS EXAMPLE IS BASED ON THE ANNUALIZED AGGREGATE ANNUAL
OPERATING EXPENSES SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR
LESS THAN THOSE SHOWN. The operating expenses are borne by each
Series of the Fund and are only indirectly by shareholders as a
result of their investment in the Series. In addition, federal
securities regulations require the example to assume an annual
return of 5%, but the actual return for each Series may be more
or less than 5%.
DECIDING WHICH CLASS OF GROWTH SERIES, UTILITIES SERIES, INCOME
SERIES OR U.S. GOVERNMENT SECURITIES SERIES TO PURCHASE.
Investors should carefully evaluate their anticipated investment
amount and time horizon prior to determining which class of
shares of the Growth Series, Utilities Series, Income Series, or
the U.S. Government Securities Series to purchase. Generally, an
investor who expects to invest less than $100,000 in the Franklin
Templeton Funds and who expects to make substantial redemptions
within approximately six years or less of investment in the
Growth Series or seven years or less of investment in the
Utilities Series, Income Series, or U.S. Government Securities
Series should consider purchasing Class II shares. Over time,
however, the higher annual Rule 12b-1 fees on the Class II shares
will accumulate to outweigh the difference in initial sales
charges. For this reason, Class I shares may be more attractive
to long-term investors even if no sales charge reductions are
available to them. Investors should also consider that the higher
Rule 12b-1 fees for Class II shares will generally result in
lower dividends and consequently lower yields for Class II
shares. See "General Information" in the Statement of Additional
Information ("SAI") for more information regarding the
calculation of dividends and yields.
Investors who qualify to purchase Class I shares at reduced sales
charges definitely should consider purchasing Class I shares,
especially if they intend to hold their shares for six years or
more. Investors who qualify to purchase Class I shares at reduced
sales charges but who intend to hold their shares less than six
years should evaluate whether it is more economical to purchase
Class I shares through a Letter of Intent or under Rights of
Accumulation or other means rather than purchasing Class II
shares. INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE
PAYMENT AND OTHER INVESTORS WHO QUALIFY TO PURCHASE CLASS I
SHARES AT NET ASSET VALUE WILL BE PRECLUDED FROM PURCHASING CLASS
II SHARES. See "How to Buy Shares of the Fund" in the Prospectus.
Each class of each Series represents the same interest in the
investment portfolio of the Fund and has the same rights, except
that each class of a Series has a different sales charge, bears
the separate expenses of its Rule 12b-1 distribution plan, and
has exclusive voting rights with respect to such plan. The two
classes also have separate exchange privileges.
Each class also has a separate schedule for compensating
securities dealers for selling Fund shares. Investors should take
all of the factors regarding an investment in each class into
account before deciding which class of shares to purchase.
ALTERNATIVE PURCHASE ARRANGEMENTS. The difference between Class I
and Class II shares lies primarily in their front-end and
contingent deferred sales charges and Rule 12b-1 fees as
described below.
A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively) for
each of the Series with two classes of shares. These Plans were
approved and adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("1940 Act"). The Rule 12b-1 fees
charged to each class of each Series will be based solely on the
distribution and servicing fees attributable to that particular
class and Series. Any portion of fees remaining from either plan
distribution to securities dealers up to the maximum amount
permitted under each Plan may be used by the class to reimburse
Franklin Templeton Distributors, Inc. ("Distributors") for
routine ongoing promotion and distribution expenses incurred with
respect to such class. See "Plan of Distribution" in the
Prospectus for a description of such expenses.
CLASS I. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon
redemption. Class I shares are subject to Rule 12b-1 fees of up
to an annual maximum of .25% of average daily net assets of such
shares for the Growth and DynaTech Series, and .15% of average
daily net assets of such shares for the Utilities, Income, and
U.S. Government Securities Series. With this structure, Class I
shares have higher front-end sales charges than Class II shares
and comparatively lower Rule 12b-1 fees.
Plan of Distribution. Under the Class I Plan, the Fund will
reimburse Distributors or other securities dealers for expenses
incurred in the promotion, servicing, and distribution of Class I
Fund shares. (See "Plan of Distribution" in the Prospectus and
"Distribution Plan" in the Statement of Additional Information
("SAI")).
Quantity Discounts and Purchases At Net Asset Value. Class I
shares may be purchased at a reduced front-end sales charge or at
net asset value if certain conditions are met. See "How to Buy
Shares of the Fund."
Contingent Deferred Sales Charge. In most circumstances, a
contingent deferred sales charge will not be assessed against
redemptions of Class I shares. A contingent deferred sales charge
will be imposed on Class I shares only if shares valued at $1
million or more are purchased after February 1, 1995 without a
sales charge and are subsequently redeemed within 12 months of
the calendar month following their purchase. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund" in
this Supplement.
CLASS II. The current public offering price of Class II shares is
equal to the net asset value, plus a front-end sales charge of 1%
of the amount invested. Class II shares are also subject to a
contingent deferred sales charge of 1.0% if shares are redeemed
within 18 months of the calendar month following purchase. In
addition, Class II shares are subject to Rule 12b-1 fees of up to
a maximum of 1.0% of average daily net assets of such shares for
the Growth Series, and a maximum of 0.65% of average daily net
assets of such shares for the Utilities, Income, and U.S.
Government Securities Series. Class II shares have lower front-
end sales charges than Class I shares and comparatively higher
Rule 12b-1 fees.
Purchases of Class II shares are limited to amounts below $1
million. Any purchases of $1 million or more will automatically
be invested in Class I shares, since that is more beneficial to
investors. Such purchases, however, may be subject to a
contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million,
however, should consider purchasing Class I shares through a
Letter of Intent instead of purchasing Class II shares. See "How
to Buy Shares of the Fund" in the Prospectus for more
information.
Plan of Distribution. Class II's operating expenses will
generally be higher under the Class II Plan. During the first
year following a purchase of Class II shares, Distributors will
keep a portion of the Plan fees attributable to those shares to
partially recoup fees Distributors pays to securities dealers.
Distributors, or its affiliates, may pay, from its own resources,
a commission of up to 1% of the amount invested to securities
dealers who initiate and are responsible for purchases of Class
II shares.
Contingent Deferred Sales Charge. Unless a waiver applies, a
contingent deferred sales charge of 1% will be imposed on Class
II shares redeemed within 18 months of their purchase. See
"Contingent Deferred Sales Charges" under "How to Sell Shares of
the Fund" in this Supplement.
INVESTMENT OBJECTIVES AND POLICIES OF EACH SERIES
INCOME SERIES
TRADE CLAIMS. The Income Series may invest up to 5% of its assets
in trade claims. Trade claims are purchased from creditors of
companies in financial difficulty. For purchasers such as the
Series, trade claims offer the potential for profits since they
are often purchased at a significantly discounted value and,
consequently, may generate capital appreciation in the event that
the value of the claim increases as the debtor's financial
position improves. In the event that the debtor is able to pay
the full obligation on the face of the claim as a result of a
restructuring or an improvement in the debtor's financial
condition, trade claims offer the potential for higher income due
to the difference in the face value of the claim as compared to
the discounted purchase price.
An investment in trade claims is speculative and carries a high
degree of risk. There can be no guarantee that the debtor will
ever be able to satisfy the obligation on the trade claim.
Trading in claims is not regulated by federal securities laws or
the SEC. Currently, trading in claims is regulated primarily by
bankruptcy laws. Because trade claims are unsecured holders of
trade claims may have a lower priority in terms of payment than
most other creditors in a bankruptcy proceeding. In light of the
nature and risk of trade claims, the Series' investment in these
instruments will not exceed 5% of its net assets at time of
acquisition.
MANAGEMENT OF THE FUND
The subsidiaries of Resources are described as the "Franklin
Templeton Group."
The Board of Trustees has carefully reviewed the multiclass
structure to ensure that no material conflict exists between the
two classes of shares. Although the Board does not expect to
encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to
resolve such conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the
authority to establish additional classes of shares. It is the
Fund's present intention to offer only two classes of shares, but
new classes may be offered in the future.
For more information regarding the responsibilities of the Board
and the management of the Fund, please see "Management of the
Fund" in the Prospectus.
CLASS II PLAN OF DISTRIBUTION
Under the Class II Plans, the Growth Series is permitted to pay a
maximum amount of 0.75% per annum of its Class II shares' daily
net assets, and the Utilities, Income, and U.S. Government
Securities Series are permitted to pay a maximum of 0.50% per
annum of each Series' Class II shares' daily net assets, to
Distributors or other for these services. All expenses of
distribution, marketing and related services over that amount
will be borne by Distributors or others who have incurred them,
without reimbursement by the Fund. In addition, the Class II
Plans provide for an additional payment of up to 0.25% per annum
of the class' average daily net assets for the Growth Series and
0.15% for the Utilities, Income, and U.S. Government Securities
Series as a servicing fee, payable quarterly. This fee will be
used to pay securities dealers or others for, among other things,
assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests;
receiving and answering correspondence; monitoring dividend
payments from the Fund on behalf of the customers, or similar
activities related to furnishing personal services and/or
maintaining shareholder accounts.
The Class II Plans also cover any payments to or by each Series,
Advisers, Distributors, or other parties on behalf of a Series,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of Class II shares issued by a Series within
the context of Rule 12b-1. The payments under the Plans are
included in the maximum operating expenses which may be borne by
Class II of each Series.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of Plan fees assessed on Class
II shares to partially recoup fees Distributors pays to
securities dealers.
See the "Plan of Distribution" discussion in the "Management of
the Fund" section in the Prospectus and in the SAI for more
information about both Class I and Class II Plans of the Growth,
Utilities, Income and U.S. Government Securities Series.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and capital gains will be calculated and distributed in
the same manner for Class I and Class II shares of each Series.
The per share amount of any income dividends will generally
differ only to the extent that each class of each Series is
subject to different Rule 12b-1 fees. Because ongoing Rule 12b-1
expenses will be lower for Class I than Class II, the per share
dividends distributed to Class I shares will generally be higher
than those distributed to Class II shares.
Unless otherwise requested in writing or on the Shareholder
Application, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's
account in the form of additional shares, valued at the closing
net asset value (without a front-end sales charge) on the
dividend reinvestment date. Dividend and capital gain
distributions are only eligible for investment at net asset value
in the same class of shares of a Series or the same class of
another of the Franklin Templeton Funds. See "Distributions to
Shareholders" in the Prospectus and the SAI for more information.
HOW TO BUY SHARES OF THE FUND
The following discussion supplements the one included in the
Prospectus under "How to Buy Shares of the Fund." THE APPLICATION
FORM INCLUDED WITH THIS SUPPLEMENT MUST ACCOMPANY ANY PURCHASE OF
SHARES. DO NOT USE THE APPLICATION INCLUDED IN THE PROSPECTUS.
PURCHASE PRICE OF FUND SHARES
Shares of both classes of the Fund are offered at their
respective public offering prices, which are determined by adding
the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund, or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check).
CLASS II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. THE DYNATECH SERIES CURRENTLY DOES NOT
OFFER CLASS II SHARES. See table below:
TOTAL SALES CHARGE
SIZE OF AS A AS A DEALER
TRANSACTION PERCENTAGE OF PERCENTAGE OF CONCESSION AS
AT OFFERING NET OFFERING NET AMOUNT A PERCENTAGE
PRICE PRICE INVESTED OF OFFERING
PRICE*
any amount 1.00% 1.01% 1.00%
(less than $1
million)
*During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Plan fees assessed on
Class II shares to partially recoup fees Distributors pays to
securities dealers. Distributors or one of its affiliates may
make an additional payment to the securities dealer, from its own
resources, of up to 1% of the amount invested.
Class II shares redeemed within eighteen months of their purchase
will be assessed a contingent deferred sales charge of 1.0% on
the lesser of the then-current net asset value or the net asset
value of such shares at the time of purchase, unless such charge
is waived as described below.
The sections in the Prospectus titled "Quantity Discounts in
Sales Charges" and "Group Purchases" only apply to Class I
shares. Although sales charges on Class II shares may not be
reduced by through a Letter of Intent or Rights of Accumulation
as described under "Quantity Discounts in Sales Charges," the
value of Class II shares owned by an investor may be included in
determining the appropriate sales charges for Class I shares.
PURCHASES AT NET ASSET VALUE
Each of the remaining paragraphs in the section which defines the
categories of investors who may purchase at net asset value,
including "Description of Special Net Asset Value Purchases," is
revised to reflect that such purchases are without a front-end
sales charge (net asset value) and without the imposition of a
contingent deferred sales charge. In addition, this entire
section of the Prospectus is revised to state that it only
applies to Class I shares, with the exception of the second and
third paragraphs, which are replaced with the following:
For either Class I or Class II, the same class of shares of the
Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund
or another of the Franklin Templeton Funds which were purchased
with a front-end sales charge or assessed a contingent deferred
sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the
time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of the Prospectus and the SAI.
For either Class I or Class II, the same class of shares of a
Series of the Fund or of another of the Franklin Templeton Funds
may be purchased at net asset value and without a contingent
deferred sales charge by persons who have received dividends and
capital gain distributions in cash from investments in that class
of shares of the Fund within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to
reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Substitute the following paragraph for the first paragraph under
"Description of Special Net Asset Value Purchases:"
Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with
respect to number of employees or amount of purchase, which may
be established by Distributors. Currently those criteria require
that the employer establishing the plan have 200 or more
employees or that the amount invested or to be invested during
the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
For a complete understanding of how to buy shares of the Fund,
this Supplement must be read in conjunction with the Prospectus.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
The following subsection is added to the end of this section:
PURCHASING CLASS I AND CLASS II SHARES
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares. Initial purchases of $1 million or more in a
single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset
value should purchase Class I rather than Class II shares. See
the section "Purchases at Net Asset Value" and "Description of
Special Net Asset Value Purchases" above for a discussion of when
shares may be purchased at net asset value.
OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
With the exception of Systematic Withdrawal Plans, all programs
and privileges detailed under the discussion of "Other Programs
and Privileges Available to the Fund Shareholders" will remain in
effect as described in the Prospectus for the new multiclass
structure. For a complete discussion of these programs, see
"Other Programs and Privileges Available to Fund Shareholders" in
the Prospectus.
SYSTEMATIC WITHDRAWAL PLANS. Subject to the requirements outlined
in the Prospectus, a shareholder may establish a Systematic
Withdrawal Plan for his or her account. With respect to Class I
shares, the contingent deferred sales charge is waived for
redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set
up on or after February 1, 1995, the applicable contingent
deferred sales charge is waived for Class I and Class II share
redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% semi-annually, 3% quarterly). For example, if
the account maintained an annual balance of $10,000, only $1,200
could be withdrawn through a once-yearly Systematic Withdrawal
Plan free of charge; any amount over that $1,200 would be
assessed a 1% (or applicable) contingent deferred sales charge.
EXCHANGE PRIVILEGE
Shareholders are entitled to exchange their shares for shares of
the same class of other Franklin Templeton Funds which are
eligible for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and
investment minimums. Some funds, however, may not offer Class II
shares. Class I shares may be exchanged for Class I shares of any
Franklin Templeton Funds. Class II shares may be exchanged for
Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent
deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent
deferred sales charge in the original fund purchased and shares
are subsequently redeemed within twelve months (Class I shares)
or eighteen months (Class II shares) of the calendar month of the
original purchase date, a contingent deferred sales charge will
be imposed. Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to exchange
into for all specific requirements or limitations on exercising
the exchange privilege, for example, minimum holding periods or
applicable sales charges.
EXCHANGES OF CLASS I SHARES
The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and held
in a Franklin or Templeton money market fund. If a Class I
account has shares subject to a contingent deferred sales charge,
Class I shares will be exchanged into the new account on a "first-
in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and shares that are not, the
shares will be transferred proportionately into the new fund.
Shares received from reinvestment of dividends and capital gains
are referred to as "free shares," shares which were originally
subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called
"matured shares," and shares still subject to the contingent
deferred sales charge are referred to as "CDSC liable shares."
CDSC liable shares held for different periods of time are
considered different types of CDSC liable shares. For instance,
if a shareholder has $1,000 in free shares, $2,000 in matured
shares, and $3,000 in CDSC liable shares, and the shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from
free shares, $1,000 from matured shares, and $1,500 from CDSC
liable shares. Similarly, if CDSC liable shares have been
purchased at different periods, a proportionate amount will be
taken from shares held for each period. If, for example, a
shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into a new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money Fund
II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may
shareholders purchase shares of Money Fund II directly. Class II
shares exchanged for shares of Money Fund II will continue to age
and a contingent deferred sales charge will be assessed if CDSC
liable shares are redeemed. No other money market funds are
available for Class II shareholders for exchange purposes. Class
I shares may be exchanged for shares of any of the money market
funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these
other money market funds as described in their respective
prospectuses.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free-shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund for purposes of exchanging or redeeming shares.
TRANSFERS
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the date
of original purchase. Like exchanges, shares will be moved
proportionately from each type of shares in the original account.
CONVERSION RIGHTS
It is not presently anticipated that Class II shares will be
converted to Class I shares. A shareholder may, however, sell his
Class II shares and use the proceeds to purchase Class I shares,
subject to all applicable sales charges.
See "Exchange Privilege" in the Prospectus for more information.
HOW TO SELL SHARES OF THE FUND
For a discussion regarding the sale of either class of Fund
shares, refer to the section in the Prospectus titled "How to
Sell Shares of the Fund." In addition, the charges described in
this Supplement will also apply to the sale of all Fund shares.
CONTINGENT DEFERRED SALES CHARGE
CLASS I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total
cost of such shares at the time of purchase, and is retained by
Distributors. The contingent deferred sales charge is waived in
certain instances. See below and "Purchases at Net Asset Value"
under "How To Buy Shares of the Fund."
CLASS II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net
asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below.
CLASS I AND CLASS II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the following
order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
distributions to participants in Trust Company qualified
retirement plans due to death, disability or attainment of age 59
1/2; tax-free returns of excess contributions to employee benefit
plans; distributions from employee benefit plans, including
those due to termination or plan transfer; redemptions through a
Systematic Withdrawal Plan set up for shares prior to February 1,
1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value
(3% quarterly, 6% semiannually or 12% annually); and redemptions
initiated by a Series due to a shareholder's account falling
below the minimum specified account size. In addition, shares of
participants in Trust Company retirement plan accounts will, in
the event of death, no longer be subject to the contingent
deferred sales charge.
All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on
the last day of that month and each subsequent month.
REQUESTS FOR REDEMPTIONS FOR A SPECIFIED DOLLAR AMOUNT, UNLESS
OTHERWISE SPECIFIED, WILL RESULT IN ADDITIONAL SHARES BEING
REDEEMED TO COVER ANY APPLICABLE CONTINGENT DEFERRED SALES CHARGE
WHILE REQUESTS FOR REDEMPTION OF A SPECIFIC NUMBER OF SHARES WILL
RESULT IN THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE BEING
DEDUCTED FROM THE TOTAL DOLLAR AMOUNT REDEEMED.
VALUATION OF FUND SHARES
The following sentence replaces the first sentence of the first
paragraph in this section; the subsequent paragraph is added to
the end of this section.
The net asset value per share of each class of a Series is
determined as of the scheduled closing time of the New York Stock
Exchange ("Exchange") (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading.
Each class of a Series will bear, pro-rata, all of the common
expenses of a Series. The net asset value of all outstanding
shares of each class of a Series will be computed on a pro-rata
basis for each outstanding share based on the proportionate
participation in the Series represented by the value of shares of
such classes, except that the Class I and Class II shares will
bear the Rule 12b-1 expenses payable under their respective
plans. Due to the specific distribution expenses and other costs
that will be allocable to each class, the dividends paid to each
class of the Fund may vary.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
The following paragraph replaces the second paragraph in this
section of the Prospectus:
From a touch tone phone, shareholders may access the automated
Franklin TeleFACTS system (day or night) at 1-800/247-1753 to
obtain current price, yield or other performance information
specific to a fund in the Franklin Funds, process an exchange as
discussed under the "Exchange Privilege" in the Prospectus, and
request duplicate confirmation or year-end statements, money fund
checks, if applicable, and deposit slips. Current prices for the
Templeton Funds are also available through TeleFACTS. The system
code which will be need to access system information, is 106 for
Growth Series - Class I, 206 for Growth Series - Class II, 108
for DynaTech Series - Class I, 107 for Utilities Series - Class
I, 207 for Utilities Series - Class II, 109 for Income Series -
Class I, 209 for Income Series- Class II, 110 for U.S. Government
Securities Series - Class I, and 210 for U.S. Government
Securities Series - Class II followed by the # sign. The system's
automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may
be added in the future.
PERFORMANCE (CLASS II)
Because Class II shares were not offered prior to May 1, 1995, no
performance data is available for these shares. After a
sufficient period of time has passed, Class II performance data
will be available. Except as noted, it is likely, that the
performance data relating to Class II shares will reflect lower
total return and yield figures than those for Class I shares
because Class II Rule 12b-1 fees for a Series are higher than
Class I Rule 12b-1 fees for such Series. During at least the
first year of operation Class II share performance will be higher
than Class I in light of the initial sales charge applicable to
Class I shares.
GENERAL INFORMATION
With the exception of "Organization and Voting Rights," all
rights and privileges detailed under the discussion of "General
Information" will remain in effect as described in the Prospectus
for the new multiclass structure. For a complete discussion of
these rights and privileges, see "General Information" in the
Prospectus.
ORGANIZATION AND VOTING RIGHTS.
Shares of each class of a Series represent proportionate
interests in the assets of the Series and have the same voting
and other rights and preferences as the other classes and and
Series of the Fund for matters that affect the Fund as a whole.
For matters that only affect a certain class of a Series' shares,
however, only shareholders of that class will be entitled to
vote. Therefore each class of shares of a Series will vote
separately on matters (1) affecting only that class of such
Series, (2) expressly required to be voted on separately by state
corporation law, or (3) required to be voted on separately by the
1940 Act, or the rules adopted thereunder. For instance, if a
change to the Rule 12b-1 plan relating to Class I shares of a
Series requires shareholder approval, only shareholders of Class
I of that Series may vote on the change to the Rule 12b-1 plan
affecting that class. Similarly, if a change to the Rule 12b-1
plan relating to Class II shares requires approval, only
shareholders of Class II of such Series may vote on changes to
such plan. On the other hand, if there is a proposed change to
the investment objective of the Fund, this affects all
shareholders, regardless of which class of shares they hold and,
therefore, each share has the same voting rights. For more
information regarding voting rights, see the "Voting Rights"
discussion in the Prospectus under the heading "General
Information."
SUPPLEMENT DATED MAY 1, 1995
TO THE PROSPECTUS FOR THE
U.S. GOVERNMENT SECURITIES SERIES OF
FRANKLIN CUSTODIAN FUNDS, INC.
dated February 1, 1995
INTRODUCTION. As of May 1, 1995, the Fund offers two classes to
its investors: U.S. Government Securities Series - Class I
("Class I") and U.S. Government Securities Series - Class II
("Class II"). Investors can choose between Class I shares, which
generally bear a higher front-end sales charge and lower ongoing
Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and Class II
shares, which generally have a lower front-end sales charge and
higher ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of
sales charges and distribution fees, in choosing the more
suitable class given their anticipated investment amount and time
horizon.
This Supplement must be read in conjunction with the Prospectus
for this Fund. All investment objectives and policies described
in the Prospectus apply equally to both classes of shares in the
new multiclass structure. Further, all operational procedures
apply equally to both classes, unless otherwise specified in the
following discussion.
THE NEW APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST BE
USED FOR ALL PURCHASES. DO NOT USE THE APPLICATION FORM INCLUDED
IN THE PROSPECTUS.
MULTICLASS FUND STRUCTURE. The Fund has two classes of shares
available for investment: Class I and Class II. ALL FUND SHARES
OUTSTANDING BEFORE THE IMPLEMENTATION OF THE MULTICLASS STRUCTURE
HAVE BEEN REDESIGNATED AS CLASS I SHARES, AND WILL RETAIN THEIR
PREVIOUS RIGHTS AND PRIVILEGES. VOTING RIGHTS ATTRIBUTABLE TO
EACH CLASS WILL, HOWEVER, BE DIFFERENT. See the Prospectus for
more details about Class I shares. Class II shares are explained
in detail in the following discussion. Except as described below,
shares of both classes represent identical interests in the
Fund's investment portfolio.
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. The figures for both classes of shares are based on
aggregate operating expenses of Class I shares for the fiscal
year ended September 30, 1994.
CLASS I CLASS II
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.25% 1.00%^
Deferred Sales Charge NONE^^ 1.00%+
Exchange Fee (per transaction $5.00++ $5.00++
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.45% 0.45%
Rule 12b-1 Fees 0.07%* 0.65%**
Other Expenses:
Shareholder Service Costs 0.03% 0.03%
Reports to Shareholders 0.03% 0.03%
Other 0.01% 0.01%
Total Other Expenses 0.07% 0.07%
Total Fund Operating Expenses 0.59% 1.17%
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fee for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take approximately seven years for shareholders who maintain
total shares valued at less than $100,000 in the Franklin
Templeton Funds. Shareholders with larger investments in the
Franklin Templeton Funds will reach the crossover point more
quickly.
^^Class I investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1%, which has not been reflected in the Example below,
is generally imposed on certain redemptions within a "contingeny
period" of 12 months of the calendar month following such
investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
+Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
++$5.00 fee is only imposed on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
*Annualized. Actual 12b-1 fees incurred by Class I of the Fund
for the period May 1, 1994 through September 30, 1994 were .03%.
Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
**The Rule 12b-1 distribution plan for Class II is effective on
May 1, 1995. "Other Expenses" for Class II shares are estimates
based on the actual expenses incurred by Class I shares for the
fiscal year ended September 30, 1994.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather, the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses that an investor in
the classes will bear directly or indirectly. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates
the expenses, including the maximum front-end sales charge and
applicable contingent deferred sales charges, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
CLASS I $48 $61 $74 $113
CLASS II $32 $47 $74 $151
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES
SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The operating expenses are borne by the Fund and only indirectly
by shareholders as a result of their investment in the Fund. In
addition, federal regulations require the example to assume an
annual return of 5%, but the Fund's actual return may be more or
less than 5%.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully
evaluate their anticipated investment amount and time horizon
prior to determining which class of shares to purchase.
Generally, an investor who expects to invest less than $100,000
in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of
investment should consider purchasing Class II shares. Over time,
however, the higher annual Rule 12b-1 fees on Class II shares
will accumulate to outweigh the difference in initial sales
charges. For this reason, Class I shares may be more attractive
to long-term investors even if no sales charge reductions are
available to them. Investors should also consider that the higher
Rule 12b-1 fees for Class II shares will generally result in
lower dividends and consequently lower yields for Class II
shares. See "General Information" in the SAI for more information
regarding the calculation of dividends and yields.
Investors who qualify to purchase Class I shares at reduced sales
charges definitely should consider purchasing Class I shares,
especially if they intend to hold their shares for six years or
more. Investors who qualify to purchase Class I shares at reduced
sales charges but who intend to hold their shares less than six
years should evaluate whether it is more economical to purchase
Class I shares through a Letter of Intent or under Rights of
Accumulation or other means rather than purchasing Class II
shares. INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE
PAYMENT AND OTHER INVESTORS WHO QUALIFY TO PURCHASE CLASS I
SHARES AT NET ASSET VALUE WILL BE PRECLUDED FROM PURCHASING CLASS
II SHARES. See "How to Buy Shares of the Fund" in the Prospectus.
Each class represents the same interest in the investment
portfolio of the Fund and has the same rights, except that each
class has a different sales charge, bears the separate expenses
of its Rule 12b-1 distribution plan, and has exclusive voting
rights with respect to such plan. The two classes also have
separate exchange privileges.
Each class also has a separate schedule for compensating
securities dealers for selling Fund shares. Investors should take
all of the factors regarding an investment in each class into
account before deciding which class of shares to purchase.
ALTERNATIVE PURCHASE ARRANGEMENTS. The difference between Class I
and Class II shares lies primarily in their front-end and
contingent deferred sales charges and Rule 12b-1 fees as
described below.
A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively)
pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended ("1940 Act"). The Rule 12b-1 fees charged to each
class will be based solely on the distribution and servicing fees
attributable to that particular class. Any portion of fees
remaining from either plan distribution to securities dealers up
to the maximum amount permitted under each Plan may be used by
the class to reimburse Franklin Templeton Distributors, Inc.
("Distributors") for routine ongoing promotion and distribution
expenses incurred with respect to such class. See "Plan of
Distribution" in the Prospectus for a description of such
expenses.
CLASS I. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon
redemption. Class I shares are subject to Rule 12b-1 fees of up
to an annual maximum of .15% of average daily net assets of such
shares. With this structure, Class I shares have higher front-end
sales charges than Class II shares and comparatively lower Rule
12b-1 fees.
Plan of Distribution. Under the Class I Plan, the Fund will
reimburse Distributors or other securities dealers for expenses
incurred in the promotion, servicing, and distribution of Class I
Fund shares. (See "Plan of Distribution" in the Prospectus and
"Distribution Plan" in the Statement of Additional Information
("SAI")).
Quantity Discounts and Purchases At Net Asset Value. Class I
shares may be purchased at a reduced front-end sales charge or at
net asset value if certain conditions are met. See "How to Buy
Shares of the Fund."
Contingent Deferred Sales Charge. In most circumstances, a
contingent deferred sales charge will not be assessed against
redemptions of Class I shares. A contingent deferred sales charge
will be imposed on Class I shares only if shares valued at $1
million or more are purchased after February 1, 1995 without a
sales charge and are subsequently redeemed within 12 months of
the calendar month following their purchase. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund" in
this Supplement.
CLASS II. The current public offering price of Class II shares is
equal to the net asset value, plus a sales charge of 1% of the
amount invested. Class II shares are also subject to a contingent
deferred sales charge of 1.0% if shares are redeemed within 18
months of the calendar month following purchase. In addition,
Class II shares are subject to Rule 12b-1 fees of up to a maximum
of 0.65% of average daily net assets of such shares. Class II
shares have lower front-end sales charges than Class I shares and
comparatively higher Rule 12b-1 fees.
Purchases of Class II shares are limited to amounts below $1
million. Any purchases of $1 million or more will automatically
be invested in Class I shares, since that is more beneficial to
investors. Such purchases, however, may be subject to a
contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million,
however, should consider purchasing Class I shares through a
Letter of Intent instead of purchasing Class II shares. See "How
to Buy Shares of the Fund" in the Prospectus for more
information.
Plan of Distribution. Class II's operating expenses will
generally be higher under the Class II Plan. During the first
year following a purchase of Class II shares, Distributors will
keep a portion of the Plan fees attributable to those shares to
partially recoup fees Distributors pays to securities dealers.
Distributors, or its affiliates, may pay, from its own resources,
a commission of up to 1% of the amount invested to securities
dealers who initiate and are responsible for purchases of Class
II shares.
Contingent Deferred Sales Charge. Unless a waiver applies, a
contingent deferred sales charge of 1% will be imposed on Class
II shares redeemed within 18 months of their purchase. See
"Contingent Deferred Sales Charges" under "How to Sell Shares of
the Fund" in this Supplement.
MANAGEMENT OF THE FUND
The subsidiaries of Resources are described as the "Franklin
Templeton Group."
The Board of Directors has carefully reviewed the multiclass
structure to ensure that no material conflict exists between the
two classes of shares. Although the Board does not expect to
encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to
resolve such conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the
authority to establish additional classes of shares. It is the
Fund's present intention to offer only two classes of shares, but
new classes may be offered in the future.
For more information regarding the responsibilities of the Board
and the management of the Fund, please see "Management of the
Fund" in the Prospectus.
CLASS II PLAN OF DISTRIBUTION
Under the Class II Plan, the maximum amount which the Fund is
permitted to pay to Distributors or others for distribution and
related expenses is 0.50% per annum of Class II shares' daily net
assets, payable quarterly. All expenses of distribution,
marketing and related services over that amount will be borne by
Distributors or others who have incurred them, without
reimbursement by the Fund. In addition, the Class II Plan
provides for an additional payment by the Fund of up to 0.15% per
annum of the class' average daily net assets as a servicing fee,
payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the
Fund on behalf of the customers, or similar activities related to
furnishing personal services and/or maintaining shareholder
accounts.
The Class II Plan also covers any payments to or by the Fund,
Advisers, Distributors, or other parties on behalf of the Fund,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of Class II shares issued by the Fund within
the context of Rule 12b-1. The payments under the Plan are
included in the maximum operating expenses which may be borne by
Class II of the Fund.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Plan fees assessed on
Class II shares to partially recoup fees Distributors pays to
securities dealers.
See the "Plan of Distribution" discussion in the "Management of
the Fund" section in the Prospectus and in the SAI for more
information about both Class I and Class II Plans.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and capital gains will be calculated and distributed in
the same manner for Class I and Class II shares. The per share
amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.
Because ongoing Rule 12b-1 expenses will be lower for Class I
than Class II, the per share dividends distributed to Class I
shares will generally be higher than those distributed to Class
II shares.
Unless otherwise requested, income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a front-end sales charge) on
the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for investment at net asset value
in the same class of shares of the Fund or the same class of
another of the Franklin Templeton Funds. See "Distributions to
Shareholders" in the Prospectus and the SAI for more information.
HOW TO BUY SHARES OF THE FUND
The following discussion supplements the one included in the
Prospectus under "How to Buy Shares of the Fund." THE APPLICATION
FORM INCLUDED WITH THIS SUPPLEMENT MUST ACCOMPANY ANY PURCHASE OF
SHARES. DO NOT USE THE APPLICATION INCLUDED IN THE PROSPECTUS.
PURCHASE PRICE OF FUND SHARES
Shares of both classes of the Fund are offered at their
respective public offering prices, which are determined by adding
the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund, or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check).
CLASS II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. See table below:
TOTAL SALES CHARGE
AS A DEALER
SIZE OF TRANSACTION AS A PERCENTAGE PERCENTAGE CONCESSION AS
AT OFFERING PRICE OF NET OFFERING OF NET A PERCENTAGE
PRICE AMOUNT OF OFFERING
INVESTED PRICE*
any amount (less
than $1 million) 1.00% 1.01% 1.00%
* During the first year following a purchase of Class II shares,
Distributors will keep a portion of the Plan fees attributable to
those shares to partially recoup fees Distributors pays to
securities dealers. Distributors, or one of its affiliates, may
make an additional payment to the securities dealer, from its own
resources, of up to 1% of the amount invested.
Class II shares redeemed within eighteen months of their purchase
will be assessed a contingent deferred sales charge of 1.0% on
the lesser of the then-current net asset value or the net asset
value of such shares at the time of purchase, unless such charge
is waived as described below.
The sections in the Prospectus titled "Quantity Discounts in
Sales Charges" and "Group Purchases" only apply to Class I
shares. Although sales charges on Class II shares may not be
reduced by through a Letter of Intent or Rights of Accumulation
as described under "Quantity Discounts in Sales Charges," the
value of Class II shares owned by an investor may be included in
determining the appropriate sales charges for Class I shares.
PURCHASES AT NET ASSET VALUE
EACH OF THE REMAINING PARAGRAPHS IN THE SECTION WHICH DEFINES THE
CATEGORIES OF INVESTORS WHO MAY PURCHASE AT NET ASSET VALUE,
INCLUDING "DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES," IS
REVISED TO REFLECT THAT SUCH PURCHASES ARE WITHOUT A FRONT-END
SALES CHARGE (NET ASSET VALUE) AND WITHOUT THE IMPOSITION OF A
CONTINGENT DEFERRED SALES CHARGE. IN ADDITION, THIS ENTIRE
SECTION OF THE PROSPECTUS IS REVISED TO STATE THAT IT ONLY
APPLIES TO CLASS I SHARES, WITH THE EXCEPTION OF THE SECOND AND
THIRD PARAGRAPHS, WHICH ARE REPLACED WITH THE FOLLOWING:
For either Class I or Class II, the same class of shares of the
Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund
or another of the Franklin Templeton Funds which were purchased
with a front-end sales charge or assessed a contingent deferred
sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the
time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of the Prospectus and the SAI.
For either Class I or Class II, the same class of shares of the
Fund or of another of the Franklin Templeton Funds may be
purchased at net asset value and without a contingent deferred
sales charge by persons who have received dividends and capital
gain distributions in cash from investments in that class of
shares of the Fund within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to
reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Substitute the following paragraph for the first paragraph under
"Description of Special Net Asset Value Purchases:"
Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with
respect to number of employees or amount of purchase, which may
be established by Distributors. Currently those criteria require
that the employer establishing the plan have 200 or more
employees or that the amount invested or to be invested during
the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
For a complete understanding of how to buy shares of the Fund,
this Supplement must be read in conjunction with the Prospectus.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
The following subsection is added to the end of this section:
PURCHASING CLASS I AND CLASS II SHARES
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares. Initial purchases of $1 million or more in a
single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset
value should purchase Class I rather than Class II shares. See
the section "Purchases at Net Asset Value" and "Description of
Special Net Asset Value Purchases" above for a discussion of when
shares may be purchased at net asset value.
OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
With the exception of Systematic Withdrawal Plans, all programs
and privileges detailed under the discussion of "Other Programs
and Privileges Available to the Fund Shareholders" will remain in
effect as described in the Prospectus for the new multiclass
structure. For a complete discussion of these programs, see
"Other Programs and Privileges Available to Fund Shareholders" in
the Prospectus.
SYSTEMATIC WITHDRAWAL PLANS. Subject to the requirements outlined
in the Prospectus, a shareholder may establish a Systematic
Withdrawal Plan for his or her account. With respect to Class I
shares, the contingent deferred sales charge is waived for
redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans
set up on or after February 1, 1995, the applicable contingent
deferred sales charge is waived for Class I and Class II share
redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% semi-annually, 3% quarterly). For example, if
the account maintained an annual balance of $10,000, only $1,200
could be withdrawn through a once-yearly Systematic Withdrawal
Plan free of charge; any amount over that $1,200 would be
assessed a 1% (or applicable) contingent deferred sales charge.
EXCHANGE PRIVILEGE
Shareholders are entitled to exchange their shares for shares of
the same class of other Franklin Templeton Funds which are
eligible for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and
investment minimums. Some funds, however, may not offer Class II
shares. Class I shares may be exchanged for Class I shares of any
Franklin Templeton Funds. Class II shares may be exchanged for
Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent
deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent
deferred sales charge in the original fund purchased and shares
are subsequently redeemed within twelve months (Class I shares)
or eighteen months (Class II shares) of the calendar month of the
original purchase date, a contingent deferred sales charge will
be imposed. Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to exchange
into for all specific requirements or limitations on exercising
the exchange privilege, for example, minimum holding periods or
applicable sales charges.
EXCHANGES OF CLASS I SHARES
The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and held
in a Franklin or Templeton money market fund. If a Class I
account has shares subject to a contingent deferred sales charge,
Class I shares will be exchanged into the new account on a "first-
in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and shares that are not, the
shares will be transferred proportionately into the new fund.
Shares received from reinvestment of dividends and capital gains
are referred to as "free shares," shares which were originally
subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called
"matured shares," and shares still subject to the contingent
deferred sales charge are referred to as "CDSC liable shares."
CDSC liable shares held for different periods of time are
considered different types of CDSC liable shares. For instance,
if a shareholder has $1,000 in free shares, $2,000 in matured
shares, and $3,000 in CDSC liable shares, and the shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from
free shares, $1,000 from matured shares, and $1,500 from CDSC
liable shares. Similarly, if CDSC liable shares have been
purchased at different periods, a proportionate amount will be
taken from shares held for each period. If, for example, a
shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into a new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money Fund
II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may
shareholders purchase shares of Money Fund II directly. Class II
shares exchanged for shares of Money Fund II will continue to age
and a contingent deferred sales charge will be assessed if CDSC
liable shares are redeemed. No other money market funds are
available for Class II shareholders for exchange purposes. Class
I shares may be exchanged for shares of any of the money market
funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these
other money market funds as described in their respective
prospectuses.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free-shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund for purposes of exchanging or redeeming shares.
TRANSFERS
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the date
of original purchase. Like exchanges, shares will be moved
proportionately from each type of shares in the original account.
CONVERSION RIGHTS
It is not presently anticipated that Class II shares will be
converted to Class I shares. A shareholder may, however, sell his
Class II shares and use the proceeds to purchase Class I shares,
subject to all applicable sales charges.
See "Exchange Privilege" in the Prospectus for more information.
HOW TO SELL SHARES OF THE FUND
For a discussion regarding the sale of either class of Fund
shares, refer to the section in the Prospectus titled "How to
Sell Shares of the Fund." In addition, the charges described in
this Supplement will also apply to the sale of all Fund shares.
CONTINGENT DEFERRED SALES CHARGE
CLASS I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total
cost of such shares at the time of purchase, and is retained by
Distributors. The contingent deferred sales charge is waived in
certain instances. See below and "Purchases at Net Asset Value"
under "How To Buy Shares of the Fund."
CLASS II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net
asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below.
CLASS I AND CLASS II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the following
order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
distributions to participants in Trust Company qualified
retirement plans due to death, disability or attainment of age 59
1/2; tax-free returns of excess contributions to employee benefit
plans; distributions from employee benefit plans, including
those due to termination or plan transfer; redemptions through a
Systematic Withdrawal Plan set up for shares prior to February 1,
1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value
(3% quarterly, 6% semiannually or 12% annually); and redemptions
initiated by the Fund due to a shareholder's account falling
below the minimum specified account size. In addition, shares of
participants in Trust Company retirement plan accounts will, in
the event of death, no longer be subject to the contingent
deferred sales charge.
All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on
the last day of that month and each subsequent month.
REQUESTS FOR REDEMPTIONS FOR A SPECIFIED DOLLAR AMOUNT, UNLESS
OTHERWISE SPECIFIED, WILL RESULT IN ADDITIONAL SHARES BEING
REDEEMED TO COVER ANY APPLICABLE CONTINGENT DEFERRED SALES CHARGE
WHILE REQUESTS FOR REDEMPTION OF A SPECIFIC NUMBER OF SHARES WILL
RESULT IN THE APPLICABLE CONTINGENT DEFERRED SALES CHARGE BEING
DEDUCTED FROM THE TOTAL DOLLAR AMOUNT REDEEMED.
VALUATION OF FUND SHARES
The following sentence replaces the first sentence of the first
paragraph in this section; the subsequent paragraph is added to
the end of this section.
The net asset value per share of each class of the Fund is
determined as of the scheduled closing time of the New York Stock
Exchange ("Exchange") (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading.
Each of the Fund's classes will bear, pro rata, all of the common
expenses of the Fund. The net asset value of all outstanding
shares of each class of the Fund will be computed on a pro rata
basis for each outstanding share based on the proportionate
participation in the Fund represented by the value of shares of
such classes, except that the Class I and Class II shares will
bear the Rule 12b-1 expenses payable under their respective
plans. Due to the specific distribution expenses and other costs
that will be allocable to each class, the dividends paid to each
class of the Fund may vary.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
The following paragraph replaces the second paragraph in this
section of the Prospectus:
From a touch tone phone, shareholders may access the automated
Franklin TeleFACTS system (day or night) at 1-800/247-1753 to
obtain current price, yield or other performance information
specific to a fund in the Franklin Funds, process an exchange as
discussed under the "Exchange Privilege" in the Prospectus, and
request duplicate confirmation or year-end statements, money fund
checks, if applicable, and deposit slips. Current prices for the
Templeton Funds are also available through TeleFACTS. The system
code for the Fund's two classes of shares, which will be needed
to access system information, is 109 for Class I and 209 for
Class II followed by the # sign. The system's automated operator
will prompt the caller with easy to follow step-by-step
instructions from the main menu. Other features may be added in
the future.
PERFORMANCE (CLASS II)
Because Class II shares were not offered prior to May 1, 1995, no
performance data is available for these shares. After a
sufficient period of time has passed, Class II performance data
as described in the "Performance" section of the Prospectus will
be available. Except as noted, it is likely that the performance
data relating to Class II shares will reflect lower total return
and yield figures than those for Class I shares because Class II
Rule 12b-1 fees are higher than Class I Rule 12b-1 fees. During
at least the first year of operation Class II share performance
will be higher than Class I in light of the higher initial sales
charge applicable to Class I shares.
GENERAL INFORMATION
With the exception of Voting Rights, all rights and privileges
detailed under the discussion of "General Information" will
remain in effect as described in the Prospectus for the new
multiclass structure. For a complete discussion of these rights
and privileges, see "General Information" in the Prospectus.
VOTING RIGHTS. Shares of each class represent proportionate
interests in the assets of the Fund and have the same voting and
other rights and preferences as the other class of the Fund for
matters that affect the Fund as a whole. For matters that only
affect a certain class of the Fund's shares, however, only
shareholders of that class will be entitled to vote. Therefore,
each class of shares will vote separately on matters (1)
affecting only that class, (2) expressly required to be voted on
separately by state corporation law, or (3) required to be voted
on separately by the 1940 Act or the rules adopted thereunder.
For instance, if a change to the Rule 12b-1 plan relating to
Class I shares requires shareholder approval, only shareholders
of Class I may vote on changes to the Rule 12b-1 plan affecting
that class. Similarly, if a change to the Rule 12b-1 plan
relating to Class II shares requires shareholder approval, only
shareholders of Class II may vote on the change to such plan. On
the other hand, if there is a proposed change to the investment
objective of the Fund, this affects all shareholders, regardless
of which class of shares they hold, and therefore, each share has
the same voting rights. For more information regarding voting
rights, see the "Voting Rights" discussion in the Prospectus
under the heading "General Information."
09 P
SUPPLEMENT DATED MAY 1, 1995
TO THE PROSPECTUS FOR THE
INCOME SERIES OF
FRANKLIN CUSTODIAN FUNDS, INC.
dated February 1, 1995
INTRODUCTION. As of May 1, 1995, the Fund offers two classes to
its investors: Income Series - Class I ("Class I") and Income
Series - Class II ("Class II"). Investors can choose between
Class I shares, which generally bear a higher front-end sales
charge and lower ongoing Rule 12b-1 distribution fees ("Rule 12b-
1 fees"), and Class II shares, which generally have a lower front-
end sales charge and higher ongoing Rule 12b-1 fees. Investors
should consider the differences between the two classes,
including the impact of sales charges and distribution fees, in
choosing the more suitable class given their anticipated
investment amount and time horizon.
This Supplement must be read in conjunction with the Prospectus
for this Fund. All investment objectives and policies described
in the Prospectus apply equally to both classes of shares in the
new multiclass structure. Further, all operational procedures
apply equally to both classes, unless otherwise specified in the
following discussion.
THE NEW APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST BE
USED FOR ALL PURCHASES. DO NOT USE THE APPLICATION FORM INCLUDED
IN THE PROSPECTUS.
MULTICLASS FUND STRUCTURE. The Fund has two classes of shares
available for investment: Class I and Class II. ALL FUND SHARES
OUTSTANDING BEFORE THE IMPLEMENTATION OF THE MULTICLASS STRUCTURE
HAVE BEEN REDESIGNATED AS CLASS I SHARES, AND WILL RETAIN THEIR
PREVIOUS RIGHTS AND PRIVILEGES. VOTING RIGHTS ATTRIBUTABLE TO
EACH CLASS WILL, HOWEVER, BE DIFFERENT. See the Prospectus for
more details about Class I shares. Class II shares are explained
in detail in the following discussion. Except as described below,
shares of both classes represent identical interests in the
Fund's investment portfolio.
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. The figures for both classes of shares are based on
aggregate operating expenses of Class I shares for the fiscal
year ended September 30, 1994.
SHAREHOLDER TRANSACTION EXPENSES
Class I Class II
Maximum Sales Charge Imposed on
Purchases
(as a percentage of offering 4.25% 1.00%^
price)
Deferred Sales Charge NONE^^ 1.00%+
Exchange Fee (per transaction) $5.00++ $5.00++
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.46% 0.46%
Rule 12b-1 Fees 0.13%* 0.65%**
Other Expenses:
Shareholder Servicing Costs 0.04% 0.04%
Reports to Shareholders 0.04% 0.04%
Other 0.05% 0.05%
Total Other Expenses 0.13% 0.13%
Total Fund Operating Expenses 0.72% 1.24%
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fee for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take approximately six years or less for shareholders who
maintain total shares valued at less than $100,000 in the
Franklin Templeton Funds. Shareholders with larger investments in
the Franklin Templeton Funds will reach the crossover point more
quickly.
^^Class I investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1%, which has not been reflected in the Example below,
is generally imposed on certain redemptions within a "contingency
period" of 12 months of the calendar month following such
investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
+Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
++$5.00 fee is only imposed on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
*Annualized. Actual Rule 12b-1 fees incurred by Class I of the
Fund for the period May 1, 1994 through September 30, 1994
represented 0.05% of average net assets. Consistent with National
Association of Securities Dealers, Inc.'s rules, it is possible
that the combination of front-end sales charges and Rule 12b-1
fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charges
permitted under those same rules.
**Class I's plan was effective May 1, 1994, and Class II's plan
was effective on May 1, 1995. "Other Expenses" for Class II
shares are estimates based on the actual expenses incurred by
Class I shares for the fiscal year ended September 30, 1994.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather, the table has
been provided only to assist investors in gaining a more complete
understanding of the fees, charges and expenses that an investor
in the classes will bear directly or indirectly. For a more
detailed discussion of these matters, investors should refer to
the appropriate sections of this Prospectus.
EXAMPLE
As required by SEC regulations, the following example illustrates
the expenses, including the maximum front-end sales charge and
applicable contingent deferred sales charges, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
CLASS I $50 $65 $81 $128
CLASS II $32 $49 $77 $158
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES
SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN.
The operating expenses are borne by the Fund and only indirectly
by shareholders as a result of their investment in the Fund. In
addition, federal regulations require the example to assume an
annual return of 5%, but the Fund's actual return may be more or
less than 5%.
DECIDING WHICH CLASS TO PURCHASE. Investors should carefully
evaluate their anticipated investment amount and time horizon
prior to determining which class of shares to purchase.
Generally, an investor who expects to invest less than $100,000
in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of
investment should consider purchasing Class II shares. Over time,
however, the higher annual Rule 12b-1 fees on Class II shares
will accumulate to outweigh the difference in initial sales
charges. For this reason, Class I shares may be more attractive
to long-term investors even if no sales charge reductions are
available to them. Investors should also consider that the higher
Rule 12b-1 fees for Class II shares will generally result in
lower dividends and consequently lower yields for Class II
shares. See "General Information" in the SAI for more information
regarding the calculation of dividends and yields.
Investors who qualify to purchase Class I shares at reduced sales
charges definitely should consider purchasing Class I shares,
especially if they intend to hold their shares for six years or
more. Investors who qualify to purchase Class I shares at reduced
sales charges but who intend to hold their shares less than six
years should evaluate whether it is more economical to purchase
Class I shares through a Letter of Intent or under Rights of
Accumulation or other means rather than purchasing Class II
shares. INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE
PAYMENT AND OTHER INVESTORS WHO QUALIFY TO PURCHASE CLASS I
SHARES AT NET ASSET VALUE WILL BE PRECLUDED FROM PURCHASING CLASS
II SHARES. See "How to Buy Shares of the Fund" in the Prospectus.
Each class represents the same interest in the investment
portfolio of the Fund and has the same rights, except that each
class has a different sales charge, bears the separate expenses
of its Rule 12b-1 distribution plan, and has exclusive voting
rights with respect to such plan. The two classes also have
separate exchange privileges.
Each class also has a separate schedule for compensating
securities dealers for selling Fund shares. Investors should take
all of the factors regarding an investment in each class into
account before deciding which class of shares to purchase.
ALTERNATIVE PURCHASE ARRANGEMENTS. The difference between Class I
and Class II shares lies primarily in their front-end and
contingent deferred sales charges and Rule 12b-1 fees as
described below.
A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively)
pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended ("1940 Act"). The Rule 12b-1 fees charged to each
class will be based solely on the distribution and servicing fees
attributable to that particular class. Any portion of fees
remaining from either plan distribution to securities dealers up
to the maximum amount permitted under each Plan may be used by
the class to reimburse Franklin Templeton Distributors, Inc.
("Distributors") for routine ongoing promotion and distribution
expenses incurred with respect to such class. See "Plan of
Distribution" in the Prospectus for a description of such
expenses.
CLASS I. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon
redemption. Class I shares are subject to Rule 12b-1 fees of up
to an annual maximum of .15% of average daily net assets of such
shares. With this structure, Class I shares have higher front-end
sales charges than Class II shares and comparatively lower Rule
12b-1 fees.
Plan of Distribution. Under the Class I Plan, the Fund will
reimburse Distributors or other securities dealers for expenses
incurred in the promotion, servicing, and distribution of Class I
Fund shares. (See "Plan of Distribution" in the Prospectus and
"Distribution Plan" in the Statement of Additional Information
("SAI")).
Quantity Discounts and Purchases At Net Asset Value. Class I
shares may be purchased at a reduced front-end sales charge or at
net asset value if certain conditions are met. See "How to Buy
Shares of the Fund."
Contingent Deferred Sales Charge. In most circumstances, a
contingent deferred sales charge will not be assessed against
redemptions of Class I shares. A contingent deferred sales charge
will be imposed on Class I shares only if shares valued at $1
million or more are purchased after February 1, 1995 without a
sales charge and are subsequently redeemed within 12 months of
the calendar month following their purchase. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund" in
this Supplement.
CLASS II. The current public offering price of Class II shares is
equal to the net asset value, plus a sales charge of 1% of the
amount invested. Class II shares are also subject to a contingent
deferred sales charge of 1.0% if shares are redeemed within 18
months of the calendar month following purchase. In addition,
Class II shares are subject to Rule 12b-1 fees of up to a maximum
of 0.65% of average daily net assets of such shares. Class II
shares have lower front-end sales charges than Class I shares and
comparatively higher Rule 12b-1 fees.
Purchases of Class II shares are limited to amounts below $1
million. Any purchases of $1 million or more will automatically
be invested in Class I shares, since that is more beneficial to
investors. Such purchases, however, may be subject to a
contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million,
however, should consider purchasing Class I shares through a
Letter of Intent instead of purchasing Class II shares. See "How
to Buy Shares of the Fund" in the Prospectus for more
information.
Plan of Distribution. Class II's operating expenses will
generally be higher under the Class II Plan. During the first
year following a purchase of Class II shares, Distributors will
keep a portion of the Plan fees attributable to those shares to
partially recoup fees Distributors pays to securities dealers.
Distributors, or its affiliates, may pay, from its own resources,
a commission of up to 1% of the amount invested to securities
dealers who initiate and are responsible for purchases of Class
II shares.
Contingent Deferred Sales Charge. Unless a waiver applies, a
contingent deferred sales charge of 1% will be imposed on Class
II shares redeemed within 18 months of their purchase. See
"Contingent Deferred Sales Charges" under "How to Sell Shares of
the Fund" in this Supplement.
INVESTMENT OBJECTIVES AND POLICIES
TRADE CLAIMS. The Fund may invest up to 5% of its assets in trade
claims. Trade claims are purchased from creditors of companies in
financial difficulty. For purchasers such as the Fund, trade
claims offer the potential for profits since they are often
purchased at a significantly discounted value and, consequently,
may generate capital appreciation in the event that the value of
the claim increases as the debtor's financial position improves.
In the event that the debtor is able to pay the full obligation
on the face of the claim as a result of a restructuring or an
improvement in the debtor's financial condition, trade claims
offer the potential for higher income due to the difference in
the face value of the claim as compared to the discounted
purchase price.
An investment in trade claims is speculative and carries a high
degree of risk. There can be no guarantee that the debtor will
ever be able to satisfy the obligation on the trade claim.
Trading in claims is not regulated by federal securities laws or
the SEC. Currently, trading in claims is regulated primarily by
bankruptcy laws. Because trade claims are unsecured holders of
trade claims may have a lower priority in terms of payment than
most other creditors in a bankruptcy proceeding. In light of the
nature and risk of trade claims, the Fund's investment in these
instruments will not exceed 5% of its net assets at time of
acquisition.
