FRANKLIN CUSTODIAN FUNDS INC, 497, 1995-06-07

FRANKLIN CUSTODIAN FUNDS INC
497, 1995-06-07

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Franklin Custodian Funds, Inc.

Growth Series, DynaTech Series,
Utilities Series, Income Series,
U.S. Government Securities Series

PROSPECTUS February 1, 1995 as amended June 1, 1995

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN

Franklin Custodian Funds, Inc. (the "Fund") is an open-end
management investment company consisting of the five separate
diversified series listed above (individually or collectively
referred to as the "Series"). Each Series, in effect, represents
a separate fund with its own investment objectives and policies
with various possibilities for income or capital appreciation and
subject to varying market risks. Through the five different
Series, the Fund attempts to satisfy a variety of investment
objectives.

This Prospectus is intended to set forth in a clear and concise
manner information about the Fund and each Series that a
prospective investor should know before investing. After reading
the Prospectus, it should be retained for future reference; it
contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to
have.

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. See "How to Buy Shares of the Fund - Differences
Between Class I and Class II."

Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank; further, such shares are not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency. Shares of the
Fund involve investment risks, including the possible loss of
principal.

The Income Series may invest up to 100% of its portfolio in non-
investment grade bonds, commonly known as "junk bonds," which
entail default and other risks greater than those associated with
higher rated securities. Investors should carefully assess the
risks associated with an investment in the Income Series in light
of the securities in which the Series invests. See "Risk
Considerations Relating to High Yield Securities."

The Growth Series, DynaTech Series, Utilities Series, and Income
Series may invest in domestic and foreign securities as described
under "Investment Objectives and Policies of Each Series."

A Statement of Additional Information (the "SAI") concerning the
Fund, dated February 1, 1995 as amended May 1, 1995, and as may
be further amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters
which may be of interest to some investors. It has been filed
with the Securities and Exchange Commission ("SEC") and is
incorporated herein by reference. A copy is available without
charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the
address or telephone number shown above.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

This Prospectus is not an offering of the securities herein
described in any state in which the offering is not authorized.
No sales representative, dealer, or other person is authorized to
give any information or make any representations other than those
contained in this Prospectus. Further information may be obtained
from the underwriter.

Contents

Expense Table

Financial Highlights

About the Fund

Investment Objectives
and Policies of Each Series

Risk Considerations Relating to
High Yield Securities

Management of the Fund

Distributions to Shareholders

Taxation of the Fund
and Its Shareholders

How to Buy Shares of the Fund

Purchasing Shares of the Fund in
Connection with Retirement Plans
Involving Tax-Deferred Investments

Other Programs and Privileges
Available to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

Appendix

<TABLE>

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 for both classes of
shares are based on aggregate operating expenses of the Class I
shares for each Series for the fiscal year ended September 30,
1994.

<S>
Class I

U.S.
Government
Growth Utilities Income Securities DynaTech
Series Series Series Series Series
<C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Sales
Charge
Imposed on
Purchases
(as a
percentage
of offering 4.50% 4.25% 4.25% 4.25% 4.50%
price)
Deferred Sales NONE* NONE* NONE* NONE* NONE*
Charge
Exchange Fee NONE NONE
(per $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% 0.62%
Rule 12b-1 Fees 0.20%*** 0.12%*** 0.13%+ 0.07%+ 0.20***
Other Expenses:
Shareholder
Servicing costs 0.09% 0.05% 0.04% 0.03% 0.10%
Reports to 0.07% 0.06% 0.04% 0.03% 0.09%
Shareholders
Other 0.04% 0.03% 0.05% 0.01% 0.05%
Total Other
Expenses 0.20% 0.14% 0.13% 0.07% 0.24%
Total Fund
Operating
Expenses 0.89% 0.71% 0.72% 0.59% 1.06%
*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% is 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 imposed only 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 as discussed in "Management of the
Fund - Plans of Distribution." Actual Rule 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.

<S>
Class II

U.S.
Government
Growth Utilities Income Securities
Series Series Series Series
<C> <C> <C> <C>
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 less than six 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. (See
"How to Buy Shares of the Fund - Purchase Price of Fund Shares"
for the definition of this and similar references.)
*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 imposed only on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
***"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. See the
Class I Expense Table, above, for more information about Class
I's Rule 12b-1 expenses.

Investors should be aware that the above tables are 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 tables have been provided only to assist investors in
gaining a more complete understanding of fees, charges and
expenses. 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 charge, 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*

<S>

U.S.
Government
Growth Income Securities DynaTech
Series Utilities Series Series Series
Series
<C> <C> <C> <C> <C>
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

*For the purposes of this example, it is assumed that a
contingent deferred sales charge will not apply to Class I
shares.

Class II

<S>

U.S.
Government
Growth Utilities Income Securities
Series Series Series Series
<C> <C> <C> <C>
1 Year $ 37 $ 32 $ 32 $ 32
3 Years $ 63 $ 49 $ 49 $ 47
5 Years $101 $ 77 $ 77 $ 74
10 Years $208 $158 $158 $151

You would pay the following expenses on Class II shares on the
same investment assuming no redemption:

U.S.
Government
Growth Utilities Income Securities
Series Series Series Series
<S> <C> <C> <C> <C>
1 Year $ 27 $ 23 $ 23 $ 22
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 only indirectly by shareholders as a
result of their investment in the Series. In addition, federal
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%.

</TABLE>

Financial Highlights
- --------------------------------------------------------------------------

Set forth below is a table containing the financial highlights for a
share of Class I of each Series of the Fund throughout the ten fiscal
years in the period ended September 30, 1994. The information
for each of the five fiscal years in the period ended
September 30, 1994 has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial
statements in the Fund's SAI. The remaining figures, which are also
audited, are not covered by the auditor's current report.
Information regarding Class II shares will be included in this
table after they have been offered to the public for a reasonable period
of time. See the discussion "Reports to Shareholders" under "General
Information."

Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------
Net Realized
Net Asset & Unrealized Distribution
Year Value at Net Gain Total From From Net
Ended Beginning Investment (Loss) on Investment Investment
Sep. 30 of Year Income Investments Operations Income
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Growth Fund:(dagger)
1985 $ 5.51 $0.129 $0.699 $0.828 $(0.130)
1986 6.20 0.157 1.374 1.531 (0.130)
1987 7.51 0.207 2.852 3.059 (0.150)
1988 10.39 0.212 (0.570) (0.358) (0.202)
1989 9.64 0.227 2.332 2.559 (0.221)
1990 11.97 0.314 (1.188) (0.874) (0.206)
1991 10.69 0.325 2.703 3.028 (0.268)
1992 13.45 0.229 0.524 0.753 (0.353)
1993 13.70 0.232 0.575 0.807 (0.189)
1994 14.25 0.190 0.899 1.089 (0.297)

DynaTech Fund:(dagger)
1985 5.00 0.124 (0.186) (0.062) (0.188)
1986 4.75 0.041 0.124 0.165 (0.125)
1987 4.79 0.031 2.292 2.323 (0.033)
1988 7.08 0.040 (1.197) (1.157) (0.033)
1989 5.89 0.060 1.719 1.779 (0.039)
1990 7.63 0.156 (0.352) (0.196) (0.059)
1991 6.77 0.126 1.952 2.078 (0.168)
1992 8.68 0.120 0.522 0.642 (0.112)
1993 9.21 0.102 1.207 1.309 (0.117)
1994 10.29 0.070 0.210 0.280 (0.124)

Utilities Fund:
1985 5.80 0.570 0.620 1.190 (0.520)
1986 6.47 0.530 1.768 2.298 (0.555)
1987 8.21 0.536 (0.455) 0.081 (0.560)
1988 7.72 0.553 (0.243) 0.310 (0.570)
1989 7.46 0.548 0.672 1.220 (0.580)
1990 8.10 0.529 (0.555) (0.026) (0.580)
1991 7.48 0.535 1.385 1.920 (0.590)
1992 8.81 0.530 0.849 1.379 (0.559)
1993 9.63 0.534 1.161 1.695 (0.545)
1994 10.78 0.550 (2.436) (1.886) (0.524)

Income Fund:
1985 1.95 0.210 0.150 0.360 (0.220)
1986 2.06 0.230 0.238 0.468 (0.220)
1987 2.25 0.206 0.004 0.210 (0.220)
1988 2.22 0.228 (0.096) 0.132 (0.220)
1989 2.11 0.222 0.009 0.231 (0.220)
1990 2.11 0.212 (0.324) (0.112) (0.220)
1991 1.76 0.190 0.350 0.540 (0.220)
1992 2.08 0.190 0.194 0.384 (0.205)
1993 2.25 0.180 0.227 0.407 (0.185)
1994 2.46 0.170 (.201) (0.031) (0.180)

- ------------------------------------------------------------------------------------------
Distributions Net Asset
Year From Value
Ended Realized Total at End Total
Sep. 30 Capital Gains Distributions of Year Return(dagger)(dagger)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund:(dagger)
1985 $(0.008) $(0.138) $ 6.20 14.88%
1986 (0.091) (0.221) 7.51 24.72
1987 (0.029) (0.179) 10.39 41.10
1988 (0.190) (0.392) 9.64 (3.28)
1989 (0.008) (0.229) 11.97 27.02
1990 (0.200) (0.406) 10.69 (7.55)
1991 - (0.268) 13.45 28.65
1992 (0.150) (0.503) 13.70 5.73
1993 (0.068) (0.257) 14.25 5.87
1994 (0.082) (0.379) 14.96 7.63

DynaTech Fund:(dagger)
1985 - (0.188) 4.75 (1.63)
1986 - (0.125) 4.79 3.18
1987 - (0.033) 7.08 48.60
1988 - (0.033) 5.89 (16.41)
1989 - (0.039) 7.63 30.26
1990 (0.605) (0.664) 6.77 (2.71)
1991 - (0.168) 8.68 31.21
1992 - (0.112) 9.21 7.29
1993 (0.112) (0.229) 10.29 14.36
1994 (0.596) (0.720) 9.85 2.89

Utilities Fund:
1985 - (0.520) 6.47 20.40
1986 (0.003) (0.558) 8.21 36.03
1987 (0.011) (0.571) 7.72 0.56
1988 - (0.570) 7.46 4.03
1989 - (0.580) 8.10 16.71
1990 (0.014) (0.594) 7.48 (0.93)
1991 - (0.590) 8.81 26.15
1992 - (0.559) 9.63 15.89
1993 - (0.545) 10.78 17.83
1994 (0.040) (0.564) 8.33 (17.94)

Income Fund:
1985 (0.030) (0.250) 2.06 18.71
1986 (0.058) (0.278) 2.25 24.20
1987 (0.020) (0.240) 2.22 9.08
1988 (0.022) (0.242) 2.11 6.00
1989 (0.011) (0.231) 2.11 11.16
1990 (0.018) (0.238) 1.76 (6.37)
1991 - (0.220) 2.08 32.60
1992 (0.009) (0.214) 2.25 18.80
1993 (0.012) (0.197) 2.46 18.76
1994 (0.029) (0.209) 2.22 (1.52)

Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------
Ratio of Net
Net Assets Ratio of Investment
Year at End Expenses Income Portfolio
Ended of Year to Average to Average Turnover
Sep. 30 (in 000's) Net Assets Net Assets Rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Growth Fund:(dagger)
1985 $ 24,121 0.87% 2.13% 3.86%
1986 42,861 0.87 2.12 1.00
1987 115,845 0.81 2.34 8.73
1988 106,766 0.77 2.27 -
1989 134,523 0.76 1.94 2.24
1990 169,939 0.73 2.74 -
1991 331,392 0.70 2.58 7.98
1992 532,971 0.66 2.06 0.81
1993 560,824 0.64 1.64 1.70
1994 516,620 0.77 1.23 6.52

DynaTech Fund:(dagger)
1985 39,755 0.83 2.47 35.61
1986 31,834 0.87 0.78 14.58
1987 50,417 0.86 0.48 8.27
1988 33,575 0.87 0.68 3.68
1989 37,673 0.83 0.90 -
1990 36,538 0.79 2.09 11.34
1991 48,867 0.93 1.57 7.12
1992 64,595 0.81 1.42 10.70
1993 71,469 0.81 1.03 26.56
1994 67,413 1.00 0.69 9.73

Utilities Fund:
1985 59,614 0.81 8.13 6.61
1986 326,985 0.74 5.95 3.49
1987 632,474 0.65 6.55 -
1988 615,985 0.64 7.36 1.68
1989 652,308 0.62 7.10 4.02
1990 749,386 0.60 6.50 2.07
1991 1,226,118 0.59 6.44 0.89
1992 2,191,095 0.57 5.90 1.39
1993 3,626,774 0.55 5.30 7.81
1994 2,572,508 0.64 5.76 6.34

Income Fund:
1985 105,278 0.76 10.14 24.07
1986 226,418 0.71 9.76 30.76
1987 484,270 0.64 9.20 18.14
1988 726,815 0.61 10.50 10.01
1989 1,189,694 0.57 10.46 12.05
1990 1,299,130 0.55 10.73 12.14
1991 1,673,187 0.56 10.17 33.92
1992 2,483,501 0.55 9.11 23.30
1993 3,935,444 0.54 7.84 25.41
1994 4,891,505 0.64 7.37 23.37

(dagger)Data prior to 1992 has been adjusted to reflect a two-for- one stock
split in the form of a 100% stock dividend to shareholders of record
effective on the beginning of business on June 1, 1992.

(dagger)(dagger)Total return measures the change in value of an investment
over the periods indicated. It does not include the maximum initial sales
charge and assumes reinvestment of dividends at the offering price and
capital gains, if any, at net asset value. Effective May 1, 1994, with the
implementation of the Rule 12b-1 distribution plan, the existing sales
charge on reinvested dividends has been eliminated.

Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------
Net Realized
Net Asset & Unrealized Distribution
Year Value at Net Gain Total From From Net
Ended Beginning Investment (Loss) on Investment Investment
Sep. 30 of Year Income Investments Operations Income
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government Securities Fund:*
1985 $6.85 $0.880 $0.500 $1.380 $(0.900)
1986 7.33 0.790 0.165 0.955 (0.875)
1987 7.41 0.698 (0.500) 0.198 (0.724)
1988 6.87 0.691 0.115 0.806 (0.696)
1989 6.98 0.688 (0.072) 0.616 (0.696)
1990 6.90 0.668 (0.020) 0.648 (0.688)
1991 6.86 0.653 0.287 0.940 (0.660)
1992 7.14 0.609 0.106 0.715 (0.595)
1993 7.26 0.557 (0.056) 0.501 (0.561)
1994 7.20 0.500 (0.678) (0.178) (0.512)

- ------------------------------------------------------------------------------------------

Distributions Net Asset
Year From Value
Ended Realized Total at End Total
Sep. 30 Capital Gains Distributions of Year Return(dagger)(dagger)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund:*
1985 $ - $(0.900) $7.33 20.83%
1986 - (0.875) 7.41 13.25
1987 (0.014) (0.738) 6.87 2.22
1988 - (0.696) 6.98 11.77
1989 - (0.696) 6.90 8.95
1990 - (0.688) 6.86 9.47
1991 - (0.660) 7.14 13.97
1992 - (0.595) 7.26 10.14
1993 - (0.561) 7.20 6.86
1994 - (0.512) 6.51 (2.75)

Ratios/Supplemental Data
- -------------------------------------------------------------------------------------------
Ratio of Net
Net Assets Ratio of Investment
Year at End Expenses Income Portfolio
Ended of Year to Average to Average Turnover
Sep. 30 (in 000's) Net Assets Net Assets Rate
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Securities Fund:*
1985 $ 6,512,982 0.57% 11.06% 9.27%
1986 14,361,682 0.54 9.93 36.02
1987 13,024,437 0.52 9.49 52.92
1988 12,112,775 0.53 9.85 34.14
1989 11,260,310 0.52 9.99 25.70
1990 11,143,333 0.52 9.72 18.23
1991 12,426,910 0.52 9.26 22.14
1992 13,617,157 0.53 8.46 38.75
1993 14,268,516 0.52 7.71 43.10
1994 11,668,747 0.55 7.37 18.28

*Maturity of U.S. government issues and the reinvestment of the proceeds
thereof are considered as purchases and sales of securities in computing
the portfolio turnover rate of the U.S. Government Securities Series.