MANAGEMENT OF THE FUND
The subsidiaries of Resources are described as the "Franklin
Templeton Group."
The Board of Directors has carefully reviewed the multiclass
structure to ensure that no material conflict exists between the
two classes of shares. Although the Board does not expect to
encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to
resolve such conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the
authority to establish additional classes of shares. It is the
Fund's present intention to offer only two classes of shares, but
new classes may be offered in the future.
For more information regarding the responsibilities of the Board
and the management of the Fund, please see "Management of the
Fund" in the Prospectus.
CLASS II PLAN OF DISTRIBUTION
Under the Class II Plan, the maximum amount which the Fund is
permitted to pay to Distributors or others for distribution and
related expenses is 0.50% per annum of Class II shares' daily net
average assets, payable quarterly. All expenses of distribution,
marketing and related services over that amount will be borne by
Distributors or others who have incurred them, without
reimbursement by the Fund. In addition, the Class II Plan
provides for an additional payment by the Fund of up to 0.15% per
annum of the class' average daily net assets as a servicing fee,
payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the
Fund on behalf of the customers, or similar activities related to
furnishing personal services and/or maintaining shareholder
accounts.
The Class II Plan also covers any payments to or by the Fund,
Advisers, Distributors, or other parties on behalf of the Fund,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of Class II shares issued by the Fund within
the context of Rule 12b-1. The payments under the Plan are
included in the maximum operating expenses which may be borne by
Class II of the Fund.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Plan fees assessed on
Class II shares to partially recoup fees Distributors pays to
securities dealers.
See the "Plan of Distribution" discussion in the "Management of
the Fund" section in the Prospectus and in the SAI for more
information about both Class I and Class II Plans.
DISTRIBUTIONS TO SHAREHOLDERS
Dividends and capital gains will be calculated and distributed in
the same manner for Class I and Class II shares. The per share
amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.
Because ongoing Rule 12b-1 expenses will be lower for Class I
than Class II, the per share dividends distributed to Class I
shares will generally be higher than those distributed to Class
II shares.
Unless otherwise requested in writing or on the Shareholder
Application, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's
account in the form of additional shares, valued at the closing
net asset value (without a front-end sales charge) on the
dividend reinvestment date. Dividend and capital gain
distributions are only eligible for investment at net asset value
in the same class of shares of the Fund or the same class of
another of the Franklin Templeton Funds. See "Distributions to
Shareholders" in the Prospectus and the SAI for more information.
HOW TO BUY SHARES OF THE FUND
The following discussion supplements the one included in the
Prospectus under "How to Buy Shares of the Fund." THE APPLICATION
FORM INCLUDED WITH THIS SUPPLEMENT MUST ACCOMPANY ANY PURCHASE OF
SHARES. DO NOT USE THE APPLICATION INCLUDED IN THE PROSPECTUS.
PURCHASE PRICE OF FUND SHARES
Shares of both classes of the Fund are offered at their
respective public offering prices, which are determined by adding
the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund, or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check).
CLASS II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. See table below:
TOTAL SALES CHARGE
AS A DEALER
SIZE OF TRANSACTION AS A PERCENTAGE PERCENTAGE CONCESSION AS
AT OFFERING PRICE OF NET OFFERING OF NET A PERCENTAGE
PRICE AMOUNT OF OFFERING
INVESTED PRICE*
any amount (less
than $1 million) 1.00% 1.01% 1.00%
* During the first year following a purchase of Class II shares,
Distributors will keep a portion of the Plan fees attributable to
those shares to partially recoup fees Distributors pays to
securities dealers. Distributors, or one of its affiliates, may
make an additional payment to the securities dealer, from its own
resources, of up to 1% of the amount invested.
Class II shares redeemed within eighteen months of their purchase
will be assessed a contingent deferred sales charge of 1.0% on
the lesser of the then-current net asset value or the net asset
value of such shares at the time of purchase, unless such charge
is waived as described below.
The sections in the Prospectus titled "Quantity Discounts in
Sales Charges" and "Group Purchases" only apply to Class I
shares. Although sales charges on Class II shares may not be
reduced through a Letter of Intent or Rights of Accumulation as
described under "Quantity Discounts in Sales Charges," the value
of Class II shares owned by an investor may be included in
determining the appropriate sales charges for Class I shares.
PURCHASES AT NET ASSET VALUE
Each of the remaining paragraphs in the section which defines the
categories of investors who may purchase at net asset value,
including "Description of Special Net Asset Value Purchases," is
revised to reflect that such purchases are without a front-end
sales charge (net asset value) and without the imposition of a
contingent deferred sales charge. In addition, this entire
section of the Prospectus is revised to state that it only
applies to Class I shares, with the exception of the second and
third paragraphs, which are replaced with the following:
For either Class I or Class II, the same class of shares of the
Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund
or another of the Franklin Templeton Funds which were purchased
with a front-end sales charge or assessed a contingent deferred
sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the
time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of the Prospectus and the SAI.
For either Class I or Class II, the same class of shares of the
Fund or of another of the Franklin Templeton Funds may be
purchased at net asset value and without a contingent deferred
sales charge by persons who have received dividends and capital
gain distributions in cash from investments in that class of
shares of the Fund within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to
reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."
Substitute the following paragraph for the first paragraph under
"Description of Special Net Asset Value Purchases:"
Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with
respect to number of employees or amount of purchase, which may
be established by Distributors. Currently those criteria require
that the employer establishing the plan have 200 or more
employees or that the amount invested or to be invested during
the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
For a complete understanding of how to buy shares of the Fund,
this Supplement must be read in conjunction with the Prospectus.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
The following subsection is added to the end of this section:
PURCHASING CLASS I AND CLASS II SHARES
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares. Initial purchases of $1 million or more in a
single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.
Investors who qualify to purchase Class I shares at net asset
value should purchase Class I rather than Class II shares. See
the section "Purchases at Net Asset Value" and "Description of
Special Net Asset Value Purchases" above for a discussion of when
shares may be purchased at net asset value.
OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS
With the exception of Systematic Withdrawal Plans, all programs
and privileges detailed under the discussion of "Other Programs
and Privileges Available to the Fund Shareholders" will remain in
effect as described in the Prospectus for the new multiclass
structure. For a complete discussion of these programs, see
"Other Programs and Privileges Available to Fund Shareholders" in
the Prospectus.
SYSTEMATIC WITHDRAWAL PLANS. Subject to the requirements outlined
in the Prospectus, a shareholder may establish a Systematic
Withdrawal Plan for his or her account. With respect to Class I
shares, the contingent deferred sales charge is waived for
redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans
set up on or after February 1, 1995, the applicable contingent
deferred sales charge is waived for Class I and Class II share
redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% semi-annually, 3% quarterly). For example, if
the account maintained an annual balance of $10,000, only $1,200
could be withdrawn through a once-yearly Systematic Withdrawal
Plan free of charge; any amount over that $1,200 would be
assessed a 1% (or applicable) contingent deferred sales charge.
EXCHANGE PRIVILEGE
Shareholders are entitled to exchange their shares for shares of
the same class of other Franklin Templeton Funds which are
eligible for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and
investment minimums. Some funds, however, may not offer Class II
shares. Class I shares may be exchanged for Class I shares of any
Franklin Templeton Funds. Class II shares may be exchanged for
Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent
deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent
deferred sales charge in the original fund purchased and shares
are subsequently redeemed within twelve months (Class I shares)
or eighteen months (Class II shares) of the calendar month of the
original purchase date, a contingent deferred sales charge will
be imposed. Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to exchange
into for all specific requirements or limitations on exercising
the exchange privilege, for example, minimum holding periods or
applicable sales charges.
EXCHANGES OF CLASS I SHARES
The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and held
in a Franklin or Templeton money market fund. If a Class I
account has shares subject to a contingent deferred sales charge,
Class I shares will be exchanged into the new account on a "first-
in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
EXCHANGES OF CLASS II SHARES
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and shares that are not, the
shares will be transferred proportionately into the new fund.
Shares received from reinvestment of dividends and capital gains
are referred to as "free shares," shares which were originally
subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called
"matured shares," and shares still subject to the contingent
deferred sales charge are referred to as "CDSC liable shares."
CDSC liable shares held for different periods of time are
considered different types of CDSC liable shares. For instance,
if a shareholder has $1,000 in free shares, $2,000 in matured
shares, and $3,000 in CDSC liable shares, and the shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from
free shares, $1,000 from matured shares, and $1,500 from CDSC
liable shares. Similarly, if CDSC liable shares have been
purchased at different periods, a proportionate amount will be
taken from shares held for each period. If, for example, a
shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into a new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money Fund
II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may
shareholders purchase shares of Money Fund II directly. Class II
shares exchanged for shares of Money Fund II will continue to age
and a contingent deferred sales charge will be assessed if CDSC
liable shares are redeemed. No other money market funds are
available for Class II shareholders for exchange purposes. Class
I shares may be exchanged for shares of any of the money market
funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these
other money market funds as described in their respective
prospectuses.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free-shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund.
TRANSFERS
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the date
of original purchase. Like exchanges, shares will be moved
proportionately from each type of shares in the original account.
CONVERSION RIGHTS
It is not presently anticipated that Class II shares will be
converted to Class I shares. A shareholder may, however, sell his
Class II shares and use the proceeds to purchase Class I shares,
subject to all applicable sales charges.
See "Exchange Privilege" in the Prospectus for more information.
HOW TO SELL SHARES OF THE FUND
For a discussion regarding the sale of either class of Fund
shares, refer to the section in the Prospectus titled "How to
Sell Shares of the Fund." In addition, the charges described in
this Supplement will also apply to the sale of all Fund shares.
CONTINGENT DEFERRED SALES CHARGE
CLASS I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the total
cost of such shares at the time of purchase, and is retained by
Distributors. The contingent deferred sales charge is waived in
certain instances. See below and "Purchases at Net Asset Value"
under "How To Buy Shares of the Fund."
CLASS II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net
asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below.
CLASS I AND CLASS II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the following
order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
distributions to participants in Trust Company qualified
retirement plans due to death, disability or attainment of age 59
1/2; tax-free returns of excess contributions to employee benefit
plans; distributions from employee benefit plans, including
those due to termination or plan transfer; redemptions through a
Systematic Withdrawal Plan set up for shares prior to February 1,
1995, and for Systematic Withdrawal Plans set up thereafter,
redemptions of up to 1% monthly of an account's net asset value
(3% quarterly, 6% semiannually or 12% annually); and redemptions
initiated by the Fund due to a shareholder's account falling
below the minimum specified account size. In addition, shares of
participants in Trust Company retirement plan accounts will, in
the event of death, no longer be subject to the contingent
deferred sales charge.
All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on
the last day of that month and each subsequent month.
Requests for redemptions for a SPECIFIED DOLLAR amount, unless
otherwise specified, will result in additional shares being
redeemed to cover any applicable contingent deferred sales
charge, while requests for redemption of a SPECIFIC NUMBER of
shares will result in the applicable contingent deferred sales
charge being deducted from the total dollar amount redeemed.
VALUATION OF FUND SHARES
The following sentence replaces the first sentence of the first
paragraph in this section; the subsequent paragraph is added to
the end of this section.
The net asset value per share of each class of the Fund is
determined as of the scheduled closing time of the New York Stock
Exchange ("Exchange") (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading.
Each of the Fund's classes will bear, pro rata, all of the common
expenses of the Fund. The net asset value of all outstanding
shares of each class of the Fund will be computed on a pro rata
basis for each outstanding share based on the proportionate
participation in the Fund represented by the value of shares of
such classes, except that the Class I and Class II shares will
bear the Rule 12b-1 expenses payable under their respective
plans. Due to the specific distribution expenses and other costs
that will be allocable to each class, the dividends paid to each
class of the Fund may vary.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
The following paragraph replaces the second paragraph in this
section of the Prospectus:
From a touch tone phone, shareholders may access the automated
Franklin TeleFACTS system (day or night) at 1-800/247-1753 to
obtain current price, yield or other performance information
specific to a fund in the Franklin Funds, process an exchange as
discussed under the "Exchange Privilege" in the Prospectus, and
request duplicate confirmation or year-end statements, money fund
checks, if applicable, and deposit slips. Current prices for the
Templeton Funds are also available through TeleFACTS. The system
code for the Fund's two classes of shares, which will be needed
to access system information, is 109 for Class I and 209 for
Class II followed by the # sign. The system's automated operator
will prompt the caller with easy to follow step-by-step
instructions from the main menu. Other features may be added in
the future.
PERFORMANCE (CLASS II)
Because Class II shares were not offered prior to May 1, 1995, no
performance data is available for these shares. After a
sufficient period of time has passed, Class II performance data
as described in the "Performance" section of the Prospectus will
be available. Except as noted, it is likely that the performance
data relating to Class II shares will reflect lower total return
and yield figures than those for Class I shares because Class II
Rule 12b-1 fees are higher than Class I Rule 12b-1 fees. During
at least the first year of operation Class II share performance
will be higher than Class I in light of the higher initial sales
charge applicable to Class I shares.
GENERAL INFORMATION
With the exception of Voting Rights, all rights and privileges
detailed under the discussion of "General Information" will
remain in effect as described in the Prospectus for the new
multiclass structure. For a complete discussion of these rights
and privileges, see "General Information" in the Prospectus.
VOTING RIGHTS. Shares of each class represent proportionate
interests in the assets of the Fund and have the same voting and
other rights and preferences as the other class of the Fund for
matters that affect the Fund as a whole. For matters that only
affect a certain class of the Fund's shares, however, only
shareholders of that class will be entitled to vote. Therefore,
each class of shares will vote separately on matters (1)
affecting only that class, (2) expressly required to be voted on
separately by state corporation law, or (3) required to be voted
on separately by the 1940 Act or the rules adopted thereunder.
For instance, if a change to the Rule 12b-1 plan relating to
Class I shares requires shareholder approval, only shareholders
of Class I may vote on changes to the Rule 12b-1 plan affecting
that class. Similarly, if a change to the Rule 12b-1 plan
relating to Class II shares requires shareholder approval, only
shareholders of Class II may vote on the change to such plan. On
the other hand, if there is a proposed change to the investment
objective of the Fund, this affects all shareholders, regardless
of which class of shares they hold, and therefore, each share has
the same voting rights. For more information regarding voting
rights, see the "Voting Rights" discussion in the Prospectus
under the heading "General Information."
06 S
SUPPLEMENT DATED MAY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN CUSTODIAN FUNDS, INC.
dated February 1, 1995
As described in the Prospectus, this Fund now offers two
classes of shares to investors in the Growth Series,
Utilities Series, Income Series and U.S. Government
Securities Series: Growth Series - Class I and Growth Series
- Class II; Utilities Series - Class I and Utilities Series
- Class II; Income Series - Class I and Income Series -
Class II; and U.S. Government Securities Series - Class I
and U.S. Government Securities Series - Class II. The
DynaTech Series currently issues only Class I shares. This
new structure allows investors to consider, among other
features, the impact of sales charges and distribution fees
("Rule 12b-1 fees") on their investments in the Growth
Series, Utilities Series, Income Series, and U.S. Government
Securities Series.
ADD THE FOLLOWING AS THE LAST SENTENCE OF THE PARAGRAPH
DESCRIBING FEES PAID TO THE MANAGER UNDER "INVESTMENT
ADVISORY AND OTHER SERVICES":
For each Series with two classes of shares, each class of
each such Series will pay its share of the fee as
determined by the proportion of the Series that it
represents.
EACH NEW CLASS OF SHARES HAS A SEPARATE DISTRIBUTION PLAN. FOR
THIS REASON, THE FIRST PARAGRAPH OF THE SECTION "THE FUND'S
UNDERWRITER - DISTRIBUTION PLAN" HAS BEEN REPLACED WITH THE
FOLLOWING PARAGRAPH:
PLANS OF DISTRIBUTION
Each class of the Fund has adopted a Distribution Plan
("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 1940 Act.
Pursuant to the Class I Plans, the Growth and DynaTech
Series may be required to pay up to a maximum of 0.25% per
annum (0.25 of 1%), and the Income, Utilities and U.S.
Government Series may be required to pay up to a maximum
of 0.15%, of their respective average daily net assets for
expenses incurred in the promotion and distribution of
their shares.
THE NEXT THREE PARAGRAPHS OF THIS SECTION IN THE STATEMENT
OF ADDITIONAL INFORMATION ONLY CONCERN THE CLASS I PLANS.
THE FOLLOWING PARAGRAPHS HAVE BEEN ADDED TO THIS SECTION
AFTER THE DISCUSSION OF THE CLASS I PLANS TO DESCRIBE CLASS
II:
THE CLASS II PLANS
Under the Class II Plans, each Series (other than
DynaTech) is permitted to pay to Distributors or others
annual distribution fees, payable quarterly, of 0.75%
per annum of the Growth Series Class II's average daily
net assets and 0.50% per annum of the Utilities, Income
and U.S. Government Securities Series Class II's
average daily net assets, in order to compensate
Distributors or others for providing distribution and
related services and bearing certain expenses of the
Class. All expenses of distribution and marketing over
that amount will be borne by Distributors, or others
who have incurred them, without reimbursement by each
Series. In addition to this amount, under the Class II
Plans, the Growth Series shall pay .25% per annum, and
the Utilities Series, Income Series, and U.S.
Government Series .15% per annum, payable quarterly, of
the Class' average daily net assets as a servicing fee.
This fee will be used to pay dealers or others for,
among other things, assisting in establishing and
maintaining customer accounts and records; assisting
with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments
from the Fund on behalf of the customers, and similar
activities related to furnishing personal services and
maintaining shareholder accounts. Distributors may pay
the securities dealer, from its own resources, a
commission of up to 1% of the amount invested.
THE SUBSEQUENT PARAGRAPHS IN THE SECTION "DISTRIBUTION PLAN"
APPLY EQUALLY TO BOTH CLASS I AND CLASS II PLANS, EXCEPT (1)
THE SENTENCE REGARDING UNREIMBURSED EXPENSES REFERS TO THE
CLASS I PLANS ONLY, AND (2) THE FIRST TWO SENCTENCES OF THE
NINTH PARAGRAPH OF THE SECTION ARE DELETED AND REPLACED WITH
THE FOLLOWING:
The Class I Plans were approved by shareholders on April 18,
1994 and the Class II Plans were approved by their initial
shareholder prior to the Class II effective date. All Class I
and Class II Plans were approved by the directors of the Fund,
including those directors who are not interested persons, as
defined in the 1940 Act. All Plans are effective through
April 30, 1996, respectively, and are renewable annually by a
vote of the Fund's Board of Directors, including a majority
vote of the directors who are non-interested persons of the
Fund and who have no direct or indirect financial interest in
the operation of the Plans, cast in person at a meeting called
for that purpose.
THE OFFICERS AND TRUSTEES SECTION IS REVISED TO READ AS
FOLLOWS:
OFFICERS AND DIRECTORS
The Board of Directors has the responsibility for the
overall management of the Fund, including general
supervision and review of its investment activities.
The directors, in turn, elect the officers of the Fund
who are responsible for administering day-to-day
operations of the Fund. The affiliations of the
officers and directors and their principal occupations
for the past five years are listed below. Directors who
are deemed to be "interested persons" of the Fund, as
defined in the 1940 Act, are indicated by an asterisk
(*).
Name, Address & Age
Positions and Offices with the Fund
Principal Occupations During Past Five Years
Harris J. Ashton
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
74
Director
President, Chief Executive Officer and Chairman of the
Board, General Host Corporation (nursery and craft
centers); Director, RBC Holdings, Inc. (a bank holding
company) and Bar-S Foods; and director, trustee or
managing general partner, as the case may be, of 54 of
the investment companies in the Franklin Templeton
Group of Funds.
S. Joseph Fortunato
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
62
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch;
Director of General Host Corporation; director, trustee
or managing general partner, as the case may be, of 56
of the investment companies in the Franklin Templeton
Group of Funds.
*Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
62
President and Director
President and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers,
Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc.
and General Host Corporation; and officer and/or
director, trustee or managing general partner, as the
case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 55 of the investment companies
in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr.
777 Mariners Island Blvd.
San Mateo, CA 94404
54
Vice President and Director
Executive Vice President and Director, Franklin
Resources, Inc. and Franklin Templeton Distributors,
Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.;
and officer and/or director, trustee or managing
general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 42 of
the investment companies in the Franklin Templeton
Group of Funds.
Gordon S. Macklin
8212 Burning Tree Road
Bethesda, MD 20817
66
Director
Chairman, White River Corporation (information
services); Director, Fund American Enterprises
Holdings, Inc., Martin Marietta Corporation, MCI
Communications Corporation, MedImmune, Inc.
(biotechnology), Infovest Corporation (information
services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general
partner, as the case may be, of 51 of the investment
companies in the Franklin Templeton Group of Funds;
formerly, Chairman, Hambrecht and Quist Group;
Director, H & Q Healthcare Investors; and President,
National Association of Securities Dealers, Inc.
Harmon E. Burns
777 Mariners Island Blvd.
San Mateo, CA 94404
50
Vice President
Executive Vice President, Secretary and Director,
Franklin Resources, Inc.; Executive Vice President and
Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer
and/or director or trustee of 41 of the investment
companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues
777 Mariners Island Blvd.
San Mateo, CA 94404
62
Vice President - Financial Reporting and Accounting
Standards
Senior Vice President, Franklin Resources, Inc.,
Franklin Advisers, Inc., and Franklin Templeton
Distributors, Inc.; officer and/or director, as the
case may be, of other subsidiaries of Franklin
Resources, Inc.; and Officer and/or managing general
partner, as the case may be, of 36 of the investment
companies in the Franklin Group of Funds.
Martin L. Flanagan
777 Mariners Island Blvd.
San Mateo, CA 94404
34
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and
Treasurer, Franklin Resources, Inc.; Executive Vice
President, Templeton Worldwide, Inc.; Senior Vice
President and Treasurer, Franklin Advisers, Inc. and
Franklin Templeton Distributors, Inc.; Senior Vice
President, Franklin/Templeton Investor Services, Inc.;
officer of most other subsidiaries of Franklin
Resources, Inc.; and officer of 60 of the investment
companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek
777 Mariners Island Blvd.
San Mateo, CA 94404
46
Vice President
Senior Vice President - Legal, Franklin Resources, Inc.
and Franklin Templeton Distributors, Inc.; Vice
President, Franklin Advisers, Inc. and officer of 36 of
the investment companies in the Franklin Group of
Funds.
Diomedes Loo-Tam
777 Mariners Island Blvd.
San Mateo, CA 94404
56
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36
of the investment companies in the Franklin Group of
Funds.
Brian E. Lorenz
One North Lexington Avenue
White Plains, New York 10001-1700
Secretary
56
Attorney, member of the law firm of Bleakley Platt &
Schmidt; officer of three of the investment companies
in the Franklin Group of Funds.
Directors not affiliated with the investment manager
are currently paid fees of $1,350 per month plus $1,300
per meeting attended and are reimbursed for expenses
incurred in connection with attending such meetings.
During the fiscal year ended September 30, 1994, fees
totaling $95,400 were paid by the Fund to directors who
are not affiliated with the investment manager. As
indicated above, certain of the directors and officers
hold positions with other companies in the Franklin
Group of Funds(Registered Trademark) and the Templeton
Funds. The following table indicates the total fees
received by such directors from other Franklin
Templeton Funds for which they serve as directors,
trustees or managing general partners.
NUMBER OF
FRANKLIN TOTAL
AGGREGATE TEMPLETON BOARDS COMPENSATION
COMPENSATION ON WHICH FROM FRANKLIN
NAME FROM FUND* EACH SERVES TEMPLETON
FUNDS**
Mr. Ashton $31,800 54 $319,925
Mr. Fortunato $31,800 56 $336,065
Mr. Macklin $31,800 51 $303,685
* For the fiscal year ended September 30, 1994.
** For the calendar year ended December 31, 1994.
No officer or director received any other compensation
directly from the Fund. As of March 31, 1995, the
directors and officers, as a group, owned of record and
beneficially less than 1% of the total outstanding shares
of the Fund. In addition, many of the Fund's directors
own shares in various of the other funds in the Franklin
Group of Funds and the Templeton Group of Funds. Charles
B. Johnson and Rupert H. Johnson, Jr. are brothers.
During the last fiscal year, the law firm of which Mr.
Lorenz is a partner received payments totaling $72,398 for
legal services rendered and for reimbursement of expenses.
From time to time, the number of Fund shares held in
the "street name" accounts of various securities
dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of
the total shares outstanding. To the best of the Fund's
knowledge, no other person holds beneficially or of
record more than 5% of the Fund's outstanding shares.
THE FOLLOWING REPLACES THE SUBSECTION "ADDITIONAL INFORMATION
REGARDING PURCHASES" UNDER "ADDITIONAL INFORMATION REGARDING FUND
SHARES":
ADDITIONAL INFORMATION REGARDING PURCHASES
SPECIAL NET ASSET VALUE PURCHASES. As discussed in the
Prospectus under "How to Buy Shares of the Fund -
Description of Special Net Asset Value Purchases,"
certain categories of investors may purchase Class I
shares of the Fund at net asset value (without a front-
end or contingent deferred sales charge). Distributors
or one of its affiliates may make payments, out of its
own resources, to securities dealers who initiate and
are responsible for such purchases, as indicated below.
Distributors may make these payments in the form of
contingent advance payments, which may require
reimbursement from the securities dealers with respect
to certain redemptions made within 12 months of the
calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement
between Distributors, or its affiliates, and the
securities dealer.
The following amounts will be paid by Distributors or
one of its affiliates, out of its own resources, to
securities dealers who initiate and are responsible for
(i) purchases of most equity and fixed-income Franklin
Templeton Funds made at net asset value by certain
designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than
$2 million, plus 0.80% on sales of $2 million but less
than $3 million, plus 0.50% on sales of $3 million but
less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales
of $100 million or more; and (ii) purchases of most
fixed-income Franklin Templeton Funds made at net asset
value by non-designated retirement plans: 0.75% on
sales of $1 million but less than $2 million, plus
0.60% on sales of $2 million but less than $3 million,
plus 0.50% on sales of $3 million but less than $50
million, plus 0.25% on sales of $50 million but less
than $100 million, plus 0.15% on sales of $100 million
or more. These payment breakpoints are reset every 12
months for purposes of additional purchases. With
respect to purchases made at net asset value by certain
trust companies and trust departments of banks and
certain retirement plans of organizations with
collective retirement plan assets of $10 million or
more, Distributors, or one of its affiliates, out of
its own resources, may pay up to 1% of the amount
invested.
LETTER OF INTENT. An investor may qualify for a
reduced sales charge on the purchase of Class I shares,
as described in the Prospectus. At any time within 90
days after the first investment which the investor
wants to qualify for the reduced sales charge, a signed
Shareholder Application, with the Letter of Intent
("Letter") section completed, may be filed with the
Fund. After the Letter is filed, each additional
investment made will be entitled to the sales charge
applicable to the level of investment indicated on the
Letter. Sales charge reductions based upon purchases in
more than one company in the Franklin Templeton Group
will be effective only after notification to
Distributors that the investment qualifies for a
discount. The shareholder's holdings in the Franklin
Templeton Group, including Class II shares, acquired
more than 90 days before the Letter of Intent is filed
will be counted towards completion of the Letter of
Intent but will not be entitled to a retroactive
downward adjustment of sales charge. Any redemptions
made by the shareholder, other than by a qualifying
employee benefit plan (the "Benefit Plan"), during the
13-month period will be subtracted from the amount of
the purchases for purposes of determining whether the
terms of the Letter have been completed. If the Letter
is not completed within the 13-month period, there will
be an upward adjustment of the sales charge, depending
upon the amount actually purchased (less redemptions)
during the period. The upward adjustment does not apply
to qualifying employee benefit plans. An investor who
executes a Letter prior to a change in the sales charge
structure for the Fund will be entitled to complete the
Letter at the lower of (i) the new sales charge
structure; or (ii) the sales charge structure in effect
at the time the Letter was filed with the Fund.
As mentioned in the Prospectus, five percent (5%) of
the amount of the total intended purchase will be
reserved in shares of the Fund registered in the
investor's name unless the investor is a Benefit Plan.
If the total purchases, less redemptions, equal the
amount specified under the Letter, the reserved shares
will be deposited to an account in the name of the
investor or delivered to the investor or the investor's
order. If the total purchases, less redemptions, exceed
the amount specified under the Letter and is an amount
which would qualify for a further quantity discount, a
retroactive price adjustment will be made by
Distributors and the dealer through whom purchases were
made pursuant to the Letter (to reflect such further
quantity discount) on purchases made within 90 days
before and on those made after filing the Letter. The
resulting difference in offering price will be applied
to the purchase of additional shares at the offering
price applicable to a single purchase or the dollar
amount of the total purchases. If the total purchases,
less redemptions, are less than the amount specified
under the Letter, the investor will remit to
Distributors an amount equal to the difference in the
dollar amount of sales charge actually paid and the
amount of sales charge which would have applied to the
aggregate purchases if the total of such purchases had
been made at a single time. Upon such remittance the
reserved shares held for the investor's account will be
deposited to an account in the name of the investor or
delivered to the investor or to the investor's order.
If within 20 days after written request such difference
in sales charge is not paid, the redemption of an
appropriate number of reserved shares to realize such
difference will be made. In the event of a total
redemption of the account prior to fulfillment of the
Letter of Intent, the additional sales charge due will
be deducted from the proceeds of the redemption, and
the balance will be forwarded to the investor.
If a Letter of Intent is executed on behalf of a
benefit plan (such plans are described under "Purchases
at Net Asset Value" in the Prospectus), the level and
any reduction in sales charge for these employee
benefit plans will be based on actual plan
participation and the projected investments in the
Franklin Templeton Group under the Letter. Benefit
Plans are not subject to the requirement to reserve 5%
of the total intended purchase, or to any penalty as a
result of the early termination of a plan, nor are
Benefit Plans entitled to receive retroactive
adjustments in price for investments made before
executing Letters.
THE FOLLOWING PARAGRAPH IS ADDED TO "ADDITIONAL INFORMATION
REGARDING FUND SHARES":
The Fund may impose a $10 charge for each returned item,
against any shareholder account which, in connection with
the purchase of Fund shares, submits a check or a draft
which is returned unpaid to the Fund.
THE "PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS" AND
"CALCULATION OF NET ASSET VALUE" SUBSECTIONS ARE MODIFIED TO
REFLECT THAT THE FUND'S NET ASSET VALUE IS CALCULATED FOR EACH
CLASS SEPARATELY AS OF THE SCHEDULED CLOSING OF THE NEW YORK
STOCK EXCHANGE (GENERALLY 1:00 P.M. PACIFIC TIME).
The current Prospectuses are incorporated herein by reference to
Form Type 497 filed electronically by Registrant with the U.S.
Securities and Exchange Commission on March 13, 1995, Accession
Number 0000038721-95-000005.
FRANKLIN
CUSTODIAN FUNDS, INC.
STATEMENT OF
ADDITIONAL INFORMATION 777 Mariners Island Blvd., P.O. Box 7777
FEBRUARY 1, 1995 San Mateo, CA 94403-7777 1-800/DIAL BEN
- -------------------------------------------------------------------------
Contents Page
About the Fund (See also the
Prospectuses "About the Fund") 2
The Investment Objectives and Policies
of the Fund (See also the section of the
Prospectuses entitled "Investment
Objectives and Policies of Each Series"
or "Investment Objective and Policies
of the Fund") 2
Officers and Directors 7
Investment Advisory and Other Services
(See also the Prospectuses
"Management of the Fund") 9
The Fund's Policies Regarding Brokers
Used on Portfolio Transactions 10
Additional Information Regarding Fund
Shares (See also the Prospectuses
"How to Buy Shares of the Fund,"
"How to Sell Shares of the Fund,"
"Valuation of Fund Shares") 12
Additional Information
Regarding Taxation 15
The Fund's Underwriter 17
General Information 19
Financial Statements 25
There are three Prospectuses for Franklin Custodian Funds, Inc. (the
"Fund"); one Prospectus covers all five Series of the Fund; one covers
the Income Series of the Fund; and one covers the U.S. Government
Securities Series of the Fund. Each is dated February 1, 1995, as each
may be amended from time to time, and provides the basic information a
prospective investor should know before investing in a Series of the
Fund. The Prospectuses may be obtained without charge from the Fund or
from the Fund's principal underwriter, Franklin/Templeton Distributors,
Inc. ("Distributors"), at the address listed above.
This Statement of Additional Information is not a Prospectus. It contains
information in addition to and in more detail than set forth in the
Prospectuses. This Statement is intended to provide a prospective
investor with additional information regarding the activities and
operations of the Fund, and should be read in conjunction with the
Prospectuses.
About the Fund
- -------------------------------------------------------------------------
The Fund is an open-end management investment company, commonly called a
"mutual fund," and it has registered as such under the Investment Company
Act of 1940 ("1940 Act"). It was organized under the laws of Delaware in
1947 and reincorporated under the laws of the state of Maryland in 1980.
The Fund has only one class of capital stock, which is issued in five
separate diversified series: Growth Series, DynaTech Series, Utilities
Series, Income Series, and U.S. Government Securities Series
(individually or collectively referred to as the "Series").
The Investment Objectives
and Policies of the Fund
- -------------------------------------------------------------------------
As noted in the Prospectuses, each Series has its own investment
objective and follows policies designed to achieve its objective. The
investment objective(s) of each Series as set forth in the Prospectuses
are fundamental policies and may not be changed without approval of the
shareholders of the Series. In addition, the following restrictions have
been adopted as fundamental policies for all Series, which means that
they may not be changed without the approval of shareholders. Each Series
may not:
1. Borrow money or mortgage or pledge any of the assets of the Fund,
except that borrowings for temporary or emergency purposes may be made in
an amount up to 5% of total asset value.
2. Buy any securities on "margin" or sell any securities "short."
3. Lend any funds or other assets, except by the purchase of publicly
distributed bonds, debentures, notes, to-be-announced securities or other
debt securities and except that securities of any Series, other than the
U.S. Government Securities Series, may be loaned to broker-dealers or
other institutional investors as discussed below under "Loans of
Portfolio Securities."
4. Act as underwriter of securities issued by other persons except
insofar as the Fund may be technically deemed an underwriter under the
federal securities laws in connection with the disposition of portfolio
securities.
5. Invest more than 5% of the value of the gross assets of a Series in
the securities of any one issuer, but this limitation does not apply to
investments in securities issued or guaranteed by the U.S. government or
its instrumentalities. (The Growth, DynaTech, Income and Utilities Series
also have policies that concentration of investments in a single industry
may not exceed 25% of their assets, except that the Utilities Series will
concentrate its investments in the utilities industry.)
6. Purchase the securities of any issuer which would result in any
Series owning more than 10% of the outstanding voting securities of an
issuer.
7. Purchase from or sell to its officers and directors, or any firm of
which any officer or director is a member, as principal, any securities,
but may deal with such persons or firms as brokers and pay a customary
brokerage commission; retain securities of any issuer if, to the
knowledge of the Fund, one or more of its officers, directors or
investment advisor own beneficially more than one-half of 1% of the
securities of such issuer and all such officers and directors together
own beneficially more than 5% of such securities.
8. Purchase any securities issued by a corporation which has not been in
continuous operation for three years, but such period may include the
operation of a predecessor.
9. Acquire, lease or hold real estate except such as may be necessary or
advisable for the maintenance of its offices.
10. Invest in commodities and commodity contracts, puts, calls,
straddles, spreads or any combination thereof, or interests in oil, gas
or other mineral exploration or development programs. The Fund may,
however, write covered call options listed for trading on a national
securities exchange and purchase call options to the extent necessary to
cancel call options previously written. At the present, there are no
options listed for trading on a national securities exchange covering the
types of securities which are appropriate for investment by the U.S.
Government Securities Series and, therefore, there are no option
transactions available for that Series.
11. Invest in companies for the purpose of exercising control or
management.
12. Purchase securities of other investment companies; except to the
extent each Series invests its uninvested daily cash balances in shares
of the Franklin Money Fund and other money market funds in the Franklin
Group of Funds provided i) its purchases and redemptions of such money
market fund shares may not be subject to any purchase or redemption fees,
ii) its investments may not be subject to duplication of management fees,
nor to any charge related to the expense of distributing each Series'
shares (as determined under Rule 12b-1, as amended, under the federal
securities laws) and iii) provided aggregate investments by a Series in
any such money market fund do not exceed (A) the greater of (i) 5% of
each Series' total net assets or (ii) $2.5 million, or (B) more than 3%
of the outstanding shares of any such money market fund.
In order to change any of the foregoing restrictions, approval must be
obtained from the stockholders of each Series that would be affected.
Such approval requires the affirmative vote of the lesser of (i) 67% or
more of the voting securities present at a meeting if the holders of more
than 50% of voting securities are represented at that meeting or (ii)
more than 50% of the outstanding voting securities.
In addition to these fundamental policies, it is the present policy of
the Fund (which may be changed without the approval of shareholders) not
to invest in real estate limited partnerships or in interests (other than
publicly traded equity securities) in oil, gas, or other mineral leases,
exploration or development programs.
To accomplish its objective(s), each Series follows certain investment
policies, as discussed in the Fund's Prospectuses. The following
discussion contains additional information regarding the investment
policies in which each Series may engage, except as otherwise indicated.
Option Transactions - Subject to the conditions noted above, the Fund may
write covered call options which trade on national securities exchanges.
Call options written by the Fund give the holder the right to buy the
underlying securities from the Fund at a stated exercise price. A call
option is "covered" if the option writer owns the underlying security
which is subject to the call.
The writer of an option receives a premium from the buyer, and retains
the premium whether or not the option expires unexercised. The premium
paid by the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of
the underlying security, the remaining term of the option, supply and
demand and interest rates. If a call option is exercised, the writer also
experiences a profit or loss from the sale of the underlying security.
The writer of a call option may have no control over when the underlying
securities must be sold since, with regard to certain options, the writer
may be assigned an exercise notice at any time prior to the termination
of the obligation.
The Fund may terminate its obligation by effecting a "closing purchase
transaction." This is accomplished by buying an option identical to the
option previously written. However, a writer may not effect a closing
purchase transaction after being notified of the exercise of an option.
There is no guarantee that a closing purchase will be available to be
effected at the time desired by the Fund. If the Fund desires to sell a
particular security from its portfolio on which it has written a call
option, it will effect a closing transaction prior to or concurrent with
the sale of the security.
The Fund will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the
option; the Fund will realize a loss from a closing transaction if the
price of the transaction is more than the premium received from writing
the option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund until the time of repurchase. Thereafter, the
Fund bears the risk of the security's rise or fall in market value unless
it sells the security.
The Fund's manager does not currently intend to write options which would
cause the market value of any Series' open options to exceed 5% of that
Series' total net assets. There is no specific limitation on the Fund's
ability to write covered call options; however, as a practical matter,
the Fund's option writing activities may be limited by state or federal
regulations. Among other things, state regulations limit the aggregate
value of securities underlying outstanding options to 25% or less of net
assets. As of the fiscal year ended September 30, 1994, there were no
open options transactions in any Series. The U.S. Government Securities
Series does not presently engage in option transactions, as discussed in
restriction 10, above.
Loan Participations - The Income Series may invest up to 5% of its total
assets (at the time of investment) in loan participations, all of which
may have speculative characteristics. The Income Series may purchase loan
participations at par or which sell at a discount because of the
borrower's credit problems. To the extent the borrower's credit problems
are resolved, the loan participation may appreciate in value but not
beyond par value.
The investment manager may acquire loan participations for the Income
Series from time to time when it believes the investments offer the
possibility of long-term appreciation in value. An investment in loan
participations carries a high degree of risk and may have the consequence
that interest payments with respect to such securities may be reduced,
deferred, suspended or eliminated and may have the further consequence
that principal payments may likewise be reduced, deferred, suspended or
canceled, causing the loss of the entire amount of the investment. Loans
will generally be acquired by the Income Series from a bank, finance
company or other similar financial services entity ("Lender").
Loan participations are interests in floating or variable rate senior
loans ("Loans") to U.S. corporations, partnerships and other entities
("Borrowers") which operate in a variety of industries and geographical
regions. Loans in which the Income Series will purchase participation
interests may pay interest at rates which are periodically redetermined
on the basis of a base lending rate plus a premium. These base lending
rates are generally the Prime Rate offered by a major U.S. bank, the
London Inter-Bank Offered Rate, the Certificate of Deposit rate or other
base lending rates used by commercial lenders. The Loans typically have
the most senior position in a Borrower's capital structure, although some
Loans may hold an equal ranking with other senior securities of the
Borrower. Although the Loans generally are secured by specific
collateral, the Income Series may invest in Loans which are not secured
by any collateral. Uncollateralized Loans pose a greater risk of
nonpayment of interest or loss of principal than do collateralized Loans.
The collateral underlying a collateralized Loan may consist of assets
that may not be readily liquidated, and there is no assurance that the
liquidation of such assets would satisfy fully a Borrower's obligations
under a Loan. The Income Series is not subject to any restrictions with
respect to the maturity of the Loans in which it purchases participation
interests.
The Loans generally are not rated by nationally recognized statistical
rating organizations. Ratings of other securities issued by a Borrower do
not necessarily reflect adequately the relative quality of a Borrower's
Loans. Therefore, although the investment manager may consider such
ratings in determining whether to invest in a particular Loan, such
ratings will not be the determinative factor in the investment manager's
analysis.
The Loans are not readily marketable and may be subject to restrictions
on resale. Participation interests in the Loans generally are not listed
on any national securities exchange or automated quotation system and no
regular market has developed for such interests. Any secondary purchases
and sales of loan participations generally are conducted in private
transactions between buyers and sellers. Many of the Loans in which the
Income Series expects to purchase interests are of a relatively large
principal amount and are held by a relatively large number of owners
which, in the investment manager's opinion, should enhance the relative
liquidity of such interests.
When acquiring a loan participation, the Income Series will have a
contractual relationship only with the Lender (typically an entity in the
banking, finance or financial services industries), not with the
Borrower. The Income Series has the right to receive payments of
principal and interest to which it is entitled only from the Lender
selling the loan participation and only upon receipt by such Lender of
such payments from the Borrower. In connection with purchasing loan
participations, the Income Series generally will have no right to enforce
compliance by the Borrower with the terms of the Loan Agreement, nor any
rights with respect to any funds acquired by other Lenders through set-
off against the Borrower, and the Fund may not directly benefit from the
collateral supporting the Loan in which it has purchased the loan
participation. As a result, the Income Series may assume the credit risk
of both the Borrower and the Lender selling the loan participation. In
the event of the insolvency of the Lender selling a loan participation,
the Income Series may be treated as a general creditor of such Lender,
and may not benefit from any set-off between such Lender and the
Borrower.
Loans of Portfolio Securities - Consistent with procedures approved by
the Board of Directors and subject to various conditions which may be
imposed from time to time under various securities regulations, the Fund,
other than the U.S. Government Securities Series, may lend its portfolio
securities to qualified broker/dealers or other institutional investors
provided that such loans do not exceed 10% of the value of the Fund's
total assets at the time of the most recent loan. The borrower must
deposit with the Fund's custodian collateral with an initial market value
of at least 102% of the initial market value of the securities loaned,
including any accrued interest, with the value of the collateral and
securities marked-to-market daily to maintain collateral coverage of at
least 100%. Such collateral shall consist of cash, securities issued by
the U.S. Government or its agencies or instrumentalities, or irrevocable
letters of credit. The lending of securities is a common practice in the
securities industry. The Fund will engage in security loan arrangements
with the primary objective of increasing the Fund's income through
investment of the cash collateral in short-term, interest-bearing
obligations, but will do so only to the extent that the Fund will not
lose the tax treatment available to regulated investment companies.
GNMA Certificates - Securities of the type to be included in the U.S.
Government Securities Series portfolio have historically involved little
risk to principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such securities may vary during the
period of a shareholder's investment in the Series. The U.S. government
has never defaulted and never delayed payments of interest or principal
on its obligations, however, this does not guarantee the value of a
shareholder's investment in the U.S. Government Securities Series.
When-Issued, Delayed Delivery and TBA Transactions - The Income Series
may purchase debt obligations and the U.S. Government Series may purchase
and sell GNMA Certificates on a "when-issued", "delayed delivery" or
"TBA" basis. These transactions are arrangements under which either
Series may purchase securities with payment and delivery scheduled for a
future time, generally within 30 to 60 days. These transactions are
subject to market fluctuation and are subject to the risk that the value
or yields at delivery may be more or less than the purchase price or the
yields available when the transaction was entered into. Although both
Series will generally purchase these securities on a when-issued or TBA
basis with the intention of acquiring such securities, they may sell such
securities before the settlement date if it is deemed advisable. When a
Series is the buyer in such a transaction, it will maintain, in a
segregated account with its custodian bank, cash or high-grade marketable
securities having an aggregate value equal to the amount of such purchase
commitments until payment is made. To the extent the Series engages in
when-issued, delayed delivery or TBA transactions, it will do so only for
the purpose of acquiring portfolio securities consistent with the Series'
investment objectives and policies, and not for the purpose of investment
leverage. In when-issued, delayed delivery and TBA transactions, the
Series relies on the seller to complete the transaction. The other
party's failure to do so may cause the Series to miss a price or yield
considered advantageous. Securities purchased on a when-issued, delayed
delivery or TBA basis do not generally earn interest until their
scheduled delivery date. Neither Series is subject to any percentage
limit on the amount of its assets which may be invested in when-issued or
TBA purchase obligations.
Credit Union Investment Regulations - This section summarizes the
investment policies of the U.S. Government Securities Series, under
which, based on the Fund's understanding of laws and regulations
governing investments by federal credit unions on September 30, 1994,
this Series would be a permissible investment for federal credit unions.
CREDIT UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISERS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE
LEGAL INVESTMENTS FOR THEM.
All investments of the U.S. Government Securities Series will be subject
to the following limitations:
(a) This Series will invest only in obligations of, or securities
guaranteed as to principal and interest by, the U.S. Government or its
agencies and instrumentalities, including without limitation GNMA
certificates representing proportional interests in pools of whole loans.
(b) All purchases and sales of securities will be settled on a cash basis
within 30 days of the trade date. However, this Series may agree to
settle a purchase or sale transaction on a specific date up to 120 days
after the trade date if, on the trade date, the Series has cash flow
projections evidencing its ability to complete the purchase or the Series
owns the security it has agreed to sell.
(c) This Series will not engage in repurchase agreements or reverse
repurchase agreements.
(d) This Series will not engage in (1) futures or options transactions;
(2) short sales; or (3) purchases of zero-coupon bonds which mature more
than ten years after the purchase date.
(e) This Series will not invest in derivative mortgage-backed securities,
such as collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs"), which represent non-proportional
interests ("tranches" or "classes") in pools of mortgage loans.
Other Policies - As discussed in the Prospectus, the Fund, other than the
U.S. Government Securities Series, may enter into "repurchase agreements"
with banks or with government securities dealers, recognized by the
Federal Reserve Board and which have been approved by the Board of
Directors, who agree to repurchase the securities at a predetermined
price within a specified time (normally one day to one week). In these
transactions, the securities purchased by the Fund have an initial total
value in excess of the value of the repurchase agreement and are held by
the Fund's custodian bank until repurchased. Such arrangements permit the
Fund to keep all of its assets at work while retaining flexibility in
pursuit of investments of a longer-term nature. Repurchase agreements of
more than one week's duration are considered to be illiquid. The U.S.
Government Securities Series does not engage in repurchase agreements.
There are no restrictions or limitations on investments in obligations of
the U.S. government, or of corporations chartered by Congress as federal
government instrumentalities. The underlying assets may be retained in
cash, including cash equivalents which are Treasury bills, commercial
paper and short-term bank obligations such as certificates of deposit and
bankers' acceptances. However, it is intended that only as much of the
underlying assets of each Series be retained in cash as is deemed
desirable or expedient under then-existing market conditions.
The Fund, other than the U.S. Government Securities Series, may invest in
securities that cannot be offered to the public for sale without first
being registered under the Securities Act of 1933 ("restricted
securities"), or in other securities which, in the opinion of the Board
of Directors, may be otherwise illiquid. Illiquid equity securities will
not be purchased if, upon such purchase, such securities will constitute
5% of the value of the total net assets of the Series in which they are
held.
As noted in the Prospectuses, it is also the policy of the Fund that
illiquid securities may not constitute, at the time of purchase or at any
time, more than 10% of the value of the total net assets of the Series in
which they are held. Generally an "illiquid security" is any security
that cannot be disposed of promptly and in the ordinary course of
business at approximately the amount at which the Fund has valued the
instrument. The Fund's Board of Directors has authorized the Fund to
invest in restricted securities where such investment is consistent with
a Series' investment objective and has authorized such securities to be
considered to be liquid and thus not subject to the foregoing limitation,
to the extent the investment manager determines that there is a liquid
institutional or other market for such securities--for example,
restricted securities which may be freely transferred among qualified
institutional buyers pursuant to Rule 144A under the Securities Act of
1933, as amended, and for which a liquid institutional market has
developed. The Board of Directors will review any determination by the
investment manager to treat a restricted security as a liquid security on
an ongoing basis, including the investment manager's assessment of
current trading activity and the availability of reliable price
information. In determining whether a restricted security is properly
considered a liquid security, the investment manager and the Board of
Directors will take into account the following factors: (i) the frequency
of trades and quotes for the security; (ii) the number of dealers willing
to purchase or sell the security and the number of other potential
purchasers; (iii) dealer undertakings to make a market in the security;
and (iv) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). To the extent a Series
of the Fund invests in restricted securities that are deemed liquid, the
general level of illiquidity in that Series of the Fund may be increased
if qualified institutional buyers become uninterested in purchasing these
securities or the market for these securities contracts.
When Will the Fund Engage
in Securities Transactions?
It is intended that portfolio changes in the Growth, Utilities, Income
and U.S. Government Securities Series be made as infrequently as
possible, consistent with market and economic factors generally, and
special considerations affecting any particular security such as the
limitation of loss or realization of price appreciation at a time
believed to be opportune. In the DynaTech Series, investments will be
made from time to time for the purpose of achieving short-term trading
profits, and it is contemplated that this will result in a greater degree
of portfolio turnover than characterizes the other Series. The sale of
securities held for relatively short periods and reinvestment of the
proceeds will result in increased brokerage and transaction costs to the
Series and may involve an increase in taxes to the shareholders.
The portfolio turnover rates for each Series are set forth below:
<TABLE>
<CAPTION>
Portfolio Turnover
For Fiscal Years
Ended September 30
- ---------------------------------------------
Fund 1993 1994
------ ------
<S> <C> <C>
Growth Series 1.70% 6.52%
DynaTech Series 26.56% 9.73%
Utilities Series 7.81% 6.34%
Income Series 25.41% 23.37%
U.S. Government
Securities Series 43.10% 18.28%
</TABLE>
Officers and Directors
- -------------------------------------------------------------------------
The Board of Directors has the responsibility for the overall management
of the Fund, including general supervision and review of its investment
activities. The directors, in turn, elect the officers of the Fund who
are responsible for administering day-to-day operations of the Fund. The
affiliations of the officers and directors and their principal
occupations for the past five years are listed below. Directors who are
deemed to be "interested persons" of the Fund, as defined in the 1940
Act, are indicated by an asterisk (*).
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
Harris J. Ashton Director
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Principal Occupations During Past Five Years
- --------------------------------------------
President, Chief Executive Officer and Chairman of the Board, General
Host Corporation (nursery and craft centers); Director, RBC Holdings,
Inc. (a bank holding company) and Bar-S Foods; director of certain of the
investment companies in the Templeton Group of Funds; and director,
trustee or managing general partner, as the case may be, of most of the
investment companies in the Franklin Group of Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
S. Joseph Fortunato Director
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Principal Occupations During Past Five Years
- --------------------------------------------
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of
General Host Corporation; director of certain of the investment companies
in the Templeton Group of Funds; and director, trustee or managing
general partner, as the case may be, of most of the investment companies
in the Franklin Group of Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
*Charles B. Johnson President and
777 Mariners Island Blvd. Director
San Mateo, CA 94404
Principal Occupations During Past Five Years
- --------------------------------------------
President and Director, Franklin Resources, Inc.; Chairman of the Board
and Director, Franklin Advisers, Inc. and Franklin/Templeton
Distributors, Inc.; Director, Franklin/Templeton Investor Services, Inc.
and General Host Corporation; director of certain of the investment
companies in the Templeton Group of Funds; and officer and/or director,
trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of most of the investment
companies in the Franklin Group of Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
*Rupert H. Johnson, Jr. Vice President
777 Mariners Island Blvd. and Director
San Mateo, CA 94404
Principal Occupations During Past Five Years
- --------------------------------------------
Executive Vice President and Director, Franklin Resources, Inc. and
Franklin/Templeton Distributors, Inc.; President and Director, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services, Inc.;
director of certain of the investment companies in the Templeton Group of
Funds; and officer and/or director, trustee or managing general partner,
as the case may be, of most other subsidiaries of Franklin Resources,
Inc. and of most of the investment companies in the Franklin Group of
Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
Gordon S. Macklin Director
8212 Burning Tree Road
Bethesda, MD 20817
Principal Occupations During Past Five Years
- --------------------------------------------
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings Corporation, Martin Marietta Corporation,
MCI Communications Corporation, MedImmune, Inc. (biotechnology), Infovest
Corporation (information services) and Fusion Systems Corporation
(industrial technology); director of certain of the investment companies
in the Templeton Group of Funds; and director, trustee or managing
general partner, as the case may be, of most of the investment companies
in the Franklin Group of Funds; formerly, Chairman, Hambrecht and Quist
Group; Director, H & Q Healthcare Investors; and President, National
Association of Securities Dealers, Inc.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
Harmon E. Burns Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Principal Occupations During Past Five Years
- --------------------------------------------
Executive Vice President, Secretary and Director, Franklin Resources,
Inc.; Executive Vice President and Director, Franklin/Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; director of certain
of the investment companies in the Templeton Group of Funds; officer
and/or director, as the case may be, of other subsidiaries of Franklin
Resources, Inc.; and officer and/or director or trustee of all the
investment companies in the Franklin Group of Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
Martin L. Flanagan Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Principal Occupations During Past Five Years
- --------------------------------------------
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.;
Senior Vice President and Treasurer, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Senior Vice President, Franklin/Templeton
Investor Services, Inc.; officer of most other subsidiaries of Franklin
Resources, Inc.; and officer of 60 of the investment companies in the
Franklin Templeton Group of Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
Kenneth V. Domingues Vice President -
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 and Accounting
Standards
Principal Occupations During Past Five Years
- --------------------------------------------
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc.,
and Franklin Templeton Distributors, Inc.; officer and/or director, as
the case may be, of other subsidiaries of Franklin Resources, Inc.; and
officer and/or managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
Diomedes Loo-Tam Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting Officer
Principal Occupations During Past Five Years
- --------------------------------------------
Employee of Franklin Advisers, Inc.; and officer of 36 of the investment
companies in the Franklin Group of Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
Deborah R. Gatzek Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Principal Occupations During Past Five Years
- --------------------------------------------
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin/Templeton Distributors, Inc.; Vice President, Franklin Advisers,
Inc.; and officer of all the investment companies in the Franklin Group
of Funds.
- -------------------------------------------------------------------------
Positions and Offices
Name and Address with the Fund
- -------------------------------------------------------------------------
Brian E. Lorenz Secretary
One North Lexington Avenue
White Plains, New York
10001-1700
Principal Occupations During Past Five Years
- --------------------------------------------
Attorney, member of the law firm of Bleakley Platt & Schmidt; officer of
some of the investment companies in the Franklin Group of Funds.