</TABLE>

About the Fund

The Fund, which was incorporated under the laws of Delaware in
1947 and reincorporated under the laws of Maryland in 1979, is an
open-end management investment company commonly called a "mutual
fund" and is registered with the SEC under the Investment Company
Act of 1940, as amended ("1940 Act"). The Fund has five separate
diversified series: Growth Series, DynaTech Series, Utilities
Series, Income Series and U.S. Government Securities Series. The
Growth Series, Utilities Series, Income Series and U.S.
Government Securities Series issue two classes: Growth Series -
Class I, Growth Series - Class II, Utilities Series - Class I,
Utilities Series - Class II, Income Series - Class I, Income
Series - Class II, U.S. Government Securities Series - Class I
and U.S. Government Securities Series - Class - II. All Fund
shares outstanding before May 1, 1995, have been redesignated as
Class I shares, and will retain their previous rights and
privileges, except for legally required modifications to
shareholder voting procedures, as discussed in "General
Information - Voting Rights." The DynaTech Series currently does
not offer Class II shares.

Shares of each Series may be purchased (minimum investment of
$100 initially and $25 thereafter) at the current public offering
price. The current public offering price of the Class I shares of
a Series is equal to such Series' net asset value (see "Valuation
of Fund Shares"), plus a variable sales charge not exceeding 4.5%
or 4.25% of the offering price depending upon the Series and the
amount invested. The current public offering price of the Class
II shares is equal to the net asset value, plus a sales charge of
1.0% of the amount invested.(See "How to Buy Shares of the
Fund.")

Investment Objectives and Policies of Each Series

The investment objectives of all Series are fundamental policies
and may not be changed without shareholder approval.

Growth Series

The primary investment objective of this Series is capital
appreciation. The Series is primarily invested in common stocks
or convertible securities believed to offer favorable
possibilities of capital appreciation, but some of which may
yield little or no current income. Current income is only a
secondary consideration in selecting portfolio securities. The
assets of the Series may be held only in cash or cash
equivalents, or invested in shares of common or capital stock
traded on any national securities exchange, or issued by 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, or in bonds or preferred stock
convertible into shares of common or capital stock listed for
trading on a national securities exchange. The Series may also
write covered call options. Concentration of investments in a
single industry may not exceed 25% of its total assets; this is a
fundamental policy of the Series which may not be changed without
shareholder approval.

DynaTech Series

The investment objective of this Series is capital appreciation.
The Series is designed for investors who understand and are
willing to accept the risk of loss involved in seeking capital
appreciation. Investments are made primarily in companies
emphasizing technological development, in fast-growing industries
or in situations which management considers undervalued. The
assets of this Series may be held only in cash or cash
equivalents, or invested in securities traded on any national
securities exchange or issued by 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.
It is contemplated that the bulk of this Series' assets will be
invested in common stocks, including securities convertible into
common stocks. When the investment manager believes that no
attractive investment opportunities exist, the Series may
maintain a significant portion of its assets in cash. Investments
in debt securities or preferred stocks which management believes
will further the investment objective of the Series may also be
made. This Series may not concentrate more than 25% of its assets
in any one industry. From time to time, through market
appreciation of certain issues, concentration in a few issues may
develop. Investments of this Series tend to be of a more
speculative nature, and there can be greater emphasis on short-
term trading profits. Investments in certain instances may be
based upon market fluctuations precipitated by excessive optimism
or pessimism of investors with little or no basis in fundamental
economic conditions.

Utilities Series

The investment objectives of this Series are both capital
appreciation and current income. As a fundamental policy, the
assets of the Series may be held in cash or cash equivalents, or
invested in securities of an issuer actually engaged in the
public utilities industry. "Public Utilities Industry" includes
the manufacture, production, generation, transmission and sale of
gas, water, and electricity energy. As required by the guidelines
issued by the SEC, at least 65% of the investments made by the
Utilities Series will be invested in the securities of an issuer
actually engaged in the public utilities industry, however, under
normal circumstances the Series expects to have substantially all
of its assets invested in such securities. The term also includes
issuers engaged in the communications field including entities
such as telephone, telegraph, satellite, microwave and other
companies providing communication facilities for the public
benefit, but not those in public broadcasting.

To achieve its investment objective, this Series invests
primarily in common stocks, including, from time to time, non-
dividend paying common stocks if, in the opinion of the
investment manager, such securities appear to offer attractive
opportunities for capital appreciation. This Series may also
invest in preferred stocks and bonds issued by public utility
issuers. In selecting its investment, the Series seeks to invest
in whatever type of security best permits it to achieve its
investment objective without excessive risk at the time of
purchase. When purchasing fixed-income debt securities, the
Series may invest in investment grade or lower grade securities,
depending upon prevailing market and economic conditions. The
Series may invest in fixed-income debt securities regardless of
their rating (including securities in the lowest rating
categories) or in securities which are not rated. Although most
of the Series' investments are rated at least BBB by Moody's
Investors Service ("Moody's")or Standard & Poor's Corporation
("S&P")(see the Appendix to this Prospectus for a discussion of
the ratings), it is the Series' intent not to purchase fixed-
income debt securities rated below B by rating services. With
respect to unrated securities, it is also the Series' intent to
purchase securities which, in the view of the Series' investment
manager would be comparable to securities rated B or above by a
nationally recognized rating service or, if no specific
equivalent rating has been assigned by a nationally recognized
rating service, securities which have been determined to be
consistent with the Series' objectives without exposing the
Series to excessive risk. The Series will not purchase issues
that are in default nor will the Series invest in securities
which are felt by management to involve excessive risk. As of
September 30, 1994, 12.4% of the Utilities Series' assets were
invested in debt securities, all of the rated securities were
rated at least Baa by Moody's and BBB by S&P.

Securities rated B are regarded, on balance, as predominantly
speculative with respect to the capacity to pay interest and
repay principal in accordance with the terms of the obligation.
These ratings, which represent the opinions of the rating
services with respect to the securities and are not absolute
standards of quality, will be considered in connection with the
investment of the Series' assets but will not be a determining or
limiting factor.

Like all bonds, the value of the Series' fixed-income debt
investments generally shares an inverse relationship with market
interest rates. For example, when interest rates rise, the value
of the Series' debt investments tends to fall. Conversely, when
market interest rates decline, the value of these securities
tends to rise. Because securities issued by utility companies are
particularly sensitive to movement in interest rates, the equity
securities of such companies are more affected by movement in
interest rates than are the equity securities of other issuers.

The Series has substantial investments in the gas and electric
public utilities industries which have certain characteristics
and risks of which investors should be aware. Such
characteristics include: the difficulty of obtaining adequate
returns on invested capital in spite of frequent rate increases;
the difficulty of financing large construction programs during
inflationary periods; restrictions on operations and increased
costs and delays attributable to environmental considerations;
difficulties of the capital markets in absorbing utility debts
and equity securities; difficulties in obtaining fuel for
electric generation at reasonable prices; difficulty in obtaining
natural gas for resale; risks associated with the construction
and operation of nuclear power plants; and general effects of
energy conservation. Historically, this Series' investments in
the Public Utilities Industry have been predominantly in dividend-
yielding common stocks.

Income Series

The investment objective of this Series is to maximize income
while maintaining prospects for capital appreciation. The Series
invests in a diversified portfolio of securities selected with
particular consideration of current income production. The
underlying assets of the Series may be held in cash or cash
equivalents, or invested in securities traded on any national
securities exchange or in securities issued by 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. This Series may also invest in preferred stocks.
There are no restrictions as to the proportion of investments
which may be made in a particular type of security and such
determination is entirely within management's discretion. A
breakdown of the ratings for the bonds in the Series' portfolio
is included under "Asset Composition Table" below.

The Series may invest up to 100% of its portfolio in non-
investment grade bonds, commonly known as "junk bonds", which
entail default and other risks greater than those associated with
higher rated securities. Investors should carefully assess the
risks associated with an investment in the Series in light of the
securities in which the Series invests.

Various investment services publish ratings of some of the types
of securities in which the Series may invest. Higher yields are
ordinarily available from securities in the lower-rated
categories of the recognized rating services (that is, securities
rated Ba or lower by Moody's, or BB or lower by S&P) or from
unrated securities of comparable quality. A list of these ratings
is shown in the Appendix to this Prospectus. These ratings, which
represent the opinions of the rating services with respect to the
issuer's ability to pay interest and repay principal, although
they do not purport to reflect the risk of fluctuations in market
value and are not absolute standards of quality, will be
considered in connection with the investment of the Series'
assets, but will not be a determining or limiting factor. The
Series may invest in securities regardless of their rating
(including securities in the lowest rating categories) or in
securities which are not rated, including up to 5% of its assets
in securities which are in default at the time of purchase.

In the event the rating on an issue held in the Series' portfolio
is changed by the rating service or the security goes into
default such event will be considered by the Series in its
evaluation of the overall investment merits of that security but
will not generally result in an automatic sale of the security.

Rather than relying principally on the ratings assigned by rating
services, the investment analysis of securities being considered
for the Series' portfolio may also include, among other things,
consideration of relative values, based on such factors as
anticipated cash flow, interest or dividend coverage, asset
coverage, earnings prospects, the experience and managerial
strength of the issuer, responsiveness to changes in interest
rates and business conditions, debt maturity schedules and
borrowing requirements and the issuer's changing financial
condition and public recognition thereof. Since a substantial
portion of the Series' portfolio at any particular time may
consist of debt securities, changes in the level of interest
rates, among other things, will likely affect the value of the
Series' holdings and thus the value of a shareholder's
investment. Certain of the high yielding fixed-income securities
in which the Series may invest may be purchased at a discount.
Such securities, when held to maturity or retired, may include an
element of capital gain. Capital losses may be realized when
securities purchased at a premium, that is, in excess of their
stated or par value, are held to maturity or are called or
redeemed at a price lower than their purchase price. Capital
gains or losses also may be realized upon the sale of securities.

As market conditions change, it is conceivable that all of the
assets of this Series could be invested in common stocks or,
conversely, in debt securities. It is a fundamental policy of
this Series that concentration of investment in a single industry
may not exceed 25% of its total assets.

The Series may purchase debt obligations on a "when-issued" or
"delayed-delivery" basis. Such securities are subject to market
fluctuation prior to delivery to the Fund and generally do not
earn interest until their scheduled delivery date. Therefore, the
value or yields at delivery may be more or less than the value or
the yields available when the transaction was entered into. When
the Series is the buyer in such a transaction, it will maintain,
in a segregated account with its custodian, 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 Income Series engages in when-issued and delayed
delivery 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. (See "The Investment Objectives and Policies
of the Fund - When-Issued, Delayed Delivery and TBA Transactions"
in the Fund's SAI for a more complete discussion regarding when-
issued and delayed-delivery transactions.)

The Series may also purchase certain bonds issued at discount
which defer the payment of interest or which pay no interest
until maturity, known as zero coupon bonds, or which pay interest
through issuance of additional bonds, known as pay-in-kind bonds.
See "Risk Considerations Relating to High Yield Securities" for
more information regarding these types of bonds.

The Series' total return, as calculated pursuant to the formula
prescribed by the SEC, for the one-, five- and ten-year periods
ended on September 30, 1994 was -5.58%, 10.98% and 12.49%,
respectively. See "Performance."

Asset Composition Table

As of the fiscal year ended September 30, 1994, the Income Series
had 25.4% of its assets invested in bonds rated below investment
grade (Ba or lower by Moody's or BB or lower by S&P) and 0.91% in
bonds which had not been rated by a rating service. A total of
47.35% of the Series' assets were invested in bonds. A credit
rating by a rating service evaluates only the safety of principal
and interest of the bond, and does not consider the market value
risk associated with an investment in such a bond. The table
below shows the percentage invested in each of the specific
Moody's and S&P rating categories and those investments that are
not rated. A description of each rating category by Moody's and
S&P is included in the Appendix.

Moody's or
S&P Rating Percentage of Assets
Aaa or AAA 10.75%
Aa or AA 2.840.00%
A 0.01%
Baa or BBB 8.33%
Ba or BB 2.69%
B 17.38%
Caa or CCC 4.36%*
Ca or CC 1.08%

*0.91% of these securities which are unrated by ratings services
have been included in the Caa category.

U.S. Government Securities Series

The investment objective of the U.S. Government Securities Series
is income through investment in a portfolio limited to securities
which are obligations of the U.S. government or its
instrumentalities. U.S. government securities include U.S.
Treasury bonds, notes and bills, Treasury certificates of
indebtedness and securities issued by instrumentalities of the
U.S. government. Other than investments in short-term U.S.
Treasury securities, the assets of this Series are currently
invested solely in obligations of the Government National
Mortgage Association (popularly called GNMAs or Ginnie Maes).

The U.S. Government Series believes that its investment policies,
as stated in this Prospectus and the SAI, make the Series a
permissible investment for federal credit unions, based on the
Series' understanding of the laws and regulations governing
credit union regulations as of September 30, 1994. CREDIT UNION
INVESTORS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISERS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE U.S.
GOVERNMENT SECURITIES SERIES CONSTITUTE LEGAL INVESTMENTS FOR
THEM. Please see the SAI ("The Fund's Investment Objectives and
Restrictions" - "Credit Union Regulations") for details.

Information about GNMAs

GNMAs are mortgage backed securities representing part ownership
of a pool of mortgage loans. GNMA Certificates differ from bonds
in that principal is scheduled to be paid back by the borrower
over the length of the loan rather than returned in a lump sum at
maturity. The U.S. Government Securities Series purchases GNMA
Certificates for which principal and interest are guaranteed. The
Series also purchases "variable rate" GNMA Certificates and may
also purchase other types which may be issued with GNMA's
guarantee.

The GNMA guarantee of payment of principal and interest on GNMA
Certificates is backed by the full faith and credit of the United
States government. GNMA may borrow U.S. Treasury funds to the
extent needed to make payments under its guarantee.

GNMA Certificates are created by an "issuer," which is a Federal
Housing Administration ("FHA") approved lender, such as mortgage
bankers, commercial banks and savings and loan associations,
which also meet criteria imposed by GNMA. The issuer assembles a
specific pool of mortgages insured by either the FHA or the
Farmers Home Administration or guaranteed by the Veterans
Administration. Upon application by the issuer, and after
approval by GNMA of the pool, GNMA provides its commitment to
guarantee payment of principal and interest on the GNMA
Certificates secured by the mortgages included in the pool. The
GNMA Certificates, endorsed by GNMA, are then sold by the issuer
through securities dealers.

When mortgages in the pool underlying a GNMA Certificate are
prepaid by mortgagees or as a result of foreclosure, such
principal payments are passed through to the Certificate holders
(such as the Series). Accordingly, the life of the GNMA
Certificate is likely to be substantially shorter than the stated
maturity of the mortgages in the underlying pool. Because of such
variation in prepayment rates, it is not possible to accurately
predict the life of a particular GNMA Certificate.

Generally, GNMA Certificates bear a stated "coupon rate," which
represents the effect of FHA-Veterans Administration mortgage
rates for the underlying pool of mortgages, less 0.5% which
constitutes the GNMA and issuer's fees.

Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal less the GNMA and
issuer's fees. The portion of the monthly payment which
represents a return of principal will be reinvested by the Series
in then-available GNMA obligations which may bear interest at a
rate higher or lower than the obligation from which the payment
was received. The actual yield to be earned by the holder of a
GNMA Certificate is calculated by dividing such payments by the
purchase price paid for the GNMA Certificate (which may be at a
premium or a discount from the face value of the Certificate).

The effect of interest rates and unpredictable prepayments of
principal, however, can greatly change realized yields. In a
period of declining interest rates it is more likely that
mortgages contained in GNMA pools will be prepaid thus reducing
the effective yield. This potential for prepayment during periods
of declining interest rates may reduce the general upward price
increase of GNMA Certificates experienced by other noncallable
debt securities. Moreover, any premium paid on the purchase of a
GNMA Certificate will be lost if the obligation is prepaid.
As with most bonds, in a period of rising interest rates, the
value of a GNMA Certificate will generally decline.

The Series' investments are continually monitored and changes are
made as market conditions warrant. However, the Series does not
engage in the trading of securities for the purpose of realizing
short-term profits.

Although the securities in the Series' portfolio are guaranteed
as to payment of principal and interest by the U.S. government or
its instrumentalities, the market value of these securities upon
which daily net asset value is based will fluctuate based upon
factors such as changing interest rates. As a result, the price
per share the shareholder receives on redemption may be more or
less than the price paid for the shares. The dividends per share
paid by the Series may also vary.

The Series may purchase and sell GNMA Certificates on a to be
announced ("TBA") and delayed delivery basis. These transactions
are arrangements under which the Series may purchase securities
with payment and delivery scheduled for a future time, up to 60
days after purchase. The 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. In TBA
and delayed delivery 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 TBA or delayed delivery
basis do not generally earn interest until their scheduled
delivery date. The Series is not subject to any percentage limit
on the amount of its assets which may be invested in delayed
delivery and TBA purchase obligations. More information
concerning these transactions is included in the SAI.

Other Investment Policies of the Fund

Options. Each Series, except the U.S. Government Securities
Series, may write covered call options which are listed for
trading on a national securities exchange. This means that the
Series will only write options on securities which it actually
owns. A call option gives the person who buys it the right to buy
the security on which the option is written for a specified
period of time for a price agreed to at the time the Series sells
the option, even though that price may be less than the value of
the security at the time the option is exercised. When the Series
sells covered call options, it will receive a cash premium which
can be used in whatever way is felt to be most beneficial to the
Series. The risks associated with covered call writing are that
in the event of a price rise on the underlying security which
would likely trigger the exercise of the call option, the Series
will not participate in the increase in price beyond the exercise
price. If the Series determines that it does not wish to deliver
the underlying securities from its portfolio, it would have to
enter into a "closing purchase transaction" the premium on which
may be higher or lower than that received by the Series for
writing the option. There is no assurance that a closing purchase
transaction will be available in every instance. Transactions in
options are generally considered "derivative securities." The
U.S. Government Securities Series does not engage in option
transactions.

Loans of Portfolio Securities. Consistent with procedures
approved by the Board of Directors and subject to the following
conditions, each Series, except the U.S. Government Securities
Series, may lend its portfolio securities to qualified securities
dealers or other institutional investors, provided that such
loans do not exceed 10% of the value of a Series' 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 loaned 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,
its agencies or instrumentalities, or irrevocable letters of
credit. The lending of securities is a common practice in the
securities industry. The Series engage in security loan
arrangements with the primary objective of increasing a Series'
income either through investment of the cash collateral in short-
term interest bearing obligations or by receiving a loan premium
from the borrower, but will do so only to the extent that the
Series will not lose the tax treatment available to regulated
investment companies. Under the securities loan agreement, a
Series continues to be entitled to all dividends or interest on
any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral
should the borrower of the security fail financially. The Fund's
Income and Utilities Series loaned securities to certain brokers
during the fiscal year ended September 30, 1994.

Convertible Securities. The Income Series may invest in
convertible securities. A convertible security is generally a
debt obligation or a preferred stock which may be converted at a
stated price within a specified period of time into a certain
quantity of the common stock of the same or different issuer. A
convertible security may also be subject to redemption by the
issuer but only after a particular date and under certain
circumstances established upon issue. Convertible securities
provide a fixed-income stream and the opportunity, through their
conversion feature, to participate in the capital appreciation
resulting from a market price advance in the convertible
security's underlying common stock.

As with a straight fixed-income security, a convertible security
tends to increase in market value when interest rates decline and
decrease in value when interest rates rise. The price of a
convertible security is also influenced by the market value of
the security's underlying common stock and tends to increase as
the market value of the underlying stock rises, whereas it tends
to decrease as the market value of the underlying stock declines.
A convertible security tends to be senior to common stock, but at
the same time is often subordinate to other types of fixed income
securities issued by its respective corporation. Because it has
features of both common stock and a straight fixed income
security, a convertible security's value can be influenced, as
mentioned, by both interest rate and market movements.
Consequently, convertible securities often are not influenced by
a change in interest rates as much as a straight fixed income
security or a change in share price as drastically as the
respective common stock. This is because rather than a
convertible security's value largely being determined by just
interest rates or share price, it is often determined by a
combination of the two.

The convertible debt obligations in which the Series may invest
are subject to the same rating criteria as that Series'
investments in debt obligations. However unlike convertible debt
obligations, convertible preferred stocks are equity securities.
Like common stocks, preferred stocks are subordinated to all debt
obligations in the event of insolvency, and an issuer's failure
to make a dividend payment is generally not an event of default
entitling the preferred shareholder to take action. Like common
stocks, preferred stocks generally have no maturity date, so that
their market value is dependent on the issuer's business
prospects for an indefinite period of time. Finally, preferred
stock dividends are dividends, rather than interest payments, and
are treated as such for corporate tax purposes. For these
reasons, convertible preferred stocks are treated as preferred
stocks for the Series' financial reporting, credit rating, and
investment limitation purposes.

The Income Series may invest in convertible preferred stocks that
offer enhanced yield features, such as Preferred Equity
Redemption Cumulative Stock ("PERCS"), which provide an investor,
such as the Series, with the opportunity to earn higher dividend
income than is available on a company's common stock. A PERCS is
a preferred stock which generally features a mandatory conversion
date, as well as a capital appreciation limit which is usually
expressed in terms of a stated price. Most PERCS expire three
years from the date of issue, at which time they are convertible
into common stock of the issuer (PERCS are generally not
convertible into cash at maturity).Under a typical arrangement,
if after three years the issuer's common stock is trading at a
price below that set by the capital appreciation limit, each
PERCS would convert to one share of common stock. If, however,
the issuer's common stock is trading at a price above that set by
the capital appreciation limit, the holder of the PERCS would
receive less than one full share of common stock. The amount of
that fractional share of common stock received by the PERCS
holder is determined by dividing the price set by the capital
appreciation limit of the PERCS by the market price of the
issuer's common stock. PERCS can be called at any time prior to
maturity, and hence do not provide call protection. However if
called early the issuer must pay a call premium over the market
price to the investor. This call premium declines at a preset
rate daily, up to the maturity date of the PERCS.

The Series may also invest in other enhanced convertible
securities. These include but are not limited to ACES
(Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock
Appreciation Income Linked Securities), TECONS (Term Convertible
Notes), QICS (Quarterly Income Cumulative Securities), and DECS
(Dividend Enhanced Convertible Securities). ACES, PEPS, PRIDES,
SAILS, TECONS, QICS, and DECS all have the following features;
they are company issued convertible preferred stock, unlike PERCS
they do not have a capital appreciation limit, they seek to
provide the investor with high current income with some prospect
of future capital appreciation, they are typically issued with
three to four-year maturities, they typically have some built-in
call protection for the first two to three years, investors have
the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity, and upon maturity
they will automatically convert to either cash or a specified
number of shares of common stock.

An investment in an enhanced convertible security or any other
security may involve additional risks to the Series. The Series
may have difficulty disposing of such securities because there
may be a thin trading market for a particular security at any
given time. Reduced liquidity may have an adverse impact on
market price and the Series' ability to dispose of particular
securities, when necessary, to meet the Series' liquidity needs
or in response to a specific economic event, such as a
deterioration in the credit worthiness of an issuer. Reduced
liquidity in the secondary market for certain securities may also
make it more difficult for the Series to obtain market quotations
based on actual trades for purposes of valuing the Series'
portfolio. The Series, however, intends to acquire liquid
securities, though there can be no assurances that this will be
achieved.

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.

Loan Participations. The Income Series may invest up to 5% of its
assets in loan participations and other related direct or
indirect bank obligations ("Loan Participations"). These
instruments are interests in floating or variable rate senior
loans to U.S. corporations, partnerships and other entities.
While Loan Participations generally trade at par value the Income
Series will be able to acquire Loan Participations, including
those 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. The
investment manager may acquire Loan Participations for the Series
when it believes that over the long term, appreciation will take
place. An investment in such securities, however, carries
substantially the same risk as that for defaulted debt securities
and may cause the loss of the entire investment to the Series.
Most Loan Participations are illiquid and, to that extent, will
be included in the 10% limitation described under "Illiquid
Investments."

Repurchase Agreements. All Series of the Fund, except for the
U.S. Government Securities Series, may engage in repurchase
transactions in which a Series purchases a U.S. government
security subject to resale to a bank or dealer at an agreed-upon
price and date. The transaction requires the collateralization of
the seller's obligation by the transfer of securities with an
initial market value, including accrued interest, equal to at
least 102% of the dollar amount invested by the Series in each
agreement, with the value of the underlying security marked to
market daily to maintain coverage of at least 100%. A default by
the seller might cause the Series to experience a loss or delay
in the liquidation of the collateral securing the repurchase
agreement. The Series might also incur disposition costs in
liquidating the collateral. The Series, however, intend to enter
into repurchase agreements only with financial institutions such
as broker-dealers and banks which are deemed creditworthy by the
Fund's investment manager. A repurchase agreement is deemed to be
a loan of money by the Series under the 1940 Act. The U.S.
government security subject to resale (the collateral) will be
held on behalf of a Series by a custodian approved by the Fund's
Board and will be held pursuant to a written agreement.

Borrowing. The Series do not borrow money or mortgage or pledge
any of their assets, except that each Series may borrow for
temporary or emergency purposes in an amount up to 5% of total
asset value.

Illiquid Investments. It is the policy of all Series that
illiquid securities (securities that cannot be disposed of within
seven days in the normal course of business at approximately the
amount at which the Series has valued the securities) may not
constitute, at the time of purchase, more than 10% of the value
of the total net assets of the Series. Subject to this
limitation, the Fund's Board of Directors has authorized each
Series, except the U.S. Government Securities Series, to invest
in restricted securities where such investment is consistent with
the Series' investment objective and has authorized such
securities to be considered to be liquid to the extent the
investment manager determines on a daily basis that there is a
liquid institutional or other market for such securities.
Notwithstanding the investment manager's determinations in this
regard, the Fund's Board of Directors will remain responsible for
such determinations and will consider appropriate action,
consistent with the objective and policies of the Series holding
such security, if the security should become illiquid subsequent
to its purchase. To the extent a Series invests in restricted
securities that are deemed liquid, the general level of
illiquidity in the Series may be increased if qualified
institutional buyers become uninterested in purchasing these
securities or the market for these securities contracts. See
"Investment Objectives and Policies of the Fund" in the SAI.

Foreign Securities. Securities of foreign issuers cannot be
purchased for the U.S. Government Securities Series. There are no
restrictions on investment of the assets of the other Series in
foreign securities, providing such investments are consistent
with the objectives and comply with the concentration and
diversification policies of such Series.

The Series will ordinarily purchase foreign securities which are
traded in the United States or purchase American Depositary
Receipts ("ADRs"), which are certificates issued by U.S. banks
representing the right to receive securities of a foreign issuer
deposited with that bank or a correspondent bank. However, the
Series may purchase the securities of foreign issuers directly in
foreign markets.

Investments in foreign securities where delivery takes place
outside the U.S. will be made in compliance with any applicable
U.S. and foreign currency restrictions and other tax laws and
laws limiting the amount and types of foreign investments.
Changes of governmental administrations or of economic or
monetary policies, in the U.S. or abroad, or changed
circumstances in dealings between nations or currency
convertibility or exchange rates could result in investment
losses for such Series.

Investment in the shares of foreign issuers requires
consideration of certain factors that are not normally involved
in investments solely in U.S. issuers. Among other things, the
financial and economic policies of some foreign countries in
which the Fund may invest are not as stable as in the U.S.
Furthermore, foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. corporate issuers. There
may also be less government supervision and regulation of foreign
securities exchanges, brokers and issuers than exist in the U.S.
Restrictions and controls on investment in the securities markets
of some countries may have an adverse effect on the availability
and costs to the Series of investments in those countries. In
addition, there may be the possibility of expropriations, foreign
withholding taxes, confiscatory taxation, political, economic or
social instability or diplomatic developments which could affect
assets of the Series invested in issuers in foreign countries.

There may be less publicly available information about foreign
issuers than is contained in reports and reflected in ratings
published for U.S. issuers. Some foreign securities markets have
substantially less volume than the New York Stock Exchange (the
"Exchange") and some foreign government securities may be less
liquid and more volatile than U.S. government securities.
Transaction costs on foreign securities exchanges may be higher
than in the U.S., and foreign securities settlements may, in some
instances, be subject to delays and related administrative
uncertainties.

Investments may be in securities of foreign issuers, whether
located in developed or undeveloped countries, but investments
will not be made in any securities issued without stock
certificates or comparable stock documents.

Securities which are acquired by a Series outside the U.S. and
which are publicly traded in the U.S. or on a foreign securities
exchange or in a foreign securities market are not considered by
the Series to be an illiquid asset so long as the Series acquires
and holds the security with the intention of reselling the
security in the foreign trading market, the Series reasonably
believes it can readily dispose of the security for cash in the
U.S. or foreign market and current market quotations are readily
available. Foreign exchange gains and losses realized by a Series
in connection with 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.
These rules are discussed in the SAI. The Series, other than the
Income Series, presently have no intention of investing more than
10% of the net assets of any Series in foreign securities not
publicly traded in the United States. The holding of foreign
securities, however, may be limited by the Series to avoid
investment in certain Passive Foreign Investment Companies
("PFIC") and the imposition of a PFIC tax on the Fund resulting
from such investments.

All Series are subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of the affected Series' shareholders, which limits its activities
to some extent. For a list of these restrictions and more
information concerning the policies discussed herein, please see
the SAI. There is, of course, no assurance that the Series'
investment objectives described above will be met.

How Shareholders Participate in the Results of the Fund's
Activities

The assets of each Series are invested in portfolio securities.
If the securities owned by that Series increase in value, the
value of the shares of the Series which the shareholder owns will
increase. If the securities owned by a Series decrease in value,
the value of the shareholder's shares will also decline. In this
way, shareholders participate in any change in the value of the
securities owned by the Series.

In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder
may anticipate that the value of Series shares will fluctuate
with movements in the broader equity and bond markets, as well.

To the extent a Series' investments consist of debt securities,
changes in interest rates will affect the value of a Series'
portfolio and thus its share price. Increased rates of interest
which frequently accompany higher inflation and/or a growing
economy are likely to have a negative effect on the value of a
Series' shares. To the extent the Series' investments consist of
common stocks, a decline in the market, expressed for example by
a drop in the Dow Jones Industrials or the Standard & Poor's 500
average or any other equity based index, may also be reflected in
declines in that Series' share price. History reflects both
increases and decreases in the prevailing rate of interest and in
the valuation of the market, and these may reoccur unpredictably
in the future.

A decline in the stock market of any country in which a Series is
invested may also be reflected in declines in the Series' share
price. Changes in currency valuations will also affect the price
of a Series shares. History reflects both decreases and increases
in worldwide stock markets and currency valuations, and these may
reoccur unpredictably in the future.

Risk Considerations Relating
to High Yield Securities

As previously indicated, the Income Series intends to invest a
substantial portion of its assets in lower rated, fixed-income
securities and unrated securities of comparable quality.

Corporate debt securities are subject to the risk of an issuer's
inability to meet principal and interest payments on the
obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity,
market perception of the creditworthiness of the issuer and
general market liquidity (market risk). Lower rated or unrated
securities are more likely to react to developments affecting
market and credit risk than are more highly rated securities,
which react primarily to movements in the general level of
interest rates. The investment manager will consider both credit
risk and market risk in making investment decisions as to
corporate debt obligations for the Fund.

Bonds rated BB or below by S&P or Ba or below by Moody's (or
comparable unrated securities) are considered by S&P and Moody's,
on balance, to be speculative and questionable as to payment of
principal and interest thereon. They will generally involve more
credit risk than securities in the higher rating categories. The
market values of such securities tend to reflect individual
corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general
level of interest rates. Such lower rated securities also tend to
be more sensitive to economic conditions than higher rated
securities. Even securities rated BBB or Baa by S&P and Moody's,
ratings which are considered investment grade, possess some
speculative characteristics.

Companies that issue high yielding, fixed-income securities are
often highly leveraged and may not have more traditional methods
of financing available to them. Therefore, the risk associated
with acquiring the securities of such issuers is generally
greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of high yielding
securities may experience financial stress. During these periods,
such issuers may not have sufficient cash flow to meet their
interest payment obligations. The issuer's ability to service its
debt obligations may also be adversely affected by specific
corporate developments, the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by the issuer may be
significantly greater for the holders of high yielding securities
because such securities are generally unsecured and are often
subordinated to other creditors of the issuer. The Income Series
may also purchase debt obligations of issuers not currently
paying interest as well as issuers who are in default and may
retain an issue which has defaulted. Defaulted securities will be
purchased or retained if, in the opinion of the investment
manager, it may present an opportunity for subsequent price
recovery, the issuer may resume payments or other advantageous
developments appear likely, in the near term. In general,
securities which default lose much of their value in the time
period prior to the actual default so that the Series' net asset
value would be impacted prior to the default. Defaulted debt
securities may be illiquid and, as such, will be part of the 10%
limit discussed under "Illiquid Investments."