- -------------------------------------------------------------------------
As indicated above, certain of the officers and directors hold positions
with other companies in the Franklin Group of Funds(registered trademark)
and the Templeton Group of Funds. Directors not affiliated with the
investment manager are currently paid fees of $1,350 per month plus
$1,300 per meeting attended and are reimbursed for expenses incurred in
connection with attending such meetings. During the fiscal year ended
September 30, 1994, the total amount paid to directors of the Fund who
are not affiliated with the investment manager was $96,982. No officer or
director received any other compensation directly from the Fund. As of
November 3, 1994, the officers and directors, as a group, owned of record
and beneficially less than 1% of the total outstanding shares of each
Series of the Fund. Certain officers or directors who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect remuneration
by virtue of their participation, if any, in the fees paid to its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
During the last fiscal year, the law firm of which Mr. Lorenz is a
partner received payments totaling $72,398 for legal services rendered
and for reimbursement of expenses.
From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients
or in centralized securities depositories may exceed 5% of the total
shares outstanding. To the best knowledge of the Fund, no other person
holds beneficially or of record more than 5% of the Fund's outstanding
shares.
Investment Advisory and Other Services
- -------------------------------------------------------------------------
The investment manager of each Series of the Fund is Franklin Advisers,
Inc. ("Advisers" or "Manager"). Advisers is a wholly-owned subsidiary of
Resources, a publicly owned holding company whose shares are listed on
the New York Stock Exchange ("Exchange"). Resources owns several other
subsidiaries which are involved in investment management and shareholder
services. The Manager and other subsidiary companies of Resources
currently manage over $117 billion in assets for over 3 million
shareholders. The preceding table indicates those officers and directors
who are also affiliated persons of Distributors and Advisers.
Pursuant to the management agreement for each Series, the Manager
provides investment research and portfolio management services, including
the selection of securities for the Fund to purchase, hold or sell and
the selection of brokers through whom the Fund's portfolio transactions
are executed. The Manager's activities are subject to the review and
supervision of the Fund's Board of Directors to whom the Manager renders
periodic reports of the each Series' investment activities. The Manager,
at its own expense, furnishes the Fund with office space and office
furnishings, facilities and equipment required for managing the business
affairs of the Fund; maintains all internal bookkeeping, clerical,
secretarial and administrative personnel and services; and provides
certain telephone and other mechanical services. The Manager is covered
by fidelity insurance on its officers, directors and employees for the
protection of the Fund. Each Series bears all expenses not assumed by the
Manager. See the Statement of Operations in the financial statements at
the end of this Statement of Additional Information for additional
details of these expenses.
Pursuant to the management agreement for each Series, the Fund is
obligated to pay the Manager a fee computed separately for each Series at
the close of business on the last business day of each month equal to a
monthly rate of 5/96 of 1% (approximately 5/8 of 1% per year) for the
first $100 million of net assets of such Series; 1/24 of 1%
(approximately 1/2 of 1% per year) on net assets of such Series in excess
of $100 million up to $250 million; 9/240 of 1% (approximately 45/100 of
1% per year) of net assets of such Series from $250 million up to $10
billion; 11/300 of 1% (approximately 44/100 of 1% per year) of net assets
of such Series from $10 billion to $12.5 billion; 7/200 of 1%
(approximately 42/100 of 1% per year) of net assets of such Series from
$12.5 billion to $15 billion; 1/30 of 1% (approximately 40/100 of 1%) of
net assets of such Series from $15 billion to $17.5 billion; 19/600
(approximately 38/100 of 1%) of net assets of such Series from $17.5
billion to $20 billion; and 3/100 (approximately 36/100 of 1%) of net
assets of such Series above $20 billion. As a result of the
implementation of a plan of distribution adopted pursuant to Rule 12b-1
under the 1940 Act (the "Plan"), Advisers has voluntarily agreed
effective May 1, 1994, to limit its fees for the U.S. Government
Securities Series to the extent overall expenses exceed 0.70% of average
daily net assets. The management agreement for each Series specifies that
the management fee will be reduced to the extent necessary to comply with
the most stringent limits on the expenses which may be borne by the Fund
as prescribed by any state in which the Fund's shares are offered for
sale. The most stringent current limit requires the Manager to reduce or
eliminate its fee to the extent that aggregate operating expenses of a
Series (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise exceed
in any fiscal year 2 1/2% of the first $30 million of average net assets
of the Series, 2% of the next $70 million of average net assets of the
Series and 1 1/2% of average annual net assets of the Series in excess of
$100 million. Expense reductions have not been necessary based on state
limitation requirements.
Aggregate management fees for the five Series of the Fund for the fiscal
years ended September 30, 1992, 1993 and 1994, were as follows:
<TABLE>
<CAPTION>
Fund 1992 1993 1994
- ------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Growth Series $ 2,315,771 $ 2,855,536 $ 2,681,332
DynaTech Series 374,285 441,449 424,859
Utilities series 7,928,280 13,422,576 13,930,637
Income Series 9,535,487 14,769,836 20,628,160
U.S. Government
Securities Series 58,948,461 62,607,011 58,414,490
</TABLE>
The management agreement for each Series is in effect until January 31,
1996. Thereafter, each agreement may continue in effect for successive
annual periods providing such continuance is specifically approved at
least annually by a vote of the Fund's Board of Directors or by a vote of
the holders of a majority of the Fund's outstanding voting securities of
each Series, and in either event by a majority vote of the Fund's
directors who are not parties to the management agreement or interested
persons of any such party (other than as directors of the Fund)
("Independent Directors"), cast in person at a meeting called for that
purpose. The management agreement for each Series may be terminated
without penalty at any time by the Fund or by the Manager on 30 days'
written notice and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), a wholly-owned subsidiary of Resources, is
the shareholder servicing agent for the Fund and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is
compensated on the basis of a fixed fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of
the Fund. Citibank Delaware, One Penn's Way, New Castle, Delaware 19720,
acts as custodian in connection with transfer services through bank
automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended
September 30, 1994, their auditing services consisted of rendering an
opinion on the financial statements of the Fund included in the Fund's
Annual Report and this Statement of Additional Information.
The firm of Bleakley Platt & Schmidt, White Plains, New York, serves as
legal counsel to the Fund.
The Fund's Policies Regarding
Brokers Used on Portfolio Transactions
- -------------------------------------------------------------------------
Under the current management agreement with Advisers, the selection of
brokers and dealers to execute transactions in each Series' portfolio is
made by the Manager in accordance with criteria set forth in the
management agreement and any directions which the Fund's Board of
Directors may give.
When placing a portfolio transaction, the Manager attempts to obtain the
best net price and execution of the transaction. On portfolio
transactions which are done on a securities exchange, the amount of
commission paid by the Fund is negotiated between the Manager and the
broker executing the transaction. The Manager seeks to obtain the lowest
commission rate available from brokers which are felt to be capable of
efficient execution of the transactions. The determination and evaluation
of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the
professional opinions of the persons responsible for the placement and
review of such transactions. These opinions are formed on the basis of,
among other things, the experience of these individuals in the securities
industry and information available to them concerning the level of
commissions being paid by other institutional investors of comparable
size. The Manager will ordinarily place orders for the purchase and sale
of over-the-counter securities on a principal rather than agency basis
with a principal market maker unless, in the opinion of the Manager, a
better price and execution can otherwise be obtained. Purchases of
portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from
dealers will include a spread between the bid and ask price. As a general
rule, the Fund does not purchase bonds in underwritings where it is not
given any choice, or only limited choice, in the designation of dealers
to receive the commission. The Fund will seek to obtain prompt execution
of orders at the most favorable net price.
The amount of commission is not the only relevant factor to be considered
in the selection of a broker to execute a trade. If it is felt to be in
the Fund's best interests, the Manager may place portfolio transactions
with brokers who provide the types of services described below, even if
it means the Fund will have to pay a higher commission than would be the
case if no weight were given to the broker's furnishing of these
services. This will be done only if, in the opinion of the Manager, the
amount of any additional commission is reasonable in relation to the
value of the services. Higher commissions will be paid only when the
brokerage and research services received are bona fide and produce a
direct benefit to the Fund or assist the Manager in carrying out its
responsibilities to the Fund, or when it is otherwise in the best
interest of the Fund to do so, whether or not such data may also be
useful to the Manager in advising other clients.
When it is felt that several brokers are equally able to provide the best
net price and execution, the Manager may decide to execute transactions
through brokers who provide quotations and other services to the Fund,
specifically including the quotations necessary to determine the value of
the Fund's net assets, in such amount of total brokerage as may
reasonably be required in light of such services, and through brokers who
supply research, statistical and other data to the Fund and Manager in
such amount of total brokerage as may reasonably be required.
It is not possible to place a dollar value on the special executions or
on the research services received by Advisers from dealers effecting
transactions in portfolio securities. The allocation of transactions in
order to obtain additional research services permits Advisers to
supplement its own research and analysis activities and to receive the
views and information of individuals and research staff of other
securities firms. As long as it is lawful and appropriate to do so,
Advisers and its affiliates may use this research and data in their
investment advisory capacities with other clients. Provided that the
Fund's officers are satisfied that the best execution is obtained, the
sale of Fund shares may also be considered as a factor in the selection
of securities dealers to execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of
Securities Dealers, it is sometimes entitled to obtain certain fees when
the Fund tenders portfolio securities pursuant to a tender-offer
solicitation. As a means of recapturing brokerage for the benefit of the
Fund, any portfolio securities tendered by the Fund will be tendered
through Distributors if it is legally permissible to do so. In turn, the
next management fee payable to Advisers under the management agreement
will be reduced by the amount of any fees received by Distributors in
cash, less any costs and expenses incurred in connection therewith.
If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by the Manager are considered
at or about the same time, transactions in such securities will be
allocated among the several investment companies and clients in a manner
deemed equitable to all by the Manager, taking into account the
respective sizes of the funds and the amount of securities to be
purchased or sold. It is recognized that in some cases this procedure
could possibly have a detrimental effect on the price or volume of the
security so far as the Fund is concerned. However, in other cases it is
possible that the ability to participate in volume transactions and to
negotiate lower brokerage commissions will be beneficial to the Fund.
During the fiscal years ended September 30, 1992, 1993 and 1994, each
Series paid brokerage commissions as follows:
<TABLE>
<CAPTION>
Fund 1992 1993 1994
- ------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Growth Series $141,293 $ 175,563 $ 99,627
DynaTech Series 3,000 30,033 11,863
Utilities Series 944,797 1,715,627 487,079
Income Series 319,776 814,753 1,223,298
U.S. Government
Securities Series -0- -0- -0-
</TABLE>
In the fiscal year ended September 30, 1994, the Income Series owned
securities issued by Citicorp and Bank America Corp. which were valued in
the aggregate at $56,168,750 and $28,153,125 respectively, as of the end
of such fiscal year. Except as stated above, no Series owned any
securities issued by the Fund's regular broker-dealers as of the end of
such fiscal year.
Additional Information
Regarding Fund Shares
- -------------------------------------------------------------------------
All checks, drafts, wires and other payment mediums used for purchasing
or redeeming shares of the Fund must be denominated in U.S. dollars. The
Fund reserves the right, in its sole discretion, to either (a) reject any
order for the purchase or sale of shares denominated in any other
currency, or (b) honor the transaction or make adjustments to a
shareholder's account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank.
In connection with exchanges (see Prospectus "Exchange Privilege"), it
should be noted that since the proceeds from the sale of shares of an
investment company generally are not available until the fifth business
day following the redemption, the funds into which the Fund shareholders
are seeking to exchange reserve the right to delay issuing shares
pursuant to an exchange until said fifth business day. The redemption of
shares of the Fund to complete an exchange for shares of any of the
investment companies will be effected at the close of business on the day
the request for exchange is received in proper form at the net asset
value then effective.
Dividend checks which are returned to the Fund marked "unable to forward"
by the postal service will be deemed to be a request by the shareholder
to change the dividend option and the proceeds will be reinvested in
additional shares at net asset value until new instructions are received.
The Fund may deduct from a shareholder's account the costs of its efforts
to locate a shareholder if mail is returned as undeliverable or the Fund
is otherwise unable to locate the shareholder or verify the shareholder's
current mailing address. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for
their location services.
Under agreements with certain banks in Taiwan, Republic of China, the
shares of the Fund are available to such banks' discretionary trust funds
at net asset value. The banks may charge service fees to their customers
who participate in the discretionary trusts. Pursuant to agreements, a
portion of such service fees may be paid to Distributors, or an affiliate
of Distributors, to help defray expenses of maintaining a service office
in Taiwan, including expenses related to local literature fulfillment and
communication facilities.
Shares of the Fund may be offered to investors in Taiwan through
securities firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan,
shares of each Series of the Fund will be offered with the following
schedule of sales charges:
<TABLE>
<CAPTION>
Sales
Size of Purchase in U.S. Dollars Charge
- -------------------------------- ------
<S> <C>
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%
</TABLE>
Purchases and Redemptions
Through Securities Dealers
Orders for the purchase of shares of any Series received in proper form
prior to 1:00 p.m. Pacific time any business day that the Exchange is
open for trading and promptly transmitted to the Fund will be based upon
the public offering price determined that day. Purchase orders received
by securities dealers or other financial institutions after 1:00 p.m.
Pacific time will be effected at the public offering price for such
Series on the day it is next calculated. The use of the term "securities
dealer" herein shall include other financial institutions which, pursuant
to an agreement with Distributors (directly or through affiliates),
handle customer orders and accounts with the Fund. Such reference however
is for convenience only and does not indicate a legal conclusion of
capacity.
Orders for the redemption of shares are effected at net asset value
subject to the same conditions concerning time of receipt in proper form.
It is the securities dealer's responsibility to transmit the order in a
timely fashion and any loss to the customer resulting from failure to do
so must be settled between the customer and the securities dealer.
Additional Information Regarding Purchases
Special Net Asset Value Purchases. As discussed in the Prospectus under
"How to Buy Shares of the Fund - Description of Special Net Asset Value
Purchases," certain categories of investors may purchase shares of the
Fund at net asset value (without a front-end or contingent deferred sales
charge). Distributors or one of its affiliates may make payments, out of
its own resources, to securities dealers who initiate and are responsible
for such purchases, as indicated below. As a condition for these
payments, Distributors or its affiliates may require reimbursement from
the securities dealers with respect to certain redemptions made within 12
months of the calendar month following purchase, as well as other
conditions, all of which may be imposed by an agreement between
Distributors, or its affiliates, and the securities dealer.
The following amounts will be paid by Distributors or one of its
affiliates, out of its own resources, to securities dealers who initiate
and are responsible for (i) purchases of most equity and fixed-income
Franklin Templeton Funds made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers): 1.00% on sales of $1
million but less than $2 million, plus 0.80% on sales of $2 million but
less than $3 million, plus 0.50% on sales of $3 million but less than $50
million, plus 0.25% on sales of $50 million but less than $100 million,
plus 0.15% on sales of $100 million or more; and (ii) purchases of most
fixed-income Franklin Templeton Funds made at net asset value by non-
designated retirement plans: 0.75% on sales of $1 million but less than
$2 million, plus 0.60% on sales of $2 million but less than $3 million,
plus 0.50% on sales of $3 million but less than $50 million, plus 0.25%
on sales of $50 million but less than $100 million, plus 0.15% on sales
of $100 million or more. These payment breakpoints are reset every 12
months for purposes of additional purchases. With respect to purchases
made at net asset value by certain trust companies and trust departments
of banks and certain retirement plans of organizations with collective
retirement plan assets of $10 million or more, Distributors, or one of
its affiliates, out of its own resources, may pay up to 1% of the amount
invested.
Letter of Intent. An investor may qualify for a reduced sales charge on
the purchase of shares of the Fund, as described in the prospectus. At
any time within 90 days after the first investment which the investor
wants to qualify for the reduced sales charge, a signed Shareholder
Application, with the Letter of Intent section completed, may be filed
with the Fund. After the Letter of Intent is filed, each additional
investment will be entitled to the sales charge applicable to the level
of investment indicated on the Letter. Sales charge reductions based upon
purchases in more than one of the Franklin Templeton Funds will be
effective only after notification to Distributors that the investment
qualifies for a discount. The shareholder's holdings in the Franklin
Templeton Funds acquired more than 90 days before the Letter of Intent is
filed will be counted towards completion of the Letter of Intent but will
not be entitled to a retroactive downward adjustment in the sales charge.
Any redemptions made by the shareholder, other than by a designated
benefit plan during the 13-month period will be subtracted from the
amount of the purchases for purposes of determining whether the terms of
the Letter of Intent have been completed. If the Letter of Intent is not
completed within the 13-month period, there will be an upward adjustment
of the sales charge, depending upon the amount actually purchased (less
redemptions) during the period. The upward adjustment does not apply to
designated benefit plans. An investor who executes a Letter of Intent
prior to a change in the sales charge structure for the Fund will be
entitled to complete the Letter of Intent at the lower of (i) the new
sales charge structure; or (ii) the sales charge structure in effect at
the time the Letter of Intent was filed with the Fund.
As mentioned in the Prospectus, five percent (5%) of the amount of the
total intended purchase will be reserved in shares of the Fund registered
in the investor's name, unless the investor is a designated benefit plan.
If the total purchases, less redemptions, equal the amount specified
under the Letter, the reserved shares will be deposited to an account in
the name of the investor or delivered to the investor or the investor's
order. If the total purchases, less redemptions, exceed the amount
specified under the Letter of Intent and is an amount which would qualify
for a further quantity discount, a retroactive price adjustment will be
made by Distributors and the dealer through whom purchases were made
pursuant to the Letter of Intent (to reflect such further quantity
discount) on purchases made within 90 days before and on those made after
filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the offering price
applicable to a single purchase or the dollar amount of the total
purchases. If the total purchases, less redemptions, are less than the
amount specified under the Letter, the investor will remit to
Distributors an amount equal to the difference in the dollar amount of
sales charge actually paid and the amount of sales charge which would
have applied to the aggregate purchases if the total of such purchases
had been made at a single time. Upon such remittance the reserved shares
held for the investor's account will be deposited to an account in the
name of the investor or delivered to the investor or to the investor's
order. If within 20 days after written request such difference in sales
charge is not paid, the redemption of an appropriate number of reserved
shares to realize such difference will be made. In the event of a total
redemption of the account prior to fulfillment of the Letter of Intent,
the additional sales charge due will be deducted from the proceeds of the
redemption, and the balance will be forwarded to the investor.
If a Letter of Intent is executed on behalf of a benefit plan (such plans
are described under "Purchases at Net Asset Value" in the Prospectus),
the level and any reduction in sales charge for these designated benefit
plans will be based on actual plan participation and the projected
investments in the Franklin Templeton Funds under the Letter of Intent.
Benefit plans are not subject to the requirement to reserve 5% of the
total intended purchase, or to any penalty as a result of the early
termination of a plan, nor are benefit plans entitled to receive
retroactive adjustments in price for investments made before executing
the Letter of Intent.
Redemptions in Kind
The Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however,
during any 90-day period to the lesser of $250,000 or 1% of the value of
a Series' net assets at the beginning of such period. Such commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission ("SEC"). In the case of requests for redemption in excess of
such amounts, the directors reserve the right to make payments in whole
or in part in securities or other assets of the Series from which the
shareholder is redeeming, in case of an emergency, or if the payment of
such a redemption in cash would be detrimental to the existing
shareholders of the Series. In such circumstances, the securities
distributed would be valued at the price used to compute the Series' net
assets. Should the Fund do so, a shareholder may incur brokerage fees in
converting the securities to cash. The Fund does not intend to redeem
illiquid securities in kind; however, should it happen, shareholders may
not be able to timely recover their investment and may also incur
brokerage costs in selling such securities.
Redemptions by the Fund
Due to the relatively high cost of handling small investments, the Fund
reserves the right to redeem, involuntarily, at net asset value, the
shares of any shareholder whose account has a value of less than one-half
of the initial minimum investment required for that shareholder, but only
where the value of such account has been reduced by the shareholder's
prior voluntary redemption of shares. Until further notice, it is the
present policy of the Fund not to exercise this right with respect to any
shareholder whose account has a value of $50 or more. In any event,
before the Fund redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the shares
in the account is less than the minimum amount and allow the shareholder
30 days to make an additional investment in an amount which will increase
the value of the account to at least $100.
Calculation of Net Asset Value
As noted in the Prospectuses, each Series generally calculates net asset
value as of 1:00 p.m. Pacific time each day that the Exchange is open for
trading. As of the date of this Statement of Additional Information, the
Fund is informed that the Exchange observes the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
The Fund's portfolio securities are valued as stated in the Prospectus.
Generally, trading in corporate bonds, U.S. government securities and
money market instruments is substantially completed each day at various
times prior to the close of the Exchange. The values of such securities
used in computing the net asset value of the Fund's shares are determined
as of such times. Occasionally, events affecting the values of such
securities may occur between the times at which they are determined and
1:00 p.m. Pacific time which will not be reflected in the computation of
the Fund's net asset value. If events materially affecting the value of
such securities occur during such period, then these securities will be
valued at their fair value as determined in good faith by the Board of
Directors.
Reinvestment Date
Shares acquired through the reinvestment of dividends will be purchased
at the net asset value determined on the business day following the
dividend record date (sometimes known as "ex-dividend date"). The
processing date for the reinvestment of dividends may vary from month to
month, and does not affect the amount or value of the shares acquired.
Special Services
The Trust and Institutional Services Division of Distributors provides
specialized services, including recordkeeping, for institutional
investors of the Fund. The cost of these services is not borne by the
Fund.
Investor Services may pay certain financial institutions which maintain
omnibus accounts with the Fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such beneficial
owners. For each beneficial owner in the omnibus account, the Fund may
reimburse Investor Services an amount not to exceed the per account fee
which the Fund normally pays Investor Services. Such financial
institutions may also charge a fee for their services directly to their
clients.
Additional Information Regarding Taxation
- -------------------------------------------------------------------------
As stated in the Prospectus, each Series of the Fund has elected to be
treated as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code"), qualified as such, and
intends to continue to so qualify. The Board of Directors reserve the
right not to maintain the qualification of a Series as a regulated
investment company if they determine such course of action to be
beneficial to the shareholders. In such case, the Series will be subject
to federal and possibly state corporate taxes on its taxable income and
gains, and distributions to shareholders will be ordinary dividend income
to the extent of the Series' available earnings and profits.
Subject to the limitations discussed below, all or a portion of the
income distributions paid by a Series (with the exception of the U.S.
Government Securities Series) may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction
under federal income tax law. If the aggregate qualifying dividends
received by the Series (generally, dividends from U.S. domestic
corporations, the stock in which is not debt-financed by the Series and
is held for at least a minimum holding period) are less than 100% of its
distributable income, then the amount of the Series' dividends paid to
corporate shareholders which may be designated as eligible for such
deduction will not exceed the aggregate qualifying dividends received by
the Series for the taxable year. The amount or percentage of income
qualifying for the corporate dividends-received deduction will be
declared by the Series annually in a notice to shareholders mailed
shortly after the end of the Series' fiscal year.
Corporate shareholders should note that dividends paid by a Series from
sources other than the qualifying dividends it receives will not qualify
for the dividends-received deduction. For example, any interest income
and net short-term capital gain (in excess of any net long-term capital
loss or capital loss carryover) included in investment company taxable
income and distributed by a Series as a dividend will not qualify for the
dividends-received deduction.
Corporate shareholders should also note that availability of the
corporate dividends-received deduction is subject to certain
restrictions. For example, the deduction is eliminated unless the shares
in a Series have been held (or deemed held) for at least 46 days in a
substantially unhedged manner. The dividends-received deduction may also
be reduced to the extent interest paid or accrued by a corporate
shareholder is directly attributable to its investment in shares of a
Series. The entire dividend, including the portion which is treated as a
deduction, is includable in the tax base on which the alternative minimum
tax is computed and may also result in a reduction in the shareholder's
tax basis in its shares of the Series, under certain circumstances, if
the shares have been held for less than two years. Corporate shareholders
whose investment in a Series is "debt financed" for these tax purposes
should consult with their tax advisors concerning the availability of the
dividends-received deduction.
The Code requires all regulated investment companies to distribute at
least 98% of their taxable ordinary income earned during the calendar
year and at least 98% of their capital gain net income earned during the
12-month period ending October 31 of each year (in addition to amounts
from the prior year that were neither distributed, nor taxed to the
Series) to shareholders by December 31 of each year in order to avoid the
imposition of a federal excise tax. Under these rules, certain
distributions which are declared in October, November or December but
which, for operational reasons, may not be paid to the shareholder until
the following January, will be treated for tax purposes as if paid by the
Series and received by the shareholder on December 31 of the calendar
year in which they are declared. Each Series intends as a matter of
policy to declare and pay such dividends, if any, in December to avoid
the imposition of this tax, but does not guarantee that its distributions
will be sufficient to avoid any or all federal excise taxes.
Each Series' transactions in options may be limited by the requirements
for qualification as a regulated investment company and may reduce the
portion of the Income Fund's dividends which is eligible for the
corporate dividends-received deduction. These transactions are subject to
special tax rules that may affect the amount, timing and character of
certain distributions to shareholders.
Gain realized by a Series from transactions entered into after April 30,
1993 that are deemed to constitute "conversion transactions" under the
Code and which would otherwise produce capital gain may be
recharacterized as ordinary income to the extent that such gain does not
exceed an amount defined by the Code as the "applicable imputed income
amount." A conversion transaction is any transaction in which
substantially all of the Series' expected return is attributable to the
time value of the Series' net investment in such transaction and any one
of the following criteria are met: 1) there is an acquisition of property
with a substantially contemporaneous agreement to sell the same or
substantially identical property in the future; 2) the transaction is an
applicable straddle; 3) the transaction was marketed or sold to the
Series on the basis that it would have the economic characteristics of a
loan but would be taxed as capital gain; or 4) the transaction is
specified in Treasury regulations to be promulgated in the future. The
applicable imputed income amount, which represents the deemed return on
the conversion transaction based upon the time value of money, is
computed using a yield equal to 120 percent of the applicable federal
rate, reduced by any prior recharacterizations under this provision or
Section 263(g) of the Code concerning capitalized carrying costs.
Redemptions and exchanges of shares of a Series are taxable transactions
for federal and state income tax purposes. For most shareholders, gain or
loss will be recognized in an amount equal to the difference between the
shareholder's basis in the shares and the amount realized from the
transaction, subject to the rules described below. If such shares are a
capital asset in the hands of the shareholder, gain or loss will be
capital gain or loss and will be long-term for federal income tax
purposes if the shares have been held for more than one year.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after
such redemption. Any loss disallowed under these rules will be added to
the tax basis of the shares purchased.
Each Series, other than the U.S. Government Securities Series, may be
subject to foreign withholding taxes on income from certain of its
foreign securities. Because a Series generally has not invested and does
not intend in the future to invest more than 50% of its total assets in
securities of foreign corporations, it is not entitled under the Code to
pass through to its shareholders their pro rata share of the foreign
taxes paid by each Series. These taxes will be taken as a deduction by
each Series.
Foreign exchange gains and losses realized by a Series (except for the
U.S. Government Securities Series) in connection with certain
transactions involving foreign currencies, foreign currency payables or
receivables and foreign currency-denominated debt securities are subject
to special tax rules which may cause such gains and losses to be treated
as ordinary income and losses rather than capital gains and losses and
may affect the amount and timing of the Series' income or loss from such
transactions and in turn its distributions to shareholders. Additionally,
investments in foreign securities pose special issues to the Series in
meeting its asset diversification and income tests as a regulated
investment company. The Series will limit its investments in foreign
securities to the extent necessary to comply with these requirements.
If a Series owns shares in a foreign corporation that constitutes a
"passive foreign investment company" (a "PFIC") for federal income tax
purposes and the Series does not elect to treat the foreign corporation
as a "qualified electing fund" within the meaning of the Code, the Series
may be subject to U.S. federal income on a portion of any "excess
distribution" it receives from the PFIC or any gain it derives from the
disposition of such shares, even if such income is distributed as a
taxable dividend by the Series to its U.S. shareholders. The Series may
also be subject to additional interest charges in respect of deferred
taxes arising from such distributions or gains. Any federal income tax
paid by the Series as a result of its ownership on shares of a PFIC will
not give rise to a deduction or credit to the Series or to any
shareholder. A PFIC means any foreign corporation if, for the taxable
year involved, either (i) it derives at least 75 percent of its income
from "passive income" (including, but not limited to, interest,
dividends, royalties, rents and annuities), or (ii) on average, at least
50 percent of the value (or adjusted basis, if elected) of the assets
held by the corporation produce "passive income".
On April 1, 1992, proposed U.S. Treasury regulations were issued
regarding a special mark to market election for regulated investment
companies. Under these regulations, the annual mark-to-market gain, if
any, on shares held by the Series in a PFIC would be treated as an excess
distribution received by the Series in the current year, eliminating the
deferral and the related interest charge. Such excess distribution
amounts are treated as ordinary income, which the Series will be required
to distribute to shareholders even though the Series has nor received any
cash to satisfy this distribution requirement. These regulations would be
effective for taxable years ending after the promulgation of the proposed
regulations as final regulations.
The Fund's Underwriter
- -------------------------------------------------------------------------
Pursuant to an underwriting agreement in effect until January 31, 1996,
Distributors acts as principal underwriter in a continuous public
offering for shares of the Fund.
Distributors pays the expenses of distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Fund pays the
expenses of preparing and printing amendments to its registration
statements and prospectuses (other than those necessitated by the
activities of Distributors) and of sending prospectuses to existing
shareholders.
The underwriting agreement will continue in effect for successive annual
periods provided that its continuance is specifically approved at least
annually by a vote of the Fund's Board of Directors, or by a vote of the
holders of a majority of the Fund's outstanding voting securities of each
Series, and in either event by a majority vote of the Fund's Directors
who are not parties to the underwriting agreement or interested persons
of any such party (other than as Directors of the Fund), cast in person
at a meeting called for that purpose. The underwriting agreement
terminates automatically in the event of its assignment and may be
terminated by either party on 90 days' written notice.
Until April 30, 1994, income dividends were reinvested at the offering
price (which includes the sales charge) and Distributors allowed 50% of
the entire commission to the securities dealer of record, if any, on an
account. Starting with any income dividends paid after April 30, 1994,
such reinvestment will be at net asset value.
During the fiscal years ended September 30, 1992, 1993 and 1994 the
underwriting commissions received by Distributors and the amounts
retained, after allowances to dealers, were as follows:
<TABLE>
<CAPTION>
Fiscal Year - September 30, 1992
--------------------------------
Commissions Commissions
Fund Received Retained
- ------------------- ----------- -----------
<S> <C> <C>
Growth Series $ 6,974,586 $ 140,198
DynaTech Series 422,909 9,080
Utilities Series 34,962,588 1,259,483
Income Series 29,353,676 1,424,578
U.S. Government
Securities Series 85,957,197 7,051,315
Fiscal Year - September 30, 1992
--------------------------------
<CAPTION>
Commissions Commissions
Fund Received Retained
- ------------------- ----------- -----------
<S> <C> <C>
Growth Series $ 3,960,004 $ 112,573
DynaTech Series 313,990 12,277
Utilities Series 48,570,562 1,885,048
Income Series 48,743,641 2,014,263
U.S. Government
Securities Series 79,919,762 6,885,309
<CAPTION>
Fiscal Year - September 30, 1992
--------------------------------
Commissions Commissions
Fund Received Retained
- ------------------- ----------- -----------
<S> <C> <C>
Growth Series $ 2,157,161 $ 213,992
DynaTech Series 172,942 4,415
Utilities Series 19,947,028 1,181,619
Income Series 53,164,210 1,717,009
U.S. Government
Securities Series 35,631,313 4,226,864
</TABLE>
Distributors may be entitled to reimbursement under the Distribution Plan
of the Fund as discussed below. Except as noted, Distributors received no
other compensation from the Fund for acting as underwriter.
Distribution Plan
The Plans of Distribution (the "Plans") pursuant to Rule 12b-1 of the
1940 Act, as adopted, provide for the Series to pay up to a maximum of
0.25% with respect to the Growth and DynaTech Series and 0.15% with
respect to the Income, Utilities, and U.S. Government Securities Series,
per annum of their average daily net assets for expenses incurred in the
promotion and distribution of their shares.
In implementing such Plans, the Board has determined that initially, the
annual fees payable thereunder with respect to the Growth and DynaTech
Series, will be equal to the sum of: (i) the amount obtained by
multiplying 0.25% by the average daily net assets represented by shares
of the Series that were acquired by investors on or after the Effective
Date of the Plan ("New Assets") of such Series, and (ii) the amount
obtained by multiplying 0.15% by the average daily net assets represented
by shares of the Series that were acquired before the Effective Date of
the Plan ("Old Assets") of such Series. Such fees will be paid to the
current securities dealer of record on the shareholder's account. In
addition, until such time as the maximum payment is reached on a yearly
basis, up to an additional 0.05% will be paid to Distributors under the
Plans for the Growth and DynaTech Series. With respect to the Income and
Utilities Series, the annual fees payable thereunder will be equal to the
sum of: (i) the amount obtained by multiplying 0.15% by the average daily
net assets represented by the New Assets of such Series, and (ii) the
amount obtained by multiplying 0.10% by the average daily net assets
represented by the Old Assets of such Series. With respect to the U.S.
Government Securities Series, the annual fees payable thereunder will be
equal to the sum of: (i) the amount obtained by multiplying 0.15% by the
New Assets of such Series, and (ii) the amount obtained by multiplying
0.05% by the Old Assets of such Series. Such fees will be paid to the
current securities dealer of record on the shareholder's account. In
addition, until such time as the maximum payment of 0.15% with respect to
the Income, Utilities and U.S. Government Securities Series is reached on
a yearly basis, up to an additional 0.02% will be paid to Distributors
under the Plan. The payments to be made to Distributors will be used by
Distributors to defray other marketing expenses that have been incurred
in accordance with the Plans, such as advertising.
While this is the currently anticipated method for calculating the Rule
12b-1 fees to be paid by each Series, the fee is a Series expense so that
all shareholders, regardless of when they purchased their shares, will
bear Rule 12b-1 expenses at the same rate. That rate initially will be at
least 0.20% (0.15% plus 0.05%) for the Growth and DynaTech Series; 0.12%
(0.10% plus 0.02%) for the Income and Utilities Series; and 0.07% (0.05%
plus 0.02%) for the U.S. Government Securities Series of such average
daily net assets and, as each Series' shares are sold on or after the
Effective Date, will increase over time. Thus, as the proportion of a
Series' shares purchased on or after the Effective Date to outstanding
Series shares increases, the expenses attributable to payments under the
Plan will also increase (but will not exceed the maximum allowable under
each Plan). While this is the currently anticipated calculation for fees
payable under the Plans, the Plans permit the Fund's Directors to allow
the Growth and DynaTech Series to pay a full 0.25% and the Income,
Utilities, and U.S. Government Securities Series to pay a full 0.15% on
all assets both Old and New at any time. The approval of the Fund's Board
of Directors would be required to change the calculation of the payments
to be made under the Plan.
Pursuant to the Plans, Distributors or others will be entitled to be
reimbursed each quarter (up to the maximum as stated above) for actual
expenses incurred in the distribution and promotion of each Series'
shares, including, but not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing
sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of
Distributors' overhead expenses attributable to the distribution of
shares of each Series, as well as any distribution or service fees paid
to securities dealers or their firms or others who have executed a
servicing agreement with the Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled
under the Plans, the Plans also provide that to the extent a Series, the
Manager or Distributors or other parties on behalf of a Series, the
Manager or Distributors, make payments that are deemed to be payments for
the financing of any activity primarily intended to result in the sale of
shares of a Series within the context of Rule 12b-1 under the 1940 Act,
then such payments shall be deemed to have been made pursuant to a Plan.
In no event shall the aggregate asset-based sales charges which include
payments made under a Plan, plus any other payments deemed to be made
pursuant to a Plan, exceed the amount permitted to be paid pursuant to
the Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d)4.
The terms and provisions of the Plans relating to required reports, term,
and approval are consistent with Rule 12b-1. The Plans do not permit
unreimbursed expenses incurred in a particular year to be carried over to
or reimbursed in subsequent years.
To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions,
certain banks will not be entitled to participate in the Plans as a
result of applicable federal law prohibiting certain banks from engaging
in the distribution of mutual fund shares. Such banking institutions,
however, are permitted to receive fees under a Plan for administrative
servicing or for agency transactions. If a bank were prohibited from
providing such services, its customers who are shareholders would be
permitted to remain shareholders of the Series, and alternate means for
continuing the servicing of such shareholders would be sought. In such an
event, changes in the services provided might occur and such shareholders
might no longer be able to avail themselves of any automatic investment
or other services then being provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a
result of any of these changes. Securities laws of states in which the
Series' shares are offered for sale may differ from the interpretations
of federal law expressed herein, and banks and financial institutions
selling shares of the Fund may be required to register as dealers
pursuant to state law.
The Plans were approved by shareholders on April 18, 1994 and by the
directors of the Fund, including those directors who are not interested
persons, as defined in the 1940 Act. The Plans are effective through
April 30, 1995 and are renewable annually by a vote of the Fund's Board
of Directors, including a majority vote of the directors who are non-
interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan, cast in person at a
meeting called for that purpose. It is also required that the selection
and nomination of such directors be done by the non-interested directors.
The Plans and any related agreements may be terminated at any time, with-
out any penalty, by vote of a majority of the non-interested directors on
not more than 60 days' written notice, by Distributors on not more than
60 days' written notice, by any act that constitutes an assignment of a
Management Agreement with the Manager or, as to each Series, by vote of a
majority of the Series' outstanding shares. Distributors or any dealer or
other firm may also terminate their respective distribution or service
agreement at any time upon written notice.
The Plans and any related agreements may not be amended to increase
materially the amount to be spent for distribution expenses without
approval by a majority of the Series' outstanding shares, and all
material amendments to the Plans or any related agreements shall be
approved by a vote of the non-interested directors, cast in person at a
meeting called for the purpose of voting on any such amendment.
Distributors is required to report in writing to the Board of Directors
at least quarterly on the amounts and purpose of any payment made under
the Plans and any related agreements, as well as to furnish the Board of
Directors with such other information as may reasonably be requested in
order to enable the Board of Directors to make an informed determination
of whether the Plans should be continued.
<TABLE>
<CAPTION>
Payments Under 12b-1 Plans
Fiscal Years Ended September 30, 1994*
- ----------------------------------------------------------------------------------------------------------
U.S.
Growth DynaTech Utilities Income Government
Category Series Series Series Series Series
- ------------------------------ ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Advertising $157,000 $11,000 $ 384,000 $ 484,000 $1,011,000
Printing/Mailing Prospectuses 35,000 25,000 124,000 194,000 375,000
Payments to Underwriters 9,000 1,000 41,000 194,000 112,000
Payments to Brokers or Dealers 235,000 16,000 824,000 1,549,000 2,248,000
- ------------------------------ ---------- --------- ---------- ---------- -----------
Total $435,000 $52,000 $1,374,000 $2,421,000 $3,746,000
*Information taken from Form NSAR for the period ended September 30,
1994. Figures are rounded to the nearest $1000, and columns may not sum
precisely due to rounding.
</TABLE>
General Information
- -------------------------------------------------------------------------
Performance
As noted in the Prospectus, a Series may from time to time quote various
performance figures to illustrate the Series' past performance. It may
occasionally cite statistics to reflect its volatility or risk.
Performance quotations by investment companies are subject to rules
adopted by the SEC. These rules require the use of standardized
performance quotations or, alternatively, that every non-standardized
performance quotation furnished by the Series be accompanied by certain
standardized performance information computed as required by the SEC.
Current yield and average annual compounded total return quotations used
by the Series are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other
methods used by the Fund to compute or express performance follows.
Total Return
The average annual total return is determined by finding the average
annual compounded rates of return over one-, five- and ten-year periods
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes the maximum sales charge is
deducted from the initial $1,000 purchase order, and income dividends and
capital gains are reinvested at net asset value. The quotation assumes
the account was completely redeemed at the end of each one-, five- and
ten-year period and the deduction of all applicable charges and fees. If
a change is made in the sales charge structure, historical performance
information will be restated to reflect the maximum sales charge in
effect currently.
In considering the quotations of total return by the Fund, investors
should remember that the maximum sales charge reflected in each quotation
is a one time fee (charged on all direct purchases) which will have its
greatest impact during the early stages of an investor's investment in a
Series. The actual performance of an investment will be affected less by
this charge the longer an investor retains the investment. The average
annual compounded rate of return for each Series for the indicated
periods ended on the date of the financial statements included herein was
as follows:
<TABLE>
<CAPTION>
One-Year Five-Year Ten-Year
Fund Name Period Period Period
- ------------------- -------- --------- --------
<S> <C> <C> <C>
Growth Series 2.88% 6.56% 13.13%
DynaTech Series -1.65% 9.10% 9.79%
Utilities Series -21.35% 6.28% 10.65%
Income Series -5.58% 10.98% 12.49%
U.S. Government
Securities Series -6.73% 6.79% 9.24%
</TABLE>
These figures were calculated according to the SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five- or ten-year periods at the end of the
one-, five- or ten-year periods (or fractional portion thereof).
As discussed in the Prospectus, a Series may quote total rates of return
in addition to its average annual total return. Such quotations are
computed in the same manner as a Series' average annual compounded rate,
except that such quotations will be based on each Series' actual return
for a specified period rather than its average return over one-, five-
and ten-year periods.
The total rates of return for each Series for the indicated periods ended
on the date of the financial statements included herein was as follows:
<TABLE>
<CAPTION>
One-Year Five-Year Ten-Year
Fund Name Period Period Period
- ------------------- -------- --------- --------
<S> <C> <C> <C>
Growth Series 2.88% 37.41% 243.43%
DynaTech Series -1.65% 54.59% 154.54%
Utilities Series -21.35% 35.62% 175.13%
Income Series -5.58% 68.33% 224.57%
U.S. Government
Securities Series -6.73% 38.86% 141.97%
</TABLE>
Yield
Current yield reflects the income per share earned by each Series'
portfolio investments.
Current yield is determined by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price
per share on the last day of the period and annualizing the result.
Expenses accrued for the period include any fees charged to all
shareholders during the base period. The yield figures for each Series
for the 30-day period ended on the date of the financial statements
included herein were as follows:
<TABLE>
<CAPTION>
30-Day
Yield
- ------------------- -------
<S> <C>
Growth Series 0.97%
DynaTech Series 0.58%
Utilities Series 6.23%
Income Series 7.46%
U.S. Government
Securities Series 6.99%
</TABLE>
These figures were obtained using the following SEC formula:
6
Yield = 2 [(a-b + 1) -1]
---
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period
that were entitled to receive income distributions
d = the maximum offering price per share on the last day of the period
Current Distribution Rate
Yield which is calculated according to a formula prescribed by the SEC is
not indicative of the amounts which were or will be paid to the Fund's
shareholders. Amounts paid to shareholders are reflected in the quoted
"current distribution rate." The current distribution rate is computed by
dividing the total amount of dividends per share paid by a Series during
the past 12 months by a current maximum offering price. Under certain
circumstances, such as when there has been a change in the amount of
dividend payout, or a fundamental change in investment policies, it might
be appropriate to annualize the dividends paid over the period such
policies were in effect, rather than using the dividends during the past
12 months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from
sources other than dividends and interest, such as premium income from
option writing and short-term capital gains, and is calculated over a
different period of time. The current distribution rate for each Series
as of the date of the accompanying financial statements were as follows:
Current
Distribution
Rate
------------
Growth Series 1.90%
DynaTech Series 1.20%
Utilities Series 6.02%
Income Series 7.76%
U.S. Government
Securities Series 7.06%
Volatility
Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare a Series'
net asset value or performance relative to a market index. One measure of
volatility is beta. Beta is the volatility of a fund relative to the
total market as represented by the Standard & Poor's 500 Stock Index. A
beta of more than 1.00 indicates volatility greater than the market, and
a beta of less than 1.00 indicates volatility less than the market.
Another measure of volatility or risk is standard deviation. Standard
deviation is used to measure variability of net asset value or total
return around an average, over a specified period of time. The premise is
that greater volatility connotes greater risk undertaken in achieving
performance.
Other Performance Quotations
With respect to those categories of investors who are permitted to
purchase shares of a Series of the Fund at net asset value, sales
literature pertaining to the Series may quote a current distribution
rate, yield, total return, average annual total return and other measures
of performance, as described elsewhere in this Statement of Additional
Information, with the substitution of net asset value for the public
offering price.
Sales literature referring to the use of the Fund or any of its Series as
a potential investment for Individual Retirement Accounts (IRAs),
Business Retirement Plans, and other tax-advantaged retirement plans may
quote a total return based upon compounding of dividends on which it is
presumed no federal income tax applies.
Regardless of the method used, past performance is not necessarily
indicative of future results, but is an indication of the return to
shareholders only for the limited historical period used.
The Fund may include in its advertising or sales material information
relating to investment objectives and performance results of funds
belonging to the Templeton Group of Funds. Resources is the parent
company of the advisers and underwriter of both the Franklin Group of
Funds and Templeton Group of Funds.
Comparisons
To help investors better evaluate how an investment in a Series of the
Fund might satisfy their investment objective, advertisements and other
materials regarding the Fund or any of its Series may discuss various
measures of the Series' performance as reported by various financial
publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. Such comparisons may include, but are not limited to, the
following examples.
a) Dow Jones Composite Average or its component averages - an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow Jones
Industrial Average), 15 utilities company stocks (Dow Jones Utilities
Average), and 20 transportation company stocks. Comparisons of
performance assume reinvestment of dividends.
b) Standard & Poor's 500 Stock Index or its component indices - an
unmanaged index composed of 400 industrial stocks, 40 financial stocks,
40 utilities stocks, and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.
c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation, and finance stocks
listed on the New York Stock Exchange.
d) Wilshire 5000 Equity Index - represents the return on the market value
of all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.
e) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income
Fund Performance Analysis - measure total return and average current
yield for the mutual fund industry. Rank individual mutual fund
performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
f) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
- - analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time
periods for the mutual fund industry.
g) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes
price, yield, risk, and total return for equity funds.
h) Financial publications: The Wall Street Journal and Business Week,
Changing Times, Financial World, Forbes, Fortune, and Money magazines -
provide performance statistics over specified time periods.
i) Consumer Price Index (or Cost of Living Index), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time,
in the price of goods and services in major expenditure groups.
j) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates
- - historical measure of yield, price, and total return for common and
small company stock, long-term government bonds, Treasury bills, and
inflation.
k) Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.
l) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill, Lynch,
Pierce, Fenner & Smith, Lehman Brothers and Bloomberg L.P.
In addition to the indices listed above, the following specific
comparisons may be appropriate:
Utilities Fund may be compared to Moody's Utilities Stock Index, an
unmanaged index of utility stock performance.
DynaTech Fund may be compared to:
a) Hambrecht & Quist Technology Index - an unmanaged index of technology-
based companies published by Hambrecht & Quist.
b) Pacific Stock Exchange Technology Index - an unmanaged index
representing a wide variety of technology-based companies ranging from
established companies to emerging growth companies.
c) Over-the-Counter (OTC) Composite Stock Index - an unmanaged index of
stock performance of all stocks listed in the OTC market.
Income Fund and U.S. Government Securities Fund may be compared to:
a) Salomon Brothers Broad Bond Index or its component indices - The Broad
Index measures yield, price, and total return for Treasury, Agency,
Corporate, and Mortgage bonds.
b) Lehman Brothers Aggregate Bond Index or its component indices - The
Aggregate Bond Index measures yield, price and total return for Treasury,
Agency, Corporate, Mortgage, and Yankee bonds.
c) Standard & Poor's Bond Indices - measures yield and price of
Corporate, Municipal, and Government bonds.
d) Other taxable investments including certificates of deposit (CDs),
money market deposit accounts (MMDAs), checking accounts, savings
accounts, money market mutual funds, and repurchase agreements.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the portfolio of any Series of the Fund,
that the averages are generally unmanaged, and that the items included in
the calculations of such averages may not be identical to the formula
used by any Series to calculate its figures. In addition there can be no
assurance that any Series of the Fund will continue this performance as
compared to such other averages.
From time to time, Fund advertisements or information may include a
discussion of certain attributes or benefits to be derived by an
investment in any of the Fund's Series. Such advertisements or
information may include symbols, headlines, or other material which
highlight or summarize the information discussed in more detail in the
communication. For example:
1. Franklin pioneered the concept of Ginnie Mae funds, and the U.S.
Government Securities Series, with over $11 billion in assets and more
than 500,000 shareholders at the end of its fiscal year, is one of the
largest Ginnie Mae funds in the U.S. and the world. Shareholders in this
Series, which has a history of solid performance, range from individual
investors with a few thousand dollars to institutions that have invested
millions of dollars.
The U.S. Government Securities Series offers investors the opportunity to
invest in GNMAs, which are among the highest yielding U.S. government
securities on the market.
2. Advertisements or information about the U.S. Government Securities
Series may compare the Series' performance to the return on certificates
of deposit or other investments. Investors should be aware, however, that
an investment in the U.S. Government Securities Series involves the risk
of fluctuation of principal value, a risk generally not present in an
investment in a certificate of deposit issued by a bank. For example, as
the general level of interest rates rise, the value of the U.S.
Government Series' fixed-income investments, as well as the value of its
shares which are based upon the value of such portfolio investments, can
be expected to decrease. Conversely, when interest rates decrease, the
value of the Series' shares can be expected to increase. Certificates of
deposit are frequently insured by an agency of the U.S. government. An
investment in the Series is not insured by any federal, state or private
entity.
3. Over the life of the Utilities Series, dividends have increased in 28
of the last 46 years. Historically, equity securities of utility
companies have paid a higher level of dividends than that paid by the
general stock market. The Utilities Series, well established for over 40
years, is the oldest mutual fund in the U.S. investing in securities
issued by public utility companies, primarily in the country's fast
growing regions, and the Series has been continuously managed by the same
portfolio manager since 1957.
4. The Franklin Income Series has paid uninterrupted dividends for the
past 46 years.
5. The Franklin Growth Series offers investors a convenient way to invest
in a diversified portfolio of America's established growth companies,
companies that are leaders in their industries.
6. The Franklin Growth Series made the 1990 and 1991 Forbes Mutual Fund
Honor Roll for its performance in both up and down markets.
Other Features and Benefits
The Series of the Fund may be used in various ways by investors to
achieve their investment goals. The following list reflects some of the
ways in which the Series of the Fund may be used to achieve investment
objectives or to illustrate other benefits:
Dollar Cost Averaging - The Series of the Fund can be used in programs
involving dollar cost averaging to help investors reduce the per share
costs of their investments over time.
Retirement Planning - The Series of the Fund can be used to help an
investor build a retirement plan. The Franklin Retirement Planning Guide
leads an investor through the steps to start a retirement savings
program. Of course, an investment in the Fund cannot guarantee that such
goals will be met.
College Costs - The Series of the Fund can be used to help an investor
save for educational costs. The Franklin College Costs Planner may assist
an investor in determining how much money must be invested on a monthly
basis in order to have a projected amount available in the future to fund
a child's college education. (Projected college cost estimates are
published by the College Board.) Of course, an investment in the Fund
cannot guarantee that such goals will be met.
Price Stability - The example below can be used to illustrate the
stability of the Income Series' net asset value, when compared to the Dow
Jones industrial average, during periods of market volatility:
Dow Jones Fund's Net
Date Average Asset Value
- ----------------- --------- -----------
10/16/87 2246.73 $2.19
10/19/87 1738.41 $2.12
--------- -----------
Change -508.32 -.07
04/13/88 2107.09 $2.17
04/14/88 2005.63 $2.16
--------- -----------
Change -101.46 -.01
Each Series may also be discussed in shareholder newsletters; with the
Franklin Automatic Investment Plan; in articles discussing tax planning;
in discussions about using Franklin Gift Certificates to purchase shares
of a Series; to demonstrate the benefits offered by professional
management.
In advertising ratings or rankings of the Franklin Group of
Funds(registered trademark) operations, the Funds may advertise, together
or separately, the following past rating, and such information in that
category that may appear in the future:
The Series of the Fund are members of the Franklin Templeton Group, one
of the largest mutual fund organizations in the United States and may be
considered in a program for diversification of assets. Founded in 1947,
Franklin, one of the oldest mutual fund organizations, has managed mutual
funds for over 45 years. In 1992, Franklin, a leader in managing fixed-
income mutual funds and an innovator in creating domestic equity funds,
joined forces with Templeton Worldwide, Inc., a pioneer in international
investing. Together, the Franklin Templeton Group has over $114 billion
in assets under management for more than 3.7 million shareholder accounts
and offers 111 U.S.-based mutual funds. The Fund may identify itself by
its NASDAQ or CUSIP number.
Franklin has been ranked number one in service quality in the Dalbar
Surveys, Inc. broker/dealer survey for five of the past seven years. One
other fund group was also ranked number one in 1993.
Ownership and Authority Disputes
In the event of disputes involving multiple claims of ownership or
authority to control a shareholder's account, the Fund has the right (but
has no obligation) to (a) freeze the account and require the written
agreement of all persons deemed by the Fund to have a potential property
interest in the account, prior to executing instructions regarding the
account; (b) interplead disputed funds or accounts with a court of
competent jurisdiction; or (c) surrender ownership of all or a portion of
the account to the Internal Revenue Service in response to a Notice of
Levy.
Additional Information for
Institutional Investors
As the investments permitted to the U.S. Government Securities Series are
limited to securities issued or guaranteed by the U.S. government or its
agencies and instrumentalities, the shares of the U.S. Government
Securities Series are generally eligible for investment by federally-
chartered credit unions, federally-chartered savings and loan
associations, national banks and the National Marine Fisheries Service
Capital Construction Fund. While the Series is not aware of any
investments permitted to it which would destroy such eligibility, it has
agreed for the benefit of such federally-chartered institutions to
refrain from such investments should the situation arise. The U.S.
Government Securities Series may be a permissible investment for certain
state-chartered institutions as well.
ALL INSTITUTIONAL INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE
LEGAL INVESTMENTS FOR THEM.
FRANKLIN CUSTODIAN FUNDS, INC.
- ---------------------------------------------------------------------------
Report of Independent Auditors
To the Shareholders and Board of Directors
of Franklin Custodian Funds, Inc.:
We have audited the accompanying statements of assets and liabilities of
the funds comprising the Franklin Custodian Funds, Inc., including each Fund's
statement of investments in securities and net assets, as of September 30,
1994, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights included under the caption "Financial
Highlights" for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmations of
securities owned as of September 30, 1994, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of the funds comprising the Franklin Custodian Funds, Inc. as of September
30, 1994, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
October 28, 1994
FRANKLIN CUSTODIAN FUNDS, INC.