High yielding, fixed-income securities frequently have call or
buy-back features which permit an issuer to call or repurchase
the securities from the Income Series. Although such securities
are typically not callable for a period from three to five years
after their issuance, when calls are exercised by the issuer
during periods of declining interest rates, the Income Series
must replace such called securities with lower yielding
securities, thus decreasing the net investment income to the
Income Series and dividends to shareholders. The premature
disposition of a high yielding security due to a call or buy-back
feature, the deterioration of the issuer's creditworthiness, or a
default may also make it more difficult for the Income Series to
manage the timing of its receipt of income, which may have tax
implications. Further information is included under "Taxation of
the Fund and Its Shareholders."

The Income Series may have difficulty disposing of certain high
yielding securities because there may be a thin trading market
for a particular security at any given time. The market for lower
rated fixed-income securities generally tends to be concentrated
among a smaller number of dealers than is the case for securities
which trade in a broader secondary retail market. Generally,
purchasers of these securities are predominantly dealers and
other institutional buyers, rather than individuals. To the
extent the secondary trading market for a particular high
yielding, fixed-income security does exist, it is generally not
as liquid as the secondary market for higher rated securities.
Reduced liquidity in the secondary market may have an adverse
impact on market price and the Series' ability to dispose of
particular issues, when necessary, to meet its liquidity needs or
in response to a specific economic event, such as the
deterioration in the creditworthiness of the issuer. Reduced
liquidity in the secondary market for certain securities may also
make it more difficult for the Series to obtain market quotations
based on actual trades for purposes of valuing its portfolio.
Current values for these high yield issues are obtained from
pricing services and/or a limited number of dealers and may be
based upon factors other than actual sales. (See "Valuation of
Fund Shares.")

The Series is authorized to acquire high yielding, fixed-income
securities that are sold without registration under the federal
securities laws and therefore carry restrictions on resale. While
many recent high yielding securities have been sold with
registration rights, covenants and penalty provisions for delayed
registration, if the Series is required to sell such restricted
securities before the securities have been registered, it may be
deemed an underwriter of such securities as defined in the
Securities Act of 1933, which entails special responsibilities
and liabilities. The Income Series may incur special costs in
disposing of such securities; however, the Series will generally
incur no costs when the issuer is responsible for registering the
securities.

The Series may acquire high yielding, fixed-income securities
during an initial underwriting. Such securities involve special
risks because they are new issues. The Series has no arrangement
with its underwriters or any other person concerning the
acquisition of such securities, and the investment manager will
carefully review the credit and other characteristics pertinent
to such new issues. Certain provisions of federal income tax law
impose limitations on the use of high yielding securities by
issuers in connection with leveraged buy-outs, mergers and
acquisitions, or limit the deductibility of interest payments on
such securities. This legislation could reduce the market for
such securities generally, could negatively affect the financial
condition of issuers of high yield securities by removing or
reducing a source of future financing, and could negatively
affect the value of specific high yield issues and the high yield
market in general.

Factors adversely impacting the market value of high yielding
securities will adversely impact the Income Series' net asset
value. In addition, the Income Series may incur additional
expenses to the extent it is required to seek recovery upon a
default in the payment of principal or interest on its portfolio
holdings. The Income Series will rely on the investment manager's
judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the investment
manager will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. The default by an
issuer of securities held by the Income Series will generally
adversely affect the Series and lower its net asset value (as the
fair value of a security generally declines prior to and at
default). A default will also decrease the amount of income
available to the Series from which dividends may be paid. In
addition, if an issuer defaults after the Income Series has paid
out dividends based upon accrued income, reversal of such accrual
may result in the Income Series having a return of capital to its
shareholders. The recent recession disrupted the market for high
yield securities and adversely affected the value of outstanding
securities and the ability of issuers of such securities to meet
their obligations. Those adverse effects may continue even as the
economy recovers. The Income Series may also purchase debt
obligations of issuers not currently paying interest as well as
issuers who are in default and may retain an issue which has
defaulted. Defaulted securities will be purchased or retained if,
in the opinion of the investment manager, it may present an
opportunity for subsequent price recovery, the issuer may resume
payments or other advantageous developments appear likely, in the
near term. In general, securities which default lose much of
their value in the time period prior to the actual default so
that the Series' net asset value would be impacted prior to the
default. As of September 30, 1994, five out of 214 issues
(excluding short-term securities and cash equivalents) in the
Fund's portfolio were in default. No issues defaulted in the past
fiscal year and a total of 12 issues have defaulted over the
prior three fiscal years. Currently, defaulted issues represent
0.53% of the net assets of the Series. The Series may have
unrealized losses on such defaulted securities which are
reflected in the price of the Series' shares.

The credit risk factors pertaining to lower-rated securities also
apply to lower-rated zero coupon, deferred interest and pay-in-
kind bonds. Such bonds carry an additional risk in that, unlike
bonds which pay interest throughout the period to maturity, the
Series will realize no cash until the cash payment date and, if
the issuer defaults, the Series may obtain no return at all on
its investment. Zero coupon, deferred interest and pay-in-kind
bonds involve additional special considerations.

Zero coupon or deferred interest securities are debt obligations
which do not entitle the holder to any periodic payments of
interest prior to maturity or a specified date when the
securities begin paying current interest (the "cash payment
date") and therefore are generally issued and traded at a
discount from their face amounts or par value. The discount
varies depending on the time remaining until maturity or cash
payment date, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer. The
discount, in the absence of financial difficulties of the issuer,
typically decreases as the final maturity or cash payment date of
the security approaches. The market prices of zero coupon
securities are generally more volatile than the market prices of
securities that pay interest periodically and are likely to
respond to changes in interest rates to a greater degree than do
non-zero coupon or deferred interest securities having similar
maturities and credit quality. Current federal income tax law
requires that a holder of a zero coupon security report as income
each year the portion of the original issue discount on such
security that accrues that year, even though the holder receives
no cash payments of interest during the year.

Pay-in-kind bonds are securities which pay interest through the
issuance of additional bonds. The Series will be deemed to
receive interest over the life of such bonds and be taxed as if
interest were paid on a current basis, although no cash interest
payments are received by the Series until the cash payment date
or until the bonds mature.

The Series' investment in zero coupon and delayed interest bonds,
or bonds that provide for payment of interest in kind may cause
the Series to recognize income and make distributions to
shareholders prior to the receipt of cash payments. For example,
with respect to zero coupon and delayed interest bonds, the
Series will be required to accrue as income a portion of the
discount (or deemed discount) at which the securities were issued
and to distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid
income and excise taxes. Payment-in-kind obligations are subject
to special tax rules concerning the amount, character and timing
of income required to be accrued by the Series.

Because of the Income Series' policy of investing in higher
yielding, higher risk securities, an investment in the Series is
accompanied by a higher degree of risk than is present with an
investment in higher rated, lower yielding securities.
Accordingly, an investment in the Series should be carefully
evaluated for its appropriateness in light of the investor's
overall investment needs and goals. Persons on fixed incomes,
such as retired persons, should also consider the increased risk
of loss of principal which is present with an investment in
higher risk securities. As with any other investment, there is no
assurance that the Series' objectives will be achieved.

Management of the Fund

The Board of Directors has the primary responsibility for the
overall management of the Fund and for electing the officers of
the Fund who are responsible for administering the day-to-day
operations of each Series.

The Board 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 of
the Growth Series, Utilities Series, Income Series, U.S.
Government Securities Series, and one class of the DynaTech
Series, but new classes may be offered in the future.

Franklin Advisers, Inc. ("Advisers" or "Manager"), serves as the
Fund's investment manager. Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly-owned
holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately 20%
and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services
industry through its various subsidiaries (the "Franklin
Templeton Group"). Advisers acts as investment manager or
administrator to 34 U.S. registered investment companies (112
separate series) with aggregate assets of over $74 billion.

Pursuant to the management agreement, the Manager supervises and
implements each Series' investment activities and provides
certain administrative services and facilities which are
necessary to conduct the Series' business. The management fees
and total operating expenses of the Class I shares for each
Series, expressed as a percentage of average monthly net assets,
for the fiscal year ended September 30, 1994 were as follows:

U.S.
Dyna Government
Fiscal Year Growth Tech Utilities Income Securities
9/30/94 Series Series Series Series Series
Management Fees 0.49% 0.62% 0.45% 0.46% 0.45%
Total Operating
Expenses 0.77% 1.00% 0.64% 0.64% 0.55%

Among the responsibilities of the Manager under the management
agreement is the selection of brokers and dealers through whom
transactions for each Series' portfolio securities will be
effected. The Manager tries to obtain the best execution on all
such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the
furnishing of quotations and of other market services, research,
statistical and other data for the Manager and its affiliates, as
well as the sale of shares of the Fund, as factors in selecting a
broker. Further information is included under "The Fund's
Policies Regarding Brokers Used on Portfolio Transactions" in the
SAI.

Shareholder accounting and many of the clerical functions for
each Series are performed by Franklin/Templeton Investor
Services, Inc. ("Investor Services" or "Shareholder Services
Agent") in its capacity as transfer agent and dividend-paying
agent. Investor Services is a wholly-owned subsidiary of
Resources.

Plans of Distribution

A separate Plan of Distribution has been approved and adopted for
each class of each Series ("Class I Plans" and "Class II Plans,"
respectively, or "Plans") pursuant to Rule 12b-1 under the 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 of such Series. Any portion
of fees remaining from any of the Plans after distribution to
securities dealers of up to the maximum amount permitted under
each Plan may be used by the class of a Series to reimburse
Distributors for routine ongoing promotion and distribution
expenses incurred with respect to such class of each Series'
shares. Such expenses may include, but are 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 class
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 on behalf of a Series,
Distributors or its affiliates.

The maximum amount which a Series may pay to Distributors or
others under the Class I Plans for such distribution expenses is
0.25% per annum for the Growth Series and DynaTech Series and
0.15% per annum for the Utilities Series, Income Series and U.S.
Government Securities Series, payable on a quarterly basis. All
expenses of distribution and marketing in excess of the maximum
allowable under the Plans will be borne by Distributors, or
others who have incurred them, without reimbursement from such
Series.

In implementing the Class I 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 Class I 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 Class I 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.

The fees relating to the Class I Plans of each Series, the fee is
a class I expense of a Series so that all shareholders,
regardless of when they purchased their Class I shares, will bear
12b-1 expenses at the same rate as the other Class I shareholders
of such Series. 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' Class I shares are sold on
or after the Effective Date, will increase over time. Thus, as
the proportion of a Series' Class I shares purchased on or after
the Effective Date to outstanding Series shares increases, the
expenses attributable to payments under the Class I Plans 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.

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, Utilities Series, Income Series, and U.S. Government
Securities Series are permitted to pay a maximum of 0.50% per
annum of each Series' Class II daily net assets to Distributors
or others for distribution expenses and related expenses, 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 Series. In
addition, the Class II Plans provides for an additional payment
of up to 0.25% by the Growth Series of up to 0,25% and of up to
0.15% by the Utilities Series, Income Series 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 Series on behalf of customers, or
similar activities related to furnishing personal services and/or
maintaining shareholder accounts.

During the first year following the purchase of Class II shares,
Distributors will retain a portion (0.75% per annum of the Class
II's average daily net assets for the Growth Series, and 0.50%
per annum of Class II's average daily net assets for Utilities
Series, Income Series and U.S. Government Securities Series) of
the Plan fees assessed on Class II 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.

Both Class I and Class II Plans also cover any payments to or by
the Series, Advisers, Distributors, or other parties on behalf of
the 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 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 each class of a Series. For more information, including a
discussion of the Board's policies with regard to the amount of
each Plan's fees, please see the SAI.

Distributions to Shareholders

There are two types of distributions which each Series may make
to its shareholders:

1. Income dividends. Each Series receives income in the form of
dividends, interest and other income derived from its
investments. This income, less the expenses incurred in the
Series' operations, is its net investment income from which
income dividends may be distributed. Thus, the amount of
dividends paid per share may vary with each distribution.

2. Capital gain distributions. Each Series may derive capital
gains or losses in connection with sales or other dispositions of
its portfolio securities. Distributions by a Series derived from
net short-term and net long-term capital gains (after taking into
account any net capital loss carryovers) may generally be made
once a year in December to reflect any net short-term and net
long-term capital gains realized by the Series as of October 31
of the current fiscal year and any undistributed net capital
gains from the prior fiscal year. These distributions, when made,
will generally be fully taxable to a Series' shareholders. A
Series may make more than one distribution derived from net short-
term and net long-term capital gains in any year or adjust the
timing of these distributions for operational or other reasons.

Distributions To Each Class of Shares

According to the requirements of the Code, 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.

Distribution Date

Although subject to change by the Board of Directors, without
prior notice to or approval by shareholders, the Fund's current
policy is to declare income dividends monthly in the U.S.
Government Securities Series and Income Series for shareholders
of record on the last business day of the month, payable on or
about the 15th day of the following month. Each of the foregoing
Series may determine to defer the December 31 record date to a
date shortly thereafter in January for tax or other operational
reasons. Dividends on the Utilities Series are generally declared
quarterly and those for Growth and DynaTech are generally
declared annually.

The amount of income dividend payments by any Series is dependent
upon the amount of net income received by the Series from its
portfolio holdings, is not guaranteed and is subject to the
discretion of the Board of Directors. Fund shares are quoted ex-
dividend on the first business day following the record date. The
Series do not pay "interest" or guarantees any fixed rate of
return on an investment in their shares.

In order to be entitled to a dividend, an investor must have
acquired the shares of a Series prior to the close of business on
the record date. An investor considering purchasing shares of a
Series shortly before the record date of a distribution should be
aware that because the value of a Series' shares is based
directly on the amount of its net assets, rather than on the
principle of supply and demand, any distribution of income or
capital gain will result in a decrease in the value of the shares
of the Series equal to the amount of the distribution. While a
dividend or capital gain distribution received shortly after
purchasing shares represents, in effect, a return of a portion of
the shareholder's investment, it may be taxable as dividend
income or capital gain.

Dividend Reinvestment

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 of the
Series valued at the closing net asset value (without a front-end
sales charge) on the dividend reinvestment date ("ex-dividend
date"). Dividend and capital gain distributions are only eligible
for reinvestment at net asset value in the same class of shares
of a Series or the same class of another of the Franklin
Templeton Funds. Shareholders have the right to change their
election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as
to distributions for which the record date is seven or more
business days after the Series has been notified. See the SAI for
more information.

Many of the Fund's shareholders receive their distributions in
the form of additional shares. This is a convenient way to
accumulate additional shares and maintain or increase the
shareholder's earnings base. Of course, any shares so acquired
remain at market risk.

Distributions in Cash

A shareholder may elect to receive income dividends, or both
income dividends and capital gain distributions, in cash. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected distributions
to the same class of another fund in the Franklin Templeton
Funds, to another person, or directly to a checking account. If
the bank at which the account is maintained is a member of the
Automated Clearing House, the payments may be made automatically
by electronic funds transfer. If this last option is requested,
the shareholder should allow at least 15 days for initial
processing. Dividends which may be paid in the interim will be
sent to the address of record. Additional information regarding
automated fund transfers may be obtained from Franklin's
Shareholder Services Department. See "How to Buy Shares of the
Fund - Purchases at Net Asset Value."

Taxation of the Fund and Its Shareholders

The following discussion reflects some of the tax considerations
that affect mutual funds and their shareholders. Additional
information on tax matters relating to the Fund and its
shareholders is included in the section entitled "Additional
Information Regarding Taxation" in the SAI.

Each Series is treated as a separate entity for federal income
tax purposes. Each Series has elected to be treated as a
regulated investment company under Subchapter M of the Code,
qualified as such, and intends to continue to so qualify.

By distributing all of its income and by meeting certain other
requirements relating to the sources of its income and
diversification of its assets, each Series will not be liable for
federal income or excise taxes.

For federal income tax purposes, any income dividends which the
shareholder receives from any of the Series, as well as any
distributions derived from the excess of net short-term capital
gain over net long-term capital loss, are treated as ordinary
income whether the shareholder has elected to receive them in
cash or in additional shares.

Distributions derived from the excess of net long-term capital
gain over net short-term capital loss are treated as long-term
capital gain regardless of the length of time the shareholder has
owned shares of the Series and regardless of whether such
distributions are received in cash or in additional shares.