- -------------------------------------------------------------------------
Statement of Investments in Securities and Net Assets, September 30, 1994
<TABLE>
<CAPTION>
Value
Shares Growth Fund (Note 1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 98.7%
Aerospace 7.9%
200,000 Boeing Co. $ 8,625,000
20,000 Lockheed Corp. 1,392,500
130,000 Martin Marietta Corp. 5,785,000
221,000 Raytheon Co. 14,171,625
50,000 Rockwell International Corp. 1,712,500
120,000 Thiokol Corp. 2,925,000
100,000 United Technologies Corp. 6,262,500
------------
40,874,125
------------
Auto Parts .6%
90,000 Genuine Parts Co. 3,161,250
------------
a Biotechnology 2.3%
100,000 Amgen, Inc. 5,325,000
120,000 Genentech, Inc. 6,300,000
20,000 Immunex Corp. 275,000
8,000 Therapeutic Discovery Corp. 46,500
------------
11,946,500
------------
Business Services 5.9%
110,000 Avery Dennison Corp. 3,781,250
244,000 Dun & Bradstreet Corp. 14,030,000
200,000 Equifax, Inc. 5,925,000
250,000 Kelly Services, Inc., Class A 6,578,125
345,300 a,e,f,m Programming & Systems, Inc. 6,906
------------
30,321,281
------------
Chemicals 4.2%
200,000 Air Products & Chemicals, Inc. 9,350,000
25,000 Eastman Chemical Co. 1,359,375
20,000 Loctite Corp. 860,000
116,000 Mallinckrodt Group, Inc. 3,755,500
100,000 NCH Corp. 6,175,000
------------
21,499,875
------------
Communications & Entertainment 7.7%
300,000 American Greetings Corp., Class A 8,662,500
100,000 Capital Cities/ABC, Inc. 8,200,000
200,000 Disney (Walt) Co. 7,775,000
100,000 a Intervisual Books, Inc. 262,500
10,000 a King World Productions, Inc. 382,500
300,000 Time Warner, Inc. 10,537,500
200,000 Turner Broadcasting Systems, Class A 3,925,000
------------
39,745,000
------------
Cosmetics .2%
12,700 International Flavors and Fragrances, Inc. 528,638
30,000 a Perrigo Co. 405,000
------------
933,638
------------
Data Processing 9.0%
200,000 Automatic Data Processing, Inc. 11,225,000
450,000 a Computer Sciences Corp. 19,575,000
140,000 International Business Machines Corp. 9,730,000
210,000 Wallace Computer Services, Inc. 6,195,000
------------
46,725,000
------------
Diamonds .9%
210,000 DeBeers Consolidated Mines, Ltd., ADR 4,961,250
------------
Diversified Manufacturers 4.0%
280,000 Minnesota Mining & Manufacturing Co. 15,470,000
100,000 National Service Industries, Inc. 2,650,000
66,600 Teleflex, Inc. 2,380,950
------------
20,500,950
------------
Electronics & Electrical Equipment 7.4%
30,000 a American Power Conversion Corp. 601,875
200,000 AMP, Inc. 15,475,000
40,000 Emerson Electric Co. 2,385,000
90,000 Hewlett-Packard Co. 7,863,750
43,750 Molex, Inc. 1,862,109
43,750 Molex, Inc., Class A 1,717,188
200,000 Raychem Corp. 8,200,000
------------
38,104,922
------------
Energy/Energy Services 5.5%
90,000 Atlantic Richfield Co. 9,078,750
300,000 Coastal Co. 8,362,500
40,000 Murphy Oil Corp. 1,740,000
70,000 Royal Dutch Petroleum Co., New York Shares 7,516,250
30,000 Schlumberger, Ltd. 1,631,250
------------
28,328,750
------------
Environmental Protection & Purification 8.9%
100,000 Betz Laboratories, Inc. 4,737,500
165,000 Browning-Ferris Industries, Inc. 5,238,750
115,000 a Ionics, Inc. 5,606,250
200,000 Millipore Corp. 10,750,000
256,500 a Osmonics, Inc. 3,911,625
209,100 Pall Corp. 3,606,975
270,000 Wheelabrator Technology, Inc. 4,151,250
210,000 WMX Technologies, Inc. 6,063,750
100,000 Zurn Industries, Inc. 1,962,500
------------
46,028,600
------------
Food/Confectionery 1.1%
129,100 Hershey Foods Corp. 5,809,500
------------
Health Care - Diversified 9.9%
200,000 Abbott Laboratories 6,275,000
200,000 Allergan, Inc. 5,075,000
100,000 a Alza Corp., Class A 2,062,500
150,000 American Home Products Corp. 9,000,000
250,000 Baxter International, Inc. 7,031,250
62,500 Caremark International, Inc. 1,460,938
100,000 a Forest Laboratories, Inc., Class A 4,925,000
200,000 Johnson & Johnson, Inc. 10,325,000
100,000 a Respironics, Inc. 2,050,000
110,000 U.S. Surgical Corp. 2,956,250
------------
51,160,938
------------
Imaging/Photography 1.3%
100,000 Eastman Kodak Co. 5,175,000
38,000 Polaroid Corp. 1,334,750
------------
6,509,750
------------
Pharmaceuticals 9.5%
160,000 Bristol-Myers Squibb Co. 9,180,000
100,000 Lilly (Eli) & Co. 5,787,500
200,000 Merck & Co., Inc. 7,100,000
160,000 Pfizer, Inc. 11,060,000
225,000 Schering-Plough Corp. 15,975,000
------------
49,102,500
------------
Retailers 1.7%
15,000 Nature's Sunshine Products, Inc. 225,000
200,000 Tiffany & Co. 7,400,000
58,218 Weis Markets, Inc. 1,477,282
------------
9,102,282
------------
a Telecommunications 2.2%
225,000 Cabletron Systems, Inc. 10,715,625
20,000 Cisco Systems, Inc. 547,500
100,000 Network Computing Devices 375,000
------------
11,638,125
------------
Transportation 8.4%
150,000 a Alaska Air Group, Inc. 2,475,000
310,000 a AMR Corp. 15,965,000
250,000 Delta Air Lines, Inc. 11,187,500
87,500 a UAL Corp. 7,590,624
120,000 Union Pacific Corp. 6,435,000
------------
43,653,124
------------
Total Common Stocks (Cost $381,586,156) 510,107,360
------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
- ------------
<S> <C> <C>
j Short Term Investments
Bankers' Acceptances .3%
$ 1,450,000 Mitsubishi Bank, Ltd., New York Branch, 4.78%, 10/07/94
(Cost $1,448,844) 1,448,844
------------
10,000,000 Associate Corp. of North America, 4.76%, 10/06/94 - 10/07/94
(Cost $9,992,729) 9,992,729
------------
Total Investments before Repurchase Agreements
(Cost $393,027,729) 521,548,933
------------
k,l Receivables from Repurchase Agreements 1.5
7,858,118 Joint Repurchase Agreement, 4.782%, 10/03/94
(Maturity Value $7,656,314)
(Cost $7,653,264)
Collateral: U.S. Treasury Bills, 03/16/95 - 03/30/95
U.S. Treasury Notes, 3.875% - 9.375%,
11/15/94 - 03/31/99 7,653,264
------------
Total Investments (Cost $400,680,993) 102.4% 529,202,197
Liabilities in Excess of Other Assets, Net (2.4)% (12,582,676)
------------
Net Assets 100.0% $516,619,521
============
At September 30, 1994, the net unrealized appreciation based on
the cost of investments for income tax purposes of $400,782,327
was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $150,040,466
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (21,620,596)
------------
Net unrealized appreciation $128,419,870
============
a Non-income producing.
e Security value estimated by Board of Directors. See Note 1.
f See Note 10 regarding holdings of 5% voting securities.
j Certain short-term securities are traded on a discount
basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the
rates shown, payable at fixed dates or upon maturity.
k Face amount for repurchase agreements is for the underlying
collateral.
l See Note 1(h) regarding Joint Repurchase Agreement.
m Trading suspended.
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<TABLE>
<CAPTION>
FRANKLIN CUSTODIAN FUNDS, INC.
- -------------------------------------------------------------------------
Statement of Investments in Securities and Net Assets, September 30, 1994
Value
Shares DynaTech Fund (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 68.8%
Computer Hardware 5.4%
45,000 a Compaq Computer Corp. $ 1,468,125
25,000 Hewlett-Packard Co. 2,184,375
-----------
3,652,500
-----------
Computer Software 6.2%
15,000 a Broderbund Software, Inc. 802,500
45,000 a Microsoft Corp. 2,525,625
10,000 a Oracle Systems Corp. 430,000
10,000 a Sybase, Inc. 458,750
------------
4,216,875
------------
Environmental Services 4.4%
20,000 Browning-Ferris Industries, Inc. 635,000
80,000 WMX Technologies, Inc. 2,310,000
-----------
2,945,000
-----------
Media/Programming 2.6%
10,000 News Corp., Ltd., ADR 506,250
10,000 a QVC Network, Inc. 440,625
19,500 a Tele-Communications, Inc. 432,656
10,000 Time Warner, Inc. 351,250
-----------
1,730,781
-----------
Medical Services 4.1%
15,000 Columbia/HCA Healthcare Corp. 652,500
40,000 a Humana, Inc. 945,000
5,000 a Quorum Health Group, Inc. 95,000
20,000 United Healthcare Corp. 1,060,000
-----------
2,752,500
-----------
Networking 2.8%
30,000 a Cisco Systems, Inc. 821,250
20,000 ECI Telecommunications Limited Designs 352,500
20,000 a 3Com Corp. 747,500
-----------
1,921,250
-----------
Pharmaceutical Manufacturers 3.6%
15,000 Merck & Co., Inc. 532,500
10,000 Schering-Plough Corp. 710,000
15,000 Warner-Lambert Co. 1,203,750
-----------
2,446,250
-----------
Precision Instruments/Test Equipment 4.1%
2,225 a Comptronix Corp. 5,563
10,000 Schlumberger, Ltd. 543,750
15,000 Sensormatic Electrics Corp. 513,750
37,500 a Thermo Electron Corp. 1,720,313
-----------
2,783,376
-----------
Semiconductor/Manufacturer 11.5%
110,000 Intel Corp. 6,765,000
20,000 a Xilinx, Inc. 1,000,000
-----------
7,765,000
-----------
Specialty Pharmaceuticals 1.7%
15,000 a ALZA Corp., Class A 309,375
7,800 a Noven Pharmaceuticals, Inc. 100,425
20,000 Sigma-Aldrich Corp. 710,000
-----------
1,119,800
-----------
Specialty Retailers 6.8%
5,000 Amway Asia Pacific, Ltd. 150,625
10,000 a Discount Auto Parts, Inc. 165,000
10,000 Home Depot, Inc. 420,000
108,000 a Toys R Us, Inc. 3,847,500
-----------
4,583,125
-----------
Telecommunications 13.4%
25,000 AT & T Corp. 1,350,000
10,000 a Grupo Iusacell, S.A. de C.V., ADR 297,500
140,000 Motorola, Inc. 7,385,000
-----------
9,032,500
-----------
Transportation .8%
10,000 a AMR Corp. 515,000
-----------
Miscellaneous 1.4%
10,000 Duracell International, Inc. 456,250
8,100 c Grupo Financiero Bancomer, ADS 197,705
20,000 Interface, Inc., Class A 260,000
-----------
913,955
-----------
Total Common Stocks (Cost $20,933,054) 46,377,912
-----------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
- ------------
<S> <C> <C>
j Short Term Investments
Bankers' Acceptances 1.5%
$ 1,000,000 Mitsubishi Bank, Ltd., New York Branch, 4.79%, 10/13/94
(Cost $998,403) 998,403
-----------
Commercial Paper 13.3%
3,000,000 American Express Credit Corp., 4.77%, 10/17/94 2,993,640
3,000,000 Associate Corp. of North America, 4.76%, 10/06/94 2,998,017
3,000,000 General Electric Credit Corp., 4.77%, 10/14/94 2,994,832
-----------
Total Commercial Paper (Cost $8,986,489) 8,986,489
-----------
Total Investments before Repurchase Agreements
(Cost $30,917,946) 56,362,804
-----------
k,l Receivables from Repurchase Agreements 16.5%
11,399,436 Joint Repurchase Agreement, 4.782%, 10/03/94
(Maturity Value $11,105,865)
(Cost $11,101,441)
Collateral: U.S. Treasury Bills, 03/16/95 - 03/30/95
U.S. Treasury Notes, 3.875% - 9.375%,
11/15/94 - 03/31/99 11,101,441
-----------
Total Investments (Cost $42,019,387) 100.1% 67,464,245
Liabilities in Excess of Other Assets, Net (.1)% (51,661)
-----------
Net Assets 100.0% $67,412,584
===========
At September 30, 1994, the net unrealized appreciation based on
the cost of investment for income tax purposes of $42,019,387 was
as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $25,952,292
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (507,434)
-----------
Net unrealized appreciation $25,444,858
===========
a Non-income producing
c See Note 7 regarding Rule 144A securities.
j Certain short-term securities are traded on a discount
basis; the rates shown are the discount rates at the time of
purchase by the Fund. Other securities bear interest at the
rates shown, payable at fixed dates or upon maturity.
k Face amount for repurchase agreements is for the underlying
collateral.
l See Note 1(h) regarding Joint Repurchase Agreement.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
- -------------------------------------------------------------------------
Statement of Investments in Securities and Net Assets, September 30, 1994
<TABLE>
<CAPTION>
Value
Shares Utilities Fund (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 85.2%
1,336,900 a Airtouch Communications, Inc. $ 38,268,763
4,410,400 Allegheny Power System, Inc. 88,759,300
35,000 Alltel Corp. 945,000
2,886,100 American Electric Power Co., Inc. 90,551,388
10,000 Bellsouth Corp. 557,500
10,000 Carolina Power & Light Co. 263,750
1,306,690 CIPSCO, Inc. 35,443,966
3,878,000 Central & Southwest Corp. 86,285,500
10,000 Central Louisiana Electric, Inc. 223,750
2,157,800 Cincinnati Gas & Electric Co. 48,011,050
1,967,800 Delmarva Power & Light Co. 36,650,275
2,853,950 Dominion Resources, Inc. 106,309,638
15,000 DQE, Inc. 435,000
2,822,900 Duke Power Co. 110,093,100
3,134,000 Entergy Corp. 72,865,500
2,751,000 FPL Group, Inc. 89,407,500
2,220,175 Florida Progress Corp. 62,719,944
2,364,100 GTE Corp. 71,809,538
3,562,000 General Public Utilities Corp. 88,159,500
863,050 Hawaiian Electric Industries, Inc. 27,293,956
561,700 Houston Industries, Inc. 19,799,925
22,000 Ipalco Enterprises, Inc. 643,500
36,000 Kansas City Power & Light Co. 765,000
27,000 MDU Resources Group, Inc. 732,375
802,200 Midwest Resources, Inc. 11,331,075
28,000 Montana Power Co. 651,000
2,369,400 NIPSCO Industries, Inc. 64,862,325
661,700 Nevada Power Co. 13,399,425
2,062,950 New England Electric System 62,919,975
2,788,050 New York State Electric & Gas Corp. 51,927,431
2,377,900 Ohio Edison Co. 45,180,100
3,426,850 Pacific Gas & Electric Co. 77,960,838
1,336,900 Pacific Telesis Group 41,109,675
2,195,900 PacifiCorp 37,055,813
190,000 Panhandle Eastern Co. 4,417,500
3,676,000 Pennsylvania Power & Light Co. 73,520,000
1,336,970 Pinnacle West Capital Corp. 23,898,339
1,389,500 Puget Sound Power & Light Co. 27,442,625
3,125,600 San Diego Gas & Electric Co. 59,777,100
1,834,400 SCANA Corp. 81,401,500
5,285,300 SCEcorp. 68,708,900
350,000 Sierra Pacific Resources 6,956,250
5,857,000 Southern Co. 109,086,625
525,110 Southern Indiana Gas & Electric Co. 14,177,970
10,000 Southwestern Bell Corp. 425,000
799,100 Southwestern Public Service Co. 20,976,375
3,922,400 TECO Energy, Inc. 75,506,200
3,204,550 Texas Utilities Co. 104,548,444
34,800 Unitil Corp. 600,300
25,000 Utilicorp United, Inc. 681,250
549,000 Williams Companies, Inc. 16,470,000
793,200 Wisconsin Energy Corp. 20,127,450
--------------
Total Common Stocks (Cost $2,411,395,417) 2,192,114,203
--------------
</TABLE>
<TABLE>
<CAPTION>
Face Value
Amount Utilities Fund (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds 8.9%
$ 9,900,000 Alabama Power Co., 8.75%, 12/01/21 $ 9,766,073
4,950,000 Alabama Power Co., 8.50%, 05/01/22 4,758,994
10,500,000 Arizona Public Service Co., 10.25%, 05/15/20 11,202,020
14,500,000 Arizona Public Service Co., 9.00%, 12/15/21 13,965,646
10,000,000 Cincinnati Gas & Electric Co., 8.50%, 09/01/22 9,394,970
13,000,000 Commonwealth Edison Co., 9.125%, 01/15/14 12,547,444
2,000,000 Commonwealth Edison Co., 8.875%, 10/01/21 1,860,914
5,000,000 Commonwealth Edison Co., 8.50%, 07/15/22 4,508,920
10,000,000 Commonwealth Edison Co., 8.375%, 09/15/22 8,965,810
5,000,000 Duquesne Light Co., 8.375%, 05/15/24 4,636,030
19,000,000 Enron Corp., 7.00%, 08/15/23 15,420,001
5,000,000 Gulf States Utilities Co. 9.72%, 07/01/98 5,255,335
11,000,000 c Hidro Electrica Alicuras, 8.375%, 03/15/99 9,900,000
10,000,000 Illinois Power Co., 8.00%, 02/15/23 8,888,550
15,000,000 Long Island Lighting Co., 9.75%, 05/01/21 13,912,500
10,000,000 Louisiana Power & Light Co., 8.50%, 07/01/22 9,365,430
16,566,871 Midland CoGeneration Venture, 10.33%, 07/23/02 16,649,705
7,500,000 Niagara Mohawk Power Corp., 9.50%, 03/01/21 7,268,603
5,000,000 Niagara Mohawk Power Corp., 8.75%, 04/01/22 4,533,924
8,000,000 Ohio Edison Co., 8.75%, 06/15/22 7,554,392
20,000,000 Panhandle Eastern Co., 7.20%, 08/15/24 16,467,920
15,000,000 Philadelphia Electric Co., 8.75%, 04/01/22 14,332,124
10,000,000 Texas Utilities Co., 8.75%, 11/01/23 9,616,890
10,000,000 Texas Utilities Co., 8.50%, 08/01/24 9,427,250
--------------
Total Corporate Bonds (Cost $230,425,083) 230,199,445
--------------
Government Securities 3.5%
80,000,000 U.S. Treasury Bonds, 8.00%, 11/15/21 80,274,960
10,000,000 U.S. Treasury Bonds, 7.25%, 08/15/22 9,231,250
--------------
Total Government Securities (Cost $90,174,244) 89,506,210
--------------
Total Common Stocks, Corporate Bonds
and Government Securities (Cost $2,731,994,744) 2,511,819,858
--------------
j Short Term Investments
Commercial Paper .8%
10,000,000 Associate Corp. of North America, 4.76%, 10/06/94 - 10/07/94 9,992,729
5,000,000 Barclays U.S. Funding Corp., 4.515%, 10/03/94 4,998,739
5,000,000 General Electric Credit Corp., 4.82%, 11/18/94 4,967,866
--------------
Total Commercial Paper (Cost $19,959,334) 19,959,334
--------------
Total Investments before Repurchase Agreements
(Cost $2,751,954,078) 2,531,779,192
--------------
k Receivables from Repurchase Agreements 1.7%
33,368,000 Daiwa Securities of America, Inc., 4.60%, 10/03/94
(Maturity Value $33,380,791) Collateral: U.S. Treasury Notes,
4.75%, 02/15/97 33,368,000
11,278,305 l Joint Repurchase Agreement, 4.782%, 10/03/94 (Maturity Value
$10,987,866) Collateral: U.S. Treasury Bills, 03/16/95 - 03/30/95
U.S. Treasury Notes, 3.875% - 9.375%,
11/15/94 - 03/31/99 10,983,489
--------------
Total Receivables from Repurchase Agreements
(Cost $44,351,489) 44,351,489
--------------
Total Investments (Cost $2,796,305,567) 100.1% 2,576,130,681
Liabilities in Excess of Other Assets, Net (.1)% (3,622,397)
-------------
Net Assets 100.0% .$2,572,508,284
==============
At September 30, 1994, the net unrealized
depreciation based on the cost ofinvestments for income tax
purposes of $2,796,305,567 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost. $ 80,476,328
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value. (300,651,214)
--------------
Net unrealized depreciation. .$ (220,174,886)
==============
a Non-income producing.
c See Note 7 regarding Rule 144A securities.
j Certain short-term securities are traded on a discount
basis; the rates shown are the discount rates at the time
of purchase by the Fund. Other securities bear interest at
the rates shown, payable at fixed dates or upon maturity.
k Face amount for repurchase agreements is for the underlying
collateral.
l See Note 1(h) regarding Joint Repurchase Agreement.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN CUSTODIAN FUNDS, INC.
- -------------------------------------------------------------------------
Statement of Investments in Securities and Net Assets, September 30, 1994
<TABLE>
<CAPTION>
Shares/ Value
Warrants Income Fund (Note1)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 21.6%
Conglomerates
33,652 aGillett Holdings, Inc., Class 2 $ 605,736
---------------
Consumer Products 1.1%
850,000 Philip Morris Cos., Inc. 51,956,250
498,750 a,cSpecialty Food Corp. 623,438
----------------
52,579,688
----------------
Energy .1%
125,000 Pennzoil Co. 5,859,375
----------------
Home Builders
348,978 aNVR, Inc. 2,006,624
----------------
Metals 3.0%
550,000 Driefontein Consolidated Mines, Ltd., ADR 8,800,000
2,354,720 Free State Consolidated Gold Mines, Ltd., ADR 40,766,090
1,400,000 Hartebeestfontein Gold Mining Co., Ltd., ADR 8,196,580
1,089,200 Impala Platinum Holdings, Ltd., ADR 26,018,265
460,000 Kinross Mines, Ltd., ADR 8,402,774
796,200 Rustenburg Platinum Holdings, Ltd., ADR 22,002,669
187,500 St. Helena Gold Mines, Ltd., ADR 2,156,250
450,000 Samancor, Ltd., ADR 5,269,275
990,000 Vaal Reefs Exploration & Mining Co., Ltd., ADR 11,137,500
254,500 Western Deep Levels, Ltd., ADR 13,202,188
----------------
145,951,591
----------------
Pharmaceuticals 3.8%
850,000 American Home Products Corp. 51,000,000
1,125,400 Bristol-Myers Squibb Co. 64,569,825
1,213,400 Merck & Co., Inc. 43,075,700
775,000 Upjohn Co. 26,446,875
----------------
185,092,400
----------------
Real Estate Investment Trust .1%
437,200 United Dominion Realty Trust, Inc. 6,011,500
---------------
Utilities 13.5%
1,544,000 American Electric Power Co., Inc. 48,443,000
1,279,200 Central & South West Corp. 28,462,200
1,150,000 Cincinnati Gas & Electric Co. 25,587,500
1,445,100 Delmarva Power & Light Co. 26,914,988
997,800 Dominion Resources, Inc. 37,168,050
1,579,900 Florida Progress Corp. 44,632,175
1,358,300 FPL Group, Inc. 44,144,750
606,100 Hawaiian Electric Industries, Inc. 19,167,913
850,000 Houston Industries, Inc. 29,962,500
1,300,000,000 iIberdrola, SA (Spain) 8,225,223
1,800,000 Long Island Lighting Co. 29,250,000
825,000 Nevada Power Co. 16,706,250
1,500,000 New York State Electric & Gas Corp. 27,937,500
1,500,000 Ohio Edison Co. 28,500,000
2,200,000 Pacific Gas & Electric Co. 50,050,000
50,000 PacifiCorp 843,750
1,000,000 Public Services Enterprise Group, Inc. 26,250,000
930,200 San Diego Gas & Electric Co. 17,790,075
2,850,000 SCEcorp 37,050,000
2,325,000 Southern Co. 43,303,125
625,100 Southwestern Public Service Co. 16,408,875
1,600,000 Texas Utilities Co. 52,200,000
------------------
658,997,874
------------------
Total Common Stocks (Cost $1,001,392,176) 1,057,104,788
------------------
Preferred Stocks 14.6%
Airlines .9%
320,000 cAMR Corp. $3.00 cvt. pfd., Series A 13,120,000
431,100 Delta Airlines, Inc., $3.50 cvt. pfd. 19,399,500
620,000 USAir Group, Inc., $4.375 cvt. pfd., Series B 10,230,000
----------------
42,749,500
----------------
Apparel/Textiles .2%
150,000 Fieldcrest Cannon, Inc., $3.00 cvt. pfd., Series A 8,373,750
47,766 JPS Textile Group, Inc., senior exch. adj. rate pfd., Series A 1,910,640
---------------
10,284,390
---------------
Automotive .2%
408,303 Harvard Industries, Inc., 14.25% pfd., PIK 10,666,912
---------------
Communications .3%
460,000 Nortel, Inc., pfd., Series B 12,420,000
---------------
Consumer Products .6%
75,000 Pantry Pride, Inc., $14.875 pfd., Series B 7,359,375
3,000,000 RJR Nabisco Holding Corp., $0.835 cvt. pfd., Series A 21,375,000
---------------
28,734,375
---------------
Energy 4.6%
465,000 Gerrity Oil & Gas, $1.50 cvt. pfd. 6,800,625
576,900 Maxus Energy Corp., $4.00 cum. cvt. pfd. 21,489,525
1,020,300 cMcDermott International, Inc., $2.875 cvt. pfd., Series C 44,510,588
750,000 Noble Drilling Corp., $1.50 cvt. pfd. 17,250,000
494,100 Occidental Petroleum Corp., $3.00 cvt. pfd., Series A 23,531,513
550,000 cOccidental Petroleum Corp., $3.875 cvt. pfd. 29,425,000
400,000 cParker & Parsley Capital, 6.25% cvt. pfd. . 21,550,000
320,000 Reading & Bates, $1.625 cum. cvt. pfd. 7,520,000
400,000 Santa Fe Energy Resources, Inc., 7.00% cvt. pfd. 7,650,000
2,221,000 Santa Fe Energy Resources, Inc., 8.25% cvt. pfd. 21,377,125
163,900 Snyder Oil Corp., $1.50 cvt. exch. pfd. 3,974,575
350,000 cTransco Energy Co., $3.50 cvt. pfd., Series E 15,881,250
43,900 Transco Energy Co., $4.75 cvt. pfd. 2,205,975
---------------
223,166,176
---------------
Financial Services 3.6%
495,000 Ahmanson (H. F.) & Co., $3.00 cvt. pfd., Series D 24,378,750
525,000 BankAmerica Corp., 6.50%, cvt. pfd., Series G 28,153,125
1,000,000 Chemical Banking Corp., $5.00 cvt. pfd. 68,000,000
475,000 Citicorp, $5.375 cvt. cum. pfd., Series 13 56,168,750
---------------
176,700,625
---------------
Metals 3.0%
357,200 Amax Gold, Inc., $3.75 cvt. pfd., Series B 19,869,250
283,000 Armco, Inc., $3.625 cum. cvt. pfd., Series A 14,786,750
114,200 Armco, Inc., $4.50 cvt. pfd., Series B 5,267,475
171,900 Battle Mountain Gold Co., $3.25 cvt. pfd. 11,861,100
120,000 Cyprus Minerals, $4.00 cvt. pfd., Series A 8,430,000
435,400 Echo Bay Finance Corp., $1.75 cum. cvt. pfd., Series A 18,395,650
400,000 Freeport-McMoRan Copper & Gold, Inc., $1.75 cvt. pfd. 11,100,000
336,900 cFreeport-McMoRan, Inc., 4.375% cvt. exch. pfd. 12,928,538
500,000 Freeport-McMoRan, Inc., 8.75% cvt. pfd. 25,625,000
375,000 Hecla Mining Co., $3.50 cvt. pfd., Series B 19,875,000
---------------
148,138,763
---------------
Real Estate Investment Trust .8%
600,000 Merry Land & Investment Co., $1.75 cvt. pfd., Series A 15,600,000
1,040,000 Property Trust of America, $1.75 cvt. pfd., Series A 24,440,000
---------------
40,040,000
---------------
Restaurants .4%
950,000 Flagstar Cos., $2.25 cvt. pfd., Series A 19,237,500
---------------
Total Preferred Stocks (Cost $694,391,225) 712,138,241
---------------
Partnership Units .3%
500,000 BP Prudhoe Bay Royalty Trust 10,875,000
300,000 Freeport-McMoRan Resource, Ltd., depository units 5,175,000
59,255 a,b,eZale Corp., Ltd. 42,071
---------------
Total Partnership Units (Cost $20,737,664) 16,092,071
---------------
Warrants
1,215 a,b,c,eGrand Union Capital Corp. 121,500
29,143 aNVR, Inc. 40,072
---------------
Total Warrants (Cost $1,260,685) 161,572
---------------
Total Common Stocks, Preferred Stocks, Partnership Units and
Warrants (Cost $1,717,781,750) 1,785,496,672
---------------
</TABLE>
<TABLE>
<CAPTION>
Face
Amount
------
<S> <C> <C>
Corporate Bonds 24.2%
Aerospace
1,772,600 Fairchild Industries, Inc., sub. deb., 9.75%, 04/01/98 1,681,754
556,000 Pneumo Corp., S.F., sub. deb., 9.625%, 08/01/98 536,540
---------------
2,218,294
---------------
Apparel/Textiles 2.0%
35,000,000 Bibb Co., senior sub. notes, 14.00%, 10/01/99 20,825,000
30,000,000 Consoltex Group, Inc., senior sub. notes, Series B, 11.00%, 10/01/03 28,275,000
6,000,000 Forstmann Textiles, Inc., S.F., senior sub. deb., 14.75%, 04/15/99 6,585,000
25,141,000 JPS Textile Group, Inc., S.F., sub. notes, 10.25%, 06/01/99 18,730,045
8,390,000 JPS Textile Group, Inc., S.F., sub. notes, 10.85%, 06/01/99 6,502,250
30,000,000 JPS Textile Group, Inc., S.F., sub. notes, 7.00%, 05/15/00 15,450,000
---------------
96,367,295
---------------
Automotive .2%
4,000,000 Exide Corp., senior notes, 10.75%, 12/15/02 4,160,000
5,175,000 Motor Wheels Corp., senior notes, Series B, 11.50%, 03/01/00 5,123,250
1,971,000 ePacific International Services Corp., cvt. sub. deb., 10.00%, 09/01/07 1,187,528
---------------
10,470,778
---------------
Biotechnology .9%
16,500,000 Centocor, Inc., Eurobond, cvt. sub. deb., 6.75%, 10/16/01 12,787,500
9,600,000 Cetus Corp., cvt. sub. deb., 5.25%, 05/21/02 8,112,000
26,000,000 cGenzyme Corp., cvt. sub. deb., 6.75%, 10/01/01 23,107,500
---------------
44,007,000
---------------
Building Products .1%
5,000,000 American Standard, Inc., S.F., senior sub. deb., 9.25%, 12/01/16 4,675,000
3,000,000 a,dWalter Industries, Inc., sub. notes, 17.00%, 01/01/96 2,445,000
---------------
7,120,000
---------------
Cable Systems 1.5%
2,000,000 Cablevision Industries Corp., senior notes, 10.75%, 01/30/02 2,000,000
25,000,000 Cablevision System Corp., senior sub. deb., 9.875%, 04/01/23 23,000,000
25,000,000 Continental Cablevision, Inc., senior sub. deb., 9.50%, 08/01/13 22,750,000
10,000,000 Helicon Group LP Corp., senior secured notes, 9.00%, 11/01/03 8,650,000
16,000,000 Storer Communication, Inc., sub. deb., 10.00%, 05/15/03 15,440,000
---------------
71,840,000
---------------
Chemicals 1.6%
27,000,000 Applied Extrusion Technology, senior unsecured notes, 11.50%, 04/01/02 27,405,000
7,000,000 IMC Fertilizer Group, Inc., senior notes, 6.25%, 12/01/01 6,510,000
16,000,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 16,560,000
8,900,000 Uniroyal Chemical Co., Inc, senior notes, 10.50%, 05/01/02 9,100,250
20,000,000 Uniroyal Chemical Co., Inc, senior notes, 11.00%, 05/01/03 20,650,000
---------------
80,225,250
---------------
Communications .2%
11,900,000 Cellular, Inc., cvt. sub. deb., 6.75%, 07/15/09 11,483,500
---------------
Computer/Technology .7%
15,000,000 Anacomp, Inc., senior sub. notes, 15.00%, 11/01/00 16,706,250
18,000,000 Conner Peripheral, Inc., cvt. sub. deb., 6.75%, 03/01/01 13,972,500
10,750,000 Maxtor Corp., cvt. sub. deb., 5.75%, 03/01/12 5,482,500
500,000 cSynOptics Communications, Inc., cvt. sub. deb., 5.25%, 05/15/03 351,875
---------------
36,513,125
---------------
Conglomerates .2%
5,059,000 Coltec Industries, Inc., S.F., senior sub. deb., 11.25%, 12/01/15 5,311,950
4,000,000 Emhart Corp., S.F., senior sub. deb., 9.25%, 08/15/16 4,020,000
---------------
9,331,950
---------------
Consumer Products 1.9%
10,000,000 Calmar, Inc., S.F., senior secured notes, 12.00%, 12/15/97 10,025,000
9,000,000 Mafco, Inc., senior sub. deb., 11.875%, 11/15/02 9,045,000
11,300,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 9,802,750
30,000,000 Revlon Consumer Products Corp., senior sub. notes, Series B, 10.50%, 02/15/03 25,800,000
35,000,000 RJR Nabisco, Inc., senior sub. notes, 9.25%, 08/15/13 30,450,000
8,650,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 8,304,000
---------------
93,426,750
---------------
Energy 2.5%
10,000,000 Energy Ventures, senior notes, 10.25%, 03/15/04 9,650,000
19,000,000 Global Marine, Inc., senior secured notes, 12.75%, 12/15/99 20,662,500
600,000 Moran Energy, Inc., sub. deb., 11.50%, 05/01/98 526,500
40,000,000 Oryx Energy Co., cvt. sub. deb., 7.50%, 05/15/14 31,300,000
6,835,000 Pogo Producing Co., cvt. sub. deb., 8.00%, 12/31/05 6,809,369
19,000,000 Presidio Oil Co., cvt. sub. deb., 9.00%, 03/15/15 10,901,250
8,000,000 cSeacor Holdings, Inc., cvt. sub. deb., 6.00%, 07/01/03 7,960,000
19,000,000 Snyder Oil Corp., cvt. sub. notes, 7.00%, 05/15/01 18,833,750
15,000,000 Tesoro Petroleum Corp., S.F., sub. deb., 12.75%, 03/15/01 15,168,750
---------------
121,812,119
---------------
Food & Beverages 1.8%
2,980,000 Chock Full O'Nuts Corp., S.F., cvt. sub. deb., 8.00%, 09/15/06 2,801,200
44,223,000 cDel Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 42,011,850
6,600,000 Dr Pepper Bottling Co. of Texas, senior sub. notes, 10.25%, 02/15/00 6,666,000
10,000,000 PMI Acquisition Corp., guaranteed senior sub. notes, 10.25%, 09/01/03 9,925,000
16,000,000 Specialty Foods Corp., senior sub. notes, Series B, 11.25%, 08/15/03 13,280,000
16,000,000 Specialty Foods Corp., senior unsecured notes, Series B, 10.25%, 08/15/01 14,400,000
---------------
89,084,050
---------------
Food Chains .8%
9,000,000 Americold Corp., senior sub. notes, Series B, 11.50%, 03/01/05 8,257,500
15,000,000 Grand Union Capital Corp., senior notes, 11.75%, 02/15/99 13,875,000
15,000,000 Kroger Co., cvt. junior sub. deb., 8.25%, 04/15/11 15,867,000
---------------
37,999,500
---------------
Foreign Bonds 1.3%
385,837,500 iESCOM, E168, utility deb. (South Africa), 11.00%, 06/01/08 62,515,536
---------------
Gaming & Hotels .6%
29,000,000 Aztar Corp., senior sub. notes, 11.00%, 10/01/02 25,556,250
4,372,000 Host Marriott Hospitality, senior sub. notes, Series L, 11.00%, 05/01/07 4,399,324
---------------
29,955,574
---------------
Health Care 1.0%
8,100,000 Grancare, Inc., cvt. sub. deb., 6.50%, 01/15/03 7,674,750
16,300,000 Ornda Healthcorp., Inc., senior sub. notes, 12.25%, 05/15/02 17,278,000
19,200,000 cMedical Care International, Inc., cvt. sub. deb., 6.75%, 10/01/06 16,992,000
10,000,000 Sola Group, Ltd., senior sub. notes, 6.00%, 12/15/03 7,750,000
---------------
49,694,750
---------------
Housing .4%
20,000,000 Rouse Co., cvt. sub. deb., 5.75%, 07/23/02 17,900,000
---------------
Industrial Products .6%
13,000,000 Rexnord Acquisition Corp., senior sub. deb., 11.875%, 03/01/99 12,951,250
10,251,003 Thermadyne Industries, Inc., notes, 10.75%, 11/01/03 9,764,079
7,392,963 Thermadyne Industries, Inc., senior notes, 10.25%, 05/01/02 7,115,726
---------------
29,831,055
---------------
Media & Broadcasting .7%
25,000,000 Continental Broadcasting, senior sub. notes, 10.625%, 07/01/03 25,281,250
7,359,600 Time Warner, Inc., cvt. sub. deb., 8.75%, 01/10/15 . 7,341,201
2,300,000 Time Warner, Inc., S.F. sub. deb., 8.75%, 04/01/17 . 2,024,000
---------------
34,646,451
---------------
Metals 1.0%
7,000,000 Armco Steel, Inc., senior notes, 11.375%, 11/15/99 7,210,000
900,000 Coeur D' Alene Mines Corp., cvt. senior sub. deb., 6.00%, 06/10/02 873,00
12,500,000 Coeur D' Alene Mines Corp., cvt. sub. deb., 6.375%, 01/31/04 12,562,500
13,420,000 FMC Corp., Eurobonds cvt. senior sub. deb., 6.75%, 01/16/05 11,373,450
4,500,000 Freeport-McMoRan, Inc., cvt. disc. deb., 6.55%, 01/15/01 4,196,250
12,000,000 Jorgensen Earle M. Co., senior notes, 10.75%, 03/01/00 12,000,000
---------------
48,215,200
---------------
Pollution Control .6%
20,000,000 Air & Water Technology Corp., cvt. sub. deb., 8.00%, 05/15/15 14,000,000
15,000,000 Sanifill, Inc., cvt. sub. deb., 7.50%, 01/01/06 14,718,750
---------------
28,718,750
---------------
Publishing .5%
10,300,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 10,042,500
15,100,000 Sullivan Graphics, Inc., senior sub. notes, 15.00%, 02/01/00 16,043,750
---------------
26,086,250
---------------
Railroads .8%
500,000 Missouri Pacific Railroad Co., gen. mtg., Series A, 4.75%, 01/01/20 302,287
500,000 Missouri Pacific Railroad Co., gen. mtg., Series B, 4.75%, 01/01/30 282,873
1,200,000 Missouri Pacific Railroad Co., income deb., 5.00%, 01/01/45 684,000
37,500,000 Southern Pacific Rail Corp., senior notes, 9.375%, 08/15/05 36,562,500
---------------
37,831,660
---------------
Restaurants .5%
30,000,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 25,800,000
---------------
Retail 1.1%
15,000,000 Carter Hawley Hale Stores, cvt. senior sub. notes, 6.25%, 12/31/00 16,425,000
9,000,000 Drug Emporium, Inc., cvt. sub. deb., 7.75%, 10/01/14 6,795,000
10,000,000 Levitz Furniture Co., senior sub. notes, 12.375%, 04/15/97 10,525,000
23,110,000 a,dMacy, (R.H.), & Co., Inc., S.F., senior sub. deb., 14.50%, 10/15/98 16,639,200
10,890,000 a,dMacy, (R.H.), & Co., Inc., S.F., sub. deb., 14.50%, 11/15/01 3,484,800
---------------
53,869,000
---------------
Semiconductors .2%
9,000,000 VLSI Technology, Inc., cvt. sub. deb., 7.00%, 05/01/12 7,897,500
---------------
Utilities .5%
17,040,210 Midland CoGeneration Venture, S.F., senior sub. deb., 10.33%, 07/23/02 17,125,411
6,000,000 Texas New Mexico Power, secured deb., 10.75%, 09/15/03 5,904,954
---------------
23,030,365
---------------
Total Corporate Bonds (Cost $1,251,722,918) 1,187,891,702
---------------
Government Securities 10.4%
270,000,000 U.S. Treasury Bonds, 7.25%-8.125%, 02/15/21-08/15/22 266,599,990
248,000,000 U.S. Treasury Notes, 6.00%-7.50%, 12/31/97-08/15/02 240,161,250
---------------
Total Government Securities (Cost $515,589,222) 506,761,240
---------------
iForeign Government Agencies 5.8%
188,000,000 Canadian Government, 1st. coupon deb., 8.00%, 06/01/23 125,426,812
21,774,885 CB-2 Cetelem Assets Backed Securities (France), 9.50%, 11/20/96 4,159,474
80,000,000 Government of Denmark, 9.00%, 11/15/95 13,323,688
120,000,000 Republic of Argentina, floating rate notes, 4.25%, 03/31/23 59,550,000
130,000,000 Republic of South Africa, 12.00%, 02/28/05 23,508,219
9,000,000 United Kingdom Treasury, 10.50%, 02/21/97 14,893,671
65,000,000 United Mexican States, Series B, 6.25%, 12/31/19 42,168,750
---------------
Total Foreign Government Agencies (Cost $290,432,502) 283,030,614
---------------
hZero coupon /Step-up Bonds 2.3%
56,000,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00,
(original accretion rate 11.50%), 11.50% thereafter, 03/01/05 29,400,000
11,000,000 Dr Pepper Bottling Holdings Co., S.F., senior sub. disc. notes, zero coupon to
02/15/98, (original accretion rate 11.625%), 11.625% thereafter, 02/15/03 7,590,000
25,552,000 Dr Pepper/Seven-Up Cos., Inc., senior sub. notes, zero coupon to 11/01/97,
(original accretion rate 11.50%), 11.50% thereafter, 11/01/02 20,441,600
9,000,000 Exide Corp., senior sub. deb., zero coupon to 12/15/97,
(original accretion rate 12.25%), 12.25% thereafter, 12/15/04 6,525,000
25,000,000 Grand Union Capital Corp., senior notes, Series B, zero coupon to 07/15/99,
(original accretion rate 15.00%), 15.00% thereafter, 07/15/04 3,125,000
39,700,000 Grand Union Capital Corp., senior sub. notes, Series B,
(original accretion rate 16.50%), 0.00%, 01/15/07 1,588,000
7,000,000 L.F.C. Holding, senior deb., zero coupon to 06/15/97,
(original accretion rate 15.00%), 15.00% thereafter, 06/15/02 4,830,000
40,000,000 Revlon Worldwide Corp., senior secured disc. notes, Series B,
(original accretion rate 12.00%), 0.00%, 03/15/98 18,600,000
33,250,000 Specialty Foods Corp., senior secured disc. deb., Series B, zero coupon to
08/13/99, (original accretion rate 13.00%), 13.00% thereafter, 08/15/05 12,385,624
12,000,000 Uniroyal Chemical Co., Inc., senior notes, zero coupon to 05/01/98,
(original accretion rate 12.00%), 12.00% thereafter, 05/01/05 8,100,000
---------------
Total Zero coupon /Step-up Bonds (Cost $128,936,487) 112,585,224
---------------
Total Long Term Securities (Cost $3,904,462,879) 3,875,765,452
---------------
jShort Term Investments
Bankers' Acceptances .6%
24,000,000 Mitsubishi Bank, Ltd., New York Branch, 4.65% - 4.87%, 10/07/94 - 11/08/94 23,911,601
5,000,000 Sanwa Bank, Ltd., New York Branch, 4.75%, 10/17/94 4,989,444
---------------
Total Bankers' Acceptances (Cost $28,901,045) 28,901,045
---------------
Certificates of Deposit .9%
45,000,000 Banque Nationale de Paris, New York Branch, 4.56% - 4.845%,
10/03/94 - 11/15/94 (Cost $44,998,035) 44,998,035
---------------
Commercial Paper 8.2%
40,000,000 American Express Credit Corp., 4.80%, 10/13/94 - 10/14/94 39,933,333
150,000,000 Associate Corp. of North America, 4.51% - 4.82%, 10/03/94 - 10/24/94 149,775,722
20,000,000 Barclays US Funding Corp., 4.54%, 10/04/94 19,992,433
30,000,000 BFCE US Finance Corp., 4.82%, 11/03/94 29,867,450
100,000,000 General Electric Credit Corp., 4.60% - 4.82%, 10/11/94 - 11/18/94 99,696,899
30,000,000 Svenska Handelsbanken, Inc., 4.63% - 4.81%, 10/03/94 - 10/31/94 29,917,261
30,000,000 Westpac Capital Corp., 4.81% - 4.83%, 11/14/94 - 11/21/94 29,813,997
---------------
Total Commercial Paper (Cost $398,997,095) 398,997,095
---------------
Corporate Bonds .1%
8,000,000 a,dContinental Airlines, Inc., 2nd priority equipment certificates,
11.00%, 03/15/95 4,000
3,798,232 a,dWalter Industries, Inc., extendable senior sub. resets notes, PIK,
16.625%, 01/01/95 3,437,400
---------------
Total Corporate Bonds (Cost $11,429,503) 3,441,400
---------------
h,iZero Coupon Bonds 4.4%
Mexican Federal Treasury Certificates (CETES)
45,421,630 15.94%, 10/27/94 13,237,973
48,000,000 13.033%, 11/10/94 14,004,092
91,466,340 16.20%, 12/29/94 26,057,310
65,300,000 17.50%, 01/12/95 18,512,497
90,000,000 11.00%, 01/26/95 25,391,792
25,000,000 10.00%, 02/09/95 7,019,476
50,000,000 10.675%, 03/02/95 13,939,055
50,000,000 11.475%, 03/16/95 13,873,399
48,723,980 15.24%, 04/27/95 13,332,711
25,000,000 16.55%, 05/18/95 . 6,794,421
57,729,950 15.298%, 06/08/95 15,584,282
98,576,600 16.55%, 07/06/95 26,375,806
70,150,000 16.74%, 07/13/95 18,728,491
---------------
Total Zero Coupon Bonds (Cost $217,688,409) 212,851,305
---------------
Total Investments before Repurchase Agreements
(Cost $4,606,476,966) 4,564,954,332
---------------
kReceivables from Repurchse Agreements 5.5%
24,355,000 Daiwa Securities of America, Inc., 4.60%, 10/03/94 (Maturity Value $24,096,233)
Collateral: U.S. Treasury Notes, 5.125%, 11/15/95 24,087,000
---------------
253,763,640 lJoint Repurchase Agreement, 4.782%, 10/03/94 (Maturity Value $247,239,333)
Collateral: U.S. Treasury Bills, 03/16/95 - 03/30/95 U.S. Treasury Notes,
3.875% - 9.375%, 11/15/94 - 03/31/99 247,140,847
---------------
Total Receivables from Repurchase Agreements (Cost $271,227,847) 271,227,847
---------------
Total Investments (Cost $4,877,704,813) 98.9% 4,836,182,179
Other Assets and Liabilities, Net 1.1% 55,322,365
---------------
Net Assets 100.0% $ 4,891,504,544
===============
At September 30, 1994, the net unrealized depreciation based on the cost of
investments for income tax purposes of $4,877,704,813 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost $ 227,719,546
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value (269,242,180)
---------------
Net unrealized depreciation $ (41,522,634)
===============
PORTFOLIO ABBREVIATIONS:
PIK - Payment-in-Kind
S.F. - Sinking Fund
aNon-income producing.
bSee Note 6 regarding restricted securities.
cSee Note 7 regarding Rule 144A securities.
dSee Note 9 regarding defaulted securities.
eSecurity value estimated by Board of Directors. See Note 1.
hZero coupon/Step-up bonds. The current effective yield may vary. The original accretion
rate by security will remain constant.
iFace amount stated in foreign currencies, value in U.S. dollars.
jCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
kFace amount for repurchase agreements is for the underlying collateral.
lSee Note 1(h) regarding Joint Repurchase Agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Statement of Investments in Securities and Net Assets, September 30, 1994
<TABLE>
<CAPTION>
Face Value
Amount U.S. Government Securities Fund (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Government National Mortgage Association (GNMA) 96.9%
$ 24,544,528 GNMA I, SF, 6.00%, 09/15/23 - 11/15/23 $ 20,617,404
1,528,523,341 GNMA I, SF, 6.50%, 03/15/03 - 03/15/24 1,336,981,024
32,692,713 GNMA PL, 6.50%, 05/15/24 27,860,338
36,752,613 GNMA PL, 6.75%, 01/15/34 31,928,833
2,352,506,986 GNMA I, SF, 7.00%, 04/15/16 - 03/15/24 2,135,636,424
11,704,210 GNMA PL, 7.25%, 04/15/22 10,553,909
35,912,910 GNMA PL, 7.375%, 04/15/29 32,677,947
21,475,438 GNMA PL, 7.425%, 07/15/29 19,646,675
1,892,069,217 GNMA I, SF, 7.50%, 06/15/05 - 03/15/24 1,779,727,607
225,069,110 GNMA II, 7.50%, 10/20/22 - 07/20/23 210,580,286
6,071,585 GNMA PL, 7.75%, 10/15/12 5,667,449
1,645,094,748 GNMA I, SF, 8.00%, 10/15/07 - 08/15/24 1,597,798,274
32,009,645 GNMA II, 8.00%, 08/20/16 - 03/20/19 30,849,295
56,673,114 GNMA PL, 8.00%, 04/15/22 - 05/15/32 53,768,616
11,212,228 GNMA I, GPM, 8.25%, 03/15/17 - 11/15/17 10,945,938
25,161,074 GNMA PL, 8.25%, 12/15/20 - 02/15/28 24,233,260
473,924,416 GNMA I, SF, 8.50%, 05/15/16 - 06/15/24 473,924,416
77,635,113 GNMA II, 8.50%, 04/20/16 - 03/20/22 77,052,850
2,006,619 GNMA I, GPM, 8.75%, 03/20/17 - 07/20/17 1,991,882
655,275,655 GNMA I, SF, 9.00%, 10/15/04 - 07/15/23 672,681,742
21,981,086 GNMA II, 9.00%, 02/20/20 - 11/20/21 22,290,206
9,257,829 GNMA I, GPM, 9.25%, 05/15/16 - 01/15/17 9,495,061
18,295,497 GNMA PL, 9.25%, 10/15/23 18,319,180
368,446,303 GNMA I, SF, 9.50%, 05/15/09 - 02/15/23 387,214,221
18,760,720 GNMA II, 9.50%, 09/20/15 - 10/20/21 19,434,942
521,299,158 GNMA I, SF, 10.00%, 11/15/09 - 10/15/21 558,767,535
64,617,033 GNMA II, 10.00%, 08/20/13 - 03/20/21 68,292,127
12,359,157 GNMA I, GPM, 10.25%, 02/15/16 - 02/15/21 13,029,258
2,264,331 GNMA I, MD, 10.50%, 08/15/00 - 12/15/02 2,373,302
280,142,949 GNMA I, SF, 10.50%, 12/15/09 - 07/15/21 305,443,500
98,078,655 GNMA II, 10.50%, 09/20/13 - 03/20/21 105,220,056
23,807,392 GNMA I, GPM, 11.00%, 12/15/09 - 03/15/11 25,868,231
171,030,740 GNMA I, SF, 11.00%, 01/15/01 - 07/15/19 189,683,865
31,172,052 GNMA II, 11.00%, 07/20/13 - 01/20/21 33,948,328
12,766,370 GNMA I, GPM, 11.25%, 06/15/13 - 11/15/17 13,963,217
4,737,771 GNMA I, GPM, 11.50%, 03/15/10 - 01/20/14 5,180,458
61,994,668 GNMA I, SF, 11.50%, 02/15/13 - 12/15/17 4,451,230
3,027,838 GNMA I, GPM, 11.75%, 07/15/13 -12/15/15 3,327,784
1,466,679 GNMA I, GPM, 12.00%, 10/15/10 - 04/15/13 1,620,223
283,768,884 GNMA I, SF, 12.00%, 05/15/11 - 08/15/19 321,989,147
13,063,089 GNMA II, 12.00%, 09/20/13 - 02/20/16 14,561,268
2,305,641 GNMA I, GPM, 12.50%, 04/15/10 - 10/15/12 2,570,070
245,344,292 GNMA I, SF, 12.50%, 01/15/10 - 08/15/18 280,842,667
11,241,771 GNMA II, 12.50%, 09/20/13 - 11/20/15 12,643,485
254,364 GNMA I, GPM, 12.75%, 11/15/13 - 07/15/15 283,934
218,134,475 GNMA I, SF, 13.00%, 07/15/10 - 01/15/16 250,377,587
6,655,866 GNMA II, 13.00%, 09/20/13 - 09/20/15 7,473,293
---------------
Total Government National Mortgage Association (GNMA)
(Cost $11,861,508,439) 11,303,435,510
---------------
j Short Term Investments 2.7%
$ 316,705,000 U.S. Treasury Bills, 3.45% - 4.40%, 10/06/94 - 03/09/95
(Cost $314,145,358) $ 313,892,791
---------------
Total Investments (Cost $12,175,653,797) 99.6% 11,617,328,301
Other Assets and Liabilities, Net .4% 51,419,138
---------------
Net Assets 100.0% $11,668,747,439
===============
At September 30, 1994, the net unrealized depreciation based on
the cost of investments for income tax of $12,175,653,797 was
as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 120,060,388
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (678,385,884)
---------------
Net unrealized depreciation $ (558,325,496)
===============
PORTFOLIO ABBREVIATIONS:
GPM - Graduated Payment Mortgage
MD - Midget
PL - Project Loan
SF - Single Family
j Certain short-term securities are traded on a discount
basis; the rates shown are the discount rates at the time of
the purchase by the Fund. Other securities bear interest at
the rates shown, payable at fixed dates or upon maturity.
</TABLE>
The accompanying notes are an integral part of these financial
statements.
FRANKLIN CUSTODIAN FUNDS, INC.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Financial Statements
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
-------------- ----------- -------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Assets:
Investments in securities:
At identified cost $393,027,729 $30,917,946 $2,751,954,078 $4,606,476,966 $12,175,653,797
=============== =========== ============== =============== ===============
At value 521,548,933 56,362,804 2,531,779,192 4,564,954,332 11,617,328,301
Receivables from repurchase
agreements, at value and cost 7,653,264 11,101,441 44,351,489 271,227,847 --
Cash 23,457 -- 4,184 3,635,179 8,643
Foreign currencies (Cost $843,696) -- -- -- 850,027 --
Receivables:
Dividends and interest 716,445 50,815 23,341,228 67,488,496 76,745,156
Investment securities sold -- -- 11,042,425 80,259,833 --
Capital shares sold 101,021 18,263 3,826,505 10,723,235 5,265,135
-------------- ----------- -------------- --------------- ---------------
Total assets 530,043,120 67,533,323 2,614,345,023 4,999,138,949 11,699,347,235
-------------- ----------- -------------- --------------- ---------------
Liabilities:
Payables:
Investment securities purchased -- -- -- 76,795,485 --
Capital shares repurchased 12,880,884 39,732 6,336,721 3,070,559 22,448,933
Payable upon return of securities
loaned (Note 8) -- -- 33,572,257 24,157,851 --
Management fees 219,320 35,118 986,026 1,854,526 4,385,169
Distribution fees 254,344 31,886 712,507 1,280,087 2,234,008
Shareholder servicing costs 39,400 6,000 127,500 147,000 300,000
Accrued expenses and
other liabilities 29,651 8,003 101,728 328,897 1,231,686
-------------- ----------- -------------- --------------- ----------------
Total liabilities 13,423,599 120,739 41,836,739 107,634,405 30,599,796
-------------- ----------- -------------- --------------- ----------------
Net assets, at value $516,619,521 $67,412,584 $2,572,508,284 $4,891,504,544 $11,668,747,439
============== =========== ============== =============== ===============
Net assets consist of:
Undistributed net
investment income $ 4,733,342 $ 326,789 $ 6,749,793 $ 8,679,566 $ 6,172,385
Unrealized appreciation
(depreciation) on investments
and translation of assets and
liabilities denominated in
foreign currencies 128,521,204 25,444,858 (220,174,886) (41,149,578)+ (558,325,496)
Net realized gain (loss)from
investments and foreign currency
transactions 1,478,440 896,402 1,914,525 77,441,293 (674,065,421)
Capital shares 345,277 68,467 3,088,702 22,033,163 17,933,285
Additional paid-in capital 381,541,258 40,676,068 2,780,930,150 4,824,500,100 12,877,032,686
-------------- ----------- --------------- -------------- ---------------
Net assets, at value $516,619,521 $67,412,584 $2,572,508,284 $4,891,504,544 $11,668,747,439
============ =========== ============== ============= ===============
Shares outstanding 34,527,726 6,846,728 308,870,219 2,203,316,304 1,793,328,472
============ =========== ============== ============= ===============
Net asset value per share $14.96 $9.85 $8.33 $2.22 $6.51
============ =========== ============== ============= ===============
Representative computation of net
asset value and offering price per
share:
Net asset value and redemption
price per share (Growth Fund)
($516,619,521/34,527,726) $14.96
Maximum offering price*
(100/95.5 of $14.96)++ $15.66
* The maximum offering price for each of the other series is calculated as follows:
DynaTech Fund - 100/95.5 of $9.85; Utilities Fund - 100/95.75 of $8.33; Income Fund -
100/95.75 of $2.22; U.S. Government Securities Fund - 100/95.75 of $6.51.
+Includes unrealized foreign exchange depreciation of $373,056.
++On sales of $100,000 or more the offering price is reduced as stated in
the section of the Prospectus entitled "How to Buy Shares of the Fund."
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
for the year ended September 30, 1994
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
------------- ---------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $10,058,434 $ 310,083 $ 158,221,839 $ 104,977,000 $ --
Interest (Note 1) 750,964 843,654 39,102,464 254,561,262 1,039,039,044
------------ ---------- ------------- ------------- ---------------
Total income 10,809,398 1,153,737 197,324,303 359,538,262 1,039,039,044
------------ ---------- ------------- ------------- ---------------
Expenses:
Management fees (Note 5) 2,681,332 424,859 13,930,637 20,628,160 58,414,490
Shareholder servicing costs (Note 5) 479,921 70,425 1,612,530 1,545,857 3,749,057
Distribution fees (Note 5) 434,915 51,946 1,373,480 2,420,643 3,746,104
Reports to shareholders 391,812 107,296 1,783,918 1,757,362 4,138,115
Professional fees 62,113 7,032 49,690 80,271 261,348
Custodian fees 57,061 7,211 332,044 1,631,661 1,413,047
Directors' fees and expenses(Note 5) 2,434 306 14,955 20,026 59,261
Other 59,510 15,409 615,185 768,134 838,555
------------ ---------- --------------- --------------- ---------------
Total expenses 4,169,098 684,484 19,712,439 28,852,114 72,619,977
------------ ---------- --------------- --------------- ---------------
Net investment income 6,640,300 469,253 177,611,864 330,686,148 966,419,067
------------ ---------- --------------- --------------- ---------------
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) on:
Investments 1,478,440 896,402 1,912,217 53,676,600 (111,364,839)
Foreign currency transactions -- -- -- 2,297,967 --
Net unrealized appreciation
(depreciation) on investments
and translation of assets
and liabilities denominated
in foreign currencies 32,965,685 522,124 (812,037,414) (449,635,348) (1,196,683,846)
------------ ---------- ---------------- --------------- --------------
Net realized and unrealized gain
(loss) on investments 34,444,125 1,418,526 (810,125,197) (393,660,781) (1,308,048,685)
------------ ---------- ---------------- --------------- --------------
Net increase (decrease)in net assets
resulting from operations $41,084,425 $1,887,779 $(632,513,333) $ (62,974,633) $(341,629,618)
============ ========== ============= ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
for the years ended September 30, 1994 and 1993
Growth Fund DynaTech Fund Utilities Fund
-------------------------- --------------------------- --------------------------------
1994 1993 1994 1993 1994 1993
---------- ------------ ----------- ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations:
Net investment income $6,640,300 $ 9,455,132 $ 469,253 $ 724,573 $ 177,611,864 $ 152,154,036
Net realized gain from
investments and foreign
currency transactions 1,478,440 3,892,681 896,402 4,124,934 1,912,217 39,726,236
Net unrealized apprecia-
tion (depreciation) on
investments and trans-
lation of assets and
liabilities denominated
in foreign currencies 32,965,685 19,193,097 522,124 4,501,850 (812,037,414) 292,954,261
------------ ----------- ---------- ------------ ------------ -------------
Net increase
(decrease) in net
assets resulting
from operations 41,084,425 32,540,910 1,887,779 9,351,357 (632,513,333) 484,834,533
Distributions to
shareholders:
From undistributed net
income (11,372,383) (7,667,288) (858,495) (837,378) (170,878,877) (154,740,282)
From net realized
capital gains (3,114,515) (2,758,718) (4,124,934) (796,207) (13,407,885) --
Increase (decrease)
in net assets from
capital share
transactions (Note 2) (70,801,740) 5,738,184 (960,790) (843,848) (237,465,899) 1,105,585,301
------------- ----------- ----------- ------------ ------------- -------------
Net increase
(decrease) in net
assets (44,204,213) 27,853,088 (4,056,440) 6,873,924 (1,054,265,994) 1,435,679,552
Net assets:
Beginning of year 560,823,734 532,970,646 71,469,024 64,595,100 3,626,774,278 2,191,094,726
------------ ------------ ----------- ----------- ------------- -------------
End of year $516,619,521 $560,823,734 $67,412,584 $71,469,024 $2,572,508,284 $3,626,774,278
============ ============ =========== =========== ============= =============
Undistributed net
investment income
included in
net assets:
Beginning of year $ 9,465,425 $ 7,693,764 $ 716,031 $ 791,777 $ 16,806 $ 2,613,115
============ ============ ========== ========== ============= =============
End of year $ 4,733,342 $ 9,465,425 $ 326,789 $ 716,031 $ 6,749,793 $ 16,806
============ ============ ========== ========== ============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Changes in Net Assets (cont.)
for the years ended September 30, 1994 and 1993
Income Fund U.S. Government Securities Fund
------------------------------- ----------------------------------
1994 1993 1994 1993
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net
assets:
Operations:
Net investment income $ 330,686,148 $ 248,325,569+ $ 966,419,067 $ 1,077,535,620
Net realized gain (loss) on
investments foreign currency
transactions 55,974,567 49,123,691 (111,364,839) 24,047,691
Net unrealized appreciation
(depreciation) on investments and
translation of assets and liabilities
denominated in foreign currencies (449,635,348) 261,617,724 (1,196,683,846) (130,270,736)
------------- ------------- -------------- ---------------
Net increase (decrease) in
net assets resulting from
operations (62,974,633) 559,066,984 (341,629,618) 971,312,575
Distributions to shareholders:
From undistributed net investment income (343,424,035) (245,606,417) (983,276,666) (1,083,796,865)
From net realized capital gains (48,228,616) (13,619,651) -- --
Increase (decrease) in net assets from
capital share transactions (Note 2) 1,410,687,943 1,152,101,502 (1,274,862,037) 763,842,651
------------- ------------- --------------- ---------------
Net increase (decrease).in
net assets 956,060,659 1,451,942,418 (2,599,768,321) 651,358,361
Net assets:
Beginning of year 3,935,443,885 2,483,501,467 14,268,515,760 13,617,157,399
------------- ------------- -------------- --------------
End of year $4,891,504,544 $3,935,443,885 $11,668,747,439 $14,268,515,760
============== ============== =============== ===============
Undistributed net investment income
included in net assets:
Beginning of year $ 42,309,475 $ 39,798,673 $ 22,809,371 $ 30,369,485
============== ============== =============== ==============
End of year $ 8,679,566 $ 42,309,475 $ 6,172,385 $ 22,809,371
============== ============== =============== ==============
+ Includes realized loss of $3,241,242 from foreign currency transactions.
</TABLE>
FRANKLIN CUSTODIANFUNDS, INC.
- --------------------------------------------------------------------------
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Custodian Funds, Inc. (the Corporation) is an open-end,
diversified management investment company (mutual fund) registered under
the Investment Company Act of 1940 as amended. The Corporation's shares are
offered in five different Series (the Funds) with each Fund, in effect,
representing a separate fund and each of the Funds maintaining a totally
separate investment portfolio.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles
for investment companies.
a. Securities Valuations
Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available
are valued at the last quoted sale price of the day or, if there is no such
reported sale, within the range of the most recent quoted bid and asked
prices. Other securities for which market quotations are readily available
are valued at current market values, obtained from pricing services, which
are based on a variety of factors, including recent trades, institutional
size trading in similar types of securities (considering yield, risk and
maturity) and/or developments related to specific securities. Portfolio
securities which are traded both in the over-the-counter market and on a
securities exchange are valued according to the broadest and most
representative market as determined by the Manager. Other securities for
which market quotations are not available, if any, are valued in accordance
with procedures established by the Board of Directors. Short-term
securities and similar investments with remaining maturities of 60 days or
less are valued at amortized cost, which approximates value.
Securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets are valued in a similar manner, and these
values are translated into U.S. dollars at current market quotations of
their respective currency against U.S. dollars last quoted by a major bank
or, if no such quotation is available, at the rate of exchange determined
in accordance with procedures established by the Board of Directors.
The fair values of securities restricted as to resale, if any, are
determined following procedures established by the Board of Directors - -
see Note 6.
b. Income Taxes
The Funds intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make
the requisite distributions to its shareholders which will be sufficient to
relieve it from income and excise taxes. Therefore, no income tax provision
is required. Each Fund is treated as a separate entity in the determination
of compliance with the Internal Revenue Code.
c. Security Transactions
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). Realized gains and losses on security
transactions are determined on the basis of specific identification for
both financial statement and income tax purposes.
d. Investment Income, Expenses and Distributions
Dividend income and distributions to shareholders are recorded on the ex-
dividend date. Interest income and estimated expenses are accrued daily.
Bond discount is amortized as required by the Internal Revenue Code.
Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of defaulted securities -- see Note
9.
Net realized capital gains/losses differ for financial statement and tax
purposes primarily due to differing treatments of wash sale transactions.
e. Expense Allocation
Common expenses incurred by the Corporation are allocated among the Funds
based on the ratio of net assets of each Fund to the combined net assets.
In all other respects, expenses are charged to each Fund as incurred on a
specific identification basis.
f. Foreign Currency Translation
The accounting records of the Funds are maintained in U.S. dollars. All
assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the rate of exchange of such currencies against U.S.
dollars on the date of the valuation. Purchases and sales of securities,
income and expenses are translated at the rate of exchange quoted on the
respective date that such transactions are recorded. Differences between
income and expense amounts recorded and collected or paid are recognized
when reported by the custodian bank.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. Foreign Currency Translation (cont.)
The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of foreign currencies, currency
gains or losses realized between the trade date and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Funds' books, and
the U.S. dollar equivalent of the amounts actually received or paid. Net
unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities at
fiscal year end, resulting from changes in exchange rates.
g. Change in Accounting Policy for Foreign Currency Presentation:
Effective September 30, 1994, the Fund adopted AICPA Statement of Position
(SOP) 93-4: Foreign Currency Accounting and Financial Statement
Presentation for Investment Companies. The adoption of SOP 93-4 had no
effect on net assets for the fiscal year ended September 30, 1994, but
affected the classification on the income statement of foreign currency
transactions from assets and liabilities other than investments.
h. Repurchase Agreements
All Funds except the U.S. Government Securities Fund may enter into a Joint
Repurchase Agreement whereby their uninvested cash balances are deposited
into a joint cash account to be used to invest in one or more repurchase
agreements with government securities dealers recognized by the Federal
Reserve Board and/or member banks of the Federal Reserve System. The value
and face amount of the Joint Repurchase Agreement has been allocated to the
Funds based on their pro-rata interest at September 30, 1994. In a
repurchase agreement, the Funds purchase a U.S. government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed
upon price and date. Such a transaction is accounted for as a loan by the
Funds to the seller, collateralized by the underlying security. The
transaction requires the initial collateralization of the seller's
obligation by U.S. government securities with market value, including
accrued interest of at least 102% of the dollar amount invested by the
Funds, with the value of the underlying security marked to market daily to
maintain coverage of at least 100%. The collateral is delivered to the
Funds' custodian and held until resold to the dealer or bank. At September
30, 1994, all outstanding repurchase agreements and joint Repurchase
Agreements held by the Funds had been entered into on that date.
2. CAPITAL STOCK
At September 30, 1994, there were 10 billion shares of capital stock
authorized, of which 100 million were reserved for future allocation and
9.9 billion were allocated to the Funds as follows:
<TABLE>
<CAPTION>
U.S.
Government
DynaTech Utilities Securities
Growth Fund Fund Fund Income Fund Fund
------------ ----------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Allocated shares of $.01 par value
capital stock 500,000,000 500,000,000 800,000,000 3,100,000,000 5,000,000,000
============ =========== ============== ============== ===============
Paid-in capital $381,886,535 $40,744,535 $2,784,018,852 $4,846,533,263 $12,894,965,971
============ =========== ============== ============== ===============
</TABLE>
Transactions in each of the Fund's shares for the years ended September 30,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Growth Fund DynaTech Fund Utilities Fund
--------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1994
Shares sold 3,594,801 $ 52,149,133 505,692 $ 4,903,527 55,310,086 $ 531,158,254
Shares issued in connection
with merger (Note 12) -- -- -- -- 1,469,352 12,798,053
Shares issued in reinvestment
of distributions 812,022 11,831,146 449,890 4,296,451 13,733,791 125,487,908
Shares redeemed (6,292,343) (91,797,133) (812,226) (7,855,743) (61,566,757) (568,855,177)
Changes from exercise of
exchange privilege:
Shares sold 4,202,629 61,629,923 1,746,294 17,042,460 25,554,670 239,950,636
Shares redeemed (7,154,900) (104,614,809) (1,985,867) (19,347,485) (62,057,114) (578,005,573)
----------- ----------- ----------- ----------- ----------- -------------
Net decrease (4,837,791) $(70,801,740) (96,217) $ (960,790) (27,555,972) $(237,465,899)
=========== ============ =========== ============ =========== =============
2. CAPITAL STOCK (cont.)
<CAPTION>
Growth Fund DynaTech Fund Utilities Fund
--------------------------- -------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
1993
Shares sold 7,364,140 $103,153,695 865,369 $ 8,430,102 119,553,43 $1,214,288,010
Shares issued in reinvestment
of distributions 593,462 8,319,961 140,710 1,339,549 9,473,155 96,570,565
Shares redeemed (5,790,372) (81,356,482) (797,788) (7,805,849) (27,112,497) (276,229,674)
Changes from exercise of
exchange privilege:
Shares sold 4,508,327 62,946,939 2,420,374 23,454,173 25,401,725 258,331,929
Shares redeemed (6,227,105) (87,325,929) (2,702,743) (26,261,823) (18,520,373) (187,375,529)
----------- ----------- ----------- ----------- ----------- -------------
Net increase (decrease) (448,452) $ 5,738,184 (74,078) $ (843,848) 108,795,448 $1,105,585,301
=========== ============ =========== =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
Income Fund U.S. Government Securities Fund
------------------------------ --------------------------------
Shares Amount Shares Amount
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
1994
Shares sold 583,148,319 $1,363,903,591 126,955,076 $ 878,791,189
Shares issued in reinvestment of distributions 91,810,668 213,563,591 57,290,275 391,863,450
Shares redeemed (221,776,333) (514,046,627) (293,226,524) (1,997,900,628)
Changes from exercise of exchange privilege:
Shares sold 266,632,325 624,897,928 30,365,255 208,267,481
Shares redeemed (119,137,856) (277,630,540) (110,425,365) (755,883,529)
------------ -------------- ------------ ---------------
Net increase (decrease) 600,677,123 $1,410,687,943 (189,041,283) $(1,274,862,037)
============ ============== ============ ===============
1993
Shares sold 526,419,208 1,218,138,296 264,231,518 $1,904,527,526
Shares issued in connection with merger
(Note 11) -- -- 1,370,147 9,919,863
Shares issued in reinvestment of distributions 56,590,479 129,350,687 57,332,318 412,090,071
Shares redeemed (139,678,724) (324,372,137) (191,984,179) (1,383,312,279)
Changes from exercise of exchange privilege:
Shares sold 118,567,546 274,119,011 38,847,101 280,149,955
Shares redeemed (62,700,980) (145,134,355) (63,760,399) (459,532,485)
------------ -------------- ------------ --------------
Net increase 499,197,529 $1,152,101,502 106,036,506 $ 763,842,651
============ ============== ============ ==============
</TABLE>
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At September 30, 1994, for tax purposes, the Funds had accumulated net
realized gains or capital loss carryovers as follows:
<TABLE>
<CAPTION>
DynaTech Utilities Income
Growth Fund Fund Fund Fund
----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Accumulated net realized gains $1,478,440 $896,402 $1,912,217 $77,441,293
========== ======== ========== ===========
U.S. Government
Securities Fund
------------------
Capital loss carryovers
Expiring in:1995 $ 61,421,160
1996 266,310,966
1997 92,974,800
1998 74,910,973
1999 67,082,683
2002 111,364,839
------------
$674,065,421
============
</TABLE>
For income tax purposes the aggregate cost of securities is higher (and
unrealized appreciation is lower) than for financial reporting purposes at
September 30, 1994 by $101,334 in the Growth Fund.
4. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales
of short-term securities) for the year ended September 30, 1994 were as
follows:
<TABLE>
<CAPTION>
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
---------- --------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Purchases $33,789,107 $5,163,294 $262,341,896 $1,524,055,220 $2,360,123,660
=========== ========== ============ ============== ==============
Sales $60,959,364 $4,394,780 $184,651,408 $ 952,017,635 $4,211,743,130
=========== ========== ============ ============== ==============
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc., under the terms of a management agreement,
provides investment advice, administrative services, office space and
facilities to each Fund, and receives fees computed monthly on the net
assets of each Fund on the last day of the month at an annualized rate of
5/8 of 1% of the first $100 million of net assets, 1/2 of 1% of net assets
in excess of $100 million up to $250 million, 45/100 of 1% of net assets in
excess of $250 million up to $10 billion, 44/100 of 1% of net assets in
excess of $10 billion up to $12.5 billion, 42/100 of 1% of net assets in
excess of $12.5 billion up to $15 billion and 40/100 of 1% of net assets in
excess of $15 billion. Fees incurred by the Funds aggregated $96,079,478
for the year ended September 30, 1994. The terms of the agreement provide
that aggregate annual expenses of each Fund be limited to the extent
necessary to comply with the limitations set forth in the laws, regulations
and administrative interpretations of the states in which the Funds' shares
are registered. There were no reimbursements to the Funds under this
provision during the year ended September 30, 1994.
In its capacity as underwriter for the capital stock of the Corporation,
Franklin/Templeton Distributors, Inc. receives commissions on sales of the
Corporation's capital stock. Commissions received by Franklin/Templeton
Distributors, Inc. and the amounts which were subsequently paid to other
dealers for the year ended September 30, 1994 were as follows:
<TABLE>
<CAPTION>
DynaTech U.S. Government
Growth Fund Fund Utilities Fund Income Fund Securities Fund
---------- --------- --------------- ------------- ----------------
S> <C> <C> <C> <C> <C>
Total commissions recieved $2,157,161 $172,942 $19,947,028 $53,164,210 $35,631,313
========== ======== =========== =========== ===========
Paid to other dealers $1,943,169 $168,527 $18,765,409 $51,447,201 $31,404,449
========== ======== =========== =========== ===========
</TABLE>
Commissions are deducted from the gross proceeds received from the sale of
the capital stock of the Corporation, and as such are not expenses of the
Funds.
Pursuant to a shareholder service agreement with Franklin/Templeton
Investor Services, Inc., the Funds pay costs on a per shareholder account
basis. Such costs incurred for the year ended September 30, 1994 aggregated
$7,457,790 of which $6,701,380 was paid to Franklin/Templeton Investor
Services, Inc.
Effective May 1, 1994, the Funds implemented a plan of distribution under
Rule 12b-1 of the Investment Company Act of 1940, pursuant to which the
Funds will reimburse Franklin/Templeton Distributors, Inc. in an amount up
to a maximum of 0.15% per annum of the average daily net assets of the
Income, Utilities and U.S. Government Securities Series and 0.25% per annum
of the average daily net assets of the Growth and DynaTech Series for costs
incurred in the promotion, offering and marketing of the Funds shares.
Costs incurred by the Funds under the agreement aggregated $8,027,088 for
the year ended September 30, 1994.
During the year ended September 30, 1994, legal fees of $72,398 were
incurred to a law firm in which Brian E. Lorenz, Secretary of the
Corporation, is a partner. Such fees were allocated to each Fund as
described in Note 1.
Certain officers and directors of the Corporation are also officers and/or
directors of Franklin/Templeton Distributors, Inc., Franklin Advisers,
Inc., and Franklin/Templeton Investor Services, Inc., all wholly owned
subsidiaries of Franklin Resources, Inc.
6. RESTRICTED SECURITIES
A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933.
The Funds, except the U.S. Government Securities Series, may purchase
restricted securities through a private offering and they cannot be sold
without prior registration under the Securities Act of 1933 unless such
sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities. The Funds value these
restricted securities as disclosed in Note 1. At September 30, 1994, the
Income Fund held restricted securities with a value aggregating $1,351,099,
representing .03% of the Fund's net assets. Such securities are:
<TABLE>
<CAPTION>
Face Acquisition
Amount Security Date Cost Value
- ---------- ----------------------------------------------------- ------------------- ---------- ----------
<S> <C> <C> <C> <C>
$1,971,000 Pacific International Services Corp., cvt. sub. deb,
10.00%, 09/01/07 10/14/87 - 11/05/92 $1,881,900 $1,187,528
Shares
- ----------
1,215 Grand Union Capital Corp., warrants 07/22/92 1,136,827 121,500
59,255 Zale Corp., Ltd Partnership 07/30/93 42,071 42,071
</TABLE>
7. RULE 144A SECURITIES
Rule 144A provides a non-exclusive safe harbor exemption from the
registration requirements of the Securities Act of 1933 for specified
resales of restricted securities to qualified institutional investors. The
Funds value these securities as disclosed in Note 1. At September 30, 1994,
the DynaTech Fund, the Utilities Fund and the Income Fund held 144A
securities with a value aggregating $197,705, $9,900,000 and $228,583,539,
respectively, representing 0.3%, 0.4% and 4.7% of the respective Funds' net
assets. See the accompanying statement of investments in securities and net
assets for specific information of such securities.
8. LOANS OF PORTFOLIO SECURITIES
During the year ended September 30, 1994, the Utilities Fund and the Income
Fund loaned securities to certain brokers for which they received cash
collateral against the loaned securities in an amount equal to at least
102% of the market value of the loaned securities. The cash collateral
received is invested by the Funds in short-term instruments and any
interest income in excess of a predetermined rebate to the brokers is kept
by the Funds as interest income. Interest income from this source amounted
to $186,764 and $208,622, in the Utilities Fund and Income Fund,
respectively, for the year ended September 30, 1994.
At September 30, 1994, the value of the loaned securities amounted to
$32,327,025 in the Utilities Fund and $23,535,250 in the Income Fund. The
Funds have received sufficient cash collateral to meet these commitments.
9. CREDIT RISK AND DEFAULTED SECURITIES
Although the Income Fund has a diversified portfolio, 35.6% of its
portfolio is invested in lower rated and comparable quality unrated high
yield securities. Investments in higher yield securities are accompanied by
a greater degree of credit risk and such lower quality securities tend to
be more sensitive to economic conditions than higher rated securities. The
risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities, because such securities are
generally unsecured and are often subordinated to other creditors of the
issuer. At September 30, 1994, the Fund held 5 defaulted securities issued
by 3 separate companies with a value aggregating $26,010,400, representing
0.5% of the Fund's net assets. For more information as to specific
securities, see the accompanying statement of investments in securities and
net assets.
For financial reporting purposes, it is the Funds' accounting practice to
discontinue accrual of income and provide an estimate for probable losses
due to unpaid interest income on defaulted bonds for the current reporting
period.
10. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES
Investments of 5% or more of an issuer's outstanding voting securities held
by any of the Funds are defined in the Investment Company Act of 1940 as an
affiliated company. The Growth Fund had investments in affiliated companies
at September 30, 1994, which amounted to $6,906.
11. ACQUISITION OF FRANKLIN PENNSYLVANIA INVESTORS FUND -- U.S. GOVERNMENT
SECURITIES PORTFOLIO
On August 30, 1993, the U.S. Government Securities Fund acquired all of the
net assets of Franklin Pennsylvania Investors Fund -- U.S. Government
Securities Portfolio (U.S. Government Securities Portfolio) pursuant to a
plan of reorganization approved by the shareholders of the U.S. Government
Securities Portfolio on August 30, 1993.
The acquisition was accomplished by a tax-free exchange of the U.S.
Government Securities Fund shares for all the net assets of the U.S.
Government Securities Portfolio, which is accounted for as a pooling-of-
interests without restatement for financial reporting purposes.
The selected financial information and shares outstanding for the funds,
immediately before and after the acquisition were as follows:
<TABLE>
<CAPTION>
Unrealized
Net Asset Undistributed Accumulated Appreciation
Value Shares Exchange Net Investment Net Realized (Depreciation)
Net Assets Per Share Outstanding Ratio Income Gain (Loss) on Investments
----------------- --------- -------------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Securities
Portfolio$ 9,919,863 $10.32 961,198 1.42545784 $ 42,587 $ 743 $ 453,558
U.S. Government
Securities Fund 14,378,269,443 7.24 1,984,768,055 22,673,004 (549,299,101) 718,424,627
Combined 14,388,189,306 7.24 1,986,138,202 22,715,591 (549,298,358) 718,878,185
</TABLE>
12. ACQUISITION OF HAMPTON UTILITIES TRUST
On August 5, 1994, the Franklin Utilities Fund acquired all of the net
assets of Hampton Utilities Trust pursuant to a plan of reorganization
approved by the shareholders of the Hampton Utilities Trust on August 5,
1994.
The acquistion was accomplished by a tax-free exchange of the Franklin
Utilities Fund shares for all the net assets of the Hampton Utilities
Trust, which is accounted for as a pooling-of- interest without restatement
for financial reporting purposes.
The selected financial information and shares outstanding for the funds,
immediately before and after the acquisition were as follows:
<TABLE>
<CAPTION>
Unrealized
Net Asset Undistributed Accumulated Appreciation
Value Shares Exchange Net Investment Net Realized (Depreciation)
Net Assets Per Share Outstanding Ratio Income Gain (Loss) on Investments
----------------- --------- -------------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hampton Utilities
Trust $ 12,798,053 $12.39 1,032,684 1.42284730 $ -- $ 2,308 $ 3,694,964
Franklin Utilities
Fund 2,746,347,100 8.71 315,260,781 22,351,674 (3,580,742) (112,655,303)
Combined 2,759,145,153 8.71 316,730,133 $22,351,674 (3,578,434) (108,960,339)
</TABLE>
13. SUBSEQUENT EVENTS
On September 13, and October 21, 1994, the Board of Directors declared
distributions as follows:
<TABLE>
<CAPTION>
From
Undistributed Net
Fund Record Date Payment Date Investment Income
- ---------------------------------- ----------- ------------ -----------------
<S> <C> <C> <C>
U.S. Government Securities Fund 9/30 10/14 $0.040
U.S. Government Securities Fund 10/31 11/15 0.040
Income Fund 9/30 10/14 0.015
Income Fund 10/31 11/15 0.015
</TABLE>
14. FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each
year are set forth in the Prospectus under the caption "Financial
Highlights."
<TABLE>
<CAPTION>
The Funds hereby designate the percentage amounts of dividend income
distributions below as qualifying for the dividends received deduction for
corporations for the fiscal year ended September 30, 1994.
<S> <C>
Growth Fund 100.00%
DynaTech Fund 64.64%
Utilities Fund 89.08%
Income Fund 31.87%
</TABLE>
The amounts reported above are estimated percentages and should be used for
information purposes only. Information on the final percentages that
qualify for this deduction for calendar year 1994, will be available
shortly after the end of this calendar year.
FRANKLIN CUSTODIAN FUNDS, INC.
File Nos. 2-11346
811-537
FORM N-1A
PART C
Other Information
Item 24 Financial Statements and Exhibits
a) Financial Statements filed in Part B
(i) Report of Independent Auditors - October 28, 1994
(ii) Statement of Investments in Securities and Net Assets
- September 30, 1994.
(iii) Statements of Assets and Liabilities - September 30,
1994.
(iv) Statements of Operations - for the year ended
September 30, 1994.
(v) Statements of Changes in Net Assets - for the years
ended September 30, 1994 and 1993.
(vi) Notes to Financial Statements
b) Exhibits:
The following exhibits, are attached herewith, except
exhibits 6(ii), 8(ii), (14)(i) and (16)(i) which are
incorporated by reference as noted.
(1) copies of the charter as now in effect;
(i) Articles of Incorporation dated October 9, 1979
(ii) Agreement and Articles of Merger dated November 7, 1979
(iii)Certificate of Amendment to Articles of Incorporation
dated October 4, 1985
(iv) Articles of Amendment dated October 14, 1985
Filing: Post Effective Amendment No. 65 to
(v) Certificate of Amendment to Articles of Incorporation
dated February 24, 1989
(vi) Certificate of Amendment to Articles of Incorporation
dated March 21, 1995
(2) copies of the existing By-Laws or instruments corresponding
thereto;
(i) By-Laws
(3) copies of any voting trust agreement with respect to more
than five percent of any class of equity securities of the
Registrant;
Not Applicable
(4) specimens or copies of each security issued by the
Registrant, including copies of all constituent
instruments, defining the rights of the holders of such
securities, and copies of each security being registered;
Not Applicable
(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;
(i) Management Agreement between the Registrant on behalf
of the DynaTech Series and Franklin Advisers, Inc.
dated May 1, 1994
(ii) Management Agreement between the Registrant on behalf
of the Growth Series and Franklin Advisers, Inc. dated
May 1, 1994
(iii)Management Agreement between the Registrant on behalf
of the Income Series and Franklin Advisers, Inc. dated
May 1, 1994
(iv) Management Agreement between the Registrant on behalf
of the U.S. Government Securities Series and Franklin
Advisers, Inc. dated May 1, 1994
(v) Management Agreement between the Registrant on behalf
of the Utilities Series and Franklin Advisers, Inc.
dated May 1, 1994
(6) copies of each underwriting or distribution contract
between the Registrant and a principal underwriter, and
specimens or copies of all agreements between principal
underwriters and dealers;
(i) Form of Amended and Restated Distribution Agreement
between Registrant and Franklin/Templeton Distributors,
Inc.
(ii) Form of Dealer Agreements between Franklin/Templeton
Distributors, Inc. and dealers
Registrant: Franklin Federal Tax-Free Income Fund
Filing: Post-Effective Amendment No. 17 to
Registration Statement on Form N-1A
File No. 2-75925
Filing Date: March 27, 1995
(7) copies of all bonus, profit sharing, pension or other
similar contracts or arrangements wholly or partly for the
benefit of directors or officers of the Registrant in
their capacity as such; any such plan that is not set
forth in a formal document, furnish a reasonably detailed
description thereof;
Not Applicable
(8) copies of all custodian agreements and depository contracts
under Section 17(f) of the 1940 Act, with respect to
securities and similar investments of the Registrant,
including the schedule of remuneration;
(i) Custody Agreement between Registrant and Bank of
America NT & SA dated September 17, 1991
(ii) Amendment to Custodian Agreement between Registrant and
Bank of America dated December 1, 1994 Incorporated by
reference to:
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to Registration
on Form N-1A
File No.2-12647
Filing Date: February 27, 1995
(9) Copies of all other material contracts not made in the
ordinary course of business which are to be performed in
whole or in part at or after the date of filing the
Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will
when sold be legally issued, fully paid and nonassessable;
Not Applicable
(11) copies of any other opinions, appraisals or rulings and
consents to the use thereof relied on in the preparation of
this registration statement and required by Section 7 of
the 1933 Act;
(i) Consent of Independent Auditors
(12) all financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in
consideration for providing the initial capital between or
among the Registrant, the underwriter, adviser, promoter
or initial stockholders and written assurances from
promoters or initial stockholders that their purchases
were made for investment purposes without any present
intention of redeeming or reselling;
(i) Letter of Understanding dated April 12, 1995
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant
offers its securities, any instructions thereto and any
other documents making up the model plan. Such form(s)
should disclose the costs and fees charged in connection
therewith;
(i) Copy of model retirement plan
Registrant: AGE High Income Fund, Inc.
Filing: Post-effective Amendment No. 26 to
Registration Statement on Form N-1A
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to
Rule 12b-1 under the 1940 Act, which describes all
material aspects of the financing of distribution of
Registrant's shares, and any agreements with any person
relating to implementation of such plan.
(i) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the DynaTech Series and
Franklin/Templeton Distributors, Inc. dated May 1, 1994
(ii) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the Growth Series and
Franklin/Templeton Distributors, Inc. dated May 1, 1994
(iii)Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the Income Series and
Franklin/Templeton Distributors, Inc. dated May 1, 1994
(iv) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the U.S. Government Securities
Series and Franklin/Templeton Distributors, Inc. dated
May 1, 1994
(v) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the Utilities Series and
Franklin/Templeton Distributors, Inc. dated May 1, 1994
(vi) Form of Distribution Plan pursuant to Rule 12b-1
between the Registrant on behalf of the Utilities
Series, Income Series and U.S. Government Securities
Series - Class II and Franklin/Templeton Distributors,
Inc.
(vii)Form of Distribution Plan pursuant to Rule 12b-1
between the Registrant on behalf of the Growth Series -
Class II and Franklin/Templeton Distributors, Inc.
(16) schedule for computation of each performance quotation
provided in the registration statement in response to Item
22 (which need not be audited).
(i) Schedule for Computation of Performance Quotation
Registrant: Franklin Tax-Advantaged U.S. Government
Securities Fund
Filing: Post Effective Amendment No. 8 to
Registration Statement on Form N-1A
File No. 33-11963
Filing Date: March 1, 1995
(17) Power of Attorney
(i) Powers of Attorney dated February 16, 1995
(ii) Certificate of Secretary dated February 16, 1995
Item 25 Persons Controlled by or under Common Control with
Registrant
None
Item 26 Number of Holders of Securities
As of February 28, 1995, the number of record holders of each
series of the only class of securities of the Registrant was as
follows:
Number of
Title of Class Record Holders
Growth Series 76,203
Utilities Series 228,899
DynaTech Series 11,367
Income Series 292,981
U.S. Government Securities Series 500,770
Item 27 Indemnification
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant
to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person
in connection with securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to
a court or appropriate jurisdiction the question whether
such indemnification is against public policy as expressed
in the Act and will be governed by the final adjudication of
such issue.
Item 28 Business and Other Connections of Investment Adviser
The officers and directors of the Registrant's investment
adviser also serve as officers and/or directors for (1) the
adviser's corporate parent, Franklin Resources, Inc., and/or
(2) other investment companies in the Franklin Group of
Funds. In addition, Mr. Charles B. is a director of General
Host Corporation. For additional information please see
Part B.
Item 29 Principal Underwriters
a) Franklin/Templeton Distributors, Inc. ("Distributors")
also acts as principal underwriter of shares of AGE High
Income Fund, Inc., Franklin Tax-Exempt Money Fund, Franklin
Equity Fund, Franklin Gold Fund, Franklin Municipal
Securities Trust, Franklin California Tax-Free Income Fund,
Inc., Franklin New York Tax-Free Income Fund, Inc., Franklin
California Tax-Free Trust, Franklin Investors Securities
Trust, Franklin Premier Return Fund, Franklin Tax-Free
Trust, Franklin New York Tax-Free Trust, Franklin Strategic
Mortgage Portfolio, Franklin Strategic Series, Franklin
International Trust, Franklin Tax-Advantaged International
Bond Fund, Franklin Tax-Advantaged U.S. Government
Securities Fund, Franklin Tax-Advantaged High Yield
Securities Fund, Franklin Managed Trust, Franklin Balance
Sheet Investment Fund, Franklin Federal Tax-Free Income
Fund, Institutional Fiduciary Trust, Franklin Money Fund,
Franklin Federal Money Fund, Franklin Real Estate Securities
Trust, Franklin Templeton Global Trust, Templeton Variable
Products Series Fund, Templeton Real Estate Securities Fund,
Templeton Growth Fund, Inc., Templeton Funds, Inc.,
Templeton Smaller Companies Growth Fund, Inc., Templeton
Income Trust, Templeton Global Opportunities Trust,
Templeton Institutional Funds, Inc., Templeton American
Trust, Inc., Templeton Capital Accumulator Fund, Inc.,
Templeton Developing Markets Trust, Templeton Global
Investment Trust, Templeton Variable Annuity Fund, and
Franklin/Templeton Japan Fund.
b) The information required by this item 29 with respect to
each director and officer of Distributors is incorporated by
reference to Part B of this N-1A and Schedule A of Form BD
filed by Distributors with the Securities and Exchange
Commission pursuant to the Securities Act of 1934 (SEC File
No. 8-5889)
c) Not applicable. Registrant's principal underwriter is
an affiliated person of an affiliated person of the
Registrant.
Item 30 Location of Accounts and Records
The accounts, books or other documents required to be maintained
by Section 31 (a) of the Investment Company Act of 1940 are kept
by the Fund or its shareholder services agent, Franklin/Templeton
Investor Services, Inc., both of whose address is 777 Mariners
Island Blvd., San Mateo, California 94404.
Item 31 Management Services
There are no management-related service contracts not discussed
in Part A or Part B.
Item 32 Undertakings
a) The Registrant hereby undertakes to promptly call a meeting
of shareholders for the purpose of voting upon the question
of removal of any trustee or trustees when requested in
writing to do so by the record holders of not less than 10
percent of the Registrant's outstanding shares to assist its
shareholders in accordance with the requirements of Section
16 (c) of the Investment Company Act of 1940.
b) The Registrant hereby undertakes to comply with the
information requirement in Item 5A of the Form N-1A by
including the required information in the Fund's Annual
Report to Shareholders and to furnish each person to whom a
prospectus is delivered a copy of the Annual Report upon
request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended, the Registrant
certifies that it meets all of the requirements for effectiveness
of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Mateo and the State of California,
on the 26th day of April 1995.
FRANKLIN CUSTODIAN FUNDS, INC.
(Registrant)
By: Charles B. Johnson*
Charles B. Johnson
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
Charles B. Johnson* Principal Executive Officer and Director
Charles B. Johnson Dated: April 26, 1995
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: April 26, 1995
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: April 26, 1995
Harris J. Ashton* Director
Harris J. Ashton Dated: April 26, 1995
S. Joseph Fortunato* Director
S. Joseph Fortunato Dated: April 26, 1995
Rupert H. Johnson, Jr.* Director
Rupert H. Johnson, Jr. Dated: April 26, 1995
Gordon S. Macklin* Director
Gordon S. Macklin Dated: April 26, 1995
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Powers of Attorney filed herewith)
FRANKLIN CUSTODIAN FUNDS, INC.
REGISTRATION STATEMENT
EXHIBITS INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. IN
SEQUENTIAL
NUMBERING SYSTEM
EX-99.B1(i) Articles of Incorporation dated Attached
October 9, 1979
EX-99.B1(ii) Agreement and Articles of Merger Attached
dated November 7, 1979
EX-99.B1(iii) Certificate of Amendment to Attached
Articles of Incorporation dated
October 4, 1985
EX-99.B1(iv) Articles of Amendment dated Attached
October 14, 1985
EX-99.B1(v) Certificate of Amendment to Attached
Articles of Incorporation dated
February 24, 1989
EX-99.B1(vi) Certificate of Amendment to Attached
Articles of Incorporation dated
March 21, 1995
EX-99.B2(i) By-Laws Attached
EX-99.B5(i) Management Agreement between the Attached
Registrant on behalf of the
DynaTech Series and Franklin
Advisers, Inc. dated May 1, 1994
EX-99.B5(ii) Management Agreement between the Attached
Registrant on behalf of the Growth
Series and Franklin Advisers, Inc.
dated May 1, 1994
EX-99.B5(iii) Management Agreement between the Attached
Registrant on behalf of the Income
Series and Franklin Advisers, Inc.
dated May 1, 1994
EX-99.B5(iv) Management Agreement between the Attached
Registrant on behalf of the U.S.
Government Securities Series and
Franklin Advisers, Inc. dated May
1, 1994
EX-99.B5(v) Management Agreement between the Attached
Registrant on behalf of the
Utilities Series and Franklin
Advisers, Inc. dated May 1, 1994
EX-99.B6(i) Amended and Restated Distribution Attached
Agreement between Registrant and
Franklin/Templeton Distributors,
Inc.
EX-99.B6(ii) Form of Dealer Agreement between *
Franklin/Templeton Distributors,
Inc. and dealers
EX-99.B8(i) Custody Agreement between Attached
Registrant and Bank of America NT
& SA dated September 17, 1991
EX-99.B8(ii) Amendment to Custodian Agreement *
between Registrant and Bank of
America dated December 1, 1994
EX-99.B11(i) Consent of Independent Auditors Attached
EX-99.B13(i) Letter of Understanding Attached
EX-99.B14(i) Copy of Model Retirement Plan *
EX-99.B15(i) Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on
behalf of the DynaTech Series and
Franklin/Templeton Distributors,
Inc. dated May 1, 1994
EX-99.B15(ii) Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on
behalf of the Growth Series and
Franklin/Templeton Distributors,
Inc. dated May 1, 1994
EX-99.B15(iii) Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on
behalf of the Income Series and
Franklin/Templeton Distributors,
Inc. dated May 1, 1994
EX-99.B15(iv) Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on
behalf of the U.S. Government
Securities Series and
Franklin/Templeton Distributors,
Inc. dated May 1, 1994
EX-99.B15(v) Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on
behalf of the Utilities Series and
Franklin/Templeton Distributors,
Inc. dated May 1, 1994
EX-99.B15(vi) Form of Distribution Plan pursuant Attached
to Rule 12b-1 between the
Registrant on behalf of the
Utilities Series, Income Series
and U.S. Government Securities
Series - Class II and
Franklin/Templeton Distributors,
Inc.
EX-99.B15(vii) Distribution Plan pursuant to Rule Attached
12b-1 between the Registrant on
behalf of the Growth Series -
Class II and Franklin/Templeton
Distributors, Inc.
EX-99.B16(i) Schedule for Computation of *
Performance Quotation
EX-99.B17(i) Powers of Attorney dated February Attached
16, 1995
EX-99.B17(ii) Certificate of Secretary dated Attached
February 16, 1995
* Incorporated by reference
ARTICLES OF INCORPORATION
OF
FRANKLIN CUSTODIAN FUNDS, INC.
FIRST: THE UNDERSIGNED, BRIAN E. LORENZ, whose post-office
address is 250 Park Avenue, New York, New York, being at least eighteen
years of age, does hereby act as an incorporator with the intention of
forming a corporation under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations.
SECOND: The name of the Corporation is FRANKLIN CUSTODIAN
FUNDS, INC.
THIRD: The purpose for which the Corporation is formed are:
To engage in business as a management investment company
registered under the Investment Company Act of 1940.
To do everything necessary, proper, advisable or
convenient for the accomplishment of the above purpose, and to
do every other act and thing incidental thereto provided the
same be not forbidden by the laws of the State of Maryland.
FOURTH: The post-office address of the principal office of the
Corporation in this State is c/o The Corporation Trust Incorporated,
First Maryland Building, 25 South Charles Street, Baltimore, Maryland
21201. The name of the resident agent of the Corporation in this State
is The Corporation Trust Incorporated, a corporation of this State, and
the post-office address of the resident agent is First Maryland
Building, 25 South Charles Street, Baltimore, Maryland 21201.
FIFTH: The total number of shares of stock which the
Corporation shall have authority to issue is fifty million (50,000,000)
shares of capital stock, which shall be divided into such classes as
specified or provided for herein. The shares of each class shall have a
par value of One Cent ($.01) each and shall entitle the holder thereof
to one vote each. Three million (3,000,000) shares shall be issued in a
class known as GROWTH SERIES SHARES, three million (3,000,000) shares
shall be issued in a class known as U.S. GOVERNMENT SECURITIES SERIES
SHARES, eighteen million (18,000,000) shares shall be issued in a class
known as INCOME SERIES SHARES, four million (4,000,000) shares shall be
issued in a class known as UTILITIES SERIES SHARES, two million
(2,000,000) shares shall be issued in a class known as DYNATECH SERIES
SHARES, and twenty million (20,000,000) of such shares may be issued in
such class or classes comprising such number of shares and having such
designations, rights, and qualifications consistent with the provisions
set forth in this paragraph, as shall be fixed and determined from time
to time by the Corporation's Board of Directors, to whom authority so to
fix and determine the same is hereby expressly granted. The Board of
Directors is hereby also expressly granted authority to increase or
decrease the number of shares of any class provided that the number of
shares in any class shall not be decreased below the number of shares
thereof then issued and outstanding.
Each class of stock shall be subject to the following
preferences, rights, limitations and restrictions:
(a) The assets of the Corporation received as a
consideration for the issue or sale of shares of each class of
stock, together with all income, earnings, profits and proceeds
thereof, in whatsoever form the same may be, may be invested
only in cash or securities having at the time of investments the
qualifications expressed in relation to each class. As used
herein "Cash" shall include cash equivalents as determined by
the Board of Directors and "Securities" shall include all forms
of stocks, bonds, rights and certificates or evidences of
interest indebtedness and participation irrespective of form.
The investment qualifications for the initial classes of stock
previously referred to shall be as follows:
(1) GROWTH SERIES SHARES.
(A) Cash; or
(B) Any shares of common or capital stock listed
or admitted to trading privileges or dealt in on the New York
Stock Exchange or any other recognized security exchange or
the issuer of which is a corporation, association or similar
legal entity having gross assets valued by it at not less than
$1,000,000, as shown by its latest published annual report and
bonds or preferred stock or other Securities convertible into
such common or capital stock or in covered call options listed
for trading on a national securities exchange.
(2) U.S. GOVERNMENT SECURITIES SERIES.
(A) Cash; or
(B) Securities which are obligations of or
guaranteed by the United States Government or its
instrumentalities.
(3) INCOME SERIES SHARES.
(A) Cash; or
(B) Securities listed or admitted to trading
privileges or dealt in on the New York Stock Exchange or any
other recognized security exchange; or the issuer of which is
a corporation, association or similar legal entity having
gross assets valued by it at not less than $1,000,000, as
shown by its latest published annual report.
(4) UTILITIES SERIES SHARES.
(A) Cash; or
(B) Securities issued, created or guaranteed by a
corporation, association or similar legal entity engaged in
the public utilities industry. The determination of the Board
of Directors shall be conclusive as to what corporations are
engaged in the public utilities industry.
(5) DYNATECH SERIES SHARES.
(A) Cash;
(B) Securities listed or admitted to trading
privileges or dealt in on the New York Stock Exchange or any
other recognized security exchange or the issuer of which is a
corporation, association or similar legal entity having gross
assets valued by it at not less than $1,000,000, as shown by
its latest published annual report.
(b) The assets of the Corporation received as a consideration
for the issue or sale of shares of each class of its stock,
together with all income, earnings, profits and proceeds thereof
from the time of receipt thereof by the Corporation in whatever
form the same shall from time to time be, shall irrevocably
appertain to such class of stock and shall constitute the assets of
such class of stock, subject only to the rights of creditors, and
shall be so entered and segregated upon the books of account, and
shall be known as the "underlying assets" of such class. The
underlying assets of each class shall be charged with the
liabilities (including accrued expenses and reserves as determined
from time to time by the Board of Directors in accordance with
sound accounting practice) in respect of such class and shall also
be charged with the share of such liabilities (including general
liabilities of the Corporation) in respect of any two or more
classes in proportion to the liquidating asset value of the
respective classes, determined as hereinafter provided. The
determination of the Board of Directors shall be conclusive as to
which such liabilities are allocable to a given class and as to
which of the same are general or allocable to two or more classes.
If at any time any reasonable doubt may exist as to the class or
classes of stock to which any particular assets of the Corporation
shall properly belong, the Board of Directors may, by specific
resolution, resolve such doubt and its action in that regard shall
be conclusive.
(c) In the event of the dissolution or other liquidation of
the Corporation the registered holders of the stock of any class
shall be entitled to receive, as a class, the underlying assets of
such class available for distribution to stockholders less the
liabilities (including accrued expenses and reserves as determined
from time to time by the Board of Directors in accordance with
sound accounting practice) in respect of such class, and also the
share of such liabilities (including general liabilities of the
Corporation) in respect of any two or more classes in proportion to
the liquidating asset value of the respective classes. Said
available underlying assets of any class, less the liabilities of
such class shall be distributable among the shareholders of the
stock of such class in proportion to the number of shares of stock
of such class held by them respectively.
SIXTH: The number of directors of the Corporation shall be
four, which number may be changed in accordance to the by-laws of the
Corporation. The names of the directors who shall act until the first
annual meeting or until their successors are duly chosen and qualify
are:
David W. Brumbaugh
Edmund H. Kerr
Harris J. Ashton
Charles B. Johnson
The number of directors shall never be less than three.
SEVENTH: The following provisions are hereby adopted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the directors and stockholders:
No holder of shares of stock of any class shall be entitled as
a matter of right to subscribe for or purchase or receive any part of
any new or additional issue of shares of stock of any class or of
securities convertible into shares of stock of any class, whether now or
hereafter authorized or whether issued for money, for a consideration
other than money or by way of dividend.
The Corporation reserves the right from time to time to
make any amendment of its charter, now or hereafter authorized by law.
The Corporation shall indemnify its directors, officers
and representatives to the extent permitted by law.
The By-Laws of the Corporation may be amended by an
affirmative vote of a majority of its Board of Directors.
EIGHTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, the undersigned incorporator of FRANKLIN
CUSTODIAN FUNDS, INC. who executed the foregoing Articles of
Incorporation hereby acknowledges the same to be his act and further
acknowledges that, to the best of his knowledge the matters and facts
set forth therein are true in all material respects under the penalties
of perjury.
Dated the 9th day of October, 1979.
/s/ Brian E. Lorenz
Brian E. Lorenz
AGREEMENT AND ARTICLES OF MERGER
AGREEMENT AND ARTICLES OF MERGER dated as of this 7th day of
November, 1979, by and between FRANKLIN CUSTODIAN FUNDS, INC., a
Maryland Corporation (hereinafter sometimes called "Maryland
Corporation or the "Surviving Corporation"), and FRANKLIN CUSTODIAN
FUNDS, INC., a Delaware Corporation (hereinafter sometimes called
"Delaware Corporation"), said corporations being hereinafter sometimes
collectively called the "Constituent Corporations" (hereinafter
sometimes called "this Agreement" ).
WHEREAS, Maryland Corporation is a corporation duly organized
and existing under the General Corporation Law of the State of
Maryland, having been incorporated on October 16, 1979 having an
authorized stock consisting of 50,000,000 shares of capital stock of
the par value of $.01 each of which 3,000,000 shares are authorized for
issuance in a class known as Growth Series shares, 3,000,000 shares are
authorized for issuance in a class known as U. S. Government Securities
Series shares, 18,000,000 shares are authorized for issuance in a class
known as Income Series shares, 4,000,000 shares are authorized for
issuance in a class known as Utilities Series shares, 2,000,000 shares
authorized for issuance in a class known as Dynatech Series shares and
20,000,000 shares authorized for issuance in such classes as shall be
established by the Board of Directors of the Maryland Corporation; and
WHEREAS, Delaware Corporation is a corporation duly organized
and existing under the General Corporation Law of the State of
Delaware, having been incorporated on November 28, 1947 having an
authorized stock of 30,001,000 shares of capital stock having a par
value of $.01 each of which 1,000 shares are authorized for issuance as
common stock and 30,000,000 are authorized for issuance in series as
special stock of which 3,000,000 shares are authorized for issuance as
Growth Series shares, 3,000,000 shares are authorized for issuance as
U. S. Government Securities Series shares, 18,000,000 shares are
authorized for issuance as Income Series shares, 4,000,000 shares are
authorized for issuance as Utilities Series shares and 2,000,000 are
authorized for issuance as Dynatech Series shares; and
WHEREAS, the Maryland Corporation has no shares of its
capital stock issued and outstanding; and
WHEREAS, the Delaware Corporation has 22,347,654 shares of
special stock issued and outstanding of which 1,295,804 shares are
Growth Series shares, 1,441,193 shares are U. S. Government Securities
Series shares, 16,423,646 shares are Income Series shares, 2,242,156
shares are Utilities Series shares, and 944,855 shares are Dynatech
Series shares; and
WHEREAS, the principal office of Maryland Corporation in the
State of Maryland is located at c/o The Corporation Trust Incorporated,
First Maryland Building, 25 South Charles Street, Baltimore, Maryland
21201; and
WHEREAS, the principal office of Delaware Corporation in the
State of Delaware is located at c/o The Corporation Trust Company, 100
West Tenth Street, Wilmington, Delaware 19801; and
WHEREAS, neither the Maryland Corporation nor the Delaware
Corporation have any interest in any land in Maryland or Delaware;
WHEREAS, the Board of Directors of each of the Constituent
Corporations deem it advisable and to the advantage of the Constituent
Corporations and the respective stockholders that Delaware Corporation
be merged into Maryland Corporation with Maryland Corporation the
Surviving Corporation, under and pursuant to the laws of the States of
Delaware and Maryland and on the terms and conditions herein contained;
and
WHEREAS, the Board of Directors of Maryland Corporation and
the Board of Directors of Delaware Corporation have approved this
Agreement by resolutions duly adopted at a meeting of the respective
Boards of Directors held on November 7, 1979, and the Board of
Directors of Delaware Corporation has directed that this Agreement be
submitted to stockholders of the Delaware Corporation for their
approval;
NOW, THEREFORE, in consideration, of the promises and of
mutual agreements, covenants, and provisions hereinafter contained, the
parties hereto agree:
ARTICLE I
1.1 Delaware Corporation and Maryland Corporation agree that
Delaware Corporation shall be merged into Maryland Corporation.
Maryland Corporation shall be the Surviving Corporation and shall be
governed by the laws of the State of Maryland. The terms and conditions
of the merger and the mode of carrying the same into effect are as
herein set forth in this Agreement.
1.2 The Articles of Incorporation of Maryland Corporation as
they shall exist on the effective date of the merger shall, until
further amended as provided by law, constitute the Articles of
Incorporation of the Surviving Corporation.
1.3 The By-Laws of Maryland Corporation as they exist on the
effective date of the merger shall, until further amended as provided
by law, constitute the By-Laws of the Surviving Corporation.
1.4 The Directors of Delaware Corporation on the effective
date of the merger, shall constitute the Board of Directors of the
Surviving Corporation and shall hold office until their terms expire at
the annual meeting of stockholders of the Surviving Corporation in
1981, and until their successors are elected and shall qualify.
ARTICLE II
2.1 The manner and basis of converting the issued and
outstanding shares of the stock of Delaware Corporation into the shares
of stock of the Surviving Corporation shall be as hereinafter set forth
in this Article II.
2.2 Each share or fraction thereof of stock of the Delaware
Corporation issued and outstanding on the effective date of the merger
shall thereupon become converted into an equal number of shares of the
corresponding series or class of the Surviving Corporation so that
Growth Series shares of the Delaware Corporation shall become Growth
Series shares of the Maryland Corporation, U.S. Government Securities
Series shares of the Delaware Corporation shall become U.S. Government
Securities Series shares of the Maryland Corporation, Income Series
shares of the Delaware Corporation shall become Income Series shares of
the Maryland Corporation, Utilities Series shares of the Delaware
Corporation shall become Utilities Series shares of the Maryland
Corporation and Dynatech Series shares of the Delaware Corporation
shall become Dynatech Series shares of the Maryland Corporation.
2.3 Immediately following the effective date of the merger
each certificate representing shares of Delaware Corporation shall
represent the same number of shares of Maryland Corporation into which
it is converted as provided in 2.2 above subject to the right of each
holder of a stock certificate representing shares of Delaware
Corporation to surrender same to the Surviving Corporation and to
receive in exchange certificate representing an equal number of shares
of stock of the Surviving Corporation.