For the fiscal year ended September 30, 1994, the following
amounts of income dividends may qualify for the federal corporate
dividends-received deduction:

Income Dividend
Fund Qualifying
Growth Series 100.00%
DynaTech Series 64.64%
Utilities Series 89.08%
Income Series 31.87%

The above percentages are subject to certain holding period and
debt-financing restrictions imposed under the Code on the
corporation claiming the deduction. These restrictions are
discussed in the SAI. None of the distributions paid by the U.S.
Government Securities Series for the fiscal year ended September
30, 1994, qualified for the corporate dividends-received
deduction and it is not anticipated that any of the current
year's dividends will qualify.

Pursuant to the Code, 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 received by the
shareholder on December 31 of the calendar year in which they are
declared.

Redemptions and exchanges of the shares for a Series are taxable
events on which a shareholder may realize a gain or loss. Any
loss incurred on sale or exchange of a Series' shares, held for
six months or less, will be treated as a long-term capital loss
to the extent of capital gain dividends received with respect to
such shares.

Many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned by a
fund from direct obligations of the U.S. government, subject in
some states to minimum investment requirements that must be met
by each Series. Investments in GNMA securities do not generally
qualify for tax-free treatment. At the end of each calendar year,
each Series will provide shareholders with the percentage of any
dividends paid which may qualify for such tax-free treatment.
Shareholders should consult with their own tax advisers with
respect to the application of their state and local income tax
laws to these distributions.

The Series will inform shareholders of the source of their
dividends and distributions at the time they are paid and will,
promptly after the close of each calendar year, advise them of
the tax status for federal income tax purposes of such dividends
and distributions.

Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes to distributions received by them from a Series and the
application of foreign tax laws to these distributions.

Shareholders should also consult their tax advisors with respect
to the applicability of any state and local intangible property
or income taxes to their shares of a Series and distributions and
redemption proceeds received from such Series.

How to Buy Shares of the Fund

Shares of each Series of the Fund are continuously offered
through securities dealers which execute an agreement with
Distributors, the principal underwriter of the Fund's shares. The
use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors
(directly or through affiliates), handle customer orders and
accounts with each Series of the Fund. Such reference, however,
is for convenience only and does not indicate a legal conclusion
of capacity. The minimum initial investment in each Series is
$100 and subsequent investments must be $25 or more. These
minimums may be waived when the shares are purchased through
plans established by the Franklin Templeton Group. The Fund and
Distributors reserve the right to refuse any order for the
purchase of shares. The DynaTech and Growth Series currently do
not permit investment by market timing or allocation services
("Timing Accounts"), which generally include accounts
administered so as to redeem or purchase shares based upon
certain predetermined market indicators.

Differences Between Class I and Class II. 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.

Class I. 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 of each class will be the same on matters affecting
the Fund as a whole, but each will vote separately on matters
affecting its class. 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 of the Growth Series and
DynaTech Series are subject to Rule 12b-1 fees of up to an annual
maximum of 0.25% of average daily net assets of such shares and
Class I shares of the Utilities Series, Income Series, and U.S.
Government Securities Series are subject to Rule 12b-1 fees of
up to an annual maximum of 0.15% of average daily net assets of
such shares. With this multiclass structure, Class I shares have
higher front-end sales charges than Class II shares and
comparatively lower Rule 12b-1 fees. Class I shares may be
purchased at a reduced front-end sales charges or at net asset
value if certain conditions are met. In most circumstances,
contingent deferred sales charges will not be assessed against
redemptions of Class I shares. See "Management of the Fund," and
"How to Sell Shares of the Fund" for more information.

Class II. The current public offering price of Class II shares
of the Growth Series, Utilities Series, Income Series, and U.S.
Government Securities Series is equal to the net asset value of
such Series, 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 of the Growth Series are subject to Rule 12b-1
fees of up to a maximum of 1.00% and the Utilities Series, Income
Series, and U.S. Government Securities Series are subject to Rule
12b-1 fees of up to a maximum of .65% of average daily net assets
of such shares, a portion of which will be retained by
Distributors during the first year of investment (0.75% for the
Growth Series and .50% for the Utilities Series, Income Series,
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. See "Contingent Deferred
Sales Charge" under "How to Sell Shares of the Fund". The
DynaTech Series currently does not offer Class II shares.

Purchases of Class II shares are limited to purchases 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.

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 should
consider purchasing Class II shares. However, the higher annual
Rule 12b-1 fees on the Class II shares will result in slightly
higher operating expenses and lower income dividends for Class II
shares, which 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 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 approximately 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 approximately 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.

Each class of the Series' represents the same interest in the
investment portfolio of such Series 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.

Purchase Price of Fund Shares

Shares of both classes of the Series 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
Series 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 I. The sales charge for Class I shares is a variable
percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places
using standard rounding criteria. A description of the method of
calculating net asset value per share is included under the
caption "Valuation of Fund Shares."

Set forth below are tables showing total front-end sales charges
or underwriting commissions and dealer concessions for Class I
shares of each Series.

Total Sales Charge
Dealer
Concession
As a As a
As a Percentage Percentage
Growth and DynaTech Series percentage of Net of
Size of Transaction of Offering Amount Offering
at Offering Price Price Invested Price*,***
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than
$250,000 3.75% 3.90% 3.25%
$250,000 but less than
$500,000 2.75% 2.83% 2.50%
$500,000 but less than
$1,000,000 2.25% 2.30% 2.00%
$1,000,000 or more none% none (see
below)**

*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 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. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
to be an underwriter as that term is defined in the Securities
Act of 1933, as amended.

Total Sales Charge
Dealer
Concession
Income, Utilities, and As a As a
U.S. Government As a Percentage Percentage
Securities Series Percentage of Net of
Size of Transaction at of Offering Amount Offering
Offering Price Price Invested Price*,***
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than
$250,000 3.50% 3.63% 3.25%
$250,000 but less than
$500,000 2.75% 2.83% 2.50%
$500,000 but less than
$1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more none none (see
below)**

*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.
**The following commissions will be paid by Distributors, out of
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 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. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.
***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
to be an underwriter as that term is defined in the Securities
Act of 1933, as amended.

No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of all or a portion of investment of $1
million within the contingency period. See "How to Sell Shares of
the Fund - Contingent Deferred Sales Charge."

The size of a transaction which determines the applicable sales
charge on the purchase of Class I shares is determined by adding
the amount of the shareholder's current purchase plus the cost or
current value (whichever is higher) of a shareholder's existing
investment in one or more of the funds in the Franklin Group of
Funds(Registered Trademark) and the Templeton Group of Funds.
Included for these aggregation purposes are (a) the mutual funds
in the Franklin Group of Funds except Franklin Valuemark Funds
and Franklin Government Securities Trust (the "Franklin Funds"),
(b) other investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) the U.S. registered mutual funds in the Templeton Group
of Funds except Templeton Capital Accumulator Fund, Inc.,
Templeton Variable Annuity Fund, and Templeton Variable Products
Series Fund (the "Templeton Funds"). (Franklin Funds and
Templeton Funds are collectively referred to as the "Franklin
Templeton Funds.") Sales charge reductions based upon aggregate
holdings of (a), (b) and (c) above ("Franklin Templeton
Investments") may be effective only after notification to
Distributors that the investment qualifies for a discount.

Other Payments to Securities Dealers. Distributors, or one of its
affiliates, may make payments, out of its own resources, of up to
0.75% of the amount purchased in the Utilities Series, Income
Series and U.S. Government Securities Series and up to 1% of the
amount purchased in the Growth Series and DynaTech Series to
securities dealers who initiate and are responsible for purchases
made at net asset value non-designated retirement plans, and up
to 1% of the amount purchased in all funds to securities dealers
who initiate and are responsible for purchases made at net asset
value by certain designated retirement plans (excluding IRA and
IRA rollovers), certain trust companies and trust departments of
banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more. See
definitions under "Description of Special Net Asset Value
Purchases" and as set forth in the SAI.

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:

Class II Shares -- 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)

* Distributors, or one of its affiliates, may make an additional
payment to securities dealers, from its own resources, of up to
1% of the amount invested. During the first year following a
purchase of Class II shares, Distributors will keep a portion of
the Rule 12b-1 fees assessed to those shares to partially recoup
fees Distributors pays to securities dealers.

Class II shares redeemed within 18 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 under "How To Sell Shares of the Fund -
Contingent Deferred Sales Charge."

Distributors, or one of its affiliates, out of its own resources,
may also provide additional compensation to securities dealers in
connection with sales of shares of the in the Franklin Templeton
Funds. Compensation may include financial assistance to
securities dealers in connection with conferences, sales or
training programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and
programs regarding one or more of the Franklin Templeton Funds
and other dealer-sponsored programs or events. In some instances,
this compensation may be made available only to certain
securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin
Templeton Funds. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and members of their
families to locations within or outside of the United States for
meetings or seminars of a business nature. Securities dealers may
not use sales of the Fund's shares to qualify for this
compensation to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by any Series
of the Fund or its shareholders.

Additional terms concerning the offering of the Fund's shares are
included in the SAI.

Certain officers and directors of the Fund are also affiliated
with Distributors. A detailed description is included in the SAI.

Quantity Discounts in Sales Charges - Class I Shares Only

Class I shares may be purchased under a variety of plans which
provide for a reduced sales charge. To be certain to obtain the
reduction of the sales charge, the investor or the securities
dealer should notify Distributors at the time of each purchase of
shares which qualifies for the reduction. In determining whether
a purchase qualifies for a discount, an investment in any of the
Franklin Templeton Investments may be combined with those of the
investor's spouse and children under the age of 21. In addition,
the aggregate investments of a trustee or other fiduciary account
(for an account under exclusive investment authority) may be
considered in determining whether a reduced sales charge is
available, even though there may be a number of beneficiaries of
the account. The value of Class II shares owned by the investor
may also be included for this purpose.

In addition, an investment in Class I shares of each Series may
qualify for a reduction in the sales charge under the following
programs:

1. Rights of Accumulation. The cost or current value (whichever
is higher) of existing investments in the Franklin Templeton
Investments may be combined with the amount of the current
purchase in determining the sales charge to be paid.

2. Letter of Intent. An investor may immediately qualify for a
reduced sales charge on a purchase of Class I shares of the Fund
by completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By completing
the Letter, the investor expresses an intention to invest during
the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge and grants to
Distributors a security interest in the reserved shares and
irrevocably appoints Distributors as attorney-in-fact with full
power of substitution to surrender for redemption any or all
shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors
that this Letter is in effect each time a purchase is made.

An investor (except for certain employee benefit plans which are
listed under "Description of Special Net Asset Value Purchases")
acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application:
Five percent (5%) of the amount of the total intended purchase
will be reserved in Class I shares registered in the investor's
name, to assure that the full applicable sales charge will be
paid if the intended purchase is not completed. The reserved
shares will be included in the total shares owned as reflected on
periodic statements; income and capital gain distributions on the
reserved shares will be paid as directed by the investor. The
reserved shares will not be available for disposal by the
investor until the Letter of Intent has been completed or the
higher sales charge paid. For more information, see "Additional
Information Regarding Purchases" in the SAI.

Although the sales charges on Class II shares cannot be reduced
through these programs, the value of Class II shares owned by the
investor may be included in determining a reduced sales charge to
be paid on Class I shares pursuant to the Letter of Intent and
Rights of Accumulation programs.

Group Purchases of Class I Shares

An individual who is a member of a qualified group may also
purchase Class I shares of a Series at the reduced sales charge
applicable to the group as a whole. The sales charge is based
upon the aggregate dollar value of shares previously purchased
and still owned by members of the group, plus the amount of the
current purchase. For example, if members of the group had
previously invested and still held $80,000 of shares in a Series
and now were investing $25,000, the sales charge would be 3.75%
for the Growth and DynaTech Series and 3.50% for the Income,
Utilities and U.S. Government Securities Series. In addition, as
stated above, no front-end sales charge applies on investments of
$1 million or more by individuals or groups, but a contingent
deferred sales charge of 1% is imposed on certain redemptions
within 12 months of the calendar month of the purchase.
Information concerning the current sales charge applicable to a
group may be obtained by contacting Distributors.

A "qualified group" is one which (i) has been in existence for
more than six months, (ii) has a purpose other than acquiring
Fund shares at a discount and (iii) satisfies uniform criteria
which enable Distributors to realize economies of scale in its
costs of distributing shares. A qualified group must have more
than 10 members, be available to arrange for group meetings
between representatives of the Fund or Distributors and the
members, agree to include sales and other materials related to
the Fund in its publications and mailings to members at reduced
or no cost to Distributors, and seek to arrange for payroll
deduction or other bulk transmission of investments to the Fund.

If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of
the payroll deduction and the time the money reaches the Fund.
The investment in a Series of the Fund will be made at the
offering price per share determined on the day that both the
check and payroll deduction data are received in required form by
the Fund.

Purchases at Net Asset Value

Class I shares may be purchased without the imposition of a front-
end sales charge ("net asset value") or a contingent deferred
sales charge by (1) officers, trustees, directors, and full-time
employees of the Fund, any of the Franklin Templeton Funds, or of
the Franklin Templeton Group, and by their spouses and family
members, including any subsequent payments made by such parties
after cessation of employment; (2) companies exchanging shares
with or selling assets pursuant to a merger, acquisition or
exchange offer; (3) insurance company separate accounts for
pension plan contracts; (4) accounts managed by the Franklin
Templeton Group; (5) shareholders of Templeton Institutional
Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the
Internal Revenue Code of 1986, as amended, in shares of the Fund;
(6) certain unit investment trusts and unit holders of such
trusts reinvesting their distributions from the trusts in the
Fund; (7) registered securities dealers and their affiliates, for
their investment account only, and (8) registered personnel and
employees of securities dealers and by their spouses and family
members, in accordance with the internal policies and procedures
of the employing securities dealer.

For either Class I or Class II, the same class of shares of a
Series 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. Matured shares will be reinvested
at net asst value and will not be subject to a new contingent
deferred sales charge. Shares of a Series 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 a Series 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 this 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 gains distributions in cash from investments in that
class of shares of a Series 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 to
Shareholders."

Class I shares of a Series may be purchased at net asset value
and without the imposition of a contingent deferred sales charge
by investors who have, within the past 60 days, redeemed an
investment in a mutual fund which is not part of the Franklin
Templeton Funds and which charged the investor a contingent
deferred sales charge upon redemption and which has investment
objectives similar to those of the Series.

Class I shares of a Series may be purchased at net asset value
and without the imposition of a contingent deferred sales charge
by broker dealers who have entered into a supplemental agreement
with Distributors, or by registered investment advisors
affiliated with such broker-dealers, on behalf of their clients
who are participating in a comprehensive fee program (sometimes
known as a wrap fee program).

Class I shares of a Series may be purchased at net asset value
and without the imposition of a contingent deferred sales charge
by anyone who has taken a distribution from an existing
retirement plan already invested in the Franklin Templeton Funds
(including former participants of the Franklin Templeton Profit
Sharing 401(k) plan), to the extent of such distribution. In
order to exercise this privilege a written order for the purchase
of shares of the Series must be received by Franklin Templeton
Trust Company (the "Trust Company"), the Series or Investor
Services, within 120 days after the plan distribution.

Class I shares of each Series may also be purchased at net asset
value and without the imposition of a contingent deferred sales
charge by any state, county, or city, or any instrumentality,
department, authority or agency thereof which has determined that
the Series is a legally permissible investment and which is
prohibited by applicable investment laws from paying a sales
charge or commission in connection with the purchase of shares of
any registered management investment company ("an eligible
governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES
OF A SERIES CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal
investors considering investment of proceeds of bond offerings
into any Series of the Fund should consult with expert counsel to
determine the effect, if any, of various payments made by the
Series or its investment manager on arbitrage rebate
calculations. If an investment by an eligible governmental
authority at net asset value is made through a securities dealer
who has executed a dealer agreement with Distributors,
Distributors or one of its affiliates may make a payment, out of
their own resources, to such securities dealer in an amount not
to exceed 0.25% of the amount invested. Contact Franklin's
Institutional Sales Department for additional information.

Description of Special Net Asset Value Purchases

Class I shares of a Series 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 a Series of 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.