ARTICLE III
3.1 On the effective date of the merger provided for in this
Agreement, the separate existence of Delaware Corporation shall cease,
except to the extent, if any, continued by statute. All the assets,
rights, privileges, powers and franchises of Delaware Corporation and
all debts due on whatever account to it, shall be taken and deemed to
be transferred to and vested in the Surviving Corporation without
further act or deed; and all such assets, rights, privileges, powers
and franchises, and all and every other interest of Delaware
Corporation shall be thereafter as effectually the property of the
Surviving Corporation as they were of Delaware Corporation; and the
title to and interest in any real estate vested by deed, lease or
otherwise, unto either of the Constitutent Corporations, shall not
revert or be in any way impaired. The Surviving Corporation shall be
responsible for all the liabilities and obligations of Delaware
Corporation, but the liabilities of the Constituent Corporations or of
their stockholders, directors, or officers shall not be affected by
this merger, nor shall the rights of the creditors thereof or any
persons dealing with such corporations, or any liens upon the property
of such corporations, be impaired by this merger, and any claim
existing or action or proceeding pending by or against either of such
corporations may be prosecuted to judgment as if this merger had not
taken place, or the Surviving Corporation may be proceeded against or
substituted in place of Delaware Corporation. Except as otherwise
specifically set forth in this Agreement, the identity, existence,
purposes, powers, franchise, rights, immunities and liabilities of
Maryland Corporation shall continue unaffected and unimpaired by the
merger.
3.2 All corporate acts, plans, policies, resolutions,
approvals, and authorizations of the stockholders, Board of Directors,
committees of the Board of Directors and agents of Delaware
Corporation, which were effective immediately prior to the effective
date of the merger shall be taken for all purposes as the acts, plans,
policies, resolutions, approvals and authorizations of the Surviving
Corporation and shall be as effective and binding thereon as the same
were with respect to Delaware Corporation.
3.3 Prior to the effective date of the merger the Constituent
Corporations shall take all such action as shall be necessary or
appropriate in order to effectuate the merger. In case at any time
after the effective date of the merger the Surviving Corporation shall
determine that any further conveyance, assignment or other documents or
any further action is necessary or desirable to vest in or confirm to
the Surviving Corporation full title to all the properties, assets,
rights, privileges, and franchises of the Constituent Corporations, the
officers and directors of the Constituent Corporations, at the expense
of the Surviving Corporation, shall execute and deliver all such
instruments and take all such action as the Surviving Corporation may
determine to be necessary or desirable in order to vest in and confirm
to the Surviving Corporation title to and possession of all such cash
and securities and other properties, assets, rights, privileges and
franchises, and otherwise to carry out the purpose of this Agreement.
3.4 The Surviving Corporation hereby (1) agrees that it may
be served with process in the State of Delaware in any proceeding for
the enforcement of any obligation of Delaware Corporation as well as
for the enforcement of any obligation of the Surviving Corporation
arising from the merger herein provided, including any suit or
proceedings to enforce the right, if any, of any stockholder as
determined in appraisal proceedings pursuant to the provisions of
Section 262 of the General Corporation Law of the State of Delaware,
(2) hereby irrevocably appoints the Secretary of State of the State of
Delaware as its agent to accept service of process in any such suit or
other proceedings, and (3) hereby specifies the following as the
address to which a copy of such process shall be mailed by the
Secretary of State of the State of Delaware: Brian E. Lorenz, Esq.,
Lovejoy, Wasson, Lundgren & Ashton, 250 Park Avenue, New York, New York
10017.
ARTICLE IV
4.1 The obligations of each of the Constituent Corporations
to effectuate the merger hereunder shall be subject to the following
conditions and the Agreement shall become effective as of the Close of
Business on the date all of said conditions have been met:
(a) The Securities and Exchange Commission shall not
have issued an unfavorable advisory report under Section 25(b) of
the Investment Company Act of 1940, as amended, nor instituted any
proceeding seeking to enjoin consummation of the merger under
Section 25(c) of such Act;
(b) The holders of at least a majority of the
outstanding shares of stock of Delaware Corporation shall have
voted in favor of the adoption of this Agreement and the merger
contemplated hereby at an annual or special meeting or any
adjournment thereof.
(c) A ruling shall have been obtained from the Internal
Revenue Service satisfactory to counsel of the Delaware
Corporation that the merger be recognized as a tax-free
reorganization within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code and that there will be no recognition of
gain on the exchange of stock and that certain tax characteristics
of the Delaware Corporation and its series will be inherited by
the Surviving Corporation and its corresponding series.
ARTICLE V
5.1 Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated and the merger
abandoned at any time (whether before or after adoption hereof by the
stockholders of the Delaware Corporations) prior to the effective date
of the merger:
(a) by mutual consent of the Constituent Corporations;
(b) by either of the Constituent Corporations if any
condition set forth in Article IV hereof has not been fulfilled or
waived by it;
(c) by either of the Constituent Corporations if the
merger shall not have become effective on or before February 1,
1980.
5.2 An election by a Constituent Corporation to terminate
this Agreement and abandon the merger shall be exercised by its Board
of Directors.
5.3 In the event of termination of this Agreement pursuant to
the provisions hereof the same shall without any liability on the part
of either of the Constituent Corporations or persons who are its
directors, officers or stockholders in respect of this Agreement,
become void and have no effect provided that this provision shall not
protect any director or officer of any of the Constituent Corporations
against any liability to such Corporation or its stockholders to which
he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office.
ARTICLE VI
6.1 The effective date of this merger shall be February 1,
1980.
ARTICLE VII
7.1 These Articles embody the entire agreement between the
parties and there are no agreements, understandings, restrictions or
warranties among the parties other than those set forth herein or
herein provided for.
7.2 These Articles may be executed in any number of
counterparts each of which shall be deemed to be an original but all of
such counterparts together shall constitute but one instrument.
7.3 This Agreement and Articles of Merger will be executed in
compliance with laws of the States of Delaware and Maryland.
IN WITNESS WHEREOF, each of the Constituent Corporations has
caused this Agreement and Articles of Merger to be executed on its
behalf by its President or a Vice-President and its corporate seal to
be affixed thereto and attested by its Secretary or Assistant
Secretary, all as of the day and year first above written.
FRANKLIN CUSTODIAN FUNDS, INC.
(a Maryland Corporation)
/s/ Philip A. Russell
By: Philip A. Russell, President
Attest:
/s/ Brian E. Lorenz
Brian E Lorenz, Secretary
THE UNDERSIGNED, President of Franklin Custodian Funds, Inc.,
a Maryland corporation, who executed on behalf of said corporation the
foregoing Articles of Merger, of which this certificate is made as
part, hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles of Merger to be the corporate act
of said corporation and further certifies that, to the best of his
knowledge, information and belief the matters and facts set forth
therein with respect to the approval thereof are true in all material
receipts, under penalties of perjury.
/s/ Philip A. Russell
By: Philip A. Russell
FRANKLIN CUSTODIAN FUNDS, INC.
(a Delaware Corporation)
/s/ Philip A. Russell
Philip A. Russell, President
Attest:
/s/ Brian E. Lorenz
Brian E. Lorenz, Secretary
THE UNDERSIGNED, President of Franklin Custodian Funds, Inc.,
a Delaware corporation, who executed on behalf of said corporation the
foregoing Articles of Merger, of which this certificate is made as
part, hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles of Merger to be the corporate act
of said corporation and further certifies that, to the best of his
knowledge, information and belief the matters and facts set forth
therein with respect to the approval thereof are true in all material
receipts, under penalties of perjury.
/s/ Philip A. Russell
Philip A. Russell
FRANKLIN CUSTODIAN FUNDS INCORPORATED
ARTICLES OF AMENDMENT
FRANKLIN CUSTODIAN FUNDS, INC., a Maryland corporation
having its principal office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended
by striking out article FIFTH of the Articles of Incorporation
and inserting in lieu thereof the following new article FIFTH:
"FIFTH: The total of shares of stock which
the Corporation shall have authority to issue is
ten billion (10,000,000,000) shares of capital
stock, which shall be divided into such classes as
specified or provided for herein. The shares of
each class shall have a par value of One Cent
($.01) each and shall entitle the holder thereof
to one vote each. Five hundred million
(500,000,000) shares shall be issued in a class
known as GROWTH SERIES SHARES, five billion
(5,000,000,000) shares shall be issued in a class
known as U.S. GOVERNMENT SECURITIES SERIES SHARES,
five hundred million (500,000,000) shares shall be
issued in a class known as INCOME SERIES SHARES,
five hundred million (500,000,000) shares shall be
issued in a class known as UTILITIES SERIES
SHARES, five hundred million (500,000,000) shall
be issued in a class known as DYNATECH SERIES
SHARES, and three billion (3,000,000,000) of such
shares may be issued in such class or classes
comprising such number of shares and having such
designations, rights, and qualifications
consistent with the provisions set forth in this
paragraph, as shall be fixed and determined from
time to time by the Corporation's Board of
Directors, to whom authority so to fix and
determine the same is hereby expressly granted.
The Board of Directors is hereby also expressly
granted authority to increase or decrease the
number of shares of any class provided that the
number of shares in any class shall not be
decreased below the number of shares thereof then
issued and outstanding.
Each class of stock shall be subject to the
following preferences, rights, limitations and
restrictions:
(a) The assets of the Corporation
received as a consideration for the issue or sale
of shares of each class of stock, together with
all income, earnings, profits and proceeds
thereof, in whatsoever form the same may be, may
be invested only in cash or securities having at
the time of investments the qualifications
expressed in relation to each class. As used
herein "Cash" shall include cash equivalents as
determined by the Board of Directors and
"Securities" shall include all forms of stocks,
bonds, rights and certificates or evidenced of
interest indebtedness and participation
irrespective of form. The investment
qualifications for the initial classes of stock
previously referred to shall be as follows:
(1) GROWTH SERIES SHARES.
(A) Cash; or
(B) Any shares of common or capital
stock listed or admitted to trading privileges or
dealt in on the New York Stock Exchange or any
other recognized security exchange or the issuer
of which is corporation, association or similar
legal entity having gross assets valued by it at
not less than $1,000,000, as shown by its latest
published annual report and bonds or preferred
stock or other Securities convertible into such
common or capital stock or in covered call options
listed for trading on a national securities
exchange.
(2) U.S. GOVERNMENT SECURITIES SERIES.
(A) Cash; or
(B) Securities which are obligations of
or guaranteed by the United States Government or
its instrumentalities.
(3) INCOME SERIES SHARES.
(A) Cash; or
(B) Securities listed or admitted to
trading privileges or dealt in on the New York
Stock Exchange or any other recognized security
exchange; or the issuer of which is a corporation,
association or similar legal entity having gross
assets valued by it at not less than $1,000,000,
as shown by its latest published annual report.
(4) UTILITIES SERIES SHARES
(A) Cash; or
(B) Securities issued, created or
guaranteed by a corporation, association or
similar legal entity engaged in the public
utilities industry. The determination of the
Board of Directors shall be conclusive as to what
corporations are engaged in the public utilities
industry.
(5) DYNATECH SERIES SHARES.
(A) Cash; or
(B) Securities listed or admitted to
trading privileges or dealt in on the New York
Stock Exchange or any other recognized security
exchange or the issuer of which is a corporation,
association or similar legal entity having gross
assets valued by it at not less than $1,000,000,
as shown by its latest published annual report.
(b) The assets of the Corporation
received as a consideration for the issue or sale
of shares of each class of its stock, together
with all income, earnings, profits and proceeds
thereof from the time of receipt thereof by the
Corporation in whatever form the same shall from
time to time be, shall irrevocably constitute the
assets of such class of stock, subject only to the
rights of creditors, and shall be so entered and
segregated upon the books of account, and shall be
known as the "underlying assets" of such class.
The underlying assets of each class shall be
charged with the liabilities (including accrued
expenses and reserves as determined from time to
time by the Board of Directors in accordance with
sound accounting practice) in respect of any two
or more classes in proportion to the liquidating
asset value of the respective classes, determined
as hereinafter provided. The determination of the
Board of Directors shall be conclusive as to which
such liabilities are allocable to a given class
and as to which of the same are general or
allocable to two or more classes. If at any time
any reasonable doubt may exist as to the class or
classes of stock to which any particular assets of
the Corporation shall properly belong, the Board
of Directors may, by specific resolution, resolve
such doubt and its action in that regard shall be
conclusive.
(c) In the event of the dissolution or
other liquidation of the Corporation the
registered holders of the stock of any class shall
be entitled to receive, as a class, the underlying
assets of such class available for distribution to
stockholders less the liabilities (including
accrued expenses and reserves as determined from
time to time by the Board of Directors in
accordance with sound accounting practice) in
respect of such class, and also the share of such
liabilities (including general liabilities of the
Corporation) in respect of any two or more classes
in proportion to the liquidating asset value of
the respective classes. Said available underlying
assets of any class, less the liabilities of such
class shall be distributable among the
shareholders of the stock of such class in
proportion to the number of shares of stock of
such class held by them respectively."
SECOND: The board of directors of the Corporation
adopted a resolution at a meeting on July 31, 1985 which set
forth the foregoing amendment to the charter, declaring that the
said amendment of the charter as proposed was advisable and
directing that it be submitted for action thereon by the
stockholders of the Corporation at the Annual Meeting on October
4, 1985.
THIRD: Notice setting forth a summary of the changes to
be effected by said amendment of the charter and stating that a
purpose of the meeting of stockholders would be to take action
thereon, was given, as required by law, to all stockholders
entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the
stockholders of the Corporation at said meeting by the
affirmative vote of two-thirds of all the votes entitled to be
cast thereon.
FOURTH: The amendment to the charter of the Corporation
as hereinabove set forth has been duly advised by the board of
directors and approved by the stockholders of the corporation.
FIFTH: (a) The total number of shares of stock which
the Corporation was heretofore authorized to issue is one billion
(1,000,000,000) shares, all of one class, of the par value of One
Cent ($.01) each and of the aggregate par value of Ten Million
Dollars ($10,000,000).
(b) The total number of shares of stock is increased by
this Amendment to ten billion (10,000,000) shares, all of one
class, of the par value of One Cent ($.01) per share and of the
aggregate par value of One Hundred Million Dollars
($100,000,000).
IN WITNESS WHEREOF, FRANKLIN CUSTODIAN FUNDS, INC. has
caused these presents to be signed in its name and on its behalf
by its President and witnessed by its Secretary as of October 4,
1985.
FRANKLIN CUSTODIAN FUNDS, INC.
/s/ Charles B. Johnson
By: Charles B. Johnson, President
Witness: (Attest)
/s/ Brian E. Lorenz
Brian E. Lorenz, Secretary
THE UNDERSIGNED, President of FRANKLIN CUSTODIAN FUNDS,
INC., who executed on behalf of said corporation the foregoing
Articles of Amendment, of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to
the best of his knowledge, information and belief, the matters
and facts set forth therein with respect to the approval thereof
are true in all material respects, under the penalties of
perjury.
/s/ Charles B. Johnson
Charles B. Johnson, President
FRANKLIN CUSTODIAN FUNDS, INC.
ARTICLES OF AMENDMENT
FRANKLIN CUSTODIAN FUNDS, INC., a Maryland corporation
having its principal office c/o The Corporation Trust
Incorporated, 32 South Street, Baltimore, Maryland 21202
(hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended
to add a new Article Ninth to read as follows:
"NINTH: Actions requiring shareholder approval under
Maryland law shall be authorized if approved by holders of a
majority of the Corporation's outstanding shares of stock which
are entitled to vote on such action."
SECOND: The board of directors of the Corporation duly
adopted a resolution at a meeting on July 31, 1985 which set
forth the foregoing amendment to the charter, declaring that the
said amendment of the charter as proposed was advisable and
directing that it be submitted for action thereon by the
stockholders of the Corporation at the Annual Meeting on October
4, 1985.
THIRD: Notice setting forth a summary of the changes to
be effected by said amendment of the charter and stating that a
purpose of the meeting of stockholders would be to take action
thereon, was given, as required by law, to all stockholders
entitled to vote thereon. The amendment of the charter of the
Corporation as hereinabove set forth was approved by the
stockholders of the Corporation at said meeting, as adjourned to
October 11, 1985, by the affirmative vote of more than two-thirds
of all the votes entitled to be cast thereon.
FOURTH: The amendment to the charter of the Corporation
as hereinabove set forth has been duly advisable by the board of
directors and approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, FRANKLIN CUSTODIAN FUNDS, INC. has
caused these presents to be signed in its name and on its behalf
by its President and witnessed by its Secretary as of October 14,
1985.
FRANKLIN CUSTODIAN FUNDS, INC.
/s/ Charles B. Johnson
By: Charles B. Johnson, President
Witness: (Attest)
/s/ Brian E. Lorenz
By: Brian E. Lorenz, Secretary
THE UNDERSIGNED, President of FRANKLIN CUSTODIAN FUNDS,
INC., who executed on behalf of said corporation the foregoing
Articles of Amendment, of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to
the best of his knowledge, information and belief, the matters
and facts set forth therein with respect to the approval thereof
are true in all material respects, under the penalties of
perjury.
/s/ Charles B. Johnson
By: Charles B. Johnson, President
CERTIFICATE
I, Deborah R. Gatzek, Assistant Secretary of Franklin
Custodian Funds, Inc. ("The Fund"), a corporation organized
under the laws of the State of Maryland, do hereby certify
that the following resolutions were adopted by a majority of
the directors present at a meeting held at the offices of
Franklin Distributors, Inc., on February 24, 1989.
RESOLVED, that an additional one billion shares of
the Fund's authorized but unclassified and unissued
shares by designated as Income Series shares; and it
was
FURTHER RESOLVED, that the appropriate officers of
the Fund be and hereby are authorized to execute and
file such documents and take all other action necessary
or convenient to effectuate the foregoing.
IN WITNESS WHEREOF, I have subscribed my name this 29th day
of November, 1990.
/s/ Deborah R. Gatzek
By: Deborah R. Gatzek
Assistant Secretary
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
FRANKLIN CUSTODIAN FUNDS, INC.
FRANKLIN CUSTODIAN FUNDS, INC., a Maryland corporation
registered as an open-end investment company under the Investment
Company Act of 1940, having its principal office in Baltimore,
Maryland (the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland, that:
ONE: ARTICLE FIFTH of the Articles of Incorporation is
hereby amended by striking out only the first paragraph of the
Article and inserting in lieu thereof the following:
"FIFTH: The total number of shares of stock
which the Corporation shall have authority to
issue is ten billion (10,000,000,000) shares of
stock, with a par value of One Cent ($.01) per
share, such shares having an aggregate par value
of $100,000,000.
Subject to the provisions of these Articles of
Incorporation, the Board of Directors shall have
the power to issue shares of stock of the
Corporation from time to time, at prices not less
than the net asset value or par value thereof,
whichever is greater, for such consideration as
may be fixed from time to time pursuant to the
direction of the Board of Directors.
Pursuant to Section 2-105 of the Maryland General
Corporation Law, the Board of Directors of the
Corporation shall have the power to designate one
or more classes of shares of stock and sub-classes
thereof, and to classify or reclassify any
unissued shares with respect to such classes or
sub-classes thereof, and such classes and sub-
classes (subject to any applicable rule,
regulation or order of the Securities and Exchange
Commission or other applicable law or regulation)
shall have such preference, conversion or other
rights, voting powers, restrictions, limitations
as to dividends, qualifications, terms and
conditions of redemption and other characteristics
as the Board may determine in the absence of
contrary determination set forth herein.
Subject to the aforesaid power of the
Board of Directors, five classes of shares are
designated and classified as the "U.S. Government
Securities Series Shares," "Income Series Shares,"
"Growth Series Shares," "Dynatech Series Shares"
and "Utilities Series Shares" (each a "Series").
Five Billion (5,000,000,000) shares of capital
stock (par value $.01 per share) are hereby
classified and allocated to U.S. Government
Securities Series Shares; Three Billion Two
Hundred Million (3,200,000,000) shares of capital
stock (par value $.01 per share) are hereby
classified and allocated to Income Series Shares;
Five Hundred Million (500,000,000) shares of
capital stock (par value $.01 per share) are
hereby classified and allocated to Growth Series
Shares; Five Hundred Million (500,000,000) shares
of capital stock (par value $.01 per share) are
hereby classified and allocated to Dynatech Series
Shares; and Eight Hundred Million (800,000,000)
shares of capital stock (par value $.01 per share)
are hereby classified and allocated to Utilities
Series Shares.
Each Series is hereby divided into such
sub-classes as specified or provided for herein.
Two Billion Five Hundred Million (2,500,000,000)
shares of capital stock (par value $.01 per
share), which includes all of the currently issued
and outstanding shares of the Series, shall be
allocated to a sub-class known as "U.S. Government
Securities Series - Class I" ("Class I") and Two
Billion Five Hundred Million (2,500,000,000)
shares of capital stock (par value $.01 per share)
shall be allocated to a class known as "U.S.
Government Securities Series - Class II" ("Class
II); Two Billion Six Hundred Million
(2,600,000,000) shares of capital stock (par value
$.01 per share), which includes all of the
currently issued and outstanding shares of the
Series, shall be allocated to a sub-class known as
"Income Series - Class I" ("CLASS I") and Six
Hundred Million (600,000,000) shares of capital
stock (par value $.01 per share) shall be
allocated to a sub-class known as "Income Series -
Class II" ("Class II"); Two Hundred Fifty Million
(250,000,000) shares of capital stock (par value
$.01 per share), which includes all of the
currently issued and outstanding shares of the
Series, shall be allocated to a sub-class known as
"Growth Series - Class I" ("Class I") and Two
Hundred Fifty Million (250,000,000) shares of
capital stock (par value $.01 per share) shall be
allocated to a sub-class known as "Growth Series -
Class II" ("Class II"); Two Hundred Fifty Million
(250,000,000) shares of capital stock (par value
$.01 per share), which includes all of the
currently issued and outstanding shares of the
Series, shall be allocated to a sub-class known as
"Dynatech Series - Class I" ("Class I") and Two
Hundred Fifty Million (250,000,000) shares of
capital stock (par value $.01 per share) shall be
allocated to a sub-class known as "Dynatech Series
- Class II" ("Class II"); and Four Hundred Million
(400,000,000) shares of capital stock (par value
$.01 per share), which includes all of the
currently issued and outstanding shares of the
Series, shall be allocated to a sub-class known as
"Utilities Series - Class I" ("Class I") and Four
Hundred Million (400,000,000) shares of capital
stock (par value $.01 per share) shall be
allocated to a sub-class known as "Utilities
Series - Class II" ("Class II").
The Board of Directors is also hereby expressly
granted authority to increase or decrease the
number of shares of any class or sub-class
provided that the number of shares in any class or
sub-class shall not be decreased below the number
of shares thereof then issued and outstanding. At
any time when there are no shares outstanding or
subscribed for a particular class or sub-class
previously established and designated herein or by
the Board of Directors, the class or sub-class may
be liquidated by similar means.
Each share of a class shall have equal rights with
each other share of that class with respect to the
assets of the Corporation pertaining to that
class. The dividends payable to the holders of
any class or sub-class thereof (subject to any
applicable rules, regulation or order of the
Securities and Exchange Commission or any other
applicable law or regulation) may be charged with
any pro rata portion of distribution expenses paid
pursuant to a Plan of Distribution adopted by such
class or sub-class thereof in accordance with
Investment Company Act of 1940 Rule 12b-1 (or any
successor thereto), which dividend shall be
determined as directed by the Board and need not
be individually declared, but may be declared and
paid in accordance with a formula adopted by the
Board. Except as otherwise provided herein, all
references in these Articles of Incorporation to
stock or class of stock shall apply without
discrimination to the shares of each class of
stock.
The shares of Class I and Class II of each
Series shall represent proportionate interests in
the same portfolio of investments of the Series.
The shares of Class I and Class II of each Series
shall have the same rights and privileges, and
shall be subject to the same limitations and
priorities, all as set forth herein, provided that
dividends paid on the shares of Class I shall not
reflect any reduction for payment of fees under
the Distribution Plan of Class II, and dividends
paid on the shares of Class II shall not reflect
reduction for payment of fees under the
Distribution Plan of Class I, adopted pursuant to
Rule 12b-1 under the Investment Company Act of
1940, as amended, and provided further, that the
shares of Class I shall not vote upon or with
respect to any matter relating to or arising from
any Distribution Plan of Class II, and the shares
of Class II shall not vote upon or with respect to
any matter relating to or arising from any
Distribution Plan of Class I.
The holder of each share of stock of the
Corporation shall be entitled to one vote for each
full share, and a fractional vote for each
fractional share of stock, irrespective of the
class then standing in his or her name in the
books of the Corporation. On any matter submitted
to a vote of shareholders, all shares of the
Corporation then issued and outstanding and
entitled to vote, irrespective of the class or sub-
class, shall be voted in the aggregate and not by
class or sub-class except (1) when otherwise
expressly provided by the Maryland General
Corporation Law, or (2) when required by the
Investment Company Act of 1940, as amended, shares
shall be voted by individual classes, or sub-
classes and (3) when the matter does not affect
any interest of the particular class or sub-class,
then only shareholders of the affected classes or
sub-classes shall be entitled to vote thereon.
Holders of shares of stock of the Corporation
shall not be entitled to cumulative voting in the
election of directors or on any other matter."
TWO: To the extent that there is no conflict with the
paragraphs set forth in item ONE above, the preferences, rights,
limitations and restrictions as set forth in paragraphs (a)
through (c) of the existing ARTICLE FIFTH of the Articles of
Incorporation remain the same.
THREE: The Board of Directors of the Corporation on
September 13, 1994, duly adopted a resolution relating to the
foregoing amendment to the Articles of Incorporation, declaring
said amendment of the Articles of Incorporation advisable and
directing that it be submitted for consideration by the
stockholders of the Corporation at a meeting of said
stockholders.
FOUR: Notice setting forth said amendment to the Articles
of Incorporation and stating that a purpose of the meeting of the
stockholders would be to take action thereon, was given, as
required by law, to all stockholders entitled to vote thereon.
The amendment to the Articles of Incorporation was approved by
the stockholders of the Corporation at said meeting by the
affirmative vote of a majority of all the votes entitled to be
cast thereon. (Approval by a majority of all the votes entitled
to be cast on the matter is authorized pursuant to the Articles
of Incorporation of the Corporation.)
FIVE: The amendment to the Articles of Incorporation as
hereinabove set forth has been duly advised by the Board of
Directors and approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, Franklin Custodian Funds, Inc. has
caused these Articles of Amendment to be signed by its President
and attested by its Secretary on March 21, 1995.
Attest: FRANKLIN CUSTODIAN FUNDS, INC.
/s/ Brian E. Lorenz By: /s/ Charles B. Johnson
Brian E. Lorenz Charles B. Johnson
Secretary President
THE UNDERSIGNED, President of FRANKLIN CUSTODIAN FUNDS,
INC., who executed on behalf of said corporation the foregoing
Articles of Amendment, of which this certificate is made a part,
hereby acknowledges, in the name and on behalf of said
corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to
the best of his knowledge, information and belief, the matters
and facts set forth therein with respect to the approval thereof
are true in all material respects, under the penalties of
perjury.
/s/ Charles B. Johnson
Charles B. Johnson
President
BY-LAWS
of
FRANKLIN CUSTODIAN FUNDS, INC.
ARTICLE I
OFFICES
The Corporation shall have offices at such places both
within and without the State of Maryland as the Board of
Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meetings: Annual meetings of
stockholders shall be held on a date and at a time and at such
place, within or without the State of Maryland, as the Board of
Directors shall determine, provided that annual meetings of
stockholders will not be required to be held in any year in which
neither the (i) election of directors, (ii) approval of the
advisory or underwriting agreements, or (iii) ratification of
independent public accountants is required to be acted on by
stockholders under the Investment Company Act of 1940. (Amended
September 16, 1987)
Section 2. Special Meetings: Special meetings of
stockholders, unless otherwise prescribed by law, may be called
for any purpose or purposes at any time by the President or the
order of the Board of Directors or by the President or Secretary
or an Assistant Secretary whenever requested in writing to do so
by stockholders owning not less than one-third of all the
outstanding shares of the Corporation entitled to vote for
directors as of the date of such request. Such request shall
state the purpose or purposes of the proposed special meeting.
Such meetings shall be held at such place and on a date and at
such time as may be designated in the notice thereof by the
officer of the Corporation calling any such meeting.
Section 3. Notice of Meetings: Except as otherwise
provided by law, notice of the time and place and, in the case of
special meetings, the purpose or purposes, of every meeting of
stockholders shall be mailed at least ten days previous thereto
to each stockholder of record entitled to such notice at the
address of such person which appears on the books of the
Corporation or to such other address as any stockholder shall
have furnished in writing to the Secretary of the Corporation for
such purpose.
Section 4. Quorum: Except as otherwise expressly
provided by law and as permitted under the Investment Company Act
of 1940, the holders of a majority of the stock of the
Corporation entitled to vote at any meeting of stockholders must
be present in person or by proxy at such meeting to constitute a
quorum. Less than such quorum, however, shall have the power to
adjourn any meeting from time to time without notice.
Section 5. Voting: If a quorum is present, and except
as otherwise expressly provided by law, the vote of a majority of
the shares of stock represented at the meeting shall be the act
of the stockholders. At any meeting of stockholders, each
stockholder entitled to vote any shares on any matter to be voted
upon at such meeting shall be entitled to one vote on such matter
for each such share, and may exercise such voting right either in
person or by proxy.
Section 6. Fixing of Record Date: The board of
directors may fix a day, not more than ninety (90) nor fewer than
ten (10) days prior to the day of holding any meeting of
stockholders, as the day as of which stockholders entitled to
notice of and to vote at such meeting shall be determined, and
only stockholders of record at the close of business on such day
shall be entitled to notice of or to vote at such meeting. The
board of directors may fix a time not exceeding sixty (60) days
preceding the date fixed for the payment of any dividend, the
making of any distribution, the allotment or exercise of any
rights or the taking of any other action as a record time for the
determination of the stockholders entitled to receive any such
dividend, distribution or allotment, or for the purpose of such
other action.
ARTICLE III
DIRECTORS
Section 1. Number: The affairs, business and property
of the corporation shall be managed by a board of directors to
consist of three or more directors. The number of directors may
be determined either by the vote of a majority of the entire
board or by vote of the stockholders or initially determined by
the incorporator. A director need not be a stockholder of the
corporation.
Section 2. How Elected: Except as otherwise provided by
law or Section 4 of this Article, the directors of the
corporation, other than the first board of directors elected by
the incorporator, shall be elected by the stockholders. Each
director shall be elected to serve until the next annual meeting
of stockholders and until his successor shall have been duly
elected and qualified, except in the event of his death,
resignation, removal or the earlier termination of his term of
office.
Section 3. Removal: Any or all of the directors may be
removed, with or without cause, by a vote of the stockholders.
Any director may be removed for cause by action of the board of
directors.
Section 4. Vacancies: Vacancies in the board of
directors occurring by death, resignation, creation of new
directorships, failure of the stockholders to elect the whole
board at any annual election of directors or for any other
reason, including removal of directors for or without cause, may
be filled either by the affirmative vote of a majority of the
remaining directors then in office, although less than a quorum,
at any special meeting called for that purpose or at any regular
meeting of the board, or by the stockholders.
Section 5. Regular Meetings: Regular meetings of the
board of directors may be held at such time and place as may be
determined by resolution of the board of directors and no notices
shall be required for any regular meeting. Except as otherwise
provided by law, any business may be transacted at any regular
meeting.
Section 6. Special Meetings: Special meetings of the
board of directors may, unless otherwise prescribed by law, be
called from time to time by the President, or the Chairman of the
Board or any other officer of the corporation who is a member of
the board. The President or the Secretary shall call a special
meeting of the board upon written request directed to either of
them by any two directors stating the time, place and purposes of
such special meeting. Special meetings of the board shall be
held on a date and at such time and at such place as may be
designated in the notice thereof by the officer calling the
meeting.
Section 7. Notice of Special Meetings: Notice of the
date, time and place of each special meeting of the board of
directors shall be given to each director at least forty-eight
hours prior to such meeting, unless the notice is given orally or
delivered in person, in which case it shall be given at least
twenty-four hours prior to such meeting. For the purpose of this
section, notice will be deemed to be duly given to a director if
given to him orally (including by telephone) or if such notice be
delivered to such director in person or be mailed, telegraphed,
cabled, telexed, photocopied or otherwise delivered by facsimile
transmission, to his last known address.
Section 8. Quorum: At any meeting of the board of
directors, one-half of the entire shall constitute a quorum
(except as provided in Section 4 of this Article III), but less
than a quorum may adjourn a meeting. Except as otherwise
provided by law or in these by-laws provided, any action taken b
a majority of the directors present at a meeting of the board of
directors at which a quorum is present shall be the action of the
board of directors.
Section 9. Conference Telephone: Members of the board
of directors or any committee of the board of directors may
participate in a meeting of such board or committee by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and such participation shall constitute presence in person
at such meeting.
Section 10. Compensation of Directors and Members of
Committees: The board may from time to time, in its discretion,
fix the amounts which shall be payable to members of the board of
directors and to members of any committee, for attendance at the
meetings of the board or of such committee and for services
rendered to the corporation.
Section 11. Reliance Upon Financial Statements: In
discharging their duties, directors and officers, when acting in
good faith, may rely upon financial statements of the corporation
represented to them to be correct by the President or the officer
of the corporation having charge of its books of accounts, or
stated in a written report by an independent public or certified
public accountant or firm of such accountants fairly to reflect
the financial condition of the corporation.
ARTICLE IV
COMMITTEES
The board of directors may, by resolution or
resolutions passed by a majority of the entire board, designate
from among its members an executive committee and other
committees each to consist of one or more of the directors of the
corporation, each of which, to the extent provided in said
resolution or resolutions, or in these by-laws, shall have and
may exercise, to the extent permitted by law, the powers of the
board of directors in the management of the business and affairs
of the corporation and may have powers to authorize the seal of
the corporation to be affixed to all papers which may require it,
to declare dividends and to authorize the issuance of stock.
Members of such committees shall hold office for such period as
may be prescribed by the vote of a majority of the entire board
of directors, subject, however, to removal at any time by the
board of directors. Vacancies in membership of such committees
shall be filled by the board of directors. Committees may adopt
their own rules of procedure and may meet at a stated time or on
such notice as they may determine. Each committee shall keep a
record of its proceedings and report the same to the board when
required.
ARTICLE V
OFFICERS
Section 1. Number and Designation: The board of
directors may elect a Chairman of the Board, a President, one or
more Executive Vice-Presidents, one or more Vice-Presidents, a
Secretary and a Treasurer, Assistant Secretaries, Assistant
Treasurers, and such other officers as it may deem necessary.
Any two or more offices may be held by the same person.
The officers shall be elected by the board of
directors. The salaries of officers and any other compensation
paid to them shall be fixed from time to time by the board of
directors. The board of directors may at any meeting elect
additional officers. Each officer shall hold office until the
first meeting of the board of directors following the next annual
election of directors and until his successor shall have been
duly elected and qualified, except in the event of the earlier
termination of his term of office through death, resignation,
removal or otherwise. Any officer may be removed by the board at
any time with or without cause. Any vacancy in an office may be
filled for the unexpired portion of the term of such office by
the board of directors at any regular or special meeting.
Section 2. Chairman of the Board: The Chairman of the
Board shall preside at all meetings of stockholders and directors
at which he is present and shall have such other powers and
perform such other duties as may be assigned to him by the board
of directors.
Section 3. President: The President shall be the chief
executive officer of the corporation, shall be responsible for
the general management of the affairs of the corporation, shall
have the powers and duties usually incident to the office of
President, except as specifically limited by appropriate
resolution of the board of directors, and shall have such other
powers and perform such other duties as may be assigned to him by
the board of directors. In the absence of the Chairman, or if
the office of Chairman is vacant, the President shall preside at
all meetings of stockholders at which he is present.
Section 4. Executive Vice-Presidents: In the absence or
inability to act of President, or if the office of the President
is vacant, any Executive Vice-President shall perform all the
duties and may exercise all the powers of the President, subject
to the right of the board of directors to extend or confine such
powers and duties or to assign them to others. Executive Vice-
Presidents shall have such other powers and shall perform such
other duties as may be assigned to them by the board of directors
or the President.
Section 5. Vice-Presidents: In the absence or inability
to act of the President and any Executive Vice-President, or if
both offices are vacant, any Vice-President, unless otherwise
determined by the board, shall perform all duties and may
exercise all the powers of the President and the Executive Vice-
President. Each Vice-President shall have such other powers and
shall perform such other duties as may be assigned to him by the
board of directors or the President.
Section 6. Treasurer: The Treasurer shall have general
supervision over the care and custody of the funds, securities,
and other valuable effects of the corporation and shall deposit
the same or cause the same to be deposited in the name of the
corporation in such depositories as the board of directors may
designate, shall disburse the funds of the corporation as may be
ordered by the board of directors, shall have supervision over
the accounts of all receipts and disbursements of the
corporation, shall, whenever required by the board, render or
cause to be rendered financial statements of the corporation,
shall have the power and perform the duties usually incident to
the office of Treasurer, and shall have such other powers and
perform such other duties as may be assigned to him by the board
of directors or the President.
Section 7. Secretary: The Secretary shall act as
Secretary of all meetings of the stockholders and of the board of
directors at which he is present, shall have supervision over the
giving and serving of notices of the corporation, shall be the
custodian of the corporate records and of the corporate seal of
the corporation, shall exercise the powers and perform the duties
usually incident to the office of Secretary, and shall exercise
such other powers and perform such other duties as may be
assigned to him by the board of directors or the President.
Section 8. Assistant Secretaries and Assistant
Treasurers: An Assistant Secretary acting as such shall perform,
in the absence of the Secretary, all the functions of the
Secretary and shall exercise such other powers and perform such
other duties as may be assigned to him by the board of directors
or the President.
An Assistant Treasurer acting as such shall perform, in
the absence of the Treasurer, all the functions of the Treasurer
and shall exercise such other powers and perform such other
duties as may be assigned to him by the board of directors or the
President.
Section 9. Other Officers: Officers other than those
listed and described in Sections 2 through 8 of this Article V
shall exercise such powers and perform such duties as may be
assigned to them by the board of directors or the President.
Section 10. Delegation of Duties of Officers: The board
of directors may delegate the duties and powers of any officer,
agent or employee of the corporation to any other officer, agent
or employee or director for a specified time during the absence
of any such person or for any other reason that the board of
directors may deem sufficient.
Section 11. Bond: The board of directors shall have
power, to the extent permitted by law, to require any officer,
agent or employee of the corporation to give bond for the
faithful discharge of his duties in such form and with such
surety or sureties as the board of directors may deem advisable.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. Form and Issuance: The shares of the
corporation shall be represented by certificates in form meeting
the requirements of law and approved by the board of directors.
Certificates shall be signed by the Chairman of the board or the
President or an Executive Vice-President or a Vice-President, and
by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer. These signatures may be facsimiles if the
certificate is countersigned by a transfer agent or registered by
a registrar other than the corporation itself or its employee.
Section 2. Transfer: The board of directors shall have
power and authority to make such rules and regulations as they
deem expedient concerning the issuance, registration and transfer
of certificates representing shares of the corporation's stock,
and may appoint transfer agents and registrars thereof.
Section 3. Lost Stock Certificates: Any person claiming
that a stock certificate has been lost, destroyed or stolen shall
make an affidavit or affirmation of that fact setting forth the
circumstances in connection with such loss, destruction or theft
and shall furnish to the corporation and to the Transfer Agents
and Registrars of the stock of the corporation, if any, such
indemnity as shall be satisfactory to them and each of them,
whereupon, upon authorization given to the appropriate officers
or agents of the corporation or the transfer agent for such stock
by the President of the corporation or by any of such other
officers of the corporation, as the board of directors may
designate to give such authorization, a new certificate may be
issued of the same tenor and for the same number of shares as the
one alleged to be lost, destroyed or stolen.
Section 4. Holders of Record: The corporation shall be
entitled to treat the holder of record of any share or shares of
stock as the holder in fact thereof, and, accordingly, shall not
be bound to recognize any equitable or other claims to or
interest in such shares on the part of any other person, whether
or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VII
DIVIDENDS
Section 1. Declaration and Form: Dividends may be
declared in conformity with law by, and at the discretion of, the
board of directors at any regular or special meeting. Dividends
may be declared and paid in cash, shares or evidences of
indebtedness of the corporation, or any property of the
corporation, including the shares or evidences of indebtedness of
any other corporation.
ARTICLE VIII
CORPORATE SEAL
The seal of the corporation shall be circular in form,
with the name of the corporation in the circumference and the
words and figures "Corporate Seal - 1979 - Maryland" in the
center. Any officer, director or attorney-in-fact of the
corporation may affix the seal of the corporation to any
document.
ARTICLE IX
FISCAL YEAR
The fiscal year of the corporation shall be such period
of twelve consecutive months ending September 30 of each year.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given under the
provisions of these by-laws, the certificate of incorporation or
any of the laws of the State of Maryland, a waiver thereof, in
writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE XI
CONSENTS
Section 1. Stockholders: Unless otherwise provided in
the certificate of incorporation or by law, any action required
to be taken at any annual or special meeting of stockholders or
any action which may be taken at any annual or special meeting of
such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at
a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
Section 2. Directors: Unless otherwise restricted by
the certificate of incorporation or by law, any action required
or permitted to be taken at any meeting of the board of
directors, or of any committee thereof, may be taken without a
meeting if all members of the board or committee, as the case may
be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the board or committee.
ARTICLE XII
AMENDMENTS
Section 1. By the Stockholders: These by-laws may be
amended, added to, altered or repealed, or new by-laws may be
adopted, at any meeting of stockholders of the corporation by the
affirmative vote of the holders of a majority of the stock
present and voting at such meeting.
Section 2. By the Directors: These by-laws may be
amended, added to, altered or repealed, or new by-laws may be
adopted, at any regular or special meeting of the board of
directors by the affirmative vote of a majority of the entire
board.
FRANKLIN CUSTODIAN FUNDS, INC.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN CUSTODIAN FUNDS,
INC., a Maryland Corporation ("Custodian Funds") on behalf of the
DynaTech Series (the "Fund") and FRANKLIN ADVISERS, INC., a
California corporation (the "Manager").
WHEREAS, Custodian Funds has been organized and operates as an
investment company registered under the Investment Company Act of
1940 (the "1940 Act") for the purpose of investing and
reinvesting its assets in securities, as set forth in its
Articles of Incorporation, its By-Laws and its Registration
Statements under the 1940 Act and the Securities Act of 1933, all
as heretofore and hereafter amended and supplemented; and
WHEREAS, Custodian Funds desires to avail itself of the services,
information, advice, assistance and facilities of an investment
manager and to have an investment manager perform for its various
management, statistical, research, investment advisory and other
services; and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is mutually agreed as follows:
1. Employment of the Manager. Custodian Funds hereby employs
the Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of
Custodian Funds, for the period and on the terms hereinafter
set forth. The Manager hereby accepts such employment and
agrees during such period to render the services and to
assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein
be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the
Fund or Custodian Funds in any way or otherwise be deemed an
agent of the Fund or Custodian Funds.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter
set forth and to assume the following obligations:
A. Administrative Services. The Manager shall furnish to the
Fund adequate (i) office space, which may be space within
the offices of the Manager or in such other place as may be
agreed upon from time to time, (ii) office furnishings,
facilities and equipment as may be reasonably required for
managing the corporate affairs and conducting the business
of the Fund, including complying with the corporate and
securities reporting requirements of the United States and
the various states in which the Fund does business,
conducting correspondence and other communications with the
shareholders of the Fund, maintaining all internal
bookkeeping, accounting and auditing services and records in
connection with the Fund's investment and business
activities, and computing net asset value. The Manager
shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers
and employees of Custodian Funds who are officers or
employees of the Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the
investment objectives and policies of the Fund and any
directions which Custodian Funds' Board of Directors
may issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations
with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement
the same. Such determinations and services shall
include determining the manner in which any voting
rights, rights to consent to corporate action and any
other rights pertaining to the Fund's investment
securities shall be exercised. The Manager shall
render or cause to be rendered regular reports to
Custodian Funds, at regular meetings of its Board of
Directors and at such other times as may be reasonably
requested by Custodian Funds' Board of Directors, of
(i) the decisions which it has made with respect to the
investment of the Fund's assets and the purchase and
sale of its investment securities, (ii) the reasons for
such decisions and (iii) the extent to which those
decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which Custodian Funds' Board of Directors
may issue from time to time, shall place, in the name
of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this Paragraph
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accord with
the standards set forth below. Moreover, to the extent
that it continues to be lawful to do so and so long as
the Board of Directors determines that the Fund will
benefit, directly or indirectly, by doing so, the
Manager may place orders with a broker who charges a
commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker.
Accordingly, the Fund and the Manager agree that the Manager
shall select brokers for the execution of the Fund's
portfolio transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services; and
(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager and
its affiliates may lawfully and appropriately use
in their investment advisory capacities, which
relate directly to securities, actual or
potential, of the Fund, or which place the Manager
in a better position to make decisions in
connection with the management of the Fund's
assets and portfolio, whether or not such data may
also be useful to the Manager and its affiliates
in managing other portfolios or advising other
clients, in such amount of total brokerage as may
reasonably be required.
Provided that Custodian Funds' officers are satisfied that
the best execution is obtained, the sale of shares of the
Fund may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(c) It is acknowledged that the Manager may contract with
one or more firms to undertake some or all of the manager's
investment management services as set forth herein pursuant
to an agreement which is subject to substantially the same
provisions as contained in paragraphs 6 and 7 herein.
(d) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin/Templeton Distributors, Inc.
("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in
such capacity under the federal securities laws and
rules thereunder and the rules of any securities
exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be
obligated to make any additional commitments of
capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments
necessary to maintain its corporate existence and
membership in the National Association of Securities
Dealers, Inc.) as of the date of this Agreement. This
Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing
requirement under any circumstances in which they might
reasonably believe that liability might be imposed upon
them as a result of so acting, or (ii) to institute
legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of
such a tender, unless Custodian Funds on behalf of the
Fund shall enter into an agreement with the Manager
and/or Distributors to reimburse them for all such
expenses connected with attempting to collect such
fees, including legal fees and expenses and that
portion of the compensation due to their employees
which is attributable to the time involved in
attempting to collect such fees.
(e) The Manager shall render regular reports to
Custodian Funds, not more frequently than quarterly, of
how much total brokerage business has been placed by
the Manager, on behalf of the Fund, with brokers
falling into each of the categories referred to above
and the manner in which the allocation has been
accomplished.
(f) The Manager agrees that no investment decision
will be made or influenced by a desire to provide
brokerage for allocation in accordance with the
foregoing, and that the right to make such allocation
of brokerage shall not interfere with the Manager's
paramount duty to obtain the best net price and
execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials. The Manager, its officers and employees will
make available and provide accounting and statistical
information required by the Fund in the preparation of
registration statements, reports and other documents
required by federal and state securities laws and with such
information as the Fund may reasonably request for use in
the preparation of such documents or of other materials
necessary or helpful for the underwriting and distribution
of the Fund's shares.
D. Other Obligations and Services. The Manager shall make its
officers and employees available to the Board of Directors
and officers of Custodian Funds for consultation and
discussions regarding the administration and management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all of its own expenses other than those expressly
assumed by the Manager herein, which expenses payable by the
Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
Custodian Funds who are not officers, directors,
stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Directors and
shareholders of the Fund, reports to the Fund's
shareholders, the filing of reports with regulatory bodies
and the maintenance of the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund shares
for sale;
K. Costs of printing stock certificates representing shares of
the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance premium.
4. Compensation of the Manager. The Fund shall pay a monthly
management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
as set forth below, as compensation for the services
rendered and obligations assumed by the Manager during the
preceding month, on the first business day of the month in
each year. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of the Fund shall be the net assets computed as of
the close of business on the last business day of the month
preceding the month in which the payment is being made,
determined in the same manner as the Fund uses to compute
the value of its net assets in connection with the
determination of the net asset value of Fund shares, all as
set forth more fully in the Fund's current prospectus and
statement of additional information. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over
$100,000,000 and not over $250,000,000; and
9/240 of 1% of the value of net assets over
$250,000,000 and not over $10,000,000,000; and
11/300 of 1% of the value of net assets over $10
billion and not over $12.5 billion; and
7/200 of 1% of the value of net assets over $12.5
billion and not over $15 billion; and
1/30 of 1% of the value of net assets over $15
billion and not over $17.5 billion; and
19/100 of 1% of the value of net assets over $17.5
billion and not over $20 billion; and
3/100 of 1% of the value of net assets in excess
of $20 billion.
B. The Management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually
received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection
therewith; and to the extent necessary to comply with the
limitations on expenses which may be borne by the Fund as
set forth in the laws, regulations and administrative
interpretations of those states in which the Fund's shares
are registered. The Manager may, from time to time,
voluntarily reduce or waive any management fee due to it
hereunder.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for the
portion of any month in which this Agreement is in effect
which is not a complete month according to the proportion
which the number of calendar days in the fiscal quarter
during which the Agreement is in effect bears to the number
of calendar days in the month, and shall be payable within
10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance
with the Articles of Incorporation and By-Laws of Custodian
Funds and to Section 10(a) of the 1940 Act, it is understood
that directors, officers, agents and stockholders of
Custodian Funds are or may be interested in the Manager or
its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in Custodian Funds as directors, officers,
agents, stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders or
otherwise; and that the effect of any such interests shall
be governed by said Articles of Incorporation, the By-Laws
and the 1940 Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not
be subject to liability to Custodian Funds or the Fund or to
any shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase,
holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the Fund
in the preparation, printing and distribution of proxy
statements, amendments to its Registration Statement,
holdings of meetings of its shareholders or directors, the
conduct of factual investigations, any legal or
administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange
Commission) which the Fund incurs as the result of action or
inaction of the Manager or any of its affiliates or any of
their officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures (i)
is directly or indirectly related to any transaction or
proposed transaction in the shares or control of the Manager
or its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or control)
which shall have been undertaken without the prior, express
approval of Custodian Funds' Board of Directors; or, (ii) is
within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or
shareholders. The Manager shall not be obligated pursuant
to the provisions of this Subparagraph 6(B), to reimburse
the Fund for any expenditures related to the institution of
an administrative proceeding or civil litigation by the Fund
or a Fund shareholder seeking to recover all or a portion of
the proceeds derived by any shareholder of the Manager any
of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is
in effect the Manager shall pay to the Fund the amount due
for expenses subject to this Subparagraph 6(B) within 30
days after a bill or statement has been received by the
Manager therefore. This provision shall not be deemed to be
a waiver of any claim the Fund may have or may assert
against the Manager or others for costs, expenses or damages
heretofore incurred by the Fund or for costs, expenses or
damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect
any director or officer of Custodian Funds, or director or
officer of the Manager, from liability in violation of
Sections 17(h) and (i) of the 1940 Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years
thereafter, unless sooner terminated as hereinafter provided
and shall continue in effect thereafter for periods not
eceeding one (1) year so long as such continuation is
approved at least annually (i) by a vote of a majority of
the outstanding voting securities of the Fund or by a vote
of the Board of Directors of Custodian Funds, and (ii) by a
vote of a majority of the directors of Custodian Funds who
are not parties to the Agreement or interested persons of
any parties to the Agreement (other than as Directors of
Custodian Funds) cast in person at a meeting called for the
purpose of voting on the Agreement.
B. This Agreement.
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Directors
of Custodian Funds or by vote of a majority of the
outstanding voting securities of the Fund, on 30 days'
written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Manager on 30 days' written
notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set
forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed postage-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of May 1, 1994.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the DynaTech Series
By: /s/ Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
BY: /s/ Rupert H. Johnson, Jr.
FRANKLIN CUSTODIAN FUNDS, INC.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN CUSTODIAN FUNDS,
INC., a Maryland Corporation ("Custodian Funds") on behalf of the
Growth Series (the "Fund") and FRANKLIN ADVISERS, INC., a
California corporation (the "Manager").
WHEREAS, Custodian Funds has been organized and operates as an
investment company registered under the Investment Company Act of
1940 (the "1940 Act") for the purpose of investing and
reinvesting its assets in securities, as set forth in its
Articles of Incorporation, its By-Laws and its Registration
Statements under the 1940 Act and the Securities Act of 1933, all
as heretofore and hereafter amended and supplemented; and
WHEREAS, Custodian Funds desires to avail itself of the services,
information, advice, assistance and facilities of an investment
manager and to have an investment manager perform for its various
management, statistical, research, investment advisory and other
services; and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is mutually agreed as follows:
1. Employment of the Manager. Custodian Funds hereby employs
the Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of
Custodian Funds, for the period and on the terms hereinafter
set forth. The Manager hereby accepts such employment and
agrees during such period to render the services and to
assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein
be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the
Fund or Custodian Funds in any way or otherwise be deemed an
agent of the Fund or Custodian Funds.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter
set forth and to assume the following obligations:
A. Administrative Services. The Manager shall furnish to the
Fund adequate (i) office space, which may be space within
the offices of the Manager or in such other place as may be
agreed upon from time to time, (ii) office furnishings,
facilities and equipment as may be reasonably required for
managing the corporate affairs and conducting the business
of the Fund, including complying with the corporate and
securities reporting requirements of the United States and
the various states in which the Fund does business,
conducting correspondence and other communications with the
shareholders of the Fund, maintaining all internal
bookkeeping, accounting and auditing services and records in
connection with the Fund's investment and business
activities, and computing net asset value. The Manager
shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers
and employees of Custodian Funds who are officers or
employees of the Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the
investment objectives and policies of the Fund and any
directions which Custodian Funds' Board of Directors
may issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations
with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement
the same. Such determinations and services shall
include determining the manner in which any voting
rights, rights to consent to corporate action and any
other rights pertaining to the Fund's investment
securities shall be exercised. The Manager shall
render or cause to be rendered regular reports to
Custodian Funds, at regular meetings of its Board of
Directors and at such other times as may be reasonably
requested by Custodian Funds' Board of Directors, of
(i) the decisions which it has made with respect to the
investment of the Fund's assets and the purchase and
sale of its investment securities, (ii) the reasons for
such decisions and (iii) the extent to which those
decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which Custodian Funds' Board of Directors
may issue from time to time, shall place, in the name
of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this Paragraph
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accord with
the standards set forth below. Moreover, to the extent
that it continues to be lawful to do so and so long as
the Board of Directors determines that the Fund will
benefit, directly or indirectly, by doing so, the
Manager may place orders with a broker who charges a
commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker.
Accordingly, the Fund and the Manager agree that the Manager
shall select brokers for the execution of the Fund's
portfolio transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services; and
(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager and
its affiliates may lawfully and appropriately use
in their investment advisory capacities, which
relate directly to securities, actual or
potential, of the Fund, or which place the Manager
in a better position to make decisions in
connection with the management of the Fund's
assets and portfolio, whether or not such data may
also be useful to the Manager and its affiliates
in managing other portfolios or advising other
clients, in such amount of total brokerage as may
reasonably be required.
Provided that Custodian Funds' officers are satisfied that
the best execution is obtained, the sale of shares of the
Fund may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(c) It is acknowledged that the Manager may contract with
one or more firms to undertake some or all of the manager's
investment management services as set forth herein pursuant
to an agreement which is subject to substantially the same
provisions as contained in paragraphs 6 and 7 herein.
(d) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin/Templeton Distributors, Inc.
("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in
such capacity under the federal securities laws and
rules thereunder and the rules of any securities
exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be
obligated to make any additional commitments of
capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments
necessary to maintain its corporate existence and
membership in the National Association of Securities
Dealers, Inc.) as of the date of this Agreement. This
Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing
requirement under any circumstances in which they might
reasonably believe that liability might be imposed upon
them as a result of so acting, or (ii) to institute
legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of
such a tender, unless Custodian Funds on behalf of the
Fund shall enter into an agreement with the Manager
and/or Distributors to reimburse them for all such
expenses connected with attempting to collect such
fees, including legal fees and expenses and that
portion of the compensation due to their employees
which is attributable to the time involved in
attempting to collect such fees.
(e) The Manager shall render regular reports to
Custodian Funds, not more frequently than quarterly, of
how much total brokerage business has been placed by
the Manager, on behalf of the Fund, with brokers
falling into each of the categories referred to above
and the manner in which the allocation has been
accomplished.
(f) The Manager agrees that no investment decision
will be made or influenced by a desire to provide
brokerage for allocation in accordance with the
foregoing, and that the right to make such allocation
of brokerage shall not interfere with the Manager's
paramount duty to obtain the best net price and
execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials. The Manager, its officers and employees will
make available and provide accounting and statistical
information required by the Fund in the preparation of
registration statements, reports and other documents
required by federal and state securities laws and with such
information as the Fund may reasonably request for use in
the preparation of such documents or of other materials
necessary or helpful for the underwriting and distribution
of the Fund's shares.
D. Other Obligations and Services. The Manager shall make its
officers and employees available to the Board of Directors
and officers of Custodian Funds for consultation and
discussions regarding the administration and management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all of its own expenses other than those expressly
assumed by the Manager herein, which expenses payable by the
Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
Custodian Funds who are not officers, directors,
stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Directors and
shareholders of the Fund, reports to the Fund's
shareholders, the filing of reports with regulatory bodies
and the maintenance of the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund shares
for sale;
K. Costs of printing stock certificates representing shares of
the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance premium.
4. Compensation of the Manager. The Fund shall pay a monthly
management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
as set forth below, as compensation for the services
rendered and obligations assumed by the Manager during the
preceding month, on the first business day of the month in
each year. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of the Fund shall be the net assets computed as of
the close of business on the last business day of the month
preceding the month in which the payment is being made,
determined in the same manner as the Fund uses to compute
the value of its net assets in connection with the
determination of the net asset value of Fund shares, all as
set forth more fully in the Fund's current prospectus and
statement of additional information. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over
$100,000,000 and not over $250,000,000; and
9/240 of 1% of the value of net assets over
$250,000,000 and not over $10,000,000,000; and
11/300 of 1% of the value of net assets over $10
billion and not over $12.5 billion; and
7/200 of 1% of the value of net assets over $12.5
billion and not over $15 billion; and
1/30 of 1% of the value of net assets over $15
billion and not over $17.5 billion; and
19/100 of 1% of the value of net assets over $17.5
billion and not over $20 billion; and
3/100 of 1% of the value of net assets in excess
of $20 billion.
B. The Management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually
received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection
therewith; and to the extent necessary to comply with the
limitations on expenses which may be borne by the Fund as
set forth in the laws, regulations and administrative
interpretations of those states in which the Fund's shares
are registered. The Manager may, from time to time,
voluntarily reduce or waive any management fee due to it
hereunder.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for the
portion of any month in which this Agreement is in effect
which is not a complete month according to the proportion
which the number of calendar days in the fiscal quarter
during which the Agreement is in effect bears to the number
of calendar days in the month, and shall be payable within
10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance
with the Articles of Incorporation and By-Laws of Custodian
Funds and to Section 10(a) of the 1940 Act, it is understood
that directors, officers, agents and stockholders of
Custodian Funds are or may be interested in the Manager or
its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in Custodian Funds as directors, officers,
agents, stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders or
otherwise; and that the effect of any such interests shall
be governed by said Articles of Incorporation, the By-Laws
and the 1940 Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not
be subject to liability to Custodian Funds or the Fund or to
any shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase,
holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the Fund
in the preparation, printing and distribution of proxy
statements, amendments to its Registration Statement,
holdings of meetings of its shareholders or directors, the
conduct of factual investigations, any legal or
administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange
Commission) which the Fund incurs as the result of action or
inaction of the Manager or any of its affiliates or any of
their officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures (i)
is directly or indirectly related to any transaction or
proposed transaction in the shares or control of the Manager
or its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or control)
which shall have been undertaken without the prior, express
approval of Custodian Funds' Board of Directors; or, (ii) is
within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or
shareholders. The Manager shall not be obligated pursuant
to the provisions of this Subparagraph 6(B), to reimburse
the Fund for any expenditures related to the institution of
an administrative proceeding or civil litigation by the Fund
or a Fund shareholder seeking to recover all or a portion of
the proceeds derived by any shareholder of the Manager any
of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is
in effect the Manager shall pay to the Fund the amount due
for expenses subject to this Subparagraph 6(B) within 30
days after a bill or statement has been received by the
Manager therefore. This provision shall not be deemed to be
a waiver of any claim the Fund may have or may assert
against the Manager or others for costs, expenses or damages
heretofore incurred by the Fund or for costs, expenses or
damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect
any director or officer of Custodian Funds, or director or
officer of the Manager, from liability in violation of
Sections 17(h) and (i) of the 1940 Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years
thereafter, unless sooner terminated as hereinafter provided
and shall continue in effect thereafter for periods not
eceeding one (1) year so long as such continuation is
approved at least annually (i) by a vote of a majority of
the outstanding voting securities of the Fund or by a vote
of the Board of Directors of Custodian Funds, and (ii) by a
vote of a majority of the directors of Custodian Funds who
are not parties to the Agreement or interested persons of
any parties to the Agreement (other than as Directors of
Custodian Funds) cast in person at a meeting called for the
purpose of voting on the Agreement.
B. This Agreement.
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Directors
of Custodian Funds or by vote of a majority of the
outstanding voting securities of the Fund, on 30 days'
written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Manager on 30 days' written
notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set
forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed postage-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of May 1, 1994.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the Growth Series
By /s/ Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
By /s/ Rupert H. Johnson, Jr.
FRANKLIN CUSTODIAN FUNDS, INC.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN CUSTODIAN FUNDS,
INC., a Maryland Corporation ("Custodian Funds") on behalf of the
Income Series (the "Fund") and FRANKLIN ADVISERS, INC., a
California corporation (the "Manager").
WHEREAS, Custodian Funds has been organized and operates as an
investment company registered under the Investment Company Act of
1940 (the "1940 Act") for the purpose of investing and
reinvesting its assets in securities, as set forth in its
Articles of Incorporation, its By-Laws and its Registration
Statements under the 1940 Act and the Securities Act of 1933, all
as heretofore and hereafter amended and supplemented; and
WHEREAS, Custodian Funds desires to avail itself of the services,
information, advice, assistance and facilities of an investment
manager and to have an investment manager perform for its various
management, statistical, research, investment advisory and other
services; and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is mutually agreed as follows:
1. Employment of the Manager. Custodian Funds hereby employs
the Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of
Custodian Funds, for the period and on the terms hereinafter
set forth. The Manager hereby accepts such employment and
agrees during such period to render the services and to
assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein
be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the
Fund or Custodian Funds in any way or otherwise be deemed an
agent of the Fund or Custodian Funds.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter
set forth and to assume the following obligations:
A. Administrative Services. The Manager shall furnish to the
Fund adequate (i) office space, which may be space within
the offices of the Manager or in such other place as may be
agreed upon from time to time, (ii) office furnishings,
facilities and equipment as may be reasonably required for
managing the corporate affairs and conducting the business
of the Fund, including complying with the corporate and
securities reporting requirements of the United States and
the various states in which the Fund does business,
conducting correspondence and other communications with the
shareholders of the Fund, maintaining all internal
bookkeeping, accounting and auditing services and records in
connection with the Fund's investment and business
activities, and computing net asset value. The Manager
shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers
and employees of Custodian Funds who are officers or
employees of the Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the
investment objectives and policies of the Fund and any
directions which Custodian Funds' Board of Directors
may issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations
with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement
the same. Such determinations and services shall
include determining the manner in which any voting
rights, rights to consent to corporate action and any
other rights pertaining to the Fund's investment
securities shall be exercised. The Manager shall
render or cause to be rendered regular reports to
Custodian Funds, at regular meetings of its Board of
Directors and at such other times as may be reasonably
requested by Custodian Funds' Board of Directors, of
(i) the decisions which it has made with respect to the
investment of the Fund's assets and the purchase and
sale of its investment securities, (ii) the reasons for
such decisions and (iii) the extent to which those
decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which Custodian Funds' Board of Directors
may issue from time to time, shall place, in the name
of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this Paragraph
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accord with
the standards set forth below. Moreover, to the extent
that it continues to be lawful to do so and so long as
the Board of Directors determines that the Fund will
benefit, directly or indirectly, by doing so, the
Manager may place orders with a broker who charges a
commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker.
Accordingly, the Fund and the Manager agree that the Manager
shall select brokers for the execution of the Fund's
portfolio transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services; and
(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager and
its affiliates may lawfully and appropriately use
in their investment advisory capacities, which
relate directly to securities, actual or
potential, of the Fund, or which place the Manager
in a better position to make decisions in
connection with the management of the Fund's
assets and portfolio, whether or not such data may
also be useful to the Manager and its affiliates
in managing other portfolios or advising other
clients, in such amount of total brokerage as may
reasonably be required.
Provided that Custodian Funds' officers are satisfied that
the best execution is obtained, the sale of shares of the
Fund may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(c) It is acknowledged that the Manager may contract with
one or more firms to undertake some or all of the manager's
investment management services as set forth herein pursuant
to an agreement which is subject to substantially the same
provisions as contained in paragraphs 6 and 7 herein.
(d) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin/Templeton Distributors, Inc.
("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in
such capacity under the federal securities laws and
rules thereunder and the rules of any securities
exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be
obligated to make any additional commitments of
capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments
necessary to maintain its corporate existence and
membership in the National Association of Securities
Dealers, Inc.) as of the date of this Agreement. This
Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing
requirement under any circumstances in which they might
reasonably believe that liability might be imposed upon
them as a result of so acting, or (ii) to institute
legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of
such a tender, unless Custodian Funds on behalf of the
Fund shall enter into an agreement with the Manager
and/or Distributors to reimburse them for all such
expenses connected with attempting to collect such
fees, including legal fees and expenses and that
portion of the compensation due to their employees
which is attributable to the time involved in
attempting to collect such fees.
(e) The Manager shall render regular reports to
Custodian Funds, not more frequently than quarterly, of
how much total brokerage business has been placed by
the Manager, on behalf of the Fund, with brokers
falling into each of the categories referred to above
and the manner in which the allocation has been
accomplished.
(f) The Manager agrees that no investment decision
will be made or influenced by a desire to provide
brokerage for allocation in accordance with the
foregoing, and that the right to make such allocation
of brokerage shall not interfere with the Manager's
paramount duty to obtain the best net price and
execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials. The Manager, its officers and employees will
make available and provide accounting and statistical
information required by the Fund in the preparation of
registration statements, reports and other documents
required by federal and state securities laws and with such
information as the Fund may reasonably request for use in
the preparation of such documents or of other materials
necessary or helpful for the underwriting and distribution
of the Fund's shares.
D. Other Obligations and Services. The Manager shall make its
officers and employees available to the Board of Directors
and officers of Custodian Funds for consultation and
discussions regarding the administration and management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all of its own expenses other than those expressly
assumed by the Manager herein, which expenses payable by the
Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
Custodian Funds who are not officers, directors,
stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Directors and
shareholders of the Fund, reports to the Fund's
shareholders, the filing of reports with regulatory bodies
and the maintenance of the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund shares
for sale;
K. Costs of printing stock certificates representing shares of
the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance premium.
4. Compensation of the Manager. The Fund shall pay a monthly
management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
as set forth below, as compensation for the services
rendered and obligations assumed by the Manager during the
preceding month, on the first business day of the month in
each year. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of the Fund shall be the net assets computed as of
the close of business on the last business day of the month
preceding the month in which the payment is being made,
determined in the same manner as the Fund uses to compute
the value of its net assets in connection with the
determination of the net asset value of Fund shares, all as
set forth more fully in the Fund's current prospectus and
statement of additional information. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over
$100,000,000 and not over $250,000,000; and
9/240 of 1% of the value of net assets over
$250,000,000 and not over $10,000,000,000; and
11/300 of 1% of the value of net assets over $10
billion and not over $12.5 billion; and
7/200 of 1% of the value of net assets over $12.5
billion and not over $15 billion; and
1/30 of 1% of the value of net assets over $15
billion and not over $17.5 billion; and
19/100 of 1% of the value of net assets over $17.5
billion and not over $20 billion; and
3/100 of 1% of the value of net assets in excess
of $20 billion.
B. The Management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually
received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection
therewith; and to the extent necessary to comply with the
limitations on expenses which may be borne by the Fund as
set forth in the laws, regulations and administrative
interpretations of those states in which the Fund's shares
are registered. The Manager may, from time to time,
voluntarily reduce or waive any management fee due to it
hereunder.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for the
portion of any month in which this Agreement is in effect
which is not a complete month according to the proportion
which the number of calendar days in the fiscal quarter
during which the Agreement is in effect bears to the number
of calendar days in the month, and shall be payable within
10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance
with the Articles of Incorporation and By-Laws of Custodian
Funds and to Section 10(a) of the 1940 Act, it is understood
that directors, officers, agents and stockholders of
Custodian Funds are or may be interested in the Manager or
its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in Custodian Funds as directors, officers,
agents, stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders or
otherwise; and that the effect of any such interests shall
be governed by said Articles of Incorporation, the By-Laws
and the 1940 Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not
be subject to liability to Custodian Funds or the Fund or to
any shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase,
holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the Fund
in the preparation, printing and distribution of proxy
statements, amendments to its Registration Statement,
holdings of meetings of its shareholders or directors, the
conduct of factual investigations, any legal or
administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange
Commission) which the Fund incurs as the result of action or
inaction of the Manager or any of its affiliates or any of
their officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures (i)
is directly or indirectly related to any transaction or
proposed transaction in the shares or control of the Manager
or its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or control)
which shall have been undertaken without the prior, express
approval of Custodian Funds' Board of Directors; or, (ii) is
within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or
shareholders. The Manager shall not be obligated pursuant
to the provisions of this Subparagraph 6(B), to reimburse
the Fund for any expenditures related to the institution of
an administrative proceeding or civil litigation by the Fund
or a Fund shareholder seeking to recover all or a portion of
the proceeds derived by any shareholder of the Manager any
of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is
in effect the Manager shall pay to the Fund the amount due
for expenses subject to this Subparagraph 6(B) within 30
days after a bill or statement has been received by the
Manager therefore. This provision shall not be deemed to be
a waiver of any claim the Fund may have or may assert
against the Manager or others for costs, expenses or damages
heretofore incurred by the Fund or for costs, expenses or
damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect
any director or officer of Custodian Funds, or director or
officer of the Manager, from liability in violation of
Sections 17(h) and (i) of the 1940 Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years
thereafter, unless sooner terminated as hereinafter provided
and shall continue in effect thereafter for periods not
eceeding one (1) year so long as such continuation is
approved at least annually (i) by a vote of a majority of
the outstanding voting securities of the Fund or by a vote
of the Board of Directors of Custodian Funds, and (ii) by a
vote of a majority of the directors of Custodian Funds who
are not parties to the Agreement or interested persons of
any parties to the Agreement (other than as Directors of
Custodian Funds) cast in person at a meeting called for the
purpose of voting on the Agreement.
B. This Agreement.
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Directors
of Custodian Funds or by vote of a majority of the
outstanding voting securities of the Fund, on 30 days'
written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Manager on 30 days' written
notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set
forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed postage-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of May 1, 1994.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the Income Series
By /s/ Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
BY /s/ Rupert H. Johnson, Jr.
FRANKLIN CUSTODIAN FUNDS, INC.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN CUSTODIAN FUNDS,
INC., a Maryland Corporation ("Custodian Funds") on behalf of the
U.S. Government Securities Series (the "Fund") and FRANKLIN
ADVISERS, INC., a California corporation (the "Manager").
WHEREAS, Custodian Funds has been organized and operates as an
investment company registered under the Investment Company Act of
1940 (the "1940 Act") for the purpose of investing and
reinvesting its assets in securities, as set forth in its
Articles of Incorporation, its By-Laws and its Registration
Statements under the 1940 Act and the Securities Act of 1933, all
as heretofore and hereafter amended and supplemented; and
WHEREAS, Custodian Funds desires to avail itself of the services,
information, advice, assistance and facilities of an investment
manager and to have an investment manager perform for its various
management, statistical, research, investment advisory and other
services; and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is mutually agreed as follows:
1. Employment of the Manager. Custodian Funds hereby employs
the Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of
Custodian Funds, for the period and on the terms hereinafter
set forth. The Manager hereby accepts such employment and
agrees during such period to render the services and to
assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein
be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the
Fund or Custodian Funds in any way or otherwise be deemed an
agent of the Fund or Custodian Funds.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter
set forth and to assume the following obligations:
A. Administrative Services. The Manager shall furnish to the
Fund adequate (i) office space, which may be space within
the offices of the Manager or in such other place as may be
agreed upon from time to time, (ii) office furnishings,
facilities and equipment as may be reasonably required for
managing the corporate affairs and conducting the business
of the Fund, including complying with the corporate and
securities reporting requirements of the United States and
the various states in which the Fund does business,
conducting correspondence and other communications with the
shareholders of the Fund, maintaining all internal
bookkeeping, accounting and auditing services and records in
connection with the Fund's investment and business
activities, and computing net asset value. The Manager
shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers
and employees of Custodian Funds who are officers or
employees of the Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the
investment objectives and policies of the Fund and any
directions which Custodian Funds' Board of Directors
may issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations
with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement
the same. Such determinations and services shall
include determining the manner in which any voting
rights, rights to consent to corporate action and any
other rights pertaining to the Fund's investment
securities shall be exercised. The Manager shall
render or cause to be rendered regular reports to
Custodian Funds, at regular meetings of its Board of
Directors and at such other times as may be reasonably
requested by Custodian Funds' Board of Directors, of
(i) the decisions which it has made with respect to the
investment of the Fund's assets and the purchase and
sale of its investment securities, (ii) the reasons for
such decisions and (iii) the extent to which those
decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which Custodian Funds' Board of Directors
may issue from time to time, shall place, in the name
of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this Paragraph
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accord with
the standards set forth below. Moreover, to the extent
that it continues to be lawful to do so and so long as
the Board of Directors determines that the Fund will
benefit, directly or indirectly, by doing so, the
Manager may place orders with a broker who charges a
commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker.
Accordingly, the Fund and the Manager agree that the Manager
shall select brokers for the execution of the Fund's
portfolio transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services; and
(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager and
its affiliates may lawfully and appropriately use
in their investment advisory capacities, which
relate directly to securities, actual or
potential, of the Fund, or which place the Manager
in a better position to make decisions in
connection with the management of the Fund's
assets and portfolio, whether or not such data may
also be useful to the Manager and its affiliates
in managing other portfolios or advising other
clients, in such amount of total brokerage as may
reasonably be required.
Provided that Custodian Funds' officers are satisfied that
the best execution is obtained, the sale of shares of the
Fund may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(c) It is acknowledged that the Manager may contract with
one or more firms to undertake some or all of the manager's
investment management services as set forth herein pursuant
to an agreement which is subject to substantially the same
provisions as contained in paragraphs 6 and 7 herein.
(d) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin/Templeton Distributors, Inc.
("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in
such capacity under the federal securities laws and
rules thereunder and the rules of any securities
exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be
obligated to make any additional commitments of
capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments
necessary to maintain its corporate existence and
membership in the National Association of Securities
Dealers, Inc.) as of the date of this Agreement. This
Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing
requirement under any circumstances in which they might
reasonably believe that liability might be imposed upon
them as a result of so acting, or (ii) to institute
legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of
such a tender, unless Custodian Funds on behalf of the
Fund shall enter into an agreement with the Manager
and/or Distributors to reimburse them for all such
expenses connected with attempting to collect such
fees, including legal fees and expenses and that
portion of the compensation due to their employees
which is attributable to the time involved in
attempting to collect such fees.
(e) The Manager shall render regular reports to
Custodian Funds, not more frequently than quarterly, of
how much total brokerage business has been placed by
the Manager, on behalf of the Fund, with brokers
falling into each of the categories referred to above
and the manner in which the allocation has been
accomplished.
(f) The Manager agrees that no investment decision
will be made or influenced by a desire to provide
brokerage for allocation in accordance with the
foregoing, and that the right to make such allocation
of brokerage shall not interfere with the Manager's
paramount duty to obtain the best net price and
execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials. The Manager, its officers and employees will
make available and provide accounting and statistical
information required by the Fund in the preparation of
registration statements, reports and other documents
required by federal and state securities laws and with such
information as the Fund may reasonably request for use in
the preparation of such documents or of other materials
necessary or helpful for the underwriting and distribution
of the Fund's shares.
D. Other Obligations and Services. The Manager shall make its
officers and employees available to the Board of Directors
and officers of Custodian Funds for consultation and
discussions regarding the administration and management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all of its own expenses other than those expressly
assumed by the Manager herein, which expenses payable by the
Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
Custodian Funds who are not officers, directors,
stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Directors and
shareholders of the Fund, reports to the Fund's
shareholders, the filing of reports with regulatory bodies
and the maintenance of the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund shares
for sale;
K. Costs of printing stock certificates representing shares of
the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance premium.
4. Compensation of the Manager. The Fund shall pay a monthly
management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
as set forth below, as compensation for the services
rendered and obligations assumed by the Manager during the
preceding month, on the first business day of the month in
each year. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of the Fund shall be the net assets computed as of
the close of business on the last business day of the month
preceding the month in which the payment is being made,
determined in the same manner as the Fund uses to compute
the value of its net assets in connection with the
determination of the net asset value of Fund shares, all as
set forth more fully in the Fund's current prospectus and
statement of additional information. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over
$100,000,000 and not over $250,000,000; and
9/240 of 1% of the value of net assets over
$250,000,000 and not over $10,000,000,000; and
11/300 of 1% of the value of net assets over $10
billion and not over $12.5 billion; and
7/200 of 1% of the value of net assets over $12.5
billion and not over $15 billion; and
1/30 of 1% of the value of net assets over $15
billion and not over $17.5 billion; and
19/100 of 1% of the value of net assets over $17.5
billion and not over $20 billion; and
3/100 of 1% of the value of net assets in excess
of $20 billion.
B. The Management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually
received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection
therewith; and to the extent necessary to comply with the
limitations on expenses which may be borne by the Fund as
set forth in the laws, regulations and administrative
interpretations of those states in which the Fund's shares
are registered. The Manager may, from time to time,
voluntarily reduce or waive any management fee due to it
hereunder.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for the
portion of any month in which this Agreement is in effect
which is not a complete month according to the proportion
which the number of calendar days in the fiscal quarter
during which the Agreement is in effect bears to the number
of calendar days in the month, and shall be payable within
10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance
with the Articles of Incorporation and By-Laws of Custodian
Funds and to Section 10(a) of the 1940 Act, it is understood
that directors, officers, agents and stockholders of
Custodian Funds are or may be interested in the Manager or
its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in Custodian Funds as directors, officers,
agents, stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders or
otherwise; and that the effect of any such interests shall
be governed by said Articles of Incorporation, the By-Laws
and the 1940 Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not
be subject to liability to Custodian Funds or the Fund or to
any shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase,
holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the Fund
in the preparation, printing and distribution of proxy
statements, amendments to its Registration Statement,
holdings of meetings of its shareholders or directors, the
conduct of factual investigations, any legal or
administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange
Commission) which the Fund incurs as the result of action or
inaction of the Manager or any of its affiliates or any of
their officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures (i)
is directly or indirectly related to any transaction or
proposed transaction in the shares or control of the Manager
or its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or control)
which shall have been undertaken without the prior, express
approval of Custodian Funds' Board of Directors; or, (ii) is
within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or
shareholders. The Manager shall not be obligated pursuant
to the provisions of this Subparagraph 6(B), to reimburse
the Fund for any expenditures related to the institution of
an administrative proceeding or civil litigation by the Fund
or a Fund shareholder seeking to recover all or a portion of
the proceeds derived by any shareholder of the Manager any
of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is
in effect the Manager shall pay to the Fund the amount due
for expenses subject to this Subparagraph 6(B) within 30
days after a bill or statement has been received by the
Manager therefore. This provision shall not be deemed to be
a waiver of any claim the Fund may have or may assert
against the Manager or others for costs, expenses or damages
heretofore incurred by the Fund or for costs, expenses or
damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect
any director or officer of Custodian Funds, or director or
officer of the Manager, from liability in violation of
Sections 17(h) and (i) of the 1940 Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years
thereafter, unless sooner terminated as hereinafter provided
and shall continue in effect thereafter for periods not
eceeding one (1) year so long as such continuation is
approved at least annually (i) by a vote of a majority of
the outstanding voting securities of the Fund or by a vote
of the Board of Directors of Custodian Funds, and (ii) by a
vote of a majority of the directors of Custodian Funds who
are not parties to the Agreement or interested persons of
any parties to the Agreement (other than as Directors of
Custodian Funds) cast in person at a meeting called for the
purpose of voting on the Agreement.
B. This Agreement.
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Directors
of Custodian Funds or by vote of a majority of the
outstanding voting securities of the Fund, on 30 days'
written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Manager on 30 days' written
notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set
forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed postage-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of May 1, 1994.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the U.S. Government Securities Series
By /s/ Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
BY /s/ Rupert H. Johnson, Jr.
FRANKLIN CUSTODIAN FUNDS, INC.
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT made between FRANKLIN CUSTODIAN FUNDS,
INC., a Maryland Corporation ("Custodian Funds") on behalf of the
Utilities Series (the "Fund") and FRANKLIN ADVISERS, INC., a
California corporation (the "Manager").
WHEREAS, Custodian Funds has been organized and operates as an
investment company registered under the Investment Company Act of
1940 (the "1940 Act") for the purpose of investing and
reinvesting its assets in securities, as set forth in its
Articles of Incorporation, its By-Laws and its Registration
Statements under the 1940 Act and the Securities Act of 1933, all
as heretofore and hereafter amended and supplemented; and
WHEREAS, Custodian Funds desires to avail itself of the services,
information, advice, assistance and facilities of an investment
manager and to have an investment manager perform for its various
management, statistical, research, investment advisory and other
services; and,
WHEREAS, the Manager is registered as an investment adviser under
the Investment Advisers Act of 1940, is engaged in the business
of rendering management, investment advisory, counselling and
supervisory services to investment companies and other investment
counselling clients, and desires to provide these services to the
Fund.
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is mutually agreed as follows:
1. Employment of the Manager. Custodian Funds hereby employs
the Manager to manage the investment and reinvestment of the
Fund's assets and to administer its affairs, subject to the
direction of the Board of Directors and the officers of
Custodian Funds, for the period and on the terms hereinafter
set forth. The Manager hereby accepts such employment and
agrees during such period to render the services and to
assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein
be deemed to be an independent contractor and shall, except
as expressly provided or authorized (whether herein or
otherwise), have no authority to act for or represent the
Fund or Custodian Funds in any way or otherwise be deemed an
agent of the Fund or Custodian Funds.
2. Obligations of and Services to be Provided by the Manager.
The Manager undertakes to provide the services hereinafter
set forth and to assume the following obligations:
A. Administrative Services. The Manager shall furnish to the
Fund adequate (i) office space, which may be space within
the offices of the Manager or in such other place as may be
agreed upon from time to time, (ii) office furnishings,
facilities and equipment as may be reasonably required for
managing the corporate affairs and conducting the business
of the Fund, including complying with the corporate and
securities reporting requirements of the United States and
the various states in which the Fund does business,
conducting correspondence and other communications with the
shareholders of the Fund, maintaining all internal
bookkeeping, accounting and auditing services and records in
connection with the Fund's investment and business
activities, and computing net asset value. The Manager
shall employ or provide and compensate the executive,
secretarial and clerical personnel necessary to provide such
services. The Manager shall also compensate all officers
and employees of Custodian Funds who are officers or
employees of the Manager or its affiliates.
B. Investment Management Services.
(a) The Manager shall manage the Fund's assets and
portfolio subject to and in accordance with the
investment objectives and policies of the Fund and any
directions which Custodian Funds' Board of Directors
may issue from time to time. In pursuance of the
foregoing, the Manager shall make all determinations
with respect to the investment of the Fund's assets and
the purchase and sale of portfolio securities, and
shall take such steps as may be necessary to implement
the same. Such determinations and services shall
include determining the manner in which any voting
rights, rights to consent to corporate action and any
other rights pertaining to the Fund's investment
securities shall be exercised. The Manager shall
render or cause to be rendered regular reports to
Custodian Funds, at regular meetings of its Board of
Directors and at such other times as may be reasonably
requested by Custodian Funds' Board of Directors, of
(i) the decisions which it has made with respect to the
investment of the Fund's assets and the purchase and
sale of its investment securities, (ii) the reasons for
such decisions and (iii) the extent to which those
decisions have been implemented.
(b) The Manager, subject to and in accordance with any
directions which Custodian Funds' Board of Directors
may issue from time to time, shall place, in the name
of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders the
Manager shall seek to obtain the best net price and
execution for the Fund, but this requirement shall not
be deemed to obligate the Manager to place any order
solely on the basis of obtaining the lowest commission
rate if the other standards set forth in this Paragraph
have been satisfied. The parties recognize that there
are likely to be many cases in which different brokers
or dealers are equally able to provide such best price
and execution and that, in selecting among such brokers
and dealers with respect to particular trades, it is
desirable to choose those brokers or dealers who
furnish research, statistical quotations and other
information to the Fund and the Manager in accord with
the standards set forth below. Moreover, to the extent
that it continues to be lawful to do so and so long as
the Board of Directors determines that the Fund will
benefit, directly or indirectly, by doing so, the
Manager may place orders with a broker who charges a
commission for that transaction which is in excess of
the amount of commission that another broker would have
charged for effecting that transaction, provided that
the excess commission is reasonable in relation to the
value of "brokerage and research services" (as defined
in Section 28(e)(3) of the Securities Exchange Act of
1934) provided by that broker.
Accordingly, the Fund and the Manager agree that the Manager
shall select brokers for the execution of the Fund's
portfolio transactions from among:
(i) Those brokers and dealers who provide
quotations and other services to the Fund,
specifically including the quotations necessary to
determine the Fund's net assets, in such amount of
total brokerage as may reasonably be required in
light of such services; and
(ii) Those brokers and dealers who supply
research, statistical and other data to the
Manager or its affiliates which the Manager and
its affiliates may lawfully and appropriately use
in their investment advisory capacities, which
relate directly to securities, actual or
potential, of the Fund, or which place the Manager
in a better position to make decisions in
connection with the management of the Fund's
assets and portfolio, whether or not such data may
also be useful to the Manager and its affiliates
in managing other portfolios or advising other
clients, in such amount of total brokerage as may
reasonably be required.
Provided that Custodian Funds' officers are satisfied that
the best execution is obtained, the sale of shares of the
Fund may also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
(c) It is acknowledged that the Manager may contract with
one or more firms to undertake some or all of the manager's
investment management services as set forth herein pursuant
to an agreement which is subject to substantially the same
provisions as contained in paragraphs 6 and 7 herein.
(d) When the Manager has determined that the Fund
should tender securities pursuant to a "tender offer
solicitation," Franklin/Templeton Distributors, Inc.
("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in
such capacity under the federal securities laws and
rules thereunder and the rules of any securities
exchange or association of which Distributors may be a
member. Neither the Manager nor Distributors shall be
obligated to make any additional commitments of
capital, expense or personnel beyond that already
committed (other than normal periodic fees or payments
necessary to maintain its corporate existence and
membership in the National Association of Securities
Dealers, Inc.) as of the date of this Agreement. This
Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing
requirement under any circumstances in which they might
reasonably believe that liability might be imposed upon
them as a result of so acting, or (ii) to institute
legal or other proceedings to collect fees which may be
considered to be due from others to it as a result of
such a tender, unless Custodian Funds on behalf of the
Fund shall enter into an agreement with the Manager
and/or Distributors to reimburse them for all such
expenses connected with attempting to collect such
fees, including legal fees and expenses and that
portion of the compensation due to their employees
which is attributable to the time involved in
attempting to collect such fees.
(e) The Manager shall render regular reports to
Custodian Funds, not more frequently than quarterly, of
how much total brokerage business has been placed by
the Manager, on behalf of the Fund, with brokers
falling into each of the categories referred to above
and the manner in which the allocation has been
accomplished.
(f) The Manager agrees that no investment decision
will be made or influenced by a desire to provide
brokerage for allocation in accordance with the
foregoing, and that the right to make such allocation
of brokerage shall not interfere with the Manager's
paramount duty to obtain the best net price and
execution for the Fund.
C. Provision of Information Necessary for Preparation of
Securities Registration Statements, Amendments and Other
Materials. The Manager, its officers and employees will
make available and provide accounting and statistical
information required by the Fund in the preparation of
registration statements, reports and other documents
required by federal and state securities laws and with such
information as the Fund may reasonably request for use in
the preparation of such documents or of other materials
necessary or helpful for the underwriting and distribution
of the Fund's shares.
D. Other Obligations and Services. The Manager shall make its
officers and employees available to the Board of Directors
and officers of Custodian Funds for consultation and
discussions regarding the administration and management of
the Fund and its investment activities.
3. Expenses of the Fund. It is understood that the Fund will
pay all of its own expenses other than those expressly
assumed by the Manager herein, which expenses payable by the
Fund shall include:
A. Fees and expenses paid to the Manager as provided herein;
B. Expenses of all audits by independent public accountants;
C. Expenses of transfer agent, registrar, custodian, dividend
disbursing agent and shareholder record-keeping services;
D. Expenses of obtaining quotations for calculating the value
of the Fund's net assets;
E. Salaries and other compensations of executive officers of
Custodian Funds who are not officers, directors,
stockholders or employees of the Manager;
F. Taxes levied against the Fund;
G. Brokerage fees and commissions in connection with the
purchase and sale of securities for the Fund;
H. Costs, including the interest expense, of borrowing money;
I. Costs incident to meetings of the Board of Directors and
shareholders of the Fund, reports to the Fund's
shareholders, the filing of reports with regulatory bodies
and the maintenance of the Fund's corporate existence;
J. Legal fees, including the legal fees related to the
registration and continued qualification of the Fund shares
for sale;
K. Costs of printing stock certificates representing shares of
the Fund;
L. Directors' fees and expenses to directors who are not
directors, officers, employees or stockholders of the
Manager or any of its affiliates; and
M. Its pro rata portion of the fidelity bond insurance premium.
4. Compensation of the Manager. The Fund shall pay a monthly
management fee in cash to the Manager based upon a
percentage of the value of the Fund's net assets, calculated
as set forth below, as compensation for the services
rendered and obligations assumed by the Manager during the
preceding month, on the first business day of the month in
each year. The initial management fee under this Agreement
shall be payable on the first business day of the first
month following the effective date of this Agreement, and
shall be reduced by the amount of any advance payments made
by the Fund relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of the Fund shall be the net assets computed as of
the close of business on the last business day of the month
preceding the month in which the payment is being made,
determined in the same manner as the Fund uses to compute
the value of its net assets in connection with the
determination of the net asset value of Fund shares, all as
set forth more fully in the Fund's current prospectus and
statement of additional information. The rate of the monthly
management fee shall be as follows:
5/96 of 1% of the value of net assets up to and
including $100,000,000; and
1/24 of 1% of the value of net assets over
$100,000,000 and not over $250,000,000; and
9/240 of 1% of the value of net assets over
$250,000,000 and not over $10,000,000,000; and
11/300 of 1% of the value of net assets over $10
billion and not over $12.5 billion; and
7/200 of 1% of the value of net assets over $12.5
billion and not over $15 billion; and
1/30 of 1% of the value of net assets over $15
billion and not over $17.5 billion; and
19/100 of 1% of the value of net assets over $17.5
billion and not over $20 billion; and
3/100 of 1% of the value of net assets in excess
of $20 billion.
B. The Management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually
received cash payments of tender offer solicitation fees
less certain costs and expenses incurred in connection
therewith; and to the extent necessary to comply with the
limitations on expenses which may be borne by the Fund as
set forth in the laws, regulations and administrative
interpretations of those states in which the Fund's shares
are registered. The Manager may, from time to time,
voluntarily reduce or waive any management fee due to it
hereunder.
C. If this Agreement is terminated prior to the end of any
month, the monthly management fee shall be prorated for the
portion of any month in which this Agreement is in effect
which is not a complete month according to the proportion
which the number of calendar days in the fiscal quarter
during which the Agreement is in effect bears to the number
of calendar days in the month, and shall be payable within
10 days after the date of termination.
5. Activities of the Manager. The services of the Manager to
the Fund hereunder are not to be deemed exclusive, and the
Manager and any of its affiliates shall be free to render
similar services to others. Subject to and in accordance
with the Articles of Incorporation and By-Laws of Custodian
Funds and to Section 10(a) of the 1940 Act, it is understood
that directors, officers, agents and stockholders of
Custodian Funds are or may be interested in the Manager or
its affiliates as directors, officers, agents or
stockholders, and that directors, officers, agents or
stockholders of the Manager or its affiliates are or may be
interested in Custodian Funds as directors, officers,
agents, stockholders or otherwise, that the Manager or its
affiliates may be interested in the Fund as stockholders or
otherwise; and that the effect of any such interests shall
be governed by said Articles of Incorporation, the By-Laws
and the 1940 Act.
6. Liabilities of the Manager.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties
hereunder on the part of the Manager, the Manager shall not
be subject to liability to Custodian Funds or the Fund or to
any shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase,
holding or sale of any security by the Fund.
B. Notwithstanding the foregoing, the Manager agrees to
reimburse the Fund for any and all costs, expenses, and
counsel and directors' fees reasonably incurred by the Fund
in the preparation, printing and distribution of proxy
statements, amendments to its Registration Statement,
holdings of meetings of its shareholders or directors, the
conduct of factual investigations, any legal or
administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange
Commission) which the Fund incurs as the result of action or
inaction of the Manager or any of its affiliates or any of
their officers, directors, employees or shareholders where
the action or inaction necessitating such expenditures (i)
is directly or indirectly related to any transaction or
proposed transaction in the shares or control of the Manager
or its affiliates (or litigation related to any pending or
proposed or future transaction in such shares or control)
which shall have been undertaken without the prior, express
approval of Custodian Funds' Board of Directors; or, (ii) is
within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or
shareholders. The Manager shall not be obligated pursuant
to the provisions of this Subparagraph 6(B), to reimburse
the Fund for any expenditures related to the institution of
an administrative proceeding or civil litigation by the Fund
or a Fund shareholder seeking to recover all or a portion of
the proceeds derived by any shareholder of the Manager any
of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is
in effect the Manager shall pay to the Fund the amount due
for expenses subject to this Subparagraph 6(B) within 30
days after a bill or statement has been received by the
Manager therefore. This provision shall not be deemed to be
a waiver of any claim the Fund may have or may assert
against the Manager or others for costs, expenses or damages
heretofore incurred by the Fund or for costs, expenses or
damages the Fund may hereafter incur which are not
reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to protect
any director or officer of Custodian Funds, or director or
officer of the Manager, from liability in violation of
Sections 17(h) and (i) of the 1940 Act.
7. Renewal and Termination.
A. This Agreement shall become effective on the date written
below and shall continue in effect for two (2) years
thereafter, unless sooner terminated as hereinafter provided
and shall continue in effect thereafter for periods not
eceeding one (1) year so long as such continuation is
approved at least annually (i) by a vote of a majority of
the outstanding voting securities of the Fund or by a vote
of the Board of Directors of Custodian Funds, and (ii) by a
vote of a majority of the directors of Custodian Funds who
are not parties to the Agreement or interested persons of
any parties to the Agreement (other than as Directors of
Custodian Funds) cast in person at a meeting called for the
purpose of voting on the Agreement.
B. This Agreement.
(i) may at any time be terminated without the payment
of any penalty either by vote of the Board of Directors
of Custodian Funds or by vote of a majority of the
outstanding voting securities of the Fund, on 30 days'
written notice to the Manager;
(ii) shall immediately terminate in the event of its
assignment; and
(iii) may be terminated by the Manager on 30 days' written
notice to the Fund.
C. As used in this Paragraph the terms "assignment,"
"interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set
forth for any such terms in the 1940 Act.
D. Any notice under this Agreement shall be given in writing
addressed and delivered, or mailed postage-paid, to the
other party at any office of such party.
8. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be
affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of May 1, 1994.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the Utilities Series
By /s/ Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
BY /s/ Deborah R. Gatzek
FRANKLIN CUSTODIAN FUNDS, INC.
777 Mariners Island Blvd.
San Mateo, California 94404
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Amended and Restated Distribution Agreement
Gentlemen:
We (the "Fund") are a corporation or business trust operating as
an open-end management investment company or "mutual fund", which
is registered under the Investment Company Act of 1940 (the "1940
Act") and whose shares are registered under the Securities Act of
1933 (the "1933 Act"). We desire to issue one or more series or
classes of our authorized but unissued shares of capital stock or
beneficial interest (the "Shares") to authorized persons in
accordance with applicable Federal and State securities laws.
The Fund's Shares may be made available in one or more separate
series, each of which may have one or more classes.
You have informed us that your company is registered as a broker-
dealer under the provisions of the Securities Exchange Act of
1934 and that your company is a member of the National
Association of Securities Dealers, Inc. You have indicated your
desire to act as the exclusive selling agent and distributor for
the Shares. We have been authorized to execute and deliver this
Distribution Agreement ("Agreement") to you by a resolution of
our Board of Directors or Trustees ("Board") passed at a meeting
at which a majority of Board members, including a majority who
are not otherwise interested persons of the Fund and who are not
interested persons of our investment adviser, its related
organizations or with you or your related organizations, were
present and voted in favor of the said resolution approving this
Agreement.
1. Appointment of Underwriter. Upon the execution of this
Agreement and in consideration of the agreements on your part
herein expressed and upon the terms and conditions set forth
herein, we hereby appoint you as the exclusive sales agent for
our Shares and agree that we will deliver such Shares as you may
sell. You agree to use your best efforts to promote the sale of
Shares, but are not obligated to sell any specific number of
Shares.
However, the Fund and each series retain the right to make
direct sales of its Shares without sales charges consistent with
the terms of the then current prospectus and applicable law, and
to engage in other legally authorized transactions in its Shares
which do not involve the sale of Shares to the general public.
Such other transactions may include, without limitation,
transactions between the Fund or any series or class and its
shareholders only, transactions involving the reorganization of
the Fund or any series, and transactions involving the merger or
combination of the Fund or any series with another corporation or
trust.
2. Independent Contractor. You will undertake and
discharge your obligations hereunder as an independent contractor
and shall have no authority or power to obligate or bind us by
your actions, conduct or contracts except that you are authorized
to promote the sale of Shares. You may appoint sub-agents or
distribute through dealers or otherwise as you may determine from
time to time, but this Agreement shall not be construed as
authorizing any dealer or other person to accept orders for sale
or repurchase on our behalf or otherwise act as our agent for any
purpose.
3. Offering Price. Shares shall be offered for sale at a
price equivalent to the net asset value per share of that series
and class plus any applicable percentage of the public offering
price as sales commission or as otherwise set forth in our then
current prospectus. On each business day on which the New York
Stock Exchange is open for business, we will furnish you with the
net asset value of the Shares of each available series and class
which shall be determined in accordance with our then effective
prospectus. All Shares will be sold in the manner set forth in
our then effective prospectus and statement of additional
information, and in compliance with applicable law.
4. Compensation.
A. Sales Commission. You shall be entitled to charge
a sales commission on the sale or redemption, as appropriate, of
each series and class of each Fund's Shares in the amount of any
initial, deferred or contingent deferred sales charge as set
forth in our then effective prospectus. You may allow any sub-
agents or dealers such commissions or discounts from and not
exceeding the total sales commission as you shall deem advisable,
so long as any such commissions or discounts are set forth in our
current prospectus to the extent required by the applicable
Federal and State securities laws. You may also make payments to
sub-agents or dealers from your own resources, subject to the
following conditions: (a) any such payments shall not create any
obligation for or recourse against the Fund or any series or
class, and (b) the terms and conditions of any such payments are
consistent with our prospectus and applicable federal and state
securities laws and are disclosed in our prospectus or statement
of additional information to the extent such laws may require.
B. Distribution Plans. You shall also be entitled to
compensation for your services as provided in any Distribution
Plan adopted as to any series and class of any Fund's Shares
pursuant to Rule 12b-1 under the 1940 Act.
5. Terms and Conditions of Sales. Shares shall be offered
for sale only in those jurisdictions where they have been
properly registered or are exempt from registration, and only to
those groups of people which the Board may from time to time
determine to be eligible to purchase such shares.
6. Orders and Payment for Shares. Orders for Shares shall
be directed to the Fund's shareholder services agent, for
acceptance on behalf of the Fund. At or prior to the time of
delivery of any of our Shares you will pay or cause to be paid to
the custodian of the Fund's assets, for our account, an amount in
cash equal to the net asset value of such Shares. Sales of
Shares shall be deemed to be made when and where accepted by the
Fund's shareholder services agent. The Fund's custodian and
shareholder services agent shall be identified in its prospectus.
7. Purchases for Your Own Account. You shall not purchase
our Shares for your own account for purposes of resale to the
public, but you may purchase Shares for your own investment
account upon your written assurance that the purchase is for
investment purposes and that the Shares will not be resold except
through redemption by us.
8. Sale of Shares to Affiliates. You may sell our Shares
at net asset value to certain of your and our affiliated persons
pursuant to the applicable provisions of the federal securities
statutes and rules or regulations thereunder (the "Rules and
Regulations"), including Rule 22d-1 under the 1940 Act, as
amended from time to time.
9. Allocation of Expenses. We will pay the expenses:
(a) Of the preparation of the audited and
certified financial statements of our company to
be included in any Post-Effective Amendments
("Amendments") to our Registration Statement under
the 1933 Act or 1940 Act, including the prospectus
and statement of additional information included
therein;
(b) Of the preparation, including legal
fees, and printing of all Amendments or
supplements filed with the Securities and Exchange
Commission, including the copies of the
prospectuses included in the Amendments and the
first 10 copies of the definitive prospectuses or
supplements thereto, other than those necessitated
by your (including your "Parent's") activities or
Rules and Regulations related to your activities
where such Amendments or supplements result in
expenses which we would not otherwise have
incurred;
(c) Of the preparation, printing and
distribution of any reports or communications
which we send to our existing shareholders; and
(d) Of filing and other fees to Federal and
State securities regulatory authorities necessary
to continue offering our Shares.
You will pay the expenses:
(a) Of printing the copies of the
prospectuses and any supplements thereto and
statements of additional information which are
necessary to continue to offer our Shares;
(b) Of the preparation, excluding legal
fees, and printing of all Amendments and
supplements to our prospectuses and statements of
additional information if the Amendment or
supplement arises from your (including your
"Parent's") activities or Rules and Regulations
related to your activities and those expenses
would not otherwise have been incurred by us;
(c) Of printing additional copies, for use
by you as sales literature, of reports or other
communications which we have prepared for
distribution to our existing shareholders; and
(d) Incurred by you in advertising,
promoting and selling our Shares.
10. Furnishing of Information. We will furnish to you such
information with respect to each series and class of Shares, in
such form and signed by such of our officers as you may
reasonably request, and we warrant that the statements therein
contained, when so signed, will be true and correct. We will
also furnish you with such information and will take such action
as you may reasonably request in order to qualify our Shares for
sale to the public under the Blue Sky Laws of jurisdictions in
which you may wish to offer them. We will furnish you with
annual audited financial statements of our books and accounts
certified by independent public accountants, with semi-annual
financial statements prepared by us, with registration statements
and, from time to time, with such additional information
regarding our financial condition as you may reasonably request.
11. Conduct of Business. Other than our currently
effective prospectus, you will not issue any sales material or
statements except literature or advertising which conforms to the
requirements of Federal and State securities laws and regulations
and which have been filed, where necessary, with the appropriate
regulatory authorities. You will furnish us with copies of all
such materials prior to their use and no such material shall be
published if we shall reasonably and promptly object.
You shall comply with the applicable Federal and State
laws and regulations where our Shares are offered for sale and
conduct your affairs with us and with dealers, brokers or
investors in accordance with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc.
12. Redemption or Repurchase Within Seven Days. If Shares
are tendered to us for redemption or repurchase by us within
seven business days after your acceptance of the original
purchase order for such Shares, you will immediately refund to us
the full sales commission (net of allowances to dealers or
brokers) allowed to you on the original sale, and will promptly,
upon receipt thereof, pay to us any refunds from dealers or
brokers of the balance of sales commissions reallowed by you. We
shall notify you of such tender for redemption within 10 days of
the day on which notice of such tender for redemption is received
by us.
13. Other Activities. Your services pursuant to this
Agreement shall not be deemed to be exclusive, and you may render
similar services and act as an underwriter, distributor or dealer
for other investment companies in the offering of their shares.
14. Term of Agreement. This Agreement shall become
effective on the date of its execution, and shall remain in
effect for a period of two (2) years. The Agreement is renewable
annually thereafter, with respect to the Fund or, if the Fund has
more than one series, with respect to each series, for successive
periods not to exceed one year (i) by a vote of (a) a majority of
the outstanding voting securities of the Fund or, if the Fund has
more than one series, of each series, or (b) by a vote of the
Board, and (ii) by a vote of a majority of the members of the
Board who are not parties to the Agreement or interested persons
of any parties to the Agreement (other than as members of the
Board), cast in person at a meeting called for the purpose of
voting on the Agreement.
This Agreement may at any time be terminated by the
Fund or by any series without the payment of any penalty, (i)
either by vote of the Board or by vote of a majority of the
outstanding voting securities of the Fund or any series on 90
days' written notice to you; or (ii) by you on 90 days' written
notice to the Fund; and shall immediately terminate with respect
to the Fund and each series in the event of its assignment.
15. Suspension of Sales. We reserve the right at all times
to suspend or limit the public offering of Shares upon two days'
written notice to you.
16. Miscellaneous. This Agreement shall be subject to the
laws of the State of California and shall be interpreted and
construed to further promote the operation of the Fund as an open-
end investment company. This Agreement shall supersede all
Distribution Agreements and Amendments previously in effect
between the parties. As used herein, the terms "Net Asset
Value," "Offering Price," "Investment Company," "Open-End
Investment Company," "Assignment," "Principal Underwriter,"
"Interested Person," "Parent," "Affiliated Person," and "Majority
of the Outstanding Voting Securities" shall have the meanings set
forth in the 1933 Act or the 1940 Act and the Rules and
Regulations thereunder.
Nothing herein shall be deemed to protect you against any
liability to us or to our securities holders to which you would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your duties hereunder,
or by reason of your reckless disregard of your obligations and
duties hereunder.
If the foregoing meets with your approval, please acknowledge
your acceptance by signing each of the enclosed copies, whereupon
this will become a binding agreement as of the date set forth
below.
Very truly yours,
FRANKLIN CUSTODIAN FUNDS, INC.
By: /s/Deborah R. Gatzek
Accepted:
Franklin/Templeton Distributors, Inc.
By: /s/Gregory E. Johnson
DATED: March 29, 1995
CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered
into as of September 17, 1991, by and between Franklin Custodian
Funds, Inc., a Maryland business trust (the "Fund"), and Bank of
America National Trust and Savings Association, a banking
association organized under the laws of the United States (the
"Custodian").
RECITALS
A. The Fund is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment
Company Act") that invests and reinvests, on behalf of its
various series, in Domestic Securities and Foreign Securities.
B. The Custodian is, and has represented to the
Fund that the Custodian is, a "bank" as that term is defined in
Section 2(a)(5) of the Investment Company Act of 1940, as amended
and is eligible to receive and maintain custody of investment
company assets pursuant to Section 17(f) and Rule 17f-2
thereunder.
C. The Fund and the Custodian desire to provide for
the retention of the Custodian as the custodian of the assets of
the Fund's five current series, Growth Series, DynaTech Series,
Utilities Series, Income Series, U.S. Government Securities
Series, and such subsequent series as the parties hereto may
determine from time-to-time, on the terms and subject to the
provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants
and agreements contained herein, and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. DEFINITIONS
For purposes of this Agreement, the following terms
shall have the respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board of Directors" shall mean the Board of Directors
of the Fund.
"Business Day" with respect to any Domestic Security
means any day, other than a Saturday or Sunday, that is not a day
on which banking institutions are authorized or required by law
to be closed in The City of New York and, with respect to Foreign
Securities, a London Business Day. "London Business Day" shall
mean any day on which dealings and deposits in U.S. dollars are
transacted in the London interbank market.
"Custodian" shall mean Bank of America National Trust and
Savings Association.
"Domestic Securities" shall have the meaning provided in
Subsection 2.1 hereof.
"Executive Committee" shall mean the executive committee
of the Board of Directors.
"Foreign Custodian" shall have the meaning provided in
Section 4.1 hereof.
"Foreign Securities" shall have the meaning provided in
Section 2.1 hereof.
"Foreign Securities Depository" shall have the meaning
provided in Section 4.1 hereof.
"Fund" shall mean the Franklin Custodian Funds, Inc. and
any separate series of the Fund hereinafter organized.
"Guidelines" shall have the meaning provided in
Subsection 3.5(a) hereof.
"Investment Company Act" shall mean the Investment
Company Act of 1940, as amended.
"Securities" shall have the meaning provided in Section
2.1 hereof.
"Securities System" shall have the meaning provided in
Section 3.1 hereof.
"Securities System Account" shall have the meaning
provided in Subsection 3.8(a) hereof.
"Shares" shall mean shares of beneficial interest of the
Fund.
"Subcustodian" shall have the meaning provided in
Subsection 3.7 hereof, but shall not include any Foreign
Custodian.
"Transfer Agent" shall mean the duly appointed and
acting transfer agent for the Fund.
"U.S." shall mean United States.
"Writing" shall mean a communication in writing, a
communication by telex, the Custodian's Global Custody
Instruction SystemTM, facsimile transmission, bankwire or other
teleprocess or electronic instruction system acceptable to the
Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. The Fund hereby appoints
and designates the Custodian as the custodian of the assets of
the Fund including cash, securities the Fund desires to be held
within the United States ("Domestic Securities") and securities
it desires to be held outside the United States ("Foreign
Securities"). Domestic Securities and Foreign Securities are
sometimes referred to herein, collectively, as "Securities." The
Custodian hereby accepts such appointment and designation and
agrees that it shall maintain custody of the assets of the Fund
delivered to it hereunder in the manner provided for herein.
2.2 Delivery of Assets. The Fund agrees to deliver to
the Custodian Securities and cash owned by the Fund, payments of
income, principal or capital distributions received by the Fund
with respect to Securities owned by the Fund from time to time,
and the consideration received by it for such Shares or other
securities of the Fund as may be issued and sold from time to
time. The Custodian shall have no responsibility whatsoever for
any property or assets of the Fund held or received by the Fund
and not delivered to the Custodian pursuant to and in accordance
with the terms hereof. All Securities accepted by the Custodian
on behalf of the Fund under the terms of this Agreement shall be
in "street name" or other good delivery form as determined by the
Custodian.
2.3 Subcustodians. Upon receipt of Proper Instructions
and a certified copy of a resolution of the Board of Directors or
of the Executive Committee certified by the Secretary or an
Assistant Secretary of the Fund, the Custodian may from time to
time appoint one or more Subcustodians or Foreign Custodians to
hold assets of the Fund in accordance with the provisions of this
Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian
or a Foreign Custodian shall not have any duty or responsibility
to manage or recommend investments of the assets of the Fund held
by them or to initiate any purchase, sale or other investment
transaction in the absence of Proper Instructions or except as
otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO
ASSETS OF THE FUND HELD BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and
physically segregate from any property owned by the Custodian,
for the account of the Fund, all non-cash property delivered by
the Fund to the Custodian hereunder other than Securities which,
pursuant to Subsection 3.8 hereof, are held through a registered
clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein,
individually, as a "Securities System"), or held by a
Subcustodian, Foreign Custodian or in a Foreign Securities
Depository.