Class I shares of the Series may be purchased at net asset value
and without the imposition of a contingent deferred sales charge
by trust companies and bank trust departments for funds over
which they exercise exclusive discretionary investment authority
and which are held in a fiduciary, agency, advisory, custodial or
similar capacity. Such purchases are subject to minimum
requirements with respect to amount of purchase, which may be
established by Distributors. Currently, those criteria require
that the amount invested or to be invested during the subsequent
13-month period in this Fund or any of the Franklin Templeton
Investments must total at least $1,000,000. Orders for such
accounts will be accepted by mail accompanied by a check or by
telephone or other means of electronic data transfer directly
from the bank or trust company, with payment by federal funds
received by the close of business on the next business day
following such order.

Class I shares of the Fund may be purchased at net asset value
and without the imposition of a contingent deferred sales charge
by trustees or other fiduciaries purchasing securities for
certain retirement plans of organizations with collective
retirement plan assets of $10 million or more, without regard to
where such assets are currently invested.

Refer to the SAI for further information regarding net asset
value purchases of Class I shares.

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 of the Series indicated. 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.

General

Securities laws of states in which each Series' shares are
offered for sale may differ from the interpretations of federal
law, and banks and financial institutions selling shares of any
Series may be required to register as dealers pursuant to state
law.

Purchasing Shares of the Fund in
Connection with Retirement Plans
Involving Tax-Deferred Investments

Shares of each Series may be used for individual or employer-
sponsored retirement plans involving tax-deferred investments.
Each Series may be used as an investment vehicle for an existing
retirement plan, or Franklin Templeton Trust Company (the "Trust
Company") may provide the plan documents and serve as custodian
or trustee. A plan document must be adopted in order for a
retirement plan to be in existence.

The Trust Company, an affiliate of Distributors, can serve as
custodian or trustee for retirement plans. Brochures for the
Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution
requirements. Please note that an application other than the one
contained in this Prospectus must be used to establish a
retirement plan account with the Trust Company. To obtain a
retirement plan brochure or application, call 1-800/DIAL BEN (1-
800/342-5236).

Please see "How to Sell Shares of the Fund" for specific
information regarding redemptions from retirement plan accounts.
Specific forms are required to be completed for distributions
from Franklin Templeton Trust Company retirement plans.

Individuals and plan sponsors should consult with legal, tax or
benefits and pension plan consultants before choosing a
retirement plan. In addition, retirement plan investors should
consider consulting their investment representatives or advisers
concerning investment decisions within their plans.

Other Programs and Privileges
Available to Fund Shareholders

Certain of the programs and privileges described in this section
may not be available directly from a Series to shareholders whose
shares are held, of record, by a financial institution or in a
"street name" account or networked account through the National
Securities Clearing Corporation ("NSCC") (see the section
captioned "Account Registrations" in this Prospectus).

Share Certificates

Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and capital
gain distributions, are generally credited to an account in the
name of an investor on the books of each Series of the Fund,
without the issuance of a share certificate. Maintaining shares
in uncertificated form (also known as "plan balance") minimizes
the risk of loss or theft of a share certificate. A lost, stolen
or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the securities dealer.

Confirmations

A confirmation statement will be sent to each shareholder
quarterly for a Series paying dividends on a quarterly or more
frequent basis to reflect the dividends reinvested during that
period and after each dividend for a Series paying dividends less
frequently than quarterly or after each other transaction which
affects the shareholder's account. This statement will also show
the total number of shares owned by the shareholder, including
the number of shares in "plan balance" for the account of the
shareholder.

Automatic Investment Plan

Under the Automatic Investment Plan, a shareholder may be able to
arrange to make additional purchases of shares automatically on a
monthly basis by electronic funds transfer from a checking
account, if the bank which maintains the account is a member of
the Automated Clearing House, or by preauthorized checks drawn on
the shareholder's bank account. A shareholder may, of course,
terminate the program at any time. The Automatic Investment Plan
Application included with this Prospectus contains the
requirements applicable to this program. In addition,
shareholders may obtain more information concerning this program
from their securities dealers or from Distributors.

The market value of each class of a Series' shares is subject to
fluctuation. Before undertaking any plan for systematic
investment, the investor should keep in mind that such a program
does not assure a profit or protect against a loss.

Systematic Withdrawal Plan

A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. Retirement plans subject to mandatory distribution
requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis.
If the shareholder establishes a plan, any capital gain
distributions and income dividends paid by the Series will be
reinvested for the shareholder's account in additional shares at
net asset value. Payments will then be made from the liquidation
of shares at net asset value on the day of the transaction (which
is generally the first business day of the month in which the
payment is scheduled) with payment generally received by the
shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to
another of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the account
is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments which may be paid
in the interim will be sent to the address of record. Liquidation
of shares may reduce or possibly exhaust the shares in the
shareholder's account, to the extent withdrawals exceed shares
earned through dividends and distributions, particularly in the
event of a market decline. If the withdrawal amount exceeds the
total plan balance, the account will be closed and the remaining
balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a sale
for federal income tax purposes. Because the amount withdrawn
under the plan may be more than the shareholder's actual yield or
income, part of the payment may be a return of the shareholder's
investment.

The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Series would be
disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I shares and Class II
shares may be subject to a contingent deferred sales charge if
the shares are redeemed within 12 months (Class I shares) or 18
months (Class II shares) of the calendar month of the original
purchase date. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the
annual withdrawals under the plan during the time such a plan is
in effect.

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, however,
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% semiannually, 3%
quarterly). For example, if the account maintained an annual
balance of $1,000,000, only $120,000 could be withdrawn through a
once-yearly Systematic Withdrawal Plan free of charge; an amount
over that $120,000 would be assessed a 1% (or applicable)
contingent deferred sales charge. Likewise, if a Class II account
maintained an annual balance of $10,000, only $1,200 could be
withdrawn through a once-yearly Systematic Withdrawal Plan free
of charge.

A Systematic Withdrawal Plan may be terminated on written notice
by the shareholder or the Series, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Series' receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.

Institutional Accounts

There may be additional methods of purchasing, redeeming or
exchanging shares of the Series available to institutional
accounts. For further information, contact Franklin Templeton
Institutional Services Department at 1-800/321-8563.

Exchange Privilege

The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives or policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, a Series' shares may be exchanged
for the same class of shares 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 12 months (Class I
shares) or 18 months (Class II shares) of the calendar month
following 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 may be made in any of the following ways:

Exchanges By Mail

Send written instructions signed by all account owners and
accompanied by any outstanding share certificates properly
endorsed. The transaction will be effective upon receipt of the
written instructions together with any outstanding share
certificates.

Exchanges By Telephone

Shareholders, or their investment representative of record, if
any, may exchange shares of a Series by telephone by calling
Investor Services at 1-800/632-2301 or the automated Franklin
TeleFACTS(Registered Trademark) system (day or night) at 1-
800/247-1753. If the shareholder does not wish this privilege
extended to a particular account, the Fund or Investor Services
should be notified.

The Telephone Exchange Privilege allows a shareholder to effect
exchanges from the Series into an identically registered account
of the same class of shares in one of the other available funds
in the Franklin Templeton Funds. The Telephone Exchange Privilege
is available only for uncertificated shares or those which have
previously been deposited in the shareholder's account. The Fund
and Investor Services will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine.
Please refer to "Telephone Transactions - Verification
Procedures."

During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be difficult
to implement and the TeleFACTS(Registered Trademark) option may
not be available. In this event, shareholders should follow the
other exchange procedures discussed in this section, including
the procedures for processing exchanges through securities
dealers.

Exchanges Through Securities Dealers

As is the case with all purchases and redemptions of a Series'
shares, Investor Services will accept exchange orders from
securities dealers who execute a dealer or similar agreement with
Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which
certificates have previously been deposited. A securities dealer
may charge a fee for handling an exchange.

Additional Information Regarding Exchanges

Exchanges of the same class of shares are made on the basis of
the net asset values of the class involved, except as set forth
below. Exchanges of shares of a class of a Series which were
originally purchased without a sales charge will be charged a
sales charge in accordance with the terms of the prospectus of
the fund and the class of shares being purchased, unless the
original investment on which no sales charge was paid was
transferred in from a fund on which the investor paid a sales
charge. Exchanges of Class I shares of a Series which were
purchased with a lower sales charge into a fund which has a
higher sales charge will be charged the difference in sales
charges, unless the shares were held in the Series for at least
six months prior to executing the exchange.

When an investor requests the exchange of the total value of a
Series account, declared but unpaid income dividends and capital
gain distributions will be transferred to the account in the fund
being exchanged into and will be invested at net asset value.
Because the exchange is considered a redemption and purchase of
shares, the shareholder may realize a gain or loss for federal
income tax purposes. Backup withholding and information reporting
may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section
in this Prospectus and in the SAI.

There are differences among the many Franklin Templeton Funds.
Before making an exchange, a shareholder should obtain and review
a current prospectus of the fund into which the shareholder
wishes to transfer.

If a substantial portion of a Series' shareholders should, within
a short period, elect to redeem their shares of that Series
pursuant to the exchange privilege, the Series might have to
liquidate portfolio securities it might otherwise hold and incur
the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the
general policy of each Series to initially invest this money in
short-term, interest-bearing money market instruments, unless it
is felt that attractive investment opportunities consistent with
the Series' investment objectives exist immediately.
Subsequently, this money will be withdrawn from such short-term
money market instruments and invested in portfolio securities in
as orderly a manner as is possible when attractive investment
opportunities arise.

The Exchange Privilege may be modified or discontinued by the
Series at any time upon 60 days' written notice to shareholders.

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 Class I 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 Class II 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 the 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.

The DynaTech Series does not currently offer Class II shares.

Transfers

Transfers between identically registered accounts in the same
fund or Series 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. Shares of each class will be transferred on the same
basis as described above for exchanges.

Conversion Rights

It is not presently anticipated that Class II shares will be
convertible 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.

Retirement Accounts

Franklin Templeton IRA and 403(b) retirement plan accounts may
accomplish exchanges directly. Certain restrictions may apply,
however, to other types of retirement plans. See "Restricted
Accounts" under "Telephone Transactions."

Timing Accounts

Accounts which are administered by allocation or market timing
services to purchase or redeem shares based on predetermined
market indicators ("Timing Accounts") will be charged a $5.00
administrative service fee per each such exchange. All other
exchanges are without charge.

The Growth Series and DynaTech Series currently will not accept
investments from Timing Accounts.

Restrictions on Exchanges

In accordance with the terms of their respective prospectuses,
certain funds do not accept or may place differing limitations
than those below on exchanges by Timing Accounts.

The Board of Directors has determined to prohibit new investments
from Timing Accounts which intend to use the DynaTech and Growth
Series. Except for these two Series, the Fund reserves the right
to temporarily or permanently terminate the exchange privilege or
reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who:
(i) makes an exchange request out of a Series within two weeks of
an earlier exchange request out of that Series, or (ii) makes
more than two exchanges out of a Series per calendar quarter, or
(iii) exchanges shares equal in value to at least $5 million, or
more than 1% of the Series' net assets. Accounts under common
ownership or control, including accounts administered so as to
redeem or purchase shares based upon certain predetermined market
indicators, will be aggregated for purposes of the exchange
limits.

Each Series reserves the right to refuse the purchase side of an
exchange request by any Timing Account, person, or group if, in
the Manager's judgment, the Series would be unable to invest
effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if
the Series receives or anticipates simultaneous orders affecting
significant portions of the Series' assets. In particular, a
pattern of exchanges that coincide with a "market timing"
strategy may be disruptive to the Series and therefore may be
refused.

The Fund and Distributors also, as indicated in "How to Buy
Shares of the Fund," reserve the right to refuse any order for
the purchase of shares.

How to Sell Shares of the Fund

A shareholder may at any time liquidate shares owned and receive
from the Series the value of the shares. Shares may be redeemed
in any of the following ways:

Redemptions by Mail

Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of this
Prospectus, and any share certificates which have been issued for
the shares being redeemed, properly endorsed and in order for
transfer. The shareholder will then receive from the Series the
value of the class of shares redeemed based upon the net asset
value per share (less a contingent deferred sales charge, if
applicable) next computed after the written request in proper
form is received by Investor Services. Redemption requests
received after the time at which the net asset value is
calculated (at the scheduled close of the New York Stock Exchange
("Exchange"), which is generally 1:00 p.m. Pacific time) each day
that the Exchange is open for business will receive the price
calculated on the following business day. Shareholders are
requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly when
necessary will speed the processing of the redemption.

To be considered in proper form, signature(s) must be guaranteed
if the redemption request involves any of the following:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record, preauthorized
bank account or brokerage firm account;

(4) share certificates, if the redemption proceeds are in excess
of $50,000; or

(5) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on the
transfer instructions, including, for example, when (a) the
current address of one or more joint owners of an account cannot
be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been
notified of an adverse claim, (d) the instructions received by
the Fund are given by an agent, not the actual registered owner,
(e) the Fund determines that joint owners who are married to each
other are separated or may be the subject of divorce proceedings,
or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been
established to the satisfaction of the Fund.

Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Generally, eligible guarantor institutions
include (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a
national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the
request to be in proper form.

Share Certificates - Where shares to be redeemed are represented
by share certificates, the request for redemption must be
accompanied by the share certificate and a share assignment form
signed by the registered shareholders exactly as the account is
registered, with the signature(s) guaranteed as referenced above.
Shareholders are advised, for their own protection, to send the
share certificate and assignment form in separate envelopes if
they are being mailed in for redemption.

Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction
require the following documentation to be in proper form:

Corporation - (1) Signature guaranteed letter of instruction from
the authorized officer(s) of the corporation, and (2) a corporate
resolution.

Partnership - (1) Signature guaranteed letter of instruction from
a general partner and (2) pertinent pages from the partnership
agreement identifying the general partners or a certification for
a partnership agreement.

Trust - (1) Signature guaranteed letter of instruction from the
trustee(s) and (2) a copy of the pertinent pages of the trust
document listing the trustee(s) or a Certification for Trust if
the trustee(s) are not listed on the account registration.

Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.

Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.

Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper form.

Redemptions by Telephone

Shareholders who complete the Franklin Templeton Telephone
Redemption Authorization Agreement (the "Agreement"), included
with this Prospectus may redeem shares of the Fund by telephone,
subject to the Restricted Account exception noted under
"Telephone Transactions - Restricted Accounts." Information may
also be obtained by writing to the Fund or Investor Services at
the address shown on the cover or by calling 1-800/632-2301. The
Fund and Investor Services will employ reasonable procedures to
confirm that instructions given by telephone are genuine.
Shareholders, however, bear the risk of loss in certain cases as
described under "Telephone Transactions - Verification
Procedures."

For shareholder accounts with the completed Agreement on file,
redemptions of uncertificated shares or shares which have
previously been deposited with a Series or Investor Services may
be made for up to $50,000 per day per Series account. Telephone
redemption requests received before the scheduled close of the
Exchange (generally 1:00 p.m. Pacific time on any business day
will be processed that same day. The redemption check will be
sent within seven days, made payable to all the registered owners
on the account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30
days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set
forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and
qualified retirement plans which qualify to purchase shares at
net asset value pursuant to the terms of this Prospectus) which
wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available
from the Franklin Templeton Institutional Services Department by
telephoning 1-800/321-8563.

Redeeming Shares Through Securities Dealers

Each Series will accept redemption orders from securities dealers
who have entered into an agreement with Distributors. This is
known as a repurchase. The only difference between a normal
redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net
asset value next calculated after the shareholder's dealer
receives the order which is promptly transmitted to a Series,
rather than on the day the Series receives the shareholder's
written request in proper form. The documents, as described in
the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt
of a repurchase order from the dealer, the Series will still
require a signed letter of instruction and all other documents
set forth above. A shareholder's letter should reference the
Series and the class, the account number, the fact that the
repurchase was ordered by a dealer and the dealer's name. Details
of the dealer-ordered trade, such as trade date, confirmation
number, and the amount of shares or dollars, will help speed
processing of the redemption. The seven-day period within which
the proceeds of the shareholder's redemption will be sent will
begin when the Series receives all documents required to complete
("settle") the repurchase in proper form. The redemption proceeds
will not earn dividends or interest during the time between
receipt of the dealer's repurchase order and the date the
redemption is processed upon receipt of all documents necessary
to settle the repurchase. Thus, it is in a shareholder's best
interest to have the required documentation completed and
forwarded to the Series as soon as possible. The shareholder's
dealer may charge a fee for handling the order. The SAI contains
more information on the redemption of shares.

Contingent Deferred Sales Charge

In order to recover commissions paid to securities dealers, Class
I investments of $1 million or more and any Class II investments
redeemed within the contingency period of 12 months (Class I) or
18 months (Class II) 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.