3.2 Delivery of Securities. Except as otherwise
provided in Subsection 3.5 hereof, the Custodian, upon receipt of
Proper Instructions, shall release and deliver Securities owned
by the Fund and held by the Custodian in the following cases or
as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein,
upon sale of such Securities for the account of the
Fund and receipt by the Custodian, a Subcustodian or a
Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the
Custodian, a Subcustodian or a Foreign Custodian in
connection with any repurchase agreement related to
such Securities entered into by the Fund;
(c) in the case of a sale effected through a
Securities System, in accordance with the provisions of
Subsection 3.8 hereof;
(d) to a tender agent or other authorized
agent in connection with (i) a tender or other similar
offer for Securities owned by the Fund, or (ii) a
tender offer or repurchase by the Fund of its own
Shares;
(e) to the issuer thereof or its agent when
such Securities are called, redeemed, retired or
otherwise become payable; provided, that in any such
case, the cash or other consideration is to be
delivered to the Custodian, a Subcustodian or a Foreign
Custodian;
(f) to the issuer thereof, or its agent, for
transfer into the name or nominee name of the Fund, the
name or nominee name of the Custodian, the name or
nominee name of any Subcustodian or Foreign Custodian;
or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided
that, in any such case, the new Securities are to be
delivered to the Custodian, a Subcustodian or Foreign
Custodian;
(g) to the broker selling the same for
examination in accordance with the "street delivery"
custom;
(h) for exchange or conversion pursuant to
any plan of merger, consolidation, recapitalization, or
reorganization of the issuer of such Securities, or
pursuant to a conversion of such Securities; provided
that, in any such case, the new Securities and cash, if
any, are to be delivered to the Custodian or a
Subcustodian;
(i) in the case of warrants, rights or
similar securities, the surrender thereof in connection
with the exercise of such warrants, rights or similar
Securities or the surrender of interim receipts or
temporary Securities for definitive Securities;
provided that, in any such case, the new Securities and
cash, if any, are to be delivered to the Custodian, a
subcustodian or a Foreign Custodian;
(j) for delivery in connection with any
loans of Securities made by the Fund, but only against
receipt by the Custodian, a Subcustodian or a Foreign
Custodian of adequate collateral as determined by the
Fund (and identified in Proper Instructions
communicated to the Custodian), which may be in the
form of cash or obligations issued by the United
States government, its agencies or instrumentalities,
except that in connection with any loans for which
collateral is to be credited to the account of the
Custodian, a Subcustodian or a Foreign Custodian in
the Federal Reserve's book-entry securities system, the
Custodian will not be held liable or responsible for
the delivery of Securities owned by the Fund prior to
the receipt of such collateral;
(k) for delivery as security in connection
with any borrowings by the Fund requiring a pledge of
assets by the Fund, but only against receipt by the
Custodian, a Subcustodian or a Foreign Custodian of
amounts borrowed;
(l) for delivery in accordance with the
provisions of any agreement among the Fund, the
Custodian, a Subcustodian or a Foreign Custodian and a
broker-dealer relating to compliance with the rules of
registered clearing corporations and of any registered
national securities exchange, or of any similar
organization or organizations, regarding escrow or
other arrangements in connection with transactions by
the Fund;
(m) for delivery in accordance with the
provisions of any agreement among the Fund, the
Custodian, a Subcustodian or a Foreign Custodian and a
futures commission merchant, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar
organization or organizations, regarding account
deposits in connection with transactions by the Fund;
(n) upon the receipt of instructions from
the Transfer Agent for delivery to the Transfer Agent
or to the holders of Shares in connection with
distributions in kind in satisfaction of requests by
holders of Shares for repurchase or redemption; and
(o) for any other proper purpose, but only
upon receipt of Proper Instructions, and a certified
copy of a resolution of the Directors or of the
Executive Committee certified by the Secretary or an
Assistant Secretary of the Fund, specifying the
securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such
purpose to be a proper purpose, and naming the person
or persons to whom delivery of such securities shall be
made.
3.3 Registration of Securities. Securities held by the
Custodian, a Subcustodian or a Foreign Custodian (other than
bearer Securities) shall be registered in the name or nominee
name of the Fund, in the name or nominee name of the Custodian or
in the name or nominee name of any Subcustodian or Foreign
Custodian. The Fund agrees to hold the Custodian, any such
nominee, Subcustodian or Foreign Custodian harmless from any
liability as a holder of record of such Securities.
3.4 Bank Accounts. The Custodian shall open and
maintain a separate bank account or accounts for the Fund,
subject only to draft or order by the Custodian acting pursuant
to the terms of this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by
it hereunder from or for the account of the Fund, other than cash
maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act.
Funds held by the Custodian for the Fund may be deposited by it
to its credit as Custodian in the banking departments of the
Custodian, a Subcustodian or a Foreign Custodian. It is
understood and agreed by the Custodian and the Fund that the rate
of interest, if any, payable on such funds (including foreign
currency deposits) that are deposited with the Custodian may not
be a market rate of interest and that the rate of interest
payable by the Custodian to the Fund shall be agreed upon by the
Custodian and the Fund from time to time. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall
be withdrawable by the Custodian only in that capacity.
3.5 Collection of Income; Trade Settlement; Crediting
of Accounts. The Custodian shall collect income payable with
respect to Securities owned by the Fund, settle Securities trades
for the account of the Fund and credit and debit the Fund's
account with the Custodian in connection therewith as follows:
(a) Upon receipt of Proper Instructions, the
Custodian shall effect the purchase of a Security by
charging the account of the Fund on the contractual
settlement date; provided, however, that in the case of
Foreign Securities, Proper Instructions are provided to
the Custodian by the Fund prior to the contractual
settlement date in accordance with, and within the time
period specified in the "Global Custody Guidelines for
the Franklin Custodian Funds, Inc." (the "Guidelines")
which may be adopted for the use of this Fund, as may
be amended by the Custodian from time to time in its
sole discretion. The Custodian shall have no liability
of any kind to any person, including the Fund, if the
Custodian effects payment on behalf of the Fund as
provided for herein or in Proper Instructions, and the
seller or selling broker fails to deliver the
Securities purchased.
(b) Upon receipt of Proper Instructions, the
Custodian shall effect the sale of a Security by
delivering a certificate or other indicia of ownership,
and shall credit the account of the Fund with the
proceeds of such sale on the contractual settlement
date; provided, however, that in the case of Foreign
Securities, Proper Instructions are provided to the
Custodian by the Fund prior to the contractual
settlement date in accordance with, and within the time
period specified in, the Guidelines. The Custodian
shall have no liability of any kind to any person,
including the Fund, if the Custodian delivers such a
certificate(s) or other indicia of ownership as
provided for herein or in Proper Instructions, and the
purchaser or purchasing broker fails to effect payment
to the Fund within a reasonable time period, as
determined by the Custodian in its sole discretion. In
such event, the Custodian shall be entitled to
reimbursement of the amount so credited to the account
of the Fund in connection with such sale.
(c) The Fund is responsible for ensuring
that the Custodian receives timely and accurate Proper
Instructions to enable the Custodian to effect
settlement of any purchase or sale. If the Custodian
does not receive such instructions within the required
time period, the Custodian shall have no liability of
any kind to any person, including the Fund, for failing
to effect settlement on the contractual settlement
date. However, the Custodian shall use its best
reasonable efforts to effect settlement as soon as
possible after receipt of Proper Instructions.
(d) The Custodian shall credit the account
of the Fund with interest income payable on interest
bearing Securities on payable date. Interest income on
cash balances will be credited monthly to the account
of the Fund on the first Business Day (on which the
Custodian is open for business) following the end of
each month. Dividends and other amounts payable with
respect to Domestic Securities and Foreign Securities
shall be credited to the account of the Fund when
received by the Custodian. The Custodian shall not be
required to commence suit or collection proceedings or
resort to any extraordinary means to collect such
income and other amounts payable with respect to
Securities owned by the Fund. The collection of income
due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the
responsibility of the Fund. The Custodian will have
no duty or responsibility in connection therewith,
other than to provide the Fund with such information or
data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of
the income to which the Fund is entitled. The
Custodian shall have no liability to any person,
including the Fund, if the Custodian credits the
account of the Fund with such income or other amounts
payable with respect to Securities owned by the Fund
(other than Securities loaned by the Fund pursuant to
Subsection 3.2(j) hereof) and the Custodian
subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable
time period, as determined by the Custodian in its
sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to
the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper
Instructions the Custodian shall pay out monies of the Fund in
the following cases or as otherwise directed in Proper
Instructions:
(a) upon the purchase of Securities, futures
contracts or options on futures contracts for the
account of the Fund but only, except as otherwise
provided herein, (i) against the delivery of such
securities, or evidence of title to futures contracts
or options on futures contracts, to the Custodian or a
Subcustodian registered pursuant to Subsection 3.3
hereof or in proper form for transfer; (ii) in the case
of a purchase effected through a Securities System, in
accordance with the conditions set forth in Subsection
3.8 hereof; or (iii) in the case of repurchase
agreements entered into between the Fund and the
Custodian, another bank or a broker-dealer (A) against
delivery of the Securities either in certificated form
to the Custodian or a Subcustodian or through an entry
crediting the Custodian's account at the appropriate
Federal Reserve Bank with such Securities or (B)
against delivery of the confirmation evidencing
purchase by the Fund of Securities owned by the
Custodian or such broker-dealer or other bank along
with written evidence of the agreement by the Custodian
or such broker-dealer or other bank to repurchase such
Securities from the Fund;
(b) in connection with conversion, exchange
or surrender of Securities owned by the Fund as set
forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of
Shares issued by the Fund;
(d) for the payment of any expense or
liability incurred by the Fund, including but not
limited to the following payments for the account of
the Fund: custodian fees, interest, taxes, management,
accounting, transfer agent and legal fees and operating
expenses of the Fund whether or not such expenses are
to be in whole or part capitalized or treated as
deferred expenses; and
(e) for the payment of any dividends or
distributions declared by the Board of Directors with
respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may,
upon receipt of Proper Instructions, appoint another bank or
trust company, which is itself qualified under the Investment
Company Act to act as a custodian (a "Subcustodian"), as the
agent of the Custodian to carry out such of the duties of the
Custodian hereunder as the custodian may from time to time
direct; provided, however, that the appointment of any
Subcustodian shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The
Custodian may deposit and/or maintain Domestic Securities owned
by the Fund in a Securities System in accordance with applicable
Federal Reserve Board and Securities and Exchange Commission
rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic
Securities of the Fund in the Depository Trust Company
or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities
System provided that such securities are held in an
account of the Custodian in the Securities System
("Securities System Account") which shall not include
any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
(b) the records of the Custodian with
respect to Domestic Securities of the Fund which are
maintained in a Securities System shall identify by
book-entry those Domestic Securities belonging to the
Fund;
(c) the Custodian shall pay for Domestic
Securities purchased for the account of the Fund upon
(i) receipt of advice from the Securities System that
such securities have been transferred to the Securities
System Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian
shall transfer Domestic Securities sold for the account
of the Fund upon (A) receipt of advice from the
Securities System that payment for such securities has
been transferred to the Securities System Account, and
(B) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the
Securities System of transfers of Domestic Securities
for the account of the Fund shall be maintained for the
Fund by the Custodian and be provided to the Fund at
its request. Upon request, the Custodian shall furnish
the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or
notice; and
(d) upon request, the Custodian shall
provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system,
internal accounting control and procedures for
safeguarding domestic securities deposited in the
Securities System.
3.9 Segregated Account. The Custodian shall upon
receipt of Proper Instructions establish and maintain a
segregated account or accounts for and on behalf of the Fund,
into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the
Custodian pursuant to Section 3.8 hereof, (i) in accordance with
the provisions of any agreement among the Fund, the Custodian and
a broker-dealer or futures commission merchant, relating to
compliance with the rules of registered clearing corporations and
of any national securities exchange (or the Commodity Futures
Trading Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii)
for purposes of segregating cash or securities in connection with
options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the
Fund and (iii) for other proper corporate purposes, but only, in
the case of this clause (iii), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the
Board of Directors or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes
to be proper corporate purposes.
3.10 Ownership Certificates for Tax Purposes. The
Custodian shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in connection
with receipt of income or other payments with respect to domestic
securities of the Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to
the Securities held hereunder, promptly deliver to the Fund all
proxies, all proxy soliciting materials and all notices relating
to such Securities. If the Securities are registered otherwise
than in the name of the Fund or a nominee of the Fund, the
Custodian shall use its best reasonable efforts, consistent with
applicable law, to cause all proxies to be promptly executed by
the registered holder of such Securities in accordance with
Proper Instructions.
3.12 Communications Relating to Fund Portfolio
Securities. The Custodian shall transmit promptly to the Fund
all written information (including, without limitation, pendency
of calls and maturities of Securities and expirations of rights
in connection therewith and notices of exercise of put and call
options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from
issuers of Securities being held for the Fund. With respect to
tender or exchange offers, the Custodian shall transmit promptly
to the Fund all written information received by the Custodian
from issuers of the Securities whose tender or exchange is sought
and from the party (or its agents) making the tender or exchange
offer. If the Fund desires to take action with respect to any
tender offer, exchange offer or any other similar transaction,
the Fund shall notify the Custodian at least three Business Days
prior to the date of which the Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall supply
to the Fund the daily, weekly and monthly reports described in
the Guidelines as well as any other reports which the Custodian
and the Fund may agree upon from time to time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT
TO ASSETS OF THE FUND HELD OUTSIDE THE UNITED
STATES
4.1 Custody outside the United States. The Fund
authorizes the Custodian to hold Foreign Securities and cash in
custody accounts which have been established by the Custodian
with (i) its foreign branches, (ii) foreign banking institutions,
foreign branches of United States banks and subsidiaries of
United States banks or bank holding companies (each a "Foreign
Custodian") and (iii) Foreign Securities depositories or clearing
agencies (each a "Foreign Securities Depository"); provided,
however, that the Board of Directors or the Executive Committee
has approved in advance the use of each such Foreign Custodian
and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is
set forth in Proper Instructions and a certified copy of a
resolution of the Board of Directors or of the Executive
Committee certified by the Secretary or an Assistant Secretary of
the Fund. Unless expressly provided to the contrary in this
Section 4, custody of Foreign Securities and assets held outside
the United States by the Custodian, a Foreign Custodian or
through a Foreign Securities Depository shall be governed by
Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the
securities and other assets maintained in the custody of its
foreign branches, Foreign Custodians and Foreign Securities
Depositories to: (i) "foreign securities", as defined in
paragraph (c) (1) of Rule 17f-5 under the Investment Company Act,
and (ii) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's Foreign Securities transactions.
4.3 Foreign Securities Depositories. Except as may
otherwise be agreed upon in writing by the Custodian and the
Fund, assets of the Fund shall be maintained in Foreign
Securities Depositories only through arrangements implemented by
the Custodian or Foreign Custodians pursuant to the terms hereof.
4.4 Segregation of Securities. The Custodian shall
identify on its books and records as belonging to the Fund, the
Foreign Securities of the Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each
agreement with a Foreign Custodian shall provide generally that:
(a) the Fund's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the
Foreign Custodian or its creditors, except a claim of payment for
their safe custody or administration; (b) beneficial ownership
for the Fund's assets will be freely transferable without the
payment of money or value other than for custody or
administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) the
independent public accountants for the Fund, will be given access
to the records of the Foreign Custodian relating to the assets of
the Fund or confirmation of the contents of those records; (e)
the disposition of assets of the Fund held by the Foreign
Custodian will be subject only to the instructions of the
Custodian or its agents; (f) the Foreign Custodian shall
indemnify and hold harmless the Custodian and the Fund from and
against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Foreign Custodian's
performance of its obligations under such agreement; (g) to the
extent practicable, the Fund's assets will be adequately insured
in the event of loss; and (h) the Custodian will receive periodic
reports with respect to the safekeeping of the Fund's assets,
including notification of any transfer to or from the Fund's
account.
4.6 Access of Independent Accountants of the Fund.
Upon request of the Fund, the Custodian will use its best
reasonable efforts to arrange for the independent accountants of
the Fund to be afforded access to the books and records of any
Foreign Custodian insofar as such books and records relate to the
custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon
receipt of Proper Instructions, the Custodian shall instruct the
appropriate Foreign Custodian to transfer, exchange or deliver
Foreign Securities owned by the Fund, but, except to the extent
explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the
Custodian shall pay out or instruct the appropriate Foreign
Custodian to pay out monies of the Fund in any of the cases
specified in Subsection 3.6. Notwithstanding anything herein to
the contrary, settlement and payment for Foreign Securities
received for the account of the Fund and delivery of Foreign
Securities maintained for the account of the Fund may be effected
in accordance with the customary or established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs,
including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser
or dealer. Foreign Securities maintained in the custody of a
Foreign Custodian may be maintained in the name of such entity or
its nominee name to the same extent as set forth in Section 3.3
of this Agreement and the Fund agrees to hold any Foreign
Custodian and its nominee harmless from any liability as a holder
of record of such securities.
4.8 Liability of Foreign Custodian. Each agreement
between the Custodian and a Foreign Custodian shall require the
Foreign Custodian to exercise reasonable care in the performance
of its duties and to indemnify and hold harmless the Custodian
and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the
Foreign Custodian's performance of such obligations. At the
election of the Fund, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the
Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform the
Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a
Foreign Custodian or is notified by (i) a foreign
banking institution employed as a Foreign Custodian
that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200
million or that its shareholders' equity has declined
below $200 million (in each case computed in accordance
with generally accepted United States accounting
principles) and denominated in U.S. dollars, or (ii) a
subsidiary of a United States bank or bank holding
company acting as a Foreign Custodian that there
appears to be a substantial likelihood that its
shareholders' equity will decline below $100 million or
that its shareholders' equity has declined below $100
million (in each case computed in accordance with
generally accepted United States accounting principles)
and denominated in U.S. dollars.
(b) The custodian will furnish such
information as may be reasonably necessary to assist
the Fund's Board of Directors in its annual review and
approval of the continuance of all contracts or
arrangements with Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper
Instructions" means instructions of the Fund received by the
Custodian via telephone or in Writing which the Custodian
believes in good faith to have been given by Authorized Persons
(as defined below) or which are transmitted with proper testing
or authentication pursuant to terms and conditions which the
Custodian may specify. Any Proper Instructions delivered to the
Custodian by telephone shall promptly thereafter be confirmed in
Writing by an Authorized Person, but the Fund will hold the
Custodian harmless for its failure to send such confirmation in
writing, the failure of such confirmation to conform to the
telephone instructions received or the Custodian's failure to
produce such confirmation at any subsequent time. Unless
otherwise expressly provided, all Proper Instructions shall
continue in full force and effect until cancelled or superseded.
If the Custodian requires test arrangements, authentication
methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Fund
thereafter shall be given and processed in accordance with such
terms and conditions for the use of such arrangements, methods or
devices as the Custodian may put into effect and modify from time
to time. The Fund shall safeguard any testkeys, identification
codes or other security devices which the Custodian shall make
available to it. The Custodian may electronically record any
Proper Instructions given by telephone, and any other telephone
discussions, with respect to its activities hereunder. As used
in this Agreement, the term "Authorized Persons" means such
officers or such agents of the Fund as have been designated by a
resolution of the Board of trustees or of the Executive
Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement.
Each of such persons shall continue to be an Authorized Person
until such time as the Custodian receives Proper Instructions
that any such officer or agent is no longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express
authority from the Fund:
(a) make payments to itself or others for
minor expenses of handling Securities or other similar
items relating to its duties under this Agreement,
provided that all such payments shall be accounted for
to the Fund;
(b) endorse for collection, in the name of
the Fund, checks, drafts and other negotiable
instruments; and
(c) in general, attend to all non-
discretionary details in connection with the sale,
exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund
except as otherwise provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any
instructions (conveyed by telephone or in Writing), notice,
request, consent, certificate or other instrument or paper
believed by it to be genuine and to have been properly given or
executed by or on behalf of the Fund. The Custodian may receive
and accept a certified copy of a resolution of the Board of
Directors or Executive Committee as conclusive evidence (a) of
the authority of any person to act in accordance with such
resolution or (b) of any determination or of any action by the
Board of Directors or Executive Committee as described in such
resolution, and such resolution may be considered as in full
force and effect until receipt by the Custodian of written notice
by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary
information in its possession (to the extent permissible under
applicable law) to the entity or entities appointed by the Board
of Directors to keep the books of account of the Fund and/or
compute the net asset value per Share of the outstanding Shares
of the Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records
relating to its activities under this Agreement which are
required with respect to such activities under Section 31 of the
Investment Company Act and Rules 31a-1 and 31a-2 thereunder. All
such records shall be the property of the Fund and shall at all
times during the regular business hours of the Custodian be open
for inspection by duly authorized officers, employees or agents
of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request,
supply the Fund with a tabulation of Securities owned by the Fund
and held by the Custodian and shall, when requested to do so by
the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers
in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian, as
agreed upon from time to time between the Fund and the Custodian.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance
of only such duties as are set forth herein or contained in
Proper Instructions and shall use reasonable care in carrying out
such duties. The Custodian shall be liable to the Fund for any
loss which shall occur as the result of the failure of a Foreign
Custodian or a Foreign Securities Depository engaged by such
Foreign Custodian or the Custodian to exercise reasonable care
with respect to the safekeeping of securities and other assets of
the Fund to the same extent that the Custodian would be liable to
the Fund if the Custodian itself were holding such securities and
other assets. In the event of any loss to the Fund by reason of
the failure of the Custodian, a Foreign Custodian or a Foreign
Securities Depository engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be
liable to the Fund to the extent of the Fund's damages, to be
determined based on the market value of the property which is the
subject of the loss at the date of discovery of such loss and
without reference to any special conditions or circumstances.
The Custodian shall be held to the exercise of reasonable care in
carrying out this Agreement. The Fund agrees to indemnify and
hold harmless the Custodian and its nominees from all taxes,
charges, expenses, assessments, claims and liabilities (including
legal fees and expenses) incurred by any of them in connection
with the performance of this Agreement, except such as may arise
from any negligent action, negligent failure to act or willful
misconduct on the part of the indemnified entity or any Foreign
Custodian or Foreign Securities Depository. The Custodian shall
be entitled to rely, and may act, on advice of counsel (who may
be counsel for the Fund) on all matters and shall be without
liability for any action reasonably taken or omitted pursuant to
such advice. The Custodian need not maintain any insurance for
the benefit of the Fund.
All collections of funds or other property paid or
distributed in respect of Securities held by the Custodian,
agent, Subcustodian or Foreign Custodian hereunder shall be made
at the risk of the Fund. The Custodian shall have no liability
for any loss occasioned by delay in the actual receipt of notice
by the Custodian, agent, Subcustodian or by a Foreign Custodian
of any payment, redemption or other transaction regarding
securities in respect of which the Custodian has agreed to take
action as provided in Section 3 hereof. The Custodian shall not
be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the
Board of Directors and may rely on the genuineness of any such
documents which it may in good faith believe to be validly
executed. The Custodian shall not be liable for any loss
resulting from, or caused by, the direction of the Fund to
maintain custody of any Securities or cash in a foreign country
including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, civil
disturbance, acts of war or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation or other similar occurrences
or events beyond the control of the Custodian. Finally, the
Custodian shall not be liable for any taxes, including interest
and penalties with respect thereto, that may be levied or
assessed upon or in respect of any assets of the Fund held by the
Custodian.
Section 12. LIMITED LIABILITY OF THE FUND
The Custodian acknowledges that it has received notice
of and accepts the limitations of the Fund's liability as set
forth in its Agreement and Declaration of Fund. The Custodian
agrees that the Fund's obligation hereunder shall be limited to
the assets of the Fund, and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the
Fund nor from any Director, officer, employee, or agent of the
Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of
its execution and shall continue in full force and effect until
terminated as hereinafter provided. This Agreement may be
terminated by the Fund or the Custodian by 60 days notice in
Writing to the other provided that any termination by the Fund
shall be authorized by a resolution of the Board of Directors, a
certified copy of which shall accompany such notice of
termination, and provided further, that such resolution shall
specify the names of the persons to whom the Custodian shall
deliver the assets of the Fund held by it. If notice of
termination is given by the Custodian, the Fund shall, within 60
days following the giving of such notice, deliver to the
Custodian a certified copy of a resolution of the Board of
Directors specifying the names of the persons to whom the
Custodian shall deliver assets of the Fund held by it. In either
case the Custodian will deliver such assets to the persons so
specified, after deducting therefrom any amounts which the
Custodian determines to be owed to it hereunder (including all
costs and expenses of delivery or transfer of Fund assets to the
persons so specified). If within 60 days following the giving of
a notice of termination by the Custodian, the Custodian does not
receive from the Fund a certified copy of a resolution of the
Board of Directors specifying the names of the persons to whom
the Custodian shall deliver the assets of the Fund held by it,
the Custodian, at its election, may deliver such assets to a bank
or trust company doing business in the State of California to be
held and disposed of pursuant to the provisions of this Agreement
or may continue to hold such assets until a certified copy of one
or more resolutions as aforesaid is delivered to the Custodian.
The obligations of the parties hereto regarding the use of
reasonable care, indemnities and payment of fees and expenses
shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this
Agreement shall (i) create any fiduciary, joint venture or
partnership relationship between the Custodian and the Fund or
(ii) be construed as or constitute a prohibition against the
provision by the Custodian or any of its affiliates to the Fund
of investment banking, securities dealing or brokerages services
or any other banking or financial services.
14.2 Further Assurances. Each party hereto shall
furnish to the other party hereto such instruments and other
documents as such other party may reasonably request for the
purpose of carrying out or evidencing the transactions
contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action
or proceeding relating to this Agreement is brought by a party
hereto against the other party hereto, the prevailing party shall
be entitled to recover reasonable attorneys' fees, costs and
disbursements (including allocated costs and disbursements of in-
house counsel), in addition to any other relief to which the
prevailing party may be entitled.
14.4 Notices. Except as otherwise specified herein,
each notice or other communication hereunder shall be in Writing
and shall be delivered to the intended recipient at the following
address (or at such other address as the intended recipient shall
have specified in a written notice given to the other parties
hereto):
if to the Fund :
Franklin Custodian Funds, Inc.
c/o Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404
Attention: Fund Manager
if to the Custodian:
Bank of America NT&SA
International Securities Services
25 Cannon Street
London EC4P HN
England
Attention: Manager
14.5 Headings. The underlined headings contained
herein are for convenience of reference only, shall not be deemed
to be a part of this Agreement and shall not be referred to in
connection with the interpretation hereof.
14.6 Counterparts. This Agreement may be executed in
counterparts, each of which shall constitute an original and both
of which, when taken together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed
in accordance with, and governed in all respects by, the laws of
the State of California (without giving effect to principles of
conflict of laws).
14.8 Force Majeure. Subject to the provisions of
Section 11 hereof regarding the Custodian's general standard of
care, no failure, delay or default in performance of any
obligation hereunder shall constitute an event of default or a
breach of this agreement, or give rise to any liability
whatsoever on the part of one party hereto to the other, to the
extent that such failure to perform, delay or default arises out
of a cause beyond the control and without negligence of the party
otherwise chargeable with failure, delay or default; including,
but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute;
flood; war; riot; theft; earthquake; natural disaster; breakdown
of public or common carrier communications facilities; computer
malfunction; or act, negligence or default of the other party.
This paragraph shall in no way limit the right of either party to
this Agreement to make any claim against third parties for any
damages suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to
exercise any power, right, privilege or remedy hereunder, and no
delay on the part of any person in the exercise of any power,
right, privilege or remedy hereunder, shall operate as a waiver
thereof; and no single or partial exercise of any such power,
right, privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or
remedy.
14.11 Amendments. This Agreement may not be amended,
modified, altered or supplemented other than by means of an
agreement or instrument executed on behalf of each of the parties
hereto.
14.12 Severability. In the event that any provision
of this Agreement, or the application of any such provision to
any person or set of circumstances, shall be determined to be
invalid, unlawful, void or unenforceable to any extent, the
remainder of this Agreement, and the application of such
provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and
shall continue to be valid and enforceable to the fullest extent
permitted by law.
14.13 Parties in Interest. None of the provisions of
this Agreement is intended to provide any rights or remedies to
any person other than the Fund and the Custodian and their
respective successors and assigns, if any.
14.14 Entire Agreement. This Agreement sets forth the
entire understanding of the parties hereto and supersedes all
prior agreements and understandings between the parties hereto
relating to the subject matter hereof.
14.15 Variations of Pronouns. Whenever required by
the context hereof, the singular number shall include the plural,
and vice versa; the masculine gender shall include the feminine
and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered as of the date first above
written.
"Custodian": BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ John B. Housen
Its
"Fund" FRANKLIN CUSTODIAN FUNDS, INC.
By /s/ Charles B. Johnson
Its President
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors of
Franklin Custodian Funds, Inc.:
We consent to the incorporation by reference in Post-
Effective Amendment No. 71 to the Registration Statement of
Franklin Custodian Funds, Inc. on Form N-1A (File No. 2-
11346) of our report dated October 28, 1994 on our audit of
the financial statements and financial highlights of the
Fund, which report is included in the Annual Report to
Shareholders for the year ended September 30, 1994, which is
incorporated by reference in the Registration Statement.
/s/ COOPERS & LYBRAND L.L.P.
San Francisco, California
April 14, 1995
To: All Franklin Templeton Funds Listed on Schedule A
777 Mariners Island Blvd.
San Mateo, CA 94404
Gentlemen:
We propose to invest $100.00 in the Class II shares (the "Shares") of
each of the Funds listed on the attached Schedule A (the "Funds"), on the
business day immediately preceding the effective date for each Fund's Class
II shares, at a purchase price per share equivalent to the net asset value
per share of each Fund's Class I shares on the date of purchase. We will
purchase the Shares in a private offering prior to the effectiveness of the
post-effective amendment to the Form N-1A registration statement under which
each Fund's Class II shares are initially offered, as filed by the Fund under
the Securities Act of 1933. The Shares are being purchased to serve as the
seed money for each Fund's Class II shares prior to the commencement of the
public offering of Class II shares.
In connection with such purchase, we understand that we, the purchaser,
intend to acquire the Shares for our own account as the sole beneficial owner
thereof and have no present intention of redeeming or reselling the Shares so
acquired.
We consent to the filing of this Investment Letter as an exhibit to the
form N-1A registration statement of each Fund.
Sincerely,
FRANKLIN RESOURCES, INC.
By: /s/ Harmon E. Burns
Harmon E. Burns
Executive Vice President
Date: April 12, 1995
<TABLE>
<CAPTION>
SCHEDULE A
<S> <C>
INVESTMENT COMPANY FUND & CLASS; TITAN NUMBER
Franklin Gold Fund Franklin Gold Fund - Class II; 232
Franklin Equity Fund Franklin Equity Fund - Class II; 234
AGE High Income Fund, Inc. AGE High Income Fund - Class II; 205
Franklin Custodian Funds, Inc. Growth Series - Class II; 206
Utilities Series - Class II; 207
Income Series - Class II; 209
U.S. Government Securities
Series - Class II; 210
Franklin California Tax-Free Franklin California Tax-Free Income
Income Fund, Inc. Fund - Class II; 212
Franklin New York Tax-Free Franklin New York Tax-Free Income
Income Fund, Inc. Fund - Class II; 215
Franklin Federal Tax-Free Franklin Federal Tax-Free Income
Income Fund Fund -Class II; 216
Franklin Managed Trust Franklin Rising Dividends
Fund - Class II; 258
Franklin California Tax-Free Franklin California Insured Tax-Free
Trust
Income Fund - Class II; 224
Franklin New York Tax-Free Trust Franklin New York Insured Tax-Free
Income Fund - Class II; 281
Franklin Investors Securities Franklin Global Government Income
Trust
Fund - Class II; 235
Franklin Equity Income
Fund - Class II; 239
Franklin Strategic Series Franklin Global Utilities
Fund - Class II; 297
Franklin Real Estate Securities Franklin Real Estate Securities
Trust
Fund - Class II; 292
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT COMPANY FUND AND CLASS; TITAN NUMBER
Franklin Tax-Free Franklin Alabama Tax-Free Income Fund - Class II; 264
Trust Franklin Arizona Tax-Free Income Fund - Class II; 226
Franklin Colorado Tax-Free Income Fund - Class II; 227
Franklin Connecticut Tax Free Income
Fund - Class II; 266
Franklin Florida Tax-Free Income Fund - Class II; 265
Franklin Georgia Tax-Free Income Fund - Class II; 228
Franklin High Yield Tax-Free Income Fund - Class II; 230
Franklin Insured Tax-Free Income Fund - Class II; 221
Franklin Louisiana Tax-Free Income Fund - Class II; 268
Franklin Maryland Tax-Free Income Fund - Class II; 269
Franklin Massachusetts Insured Tax-Free Income
Fund - Class II; 218
Franklin Michigan Insured Tax-Free Income
Fund - Class II; 219
Franklin Minnesota Insured Tax-Free Income
Fund - Class II; 220
Franklin Missouri Tax-Free Income Fund - Class II; 260
Franklin New Jersey Tax-Free Income
Fund - Class II; 271
Franklin North Carolina Tax-Free Income
Fund - Class II; 270
Franklin Ohio Insured Tax-Free Income
Fund - Class II; 222
Franklin Oregon Tax-Free Income Fund - Class II; 261
Franklin Pennsylvania Tax-Free Income
Fund - Class II; 229
Franklin Puerto Rico Tax-Free Income
Fund - Class II; 223
Franklin Texas Tax-Free Income Fund - Class II; 262
Franklin Virginia Tax-Free Income Fund - Class II; 263
</TABLE>
FRANKLIN CUSTODIAN FUNDS, INC.
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Custodian Funds, Inc. ("Custodian
Funds") for the use of the DynaTech Series (the "Fund"), which
Plan shall take effect on the 1st day of May, 1994 (the
"Effective Date of the Plan"). The Plan has been approved by a
majority of the Board of Directors of Custodian Funds (the "Board
of Directors"), including a majority of the directors who are not
interested persons of Custodian Funds and who have no direct or
indirect financial interest in the operation of the Plan (the
"non-interested directors"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Directors considered the
schedule and nature of payments and terms of the Management
Agreement between Custodian Funds on behalf of the Fund and
Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between Custodian Funds on behalf of the
Fund and Franklin/Templeton Distributors, Inc. ("Distributors").
The Board of Directors concluded that the compensation of
Advisers, under the Management Agreement, and of Distributors,
under the Underwriting Agreement, was fair and not excessive;
however, the Board of Directors also recognized that uncertainty
may exist from time to time with respect to whether payments to
be made by the Fund to Advisers, Distributors, or others or by
Advisers or Distributors to others may be deemed to constitute
distribution expenses of the Fund. Accordingly, the Board of
Directors determined that the Plan should provide for such
payments and that adoption of the Plan would be prudent and in
the best interest of the Fund and its shareholders. Such approval
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with Custodian Funds on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the directors, including the non-
interested directors.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.25% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Directors, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Directors with such other information as the
Board of Directors may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Directors to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors,
including the non-interested directors, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested directors, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between Custodian Funds on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested directors cast in person at a meeting
called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of Custodian Funds' non-interested directors shall be
committed to the discretion of such non-interested directors.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by Custodian Funds and Distributors as
evidenced by their execution hereof.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the DynaTech Series
By: /s/ Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Harmon E. Burns
FRANKLIN CUSTODIAN FUNDS, INC.
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Custodian Funds, Inc. ("Custodian
Funds") for the use of the Growth Series (the "Fund"), which Plan
shall take effect on the 1st day of May, 1994 (the "Effective
Date of the Plan"). The Plan has been approved by a majority of
the Board of Directors of Custodian Funds (the "Board of
Directors"), including a majority of the directors who are not
interested persons of Custodian Funds and who have no direct or
indirect financial interest in the operation of the Plan (the
"non-interested directors"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Directors considered the
schedule and nature of payments and terms of the Management
Agreement between Custodian Funds on behalf of the Fund and
Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between Custodian Funds on behalf of the
Fund and Franklin/Templeton Distributors, Inc. ("Distributors").
The Board of Directors concluded that the compensation of
Advisers, under the Management Agreement, and of Distributors,
under the Underwriting Agreement, was fair and not excessive;
however, the Board of Directors also recognized that uncertainty
may exist from time to time with respect to whether payments to
be made by the Fund to Advisers, Distributors, or others or by
Advisers or Distributors to others may be deemed to constitute
distribution expenses of the Fund. Accordingly, the Board of
Directors determined that the Plan should provide for such
payments and that adoption of the Plan would be prudent and in
the best interest of the Fund and its shareholders. Such approval
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with Custodian Funds on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the directors, including the non-
interested directors.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.25% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Directors, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Directors with such other information as the
Board of Directors may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Directors to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors,
including the non-interested directors, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested directors, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between Custodian Funds on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested directors cast in person at a meeting
called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of Custodian Funds' non-interested directors shall be
committed to the discretion of such non-interested directors.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by Custodian Funds and Distributors as
evidenced by their execution hereof.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the Growth Series
By: /s/ Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Harmon E. Burns
FRANKLIN CUSTODIAN FUNDS, INC.
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Custodian Funds, Inc. ("Custodian
Funds") for the use of the Income Series (the "Fund"), which Plan
shall take effect on the 1st day of May, 1994 (the "Effective
Date of the Plan"). The Plan has been approved by a majority of
the Board of Directors of Custodian Funds (the "Board of
Directors"), including a majority of the directors who are not
interested persons of Custodian Funds and who have no direct or
indirect financial interest in the operation of the Plan (the
"non-interested directors"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Directors considered the
schedule and nature of payments and terms of the Management
Agreement between Custodian Funds on behalf of the Fund and
Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between Custodian Funds on behalf of the
Fund and Franklin/Templeton Distributors, Inc. ("Distributors").
The Board of Directors concluded that the compensation of
Advisers, under the Management Agreement, and of Distributors,
under the Underwriting Agreement, was fair and not excessive;
however, the Board of Directors also recognized that uncertainty
may exist from time to time with respect to whether payments to
be made by the Fund to Advisers, Distributors, or others or by
Advisers or Distributors to others may be deemed to constitute
distribution expenses of the Fund. Accordingly, the Board of
Directors determined that the Plan should provide for such
payments and that adoption of the Plan would be prudent and in
the best interest of the Fund and its shareholders. Such approval
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with Custodian Funds on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the directors, including the non-
interested directors.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.15% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Directors, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Directors with such other information as the
Board of Directors may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Directors to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors,
including the non-interested directors, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested directors, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between Custodian Funds on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested directors cast in person at a meeting
called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of Custodian Funds' non-interested directors shall be
committed to the discretion of such non-interested directors.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by Custodian Funds and Distributors as
evidenced by their execution hereof.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the Income Series
By: /s/ Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Harmon E. Burns
FRANKLIN CUSTODIAN FUNDS, INC.
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Custodian Funds, Inc. ("Custodian
Funds") for the use of the U.S. Government Securities Series (the
"Fund"), which Plan shall take effect on the 1st day of May, 1994
(the "Effective Date of the Plan"). The Plan has been approved by
a majority of the Board of Directors of Custodian Funds (the
"Board of Directors"), including a majority of the directors who
are not interested persons of Custodian Funds and who have no
direct or indirect financial interest in the operation of the
Plan (the "non-interested directors"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Directors considered the
schedule and nature of payments and terms of the Management
Agreement between Custodian Funds on behalf of the Fund and
Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between Custodian Funds on behalf of the
Fund and Franklin/Templeton Distributors, Inc. ("Distributors").
The Board of Directors concluded that the compensation of
Advisers, under the Management Agreement, and of Distributors,
under the Underwriting Agreement, was fair and not excessive;
however, the Board of Directors also recognized that uncertainty
may exist from time to time with respect to whether payments to
be made by the Fund to Advisers, Distributors, or others or by
Advisers or Distributors to others may be deemed to constitute
distribution expenses of the Fund. Accordingly, the Board of
Directors determined that the Plan should provide for such
payments and that adoption of the Plan would be prudent and in
the best interest of the Fund and its shareholders. Such approval
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with Custodian Funds on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the directors, including the non-
interested directors.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.15% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Directors, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Directors with such other information as the
Board of Directors may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Directors to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors,
including the non-interested directors, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested directors, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between Custodian Funds on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested directors cast in person at a meeting
called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of Custodian Funds' non-interested directors shall be
committed to the discretion of such non-interested directors.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by Custodian Funds and Distributors as
evidenced by their execution hereof.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the U.S. Government Securities Series
By: /s/ Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Harmon E. Burns
FRANKLIN CUSTODIAN FUNDS, INC.
Preamble to Distribution Plan
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by Franklin Custodian Funds, Inc. ("Custodian
Funds") for the use of the Utilities Series (the "Fund"), which
Plan shall take effect on the 1st day of May, 1994 (the
"Effective Date of the Plan"). The Plan has been approved by a
majority of the Board of Directors of Custodian Funds (the "Board
of Directors"), including a majority of the directors who are not
interested persons of Custodian Funds and who have no direct or
indirect financial interest in the operation of the Plan (the
"non-interested directors"), cast in person at a meeting called
for the purpose of voting on such Plan.
In reviewing the Plan, the Board of Directors considered the
schedule and nature of payments and terms of the Management
Agreement between Custodian Funds on behalf of the Fund and
Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between Custodian Funds on behalf of the
Fund and Franklin/Templeton Distributors, Inc. ("Distributors").
The Board of Directors concluded that the compensation of
Advisers, under the Management Agreement, and of Distributors,
under the Underwriting Agreement, was fair and not excessive;
however, the Board of Directors also recognized that uncertainty
may exist from time to time with respect to whether payments to
be made by the Fund to Advisers, Distributors, or others or by
Advisers or Distributors to others may be deemed to constitute
distribution expenses of the Fund. Accordingly, the Board of
Directors determined that the Plan should provide for such
payments and that adoption of the Plan would be prudent and in
the best interest of the Fund and its shareholders. Such approval
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. The Fund shall reimburse Distributors or others for all
expenses incurred by Distributors or others in the promotion and
distribution of the shares of the Fund, including but not limited
to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature
and related expenses, advertisements, and other distribution-
related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund
shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a
servicing agreement with Custodian Funds on behalf of the Fund,
Distributors or its affiliates, which form of agreement has been
approved from time to time by the directors, including the non-
interested directors.
2. The maximum amount which may be reimbursed by the Fund to
Distributors or others pursuant to Paragraph 1 herein shall be
0.15% per annum of the average daily net assets of the Fund. Said
reimbursement shall be made quarterly by the Fund to Distributors
or others.
3. In addition to the payments which the Fund is authorized to
make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1 under the Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board of Directors, for
their review, on a quarterly basis, a written report of the
monies reimbursed to it and to others under the Plan, and shall
furnish the Board of Directors with such other information as the
Board of Directors may reasonably request in connection with the
payments made under the Plan in order to enable the Board of
Directors to make an informed determination of whether the Plan
should be continued.
5. The Plan shall continue in effect for a period of more than
one year only so long as such continuance is specifically
approved at least annually by a vote of the Board of Directors,
including the non-interested directors, cast in person at a
meeting called for the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to this
Plan, may be terminated at any time, without penalty, by vote of
a majority of the outstanding voting securities of the Fund or by
vote of a majority of the non-interested directors, on not more
than sixty (60) days' written notice, or by Distributors on not
more than sixty (60) days' written notice, and shall terminate
automatically in the event of any act that constitutes an
assignment of the Management Agreement between Custodian Funds on
behalf of the Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to this
Plan, may not be amended to increase materially the amount to be
spent for distribution pursuant to Paragraph 2 hereof without
approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by a vote
of the non-interested directors cast in person at a meeting
called for the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of Custodian Funds' non-interested directors shall be
committed to the discretion of such non-interested directors.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by Custodian Funds and Distributors as
evidenced by their execution hereof.
FRANKLIN CUSTODIAN FUNDS, INC.
on behalf of the Utilities Series
By: /s/ Deborah R. Gatzek
FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
By: /s/ Harmon E. Burns
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN CUSTODIAN FUNDS, INC.
II. Fund and Class: UTILITIES SERIES - CLASS II
INCOME SERIES - CLASS II
U.S. GOVERNMENT SECURITIES SERIES - CLASS II
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.50%
B. Service Fee: 0.15%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by the Investment Company named above
("Investment Company") for the class II shares (the "Class") of
each Fund named above ("Fund"), which Plan shall take effect as
of the date class II shares are first offered (the "Effective
Date of the Plan"). The Plan has been approved by a majority of
the Board of Directors or Trustees of the Investment Company (the
"Board"), including a majority of the Board members who are not
interested persons of the Investment Company and who have no
direct, or indirect financial interest in the operation of the
Plan (the "non-interested Board members"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and
nature of payments and terms of the Management Agreement between
the Investment Company and Franklin Advisers, Inc. and the terms
of the Underwriting Agreement between the Investment Company and
Franklin/Templeton Distributors, Inc. ("Distributors"). The
Board concluded that the compensation of Advisers, under the
Management Agreement, and of Distributors, under the Underwriting
Agreement, was fair and not excessive. The approval of the Plan
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly fee
not to exceed the above-stated maximum distribution fee per annum
of the Class' average daily net assets represented by shares of
the Class, as may be determined by the Board from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to Distributors for payment to dealers or
others, or (ii) directly to others, an amount not to exceed the
above-stated maximum service fee per annum of the Class' average
daily net assets represented by shares of the Class, as may be
determined by the Fund's Board from time to time, as a service
fee pursuant to servicing agreements which have been approved
from time to time by the Board, including the non-interested
Board members.
2. (a) Distributors shall use the monies paid to it
pursuant to Paragraph 1(a) above to assist in the distribution
and promotion of shares of the Class. Payments made to
Distributors under the Plan may be used for, among other things,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a pro-rated portion of Distributors' overhead
expenses attributable to the distribution of Class shares, as
well as for additional distribution fees paid to securities
dealers or their firms or others who have executed agreements
with the Investment Company, Distributors or its affiliates,
which form of agreement has been approved from time to time by
the Trustees, including the non-interested trustees. In
addition, such fees may be used to pay for advancing the
commission costs to dealers or others with respect to the sale of
Class shares.
(b) The monies to be paid pursuant to paragraph 1(b)
above shall be used to pay dealers or others for, among other
things, furnishing personal services and maintaining shareholder
accounts, which services include, among other things, assisting
in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; arranging for
bank wires; monitoring dividend payments from the Fund on behalf
of customers; forwarding certain shareholder communications from
the Fund to customers; receiving and answering correspondence;
and aiding in maintaining the investment of their respective
customers in the Class. Any amounts paid under this paragraph
2(b) shall be paid pursuant to a servicing or other agreement,
which form of agreement has been approved from time to time by
the Board.
3. In addition to the payments which the Fund is authorized
to make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of Class shares issued
by the Fund within the context of Rule 12b-1 under the Act, then
such payments shall be deemed to have been made pursuant to the
Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review,
on a quarterly basis, a written report of the monies reimbursed
to it and to others under the Plan, and shall furnish the Board
with such other information as the Board may reasonably request
in connection with the payments made under the Plan in order to
enable the Board to make an informed determination of whether the
Plan should be continued.
5. The Plan shall continue in effect for a period of more
than one year only so long as such continuance is specifically
approved at least annually by the Board, including the non-
interested Board members, cast in person at a meeting called for
the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to
this Plan, may be terminated at any time, without penalty, by
vote of a majority of the outstanding voting securities of the
Fund or by vote of a majority of the non-interested Board
members, on not more than sixty (60) days' written notice, or by
Distributors on not more than sixty (60) days' written notice,
and shall terminate automatically in the event of any act that
constitutes an assignment of the Management Agreement between the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to
this Plan, may not be amended to increase materially the amount
to be spent for distribution pursuant to Paragraph 1 hereof
without approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by the non-
interested Board members cast in person at a meeting called for
the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Board members shall be
committed to the discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Investment Company and Distributors
as evidenced by their execution hereof.
Date: __________________, 1995
Investment Company
By:________________________________
Franklin/Templeton Distributors, Inc.
By:_____________________________________
CLASS II DISTRIBUTION PLAN
I. Investment Company: FRANKLIN CUSTODIAN FUNDS, INC.
II. Fund and Class: GROWTH SERIES - CLASS II
III. Maximum Per Annum Rule 12b-1 Fees for Class II Shares
(as a percentage of average daily net assets of the class)
A. Distribution Fee: 0.75%
B. Service Fee: 0.25%
PREAMBLE TO CLASS II DISTRIBUTION PLAN
The following Distribution Plan (the "Plan") has been
adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") by the Investment Company named above
("Investment Company") for the class II shares (the "Class") of
each Fund named above ("Fund"), which Plan shall take effect as
of the date class II shares are first offered (the "Effective
Date of the Plan"). The Plan has been approved by a majority of
the Board of Directors or Trustees of the Investment Company (the
"Board"), including a majority of the Board members who are not
interested persons of the Investment Company and who have no
direct, or indirect financial interest in the operation of the
Plan (the "non-interested Board members"), cast in person at a
meeting called for the purpose of voting on such Plan.
In reviewing the Plan, the Board considered the schedule and
nature of payments and terms of the Management Agreement between
the Investment Company and Franklin Advisers, Inc. and the terms
of the Underwriting Agreement between the Investment Company and
Franklin/Templeton Distributors, Inc. ("Distributors"). The
Board concluded that the compensation of Advisers, under the
Management Agreement, and of Distributors, under the Underwriting
Agreement, was fair and not excessive. The approval of the Plan
included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there
is a reasonable likelihood that the Plan will benefit the Fund
and its shareholders.
DISTRIBUTION PLAN
1. (a) The Fund shall pay to Distributors a quarterly fee
not to exceed the above-stated maximum distribution fee per annum
of the Class' average daily net assets represented by shares of
the Class, as may be determined by the Board from time to time.
(b) In addition to the amounts described in (a) above,
the Fund shall pay (i) to Distributors for payment to dealers or
others, or (ii) directly to others, an amount not to exceed the
above-stated maximum service fee per annum of the Class' average
daily net assets represented by shares of the Class, as may be
determined by the Fund's Board from time to time, as a service
fee pursuant to servicing agreements which have been approved
from time to time by the Board, including the non-interested
Board members.
2. (a) Distributors shall use the monies paid to it
pursuant to Paragraph 1(a) above to assist in the distribution
and promotion of shares of the Class. Payments made to
Distributors under the Plan may be used for, among other things,
the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and
related expenses, advertisements, and other distribution-related
expenses, including a pro-rated portion of Distributors' overhead
expenses attributable to the distribution of Class shares, as
well as for additional distribution fees paid to securities
dealers or their firms or others who have executed agreements
with the Investment Company, Distributors or its affiliates,
which form of agreement has been approved from time to time by
the Trustees, including the non-interested trustees. In
addition, such fees may be used to pay for advancing the
commission costs to dealers or others with respect to the sale of
Class shares.
(b) The monies to be paid pursuant to paragraph 1(b)
above shall be used to pay dealers or others for, among other
things, furnishing personal services and maintaining shareholder
accounts, which services include, among other things, assisting
in establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; arranging for
bank wires; monitoring dividend payments from the Fund on behalf
of customers; forwarding certain shareholder communications from
the Fund to customers; receiving and answering correspondence;
and aiding in maintaining the investment of their respective
customers in the Class. Any amounts paid under this paragraph
2(b) shall be paid pursuant to a servicing or other agreement,
which form of agreement has been approved from time to time by
the Board.
3. In addition to the payments which the Fund is authorized
to make pursuant to paragraphs 1 and 2 hereof, to the extent that
the Fund, Advisers, Distributors or other parties on behalf of
the Fund, Advisers or Distributors make payments that are deemed
to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of Class shares issued
by the Fund within the context of Rule 12b-1 under the Act, then
such payments shall be deemed to have been made pursuant to the
Plan.
In no event shall the aggregate asset-based sales charges
which include payments specified in paragraphs 1 and 2, plus any
other payments deemed to be made pursuant to the Plan under this
paragraph, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities
Dealers, Inc., Article III, Section 26(d).
4. Distributors shall furnish to the Board, for its review,
on a quarterly basis, a written report of the monies reimbursed
to it and to others under the Plan, and shall furnish the Board
with such other information as the Board may reasonably request
in connection with the payments made under the Plan in order to
enable the Board to make an informed determination of whether the
Plan should be continued.
5. The Plan shall continue in effect for a period of more
than one year only so long as such continuance is specifically
approved at least annually by the Board, including the non-
interested Board members, cast in person at a meeting called for
the purpose of voting on the Plan.
6. The Plan, and any agreements entered into pursuant to
this Plan, may be terminated at any time, without penalty, by
vote of a majority of the outstanding voting securities of the
Fund or by vote of a majority of the non-interested Board
members, on not more than sixty (60) days' written notice, or by
Distributors on not more than sixty (60) days' written notice,
and shall terminate automatically in the event of any act that
constitutes an assignment of the Management Agreement between the
Fund and Advisers.
7. The Plan, and any agreements entered into pursuant to
this Plan, may not be amended to increase materially the amount
to be spent for distribution pursuant to Paragraph 1 hereof
without approval by a majority of the Fund's outstanding voting
securities.
8. All material amendments to the Plan, or any agreements
entered into pursuant to this Plan, shall be approved by the non-
interested Board members cast in person at a meeting called for
the purpose of voting on any such amendment.
9. So long as the Plan is in effect, the selection and
nomination of the Fund's non-interested Board members shall be
committed to the discretion of such non-interested Board members.
This Plan and the terms and provisions thereof are hereby
accepted and agreed to by the Investment Company and Distributors
as evidenced by their execution hereof.
Date: __________________, 1995
Investment Company
By:________________________________
Franklin/Templeton Distributors, Inc.
By:_____________________________________
POWER OF ATTORNEY
The undersigned officers and directors of FRANKLIN CUSTODIAN
FUNDS, INC. (the "Registrant") hereby appoint BRIAN LORENZ,
HARMON E. BURNS, DEBORAH R. GATZEK, KAREN L. SKIDMORE AND LARRY
L. GREENE (with full power to each of them to act alone) his
attorney-in-fact and agent, in all capacities, to execute, and to
file any of the documents referred to below relating to Post-
Effective Amendments to the Registrant's registration statement
on Form N-1A under the Investment Company Act of 1940, as
amended, and under the Securities Act of 1933 covering the sale
of shares by the Registrant under prospectuses becoming effective
after this date, including any amendment or amendments increasing
or decreasing the amount of securities for which registration is
being sought, with all exhibits and any and all documents
required to be filed with respect thereto with any regulatory
authority. Each of the undersigned grants to each of said
attorneys, full authority to do every act necessary to be done in
order to effectuate the same as fully, to all intents and
purposes as he could do if personally present, thereby ratifying
all that said attorneys-in-fact and agents, may lawfully do or
cause to be done by virtue hereof.
The undersigned officers and directors hereby execute this
Power of Attorney as of this 16th day of February 1995.
/s/ Charles B. Johnson /s/ Rupert H. Johnson, Jr.
Charles B. Johnson, Principal Rupert H. Johnson, Jr.,
Executive Officer and Director Director
/s/ Harris J. Ashton /s/ S. Joseph Fortunato
Harris J. Ashton, S. Joseph Fortunato,
Director Director
/s/ Gordon S. Macklin /s/ Martin L. Flanagan
Gordon S. Macklin, Martin L. Flanagan,
Director Principal Financial Officer
/s/ Diomedes Loo-Tam
Diomedes Loo-Tam,
Principal Accounting Officer
CERTIFICATE OF SECRETARY
I, Brian E. Lorenz, certify that I am Secretary of Franklin
Custodian Funds, Inc. (the "Fund").
As Secretary of the Fund, I further certify that the following
resolution was adopted by a majority of the Directors of the Fund
present at a meeting held at 777 Mariners Island Boulevard, San
Mateo, California, on February 16, 1995.
RESOLVED, that a Power of Attorney, substantially in
the form of the Power of Attorney presented to this
Board, appointing Brian E. Lorenz, Harmon E. Burns,
Deborah R. Gatzek, Karen L. Skidmore and Larry L.
Greene as attorneys-in-fact for the purpose of filing
documents with the Securities and Exchange Commission,
be executed by each Director and designated officer.
I declare under penalty of perjury that the matters set forth in
this certificate are true and correct of my own knowledge.
/s/ Brian E. Lorenz
Dated: February 16, 1995 Brian E. Lorenz
Secretary