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) A
calculated number of 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 or their beneficiaries in Trust
Company individual retirement plan accounts due to death,
disability or attainment of age 59 1/2; tax-free returns of
excess contributions from 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); redemptions initiated by a Series
due to a shareholder's account falling below the minimum
specified account size; and redemptions following the death of
the shareholder or the beneficial owner.

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.

Additional Information Regarding Redemptions

Each Series may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase shares of a Series, which may take up to 15 days or
more. Although the use of a certified or cashier's check will
generally reduce this delay, shares purchased with these checks
will also be held pending clearance. Shares purchased by federal
funds wire are available for immediate redemption. In addition,
the right of redemption may be suspended or the date of payment
postponed if the Exchange is closed (other than customary
closing) or upon the determination of the SEC that trading on the
Exchange is restricted or an emergency exists, or if the SEC
permits it, by order, for the protection of shareholders. Of
course, the amount received may be more or less than the amount
invested by the shareholder, depending on fluctuations in the
market value of securities owned by a Series.

Retirement Plan Accounts

Retirement plan account liquidations require the completion of
certain additional forms to ensure compliance with IRS
regulations. To liquidate a retirement account, a shareholder or
securities dealer may call Franklin's Retirement Plans Department
to obtain the necessary forms.

Tax penalties will generally apply to any distribution from such
plans to a participant under age 59 1/2, unless the distribution
meets one of exceptions set forth in the Code.

Other

For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.

Telephone Transactions

Shareholders of each Series and their investment representative
of record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.

All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option (see "Restricted Accounts" below),
(iii) transfer shares of a Series in one account to another
identically registered account in the Series, and (iv) exchange
shares of a Series as described in this Prospectus by telephone.
In addition, shareholders who complete and file an Agreement as
described under "How to Sell Shares of the Fund - Redemptions by
Telephone" will be able to redeem shares of a Series.

Verification Procedures

The Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. These will include: recording all telephone calls
requesting account activity by telephone, requiring that the
caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call
for the purpose of establishing the caller's identification, and
by sending a confirmation statement on redemptions to the address
of record each time account activity is initiated by telephone.
So long as the Fund and Investor Services follow instructions
communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused
by an unauthorized transaction. The Fund and Investor Services
may be liable for any losses due to unauthorized or fraudulent
instructions in the event such reasonable procedures are not
followed. Shareholders are, of course, under no obligation to
apply for or accept telephone transaction privileges. In any
instance where the Fund or Investor Services is not reasonably
satisfied that instructions received by telephone are genuine,
the requested transaction will not be executed, and neither the
Fund nor Investor Services will be liable for any losses which
may occur because of a delay in implementing a transaction.

Restricted Accounts

Telephone redemptions and dividend option changes may not be
accepted on Franklin Templeton retirement accounts. To assure
compliance with all applicable regulations, special forms are
required for any distribution, redemption, or dividend payment.
While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain
restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.

To obtain further information regarding distribution or transfer
procedures, including any required forms, retirement account
shareholders may call to speak to a Retirement Plans Specialist
at 1-800/527-2020 for Franklin accounts, or 1-800/354-9191 (press
"2" when prompted to do so) for Templeton accounts.

General

During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their investment
representative for assistance, or to send written instructions to
the Fund as detailed elsewhere in this Prospectus.

Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.

The telephone transaction privilege may be modified or
discontinued by a Series at any time upon 60 days' written notice
to shareholders.

Valuation of Fund Shares

The net asset value per share of each class of a Series is
determined as of the scheduled close of the Exchange (generally
1:00 p.m. Pacific time) each day that the Exchange is open for
trading. Many newspapers carry daily quotations of the prior
trading day's closing "bid" (net asset value) and "ask" (offering
price, which includes the maximum sales charge of each Series).

The net asset value per share of each class of a Series is
determined, in the following manner: The aggregate of all
liabilities is deducted from the aggregate gross value of all
assets, and the difference is divided by the number of shares of
the respective class of a Series outstanding at the time. For the
purpose of determining the aggregate net assets of the Series,
cash and receivables are valued at their realizable amounts.
Interest is recorded as accrued and dividends are recorded on the
ex-dividend date. 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 ask prices.
Portfolio securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to
the broadest and most representative market as determined by the
Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The
current market value of any option held by the Series is its last
sales price on the relevant exchange prior to the time when
assets are valued. Lacking any sales that day or if the last sale
price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices if
such valuation is believed to fairly reflect the contract's
market value. Other securities for which market quotations are
readily available are valued at the current market price, which
may be obtained from a pricing service, 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 issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Directors. With the
approval of directors, the Fund may utilize a pricing service,
bank or securities dealer to perform any of the above described
functions.

The value of a foreign security is determined as of the close of
trading on the foreign exchange on which it is traded or as of
the close of trading on the New York Stock Exchange, if that is
earlier, and that value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New
York time, on the day the value of the foreign security is
determined. If no sale is reported at that time, the mean
between the current bid and asked price is used. Occasionally,
events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are
determined and the close of the exchange and will, therefore, not
be reflected in the computation of the Fund's net asset value. If
events materially affect the value of these foreign securities
occur during such period, then these securities will be valued at
fair value as determined by management and approved in good faith
by the Board of Directors.

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

Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.

By calling the Franklin TeleFACTS(Registered Trademark) system at
1-800/247-1753, shareholders may obtain Class I and Class II
account information, current price and, if available, yield or
other performance information, specific to the Fund or any
Franklin or Templeton Fund. In addition, Franklin Class I
shareholders may process an exchange, within the same class, into
an identically registered Franklin account; and request duplicate
confirmation or year-end statements, money fund checks, if
applicable, and deposit slips.

The share codes for the Fund, which will be needed to access
system information are 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 will prompt the caller with easy to
follow step-by-step instructions from the main menu. Other
features may be added in the future.

To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:

Hours of Operation
(Pacific time)
(Monday through
Department Name Telephone Number Friday)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing
impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.

In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.

Performance

Advertisements, sales literature and communications to
shareholders may contain various measures of a class of a Series'
performance, including current yield, various expressions of
total return, and current distribution rate. They may
occasionally cite statistics to reflect its volatility or risk.

Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of $1,000
invested at the maximum public offering price (offering price
includes sales charge) for one-, five- and ten-year periods, or
portion thereof, to the extent applicable, through the end of the
most recent calendar quarter, assuming reinvestment of all
distributions. The Series may also furnish total return
quotations for each of their classes for other periods or based
on investments at various sales charge levels or at net asset
value. For such purposes total return equals the total of all
income and capital gain paid to shareholders, assuming
reinvestment of all distributions, plus (or minus) the change in
the value of the original investment, expressed as a percentage
of the purchase price.

Current yield for each class of a Series reflects the income per
share earned by the Series' portfolio investments; it is
calculated for each class of a Series by dividing that class' net
investment income per share during a recent 30-day period by the
maximum public offering price for that class of shares on the
last day of that period and annualizing the result.

Yield for each class of a Series, which is calculated according
to a formula prescribed by the SEC (see the SAI), is not
indicative of the dividends or distributions which were or will
be paid to shareholders of any Series. Dividends or distributions
paid to shareholders of a class of a Series are reflected in the
current distribution rate, which may be quoted to shareholders.
The current distribution rate is computed by dividing the total
amount of dividends per share paid by a class of 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 during 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 gain, and is
calculated over a different period of time.

In each case, performance figures are based upon past
performance, reflect all recurring charges against a class of a
Series' income and will assume the payment of the maximum sales
charge on the purchase of that class of shares. When there has
been a change in the sales charge structure, the historical
performance figures will be restated to reflect the new rate. The
investment results of each class of a Series, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what a class of the Series' yield,
distribution rate or total return may be in any future period.

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.

General Information

Reports to Shareholders

The Fund's fiscal year ends September 30. Annual Reports
containing audited financial statements of the Fund, including
the auditors' report, and Semi-Annual Reports containing
unaudited financial statements are automatically sent to
shareholders. Additional copies may be obtained, without charge,
upon request to the Fund at the telephone number or address set
forth on the cover page of this Prospectus.

Additional information on Fund performance is included in the
Fund's Annual Report to Shareholders and the SAI.

Organization and Voting Rights

The Fund's authorized capital stock consists of ten billion
shares of Capital Stock of $0.01 par value which have been
authorized by the Board of Directors to be issued in ten separate
sub-classes: 250,000,000 shares designated as Growth Series -
Class I shares, 250,000,000 shares designated as Growth Series -
Class II shares, 2,500,000,000 shares as U.S. Government
Securities - Class I, 2,500,000,000 shares as U.S. Government
Securities Series - Class II shares, 2,600,000,000 shares as
Income Series - Class I shares, 600,000,000 as Income Series -
Class II shares, 400,000,000 shares as Utilities Series - Class I
shares, 400,000,000 shares as Utilities Series - Class II shares,
250,000,000 shares as DynaTech Series - Class I, and 250,000,000
as DynaTech Series - Class II shares. The Board of Directors is
empowered by the Charter to issue other Series of Capital Stock
and to increase or decrease the number, but not below that at the
time outstanding.

The assets of the Fund received for the issue or sale of each
Series of the Capital Stock and all income, earnings, profits and
proceeds thereof, subject only to the rights of creditors, are
especially allocated to such Series, and constitute the
underlying assets of such Series. The underlying assets of each
Series are required to be segregated on the books of account and
are to be charged with the liabilities in respect to such Series
and with a share of the general liabilities of the Fund.
Liabilities in respect to any two or more Series are to be
allocated in proportion to the asset value of the respective
Series except where direct expenses can otherwise be fairly
allocated. The Board of Directors has the right to determine
which liabilities are allocable to a given Series and which are
general or allocable to two or more Series. In the event of the
dissolution or liquidation of the Fund, the registered holders of
the Capital Stock of any Series are entitled to receive as a
class the underlying assets of such Series available for
distribution to shareholders.

Shares of Capital Stock entitle their holders to one vote per
share; however, votes are made by Series on matters affecting an
individual Series. Shares of the Fund have noncumulative voting
rights which means that in all elections of directors, the
holders of more than 50% of the shares voting can elect 100% of
the directors if they choose to do so, and in such event, the
holders of the remaining shares voting will not be able to elect
any person or persons to the Board of Directors. Shares have no
preemptive or subscription rights, and are fully transferable.
There are no conversion rights; however, holders of shares of any
series may reinvest all or any portion of the proceeds from the
redemption or repurchase of such shares into shares of any other
series as described under "Exchange Privilege."

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 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 shareholder 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 a Series, this affects all
shareholders, regardless of which class of shares they hold and,
therefore, each share has the same voting rights.

Meetings of Shareholders

A meeting may also be called by shareholders holding at least 10%
of the shares entitled to vote at the meeting for the purpose of
voting upon the removal of directors, in which case shareholders
may receive assistance in communicating with other shareholders
in connection with the election or removal of directors such as
that provided in Section 16(c) of the 1940 Act. In addition,
Maryland General Corporation Law provides that a special meeting
may be called by a majority of the Board of Directors or by the
written request of shareholders holding at least 25% of the
shares entitled to vote at the meeting.

Redemptions by the Fund

The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account in any Series of the Fund has a
value of less than $50, but only where the value of such account
has been reduced by the shareholder's prior voluntary redemption
of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided
advance notice is given to the shareholder. More information is
included in the SAI.

Other Information

Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed and neither the Fund nor its affiliates will be
liable for any loss to the shareholder caused by the
shareholder's failure to cash such check(s).

The Fund believes that the U.S. Government Securities Series is
generally a permissible investment for national banks, federally
chartered savings and loan associations, federally chartered
credit unions and the Fishing Vessel Capital Construction Fund.
Such investors should confirm the permissibility of proposed
investments in this Series with their counsel.

"Cash" payments to or from the Fund may be made by check, draft
or wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.

Account Registrations

An account registration should reflect the investor's intentions
as to ownership. Where there are two co-owners on the account,
the account will be registered as "Owner 1" and "Owner 2"; the
"or" designation is not used except for money market fund
accounts. If co-owners wish to have the ability to redeem or
convert on the signature of only one owner, a limited power of
attorney may be used.

Accounts should not be registered in the name of a minor, either
as sole or co-owner of the account. Transfer or redemption for
such an account may require court action to obtain release of the
funds until the minor reaches the legal age of majority. The
account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.

A trust designation such as "trustee" or "in trust for" should
only be used if the account is being established pursuant to a
legal, valid trust document. Use of such a designation in the
absence of a legal trust document may cause difficulties and
require court action for transfer or redemption of the funds.

Shares, whether in certificate form or not, registered as joint
tenants or "Jt Ten" shall mean "as joint tenants with rights of
survivorship" and not "as tenants in common."

Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements
on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.

The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor will be deemed to have authorized the use
of electronic instructions on the account, including, without
limitation, those initiated through the services of the NSCC, to
have adopted as instruction and signature any such electronic
instructions received by the Fund and the Shareholder Services
Agent, and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, or which are anticipated to be made available in
the near future, include the NSCC's "Networking," "Fund/SERV,"
and "ACATS" systems.

Any questions regarding an intended registration should be
answered by the securities dealer handling the investment, or by
calling Franklin's Fund Information Department.

Important Notice Regarding
Taxpayer IRS Certifications

Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the Internal Revenue Service ("IRS") any
taxable dividend, capital gain distribution, or other reportable
payment (including share redemption proceeds) and withhold 31% of
any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer
identification number ("TIN") and made certain required
certifications that appear in the Shareholder Application. A
shareholder may also be subject to backup withholding if the IRS
or a securities dealer notifies the Fund that the number
furnished by the shareholder is incorrect or that the shareholder
is subject to backup withholding for previous under-reporting of
interest or dividend income.

The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a TIN along with the required
certifications and (2) close an account by redeeming its shares
in full at the then-current net asset value upon receipt of
notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a
shareholder who has completed an "awaiting TIN" certification to
provide the Fund with a certified TIN within 60 days after
opening the account.

Portfolio Operations

The following persons are primarily responsible for the day-to-
day portfolio management of each Series of the Fund:

Growth Series: Vivian J. Palmieri since 1965 and Conrad B.
Herrmann since 1991.

Vivian J. Palmieri, Vice President of Advisers, holds a Bachelor
of Arts degree in economics from Williams College. He has been
with Advisers since 1965. Mr. Palmieri is a member of several
securities industry associations.

Conrad B. Herrmann, Portfolio Manager of Advisers, holds a
Bachelor of Arts degree from Brown University and a Master's
degree in business administration from Harvard University. Mr.
Herrmann, a Chartered Financial Analyst, has been with Advisers
since 1989 and prior thereto was vice president and general
manager of Aquila Management. He is a member of several
securities industry associations.

Utilities Series: Greg Johnson since 1987; Charles B. Johnson
since 1957; and Sally Edwards Haff since 1990.

Greg Johnson, Vice President of Advisers, holds a Bachelor of
Science degree in accounting and business administration from
Washington and Lee University. He has been with Advisers since
1986. Mr. Johnson is a member of several securities industry
associations.

Charles B. Johnson, Chairman of the Board of Advisers, holds a
Bachelor of Arts degree in economics and political science from
Yale University. He has been with Advisers since 1957. Mr.
Johnson is a member of several securities industry associations.

Sally Edwards Haff, Portfolio Manager of Advisers, holds a
Bachelor of Arts degree in economics from the University of
California at Santa Barbara and is also a Chartered Financial
Analyst. She has been with Franklin since 1986. Ms. Haff is a
member of several securities industry-related committees and
associations.

DynaTech Series: Rupert H. Johnson, Jr. since inception and Lisa
Costa since 1983.

Rupert H. Johnson, Jr., President of Advisers, is a graduate from
Washington and Lee University. He has been with Advisers since
1965 and prior thereto he served as an officer in the United
States Marine Corps. Mr. Johnson is a member of several
securities industry associations.

Lisa Costa, Portfolio Manager of Advisers, holds a Bachelor of
Science degree in finance from California State University at
Hayward and a Master's degree in business administration and
finance from Golden Gate University, San Francisco. She has been
with Advisers since 1980. Ms. Costa is a member of several
securities industry associations.

Income Series: Charles B. Johnson since 1957 and Matt Avery since
1989.

Charles B. Johnson, Chairman of the Board of Advisers holds a
Bachelor of Arts degree in economics and political science from
Yale University. He has been with Advisers since 1957. Mr.
Johnson is a member of several securities industry associations.

Matt Avery, Portfolio Manager of Advisers has a Bachelor of
Science degree in industrial engineering from Stanford University
and a Master's degree from U.C.L.A. Graduate School of
Management. He has been in the securities industry since 1982 and
with Advisers since 1987.

The U.S. Government Securities Series: Jack Lemein since 1984;
Tony Coffey since 1989; and Roger Bayston since 1993.

Jack Lemein, Senior Vice President of Advisers, holds a Bachelor
of Science degree in finance from the University of Illinois. He
has been in the securities industry since 1967 and with Advisers
since 1984. He is a member of several securities industry
associations.

Tony Coffey, Portfolio Manager of Advisers, holds a Master's in
Business Administration degree from the University of California
at Los Angeles and a Bachelor of Arts degree from Harvard
University. He has been with Advisers since 1989. From 1985 to
1987 Mr. Coffey was an associate with Analysis Group. He is a
member of several securities industry associations.

Roger Bayston, Portfolio Manager of Advisers, holds a Bachelor of
Science degree from the University of Virginia and a Masters
degree in business administration from the University of
California at Los Angeles. He has been with the Franklin
organization since 1991 (following completion of his MBA program)
and was an Assistant Treasurer for Bankers Trust Company from
1986 to 1989.

Appendix

Description of Moody's corporate bond ratings:

Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt-edged." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.

Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
securities.

A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have predominantly
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.

Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Description of S&P corporate bond ratings:

AAA - This is the highest rating assigned by Standard & Poor's to
a debt obligation and indicates an extremely strong capacity to
pay principal and interest.

AA - Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very
strong, and in the majority of instances they differ from AAA
issues only in small degree.

A - Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.

BBB - Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay principal and interest for bonds in this category than for
bonds in the A category.

BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

C- This rating is reserved for income bonds on which no interest
is being paid.

D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.

February 1, 1995 as amended June 1, 1995
Income Series
Growth Series
Utilities Series
DynaTech Series
U.S. Government Securities Series
Franklin Custodian Funds, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Investment Adviser
Franklin Advisers, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Distributor
Franklin/Templeton Distributors, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Custodian
Bank of America NT & SA
555 California Street, 4th Floor
San Francisco, California 94104
Transfer Agent
Franklin/Templeton Investor Services, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777
Independent Auditors
Coopers & Lybrand L.L.P.
333 Market Street
San Francisco, California 94105
Legal Counsel
Bleakley Platt & Schmidt
One North Lexington Avenue
White Plains, New York 10602
For an enlarged version of this prospectus
please call 1-800/DIAL BEN.
Your Representative Is:
FCF P 06/95

Income Series

Franklin Custodian Funds, Inc.
PROSPECTUS February 1, 1995 as amended June 1, 1995

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN

The Income Series (the "Fund") is a diversified series of
Franklin Custodian Funds, Inc. (the "Custodian Funds"), an open-
end management investment company. The investment objective of
the Fund is to maximize income while maintaining prospects for
capital appreciation. The Fund may invest in domestic and foreign
securities as described under "Investment Objectives and Policies
of the Fund."

This Prospectus is intended to set forth in a clear and concise
manner information about the Fund that a prospective investor
should know before investing. After reading the Prospectus, it
should be retained for future reference; it contains information
about the purchase and sale of shares and other items which a
prospective investor will find useful to have.

This Prospectus pertains only to the Income Series. A separate
Prospectus, also dated February 1, 1995, as amended June 1, 1995
as may be further amended from time to time, describes all five
series of Custodian Funds and is incorporated herein by
reference. A Statement of Additional Information ("SAI")
concerning Custodian Funds, dated February 1, as amended May 1,
1995, as may be further amended from time to time, provides a
further discussion of certain areas in this Prospectus and other
matters which may be of interest to some investors. It has been
filed with the Securities and Exchange Commission ("SEC") and is
incorporated herein by reference. A copy is available without
charge from the Fund or the Fund's principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), at the
address or telephone number shown above. 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. See "How to Buy Shares of the
Fund - Differences Between Class I and Class II."

The Fund may invest up to 100% of its portfolio in non-investment
grade bonds, commonly known as "junk bonds," which entail default
and other risks greater than those associated with higher rated
securities. Investors should carefully assess the risks
associated with an investment in the Fund in light of the
securities in which the Fund invests. See "Risk Factors."

Contents Page

Expense Table

Financial Highlights

About the Fund

Investment Objective and
Policies of the Fund

Risk Factors

Management of the Fund

Distributions to Shareholders

Taxation of the Fund and Its Shareholders

How to Buy Shares of the Fund

Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments

Other Programs and Privileges
Available to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

Appendix
<TABLE>
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.

<S> <C> <C>
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 less than six 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. (See
"How to Buy Shares of the Fund - Purchase Price of Fund Shares"
for the definition of Franklin Templeton Funds and similar
references.)
^^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%, 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.
**"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. 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
<C> <C> <C> <C> <C>
Class I * $50 $65 $81 $128
Class II $32 $49 $77 $158

*For the purposes of this example, it is assumed that a
contingent deferred sales charge will not apply to Class I
shares.

You would pay the following expenses on Class II shares on the
same investment assuming no redemption:

1 year 3 years 5 years 10 years
<C> <C> <C> <C>
$23 $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%.
</TABLE>

<TABLE>
Financial Highlights
- ---------------------------------------------------------------------------

Set forth below is a table containing the financial highlights
for a share of the Fund throughout the ten fiscal years in the
period ended September 30, 1994. The information for each of the
five fiscal years in the period ended September 30, 1994 has been
audited by Coopers & Lybrand L.L.P., independent auditors, whose
audit report appears in the financial statements in the Fund's
SAI. The remaining figures, which are also audited, are not
covered by the auditor's current report. Information regarding
Class II shares will be included in this table after they have
been offered to the public for a reasonable period of time. See
the discussion "Reports to Shareholders" under "General
Information."

- --------------------------------------------------------------------------------------------------------------
Net Net
Asset Realized & Dividends Distributions
Year Value Net Unrealized Total From From Net from
Ended Beginning Investment Gain (Loss) Investment Investment Capital Total
Sep. 30 of Year Income on Securities Operations Income Gains Distribution
- --------------------- ------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>

1985 $1.95 $0.210 $0.150 $0.360 $(0.220) $(0.030) $(0.250)
1986 2.06 0.230 0.238 0.468 (0.220) (0.058) (0.278)
1987 2.25 0.206 0.004 0.210 (0.220) (0.020) (0.240)
1988 2.22 0.228 (0.096) 0.132 (0.220) (0.022) (0.242)
1989 2.11 0.222 0.009 0.231 (0.220) (0.011) (0.231)
1990 2.11 0.212 (0.324) (0.112) (0.220) (0.018) (0.238)
1991 1.76 0.190 0.350 0.540 (0.220) -- (0.220)
1992 2.08 0.190 0.194 0.384 (0.205) (0.009) (0.214)
1993 2.25 0.180 0.227 0.407 (0.185) (0.012) (0.197)
1994 2.46 0.170 (0.201) (0.031) (0.180) (0.029) (0.209)
- --------------------------------------------------------------------------------------------------------------

<CAPTION>
- ------------------------------------------------------------------------------------------------
Net Asset Net Assets Ratio of Ratio of
Year Value at End Expenses Net Income Portfolio
Ended at End Total of Year to Average to Average Turnover
Sep. 30 of Year Return+ (in 000's) Net Assets Net Assets Rate
- --------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <c

1985 2.06% 18.71% $ 105,278 0.76% 10.14% 24.07%
1986 2.25 24.20 226,418 0.71 9.76 30.76
1987 2.22 9.08 484,270 0.64 9.20 18.14
1988 2.11 6.00 726,815 0.61 10.50 10.01
1989 2.11 11.16 1,189,694 0.57 10.46 12.05
1990 1.76 (6.37) 1,299,130 0.55 10.73 12.14
1991 2.08 32.60 1,673,187 0.56 10.17 33.92
1992 2.25 18.80 2,483,501 0.55 9.11 23.30
1993 2.46 18.76 3,935,444 0.54 7.84 25.41
1994 2.22 (1.52) 4,891,505 0.64 7.37 23.37
- ------------------------------------------------------------------------------------------------

+Total return measures the change in value of an investment over
the periods indicated. It does not include the maximum front-end
sales charge and assumes reinvestment of dividends at the maximum
offering price and capital gains, if any, at net asset value.
Effective May 1, 1994, with the implementation of the Rule 12b-1
distribution plan, the existing sales charge on reinvested
dividends has been eliminated.

</TABLE>

About the Fund

The Fund is a diversified series of Custodian Funds, an open-end
management investment company commonly called a "mutual fund",
registered under the Investment Company Act of 1940 (the "1940
Act"). Custodian Funds was organized under the laws of Delaware
in 1947 and reincorporated under the laws of Maryland in 1979.
Custodian Funds has five separate diversified series: Growth
Series, DynaTech Series, Utilities Series, Income Series and U.S.
Government Securities Series. The Growth Series, Utilities
Series, Income Series and U.S. Government Securities Series issue
two classes: Growth Series - Class I, Growth Series - Class II,
Utilities Series - Class I, Utilities Series - Class II, Income
Series - Class I, Income Series - Class II, U.S. Government
Securities Series - Class I and U.S. Government Securities Series
- - Class - II. All Fund shares outstanding before May 1, 1995,
have been redesignated as Class I shares, and will retain their
previous rights and privileges except for legally required
modifications to shareholder voting procedures as discussed in
"General Information - Voting Rights."

Shares of the Fund may be purchased (minimum investment of $100
initially and $25 thereafter) at the current public offering
price. The current public offering price of Class I shares is
equal to the Fund's net asset value (see "Valuation of Fund
Shares") plus a variable sales charge not exceeding 4.25% of the
offering price. The current public offering price of the Class II
shares is equal to the net asset value, plus a sales charge of
1.0% of the amount invested. (See "How to Buy Shares of the
Fund.")

Investment Objective and
Policies of the Fund

The Fund's principal investment objective is to maximize income
while maintaining prospects for capital appreciation. The
objective is a fundamental policy of the Fund and may not be
changed without shareholder approval.

The Fund invests in a diversified portfolio of securities
selected with particular consideration of current income
production. The underlying assets of the Fund may be held in cash
or cash equivalents, or invested in securities traded on any
national securities exchange or in securities issued by a
corporation, association or similar legal entity having gross
assets valued at not less than $1,000,000 as shown by its latest
published annual report. The Fund may also invest in preferred
stocks. There are no restrictions as to the proportion of
investments which may be made in a particular type of security
and such determination is entirely within management's
discretion. A breakdown of the ratings for the bonds in the
Fund's portfolio is included under "Asset Composition Table"
below.

The Fund may invest up to 100% of its portfolio in non-investment
grade bonds, commonly known as "junk bonds", which entail default
and other risks greater than those associated with higher rated
securities. Investors should carefully assess the risks
associated with an investment in the Fund in light of the
securities in which the Fund invests. Various investment services
publish ratings of some of the types of securities in which the
Fund may invest. Higher yields are ordinarily available from
securities in the lower rated categories of the recognized rating
services (that is, securities rated Ba or lower by Moody's
Investors Service ["Moody's"] or BB or lower by Standard & Poor's
Corporation ["S&P"]) or from unrated securities of comparable
quality. A list of these ratings is shown in the Appendix to this
Prospectus. These ratings, which represent the opinions of the
rating services with respect to the issuer's ability to pay
interest and repay principal, although they do not purport to
reflect the risk of fluctuations in market value and are not
absolute standards of quality, will be considered in connection
with the investment of the Fund's assets, but will not be a
determining or limiting factor. The Fund may invest in securities
regardless of their rating (including securities in the lower
rating categories) or in securities which are not rated,
including up to 5% of its assets in securities which are in
default at the time of purchase. As an operating policy, however,
the Fund will generally invest in securities that are rated at
least Caa by Moody's or CCC by S&P, except for defaulted
securities as noted below or, if unrated, are at least of
comparable quality as determined by the investment manager.
Unrated debt securities are not necessarily of lower quality than
rated securities but they may not be attractive to as many
buyers. (See the Appendix for a discussion of ratings.) The Fund
may also purchase debt obligations of issuers not currently
paying interest as well as issuers who are in default and may
retain an issue which has defaulted. Defaulted debt securities
will be purchased if, in the opinion of the investment manager,
it may present an opportunity for subsequent price recovery, the
issuer may resume interest payments or other advantageous
developments appear likely in the near term. In general,
securities which default lose much of their value in the time
period prior to the actual default so that the security and thus
the Fund's net asset value would be impacted prior to the
default. Defaulted debt securities may be illiquid and, as such,
will be part of the 10% limit discussed under "Illiquid
Investments." See "Risk Factors."

In the event the rating on an issue held in the Fund's portfolio
is changed by the rating services or the security goes into
default, such event will be considered by the Fund in its
evaluation of the overall investment merits of that security but
will not generally result in an automatic sale of the security.

Rather than relying principally on the ratings assigned by rating
services, the investment analysis of securities being considered
for the Fund's portfolio may also include, among other things,
consideration of relative values, based on such factors as
anticipated cash flow, interest or dividend coverage, asset
coverage, earnings prospects, the experience and managerial
strength of the issuer, responsiveness to changes in interest
rates and business conditions, debt maturity schedules and
borrowing requirements and the issuer's changing financial
condition and public recognition thereof. Since a substantial
portion of the Fund's portfolio at any particular time may
consist of debt securities, changes in the level of interest
rates, among other things, will likely affect the value of the
Fund's holdings and thus the value of a shareholder's investment.

Certain of the high yielding fixed-income securities in which the
Fund may invest may be purchased at a discount. Such securities,
when held to maturity or retired, may include an element of
capital gain. Capital losses may be realized when securities
purchased at a premium, that is, in excess of their stated or par
value, are held to maturity or are called or redeemed at a price
lower than their purchase price. Capital gains or losses also may
be realized upon the sale of securities.

As market conditions change, it is conceivable that all of the
assets of the Fund could be invested in common stocks or,
conversely, in debt securities. It is a fundamental policy of the
Fund that concentration of investment in a single industry may
not exceed 25% of the total assets of the Fund.

The Fund may invest up to 5% of its assets in loan participations
and other related direct or indirect bank obligations ("Loan
Participations"). These instruments are interests in floating or
variable rate senior loans to U.S. corporations, partnerships and
other entities. While Loan Participations generally trade at par
value, the Fund will be able to acquire Loan Participations,
including those 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. The investment manager may acquire Loan Participations for
the Fund when it believes that over the long term, appreciation
will take place. An investment in such securities, however,
carries substantially the same risk as that for defaulted debt
securities and may cause the loss of the entire investment to the
Fund. Most Loan Participations are illiquid and, to that extent,
will be included in the 10% limitation described under "Illiquid
Investments".

The Fund may purchase debt obligations on a "when-issued" or
"delayed-delivery" basis. Such securities are subject to market
fluctuation prior to delivery to the Fund and generally do not
earn interest until their scheduled delivery date. Therefore, the
value or yields at delivery may be more or less than the value or
the yields available when the transaction was entered into. When
the Fund is the buyer in such a transaction, it will maintain, in
a segregated account with its custodian, 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 Fund engages in when-issued and delayed delivery
transactions, it will do so only for the purpose of acquiring
portfolio securities consistent with the Fund's investment
objectives and policies, and not for the purpose of investment
leverage.(See "The Investment Objectives and Policies of the Fund
- - When-Issued, Delayed Delivery and TBA Transactions" in the
Fund's SAI for a more complete discussion regarding when-issued
and delayed-delivery transactions.)

The Fund may also purchase certain bonds issued at discount which
defer the payment of interest or which pay no interest until
maturity, known as zero coupon bonds, or which pay interest
through issuance of additional bonds, known as pay-in-kind bonds.
For federal tax purposes, holders of such bonds, such as the
Fund, are deemed to receive interest over the life of such bonds
and are taxed as if interest were paid on a current basis
although no cash interest payments are in fact received by the
holder until the bonds mature. See "Risk Factors" below for more
information regarding these types of bonds.

The Fund's total return, as calculated pursuant to the formula
prescribed by the SEC, for the one-, five- and ten-year periods
ended on September 30, 1994 was -5.58%, 10.98% and 12.49%
respectively. See "Performance."

Some of the Fund's Other Investment Policies

Options. The Fund may write covered call options which are listed
for trading on a national securities exchange. This means that
the Fund will only write options on securities which it actually
owns. A call option gives the person who buys it the right to buy
the security on which the option is written for a specified
period of time for a price agreed to at the time the Fund sells
the option, even though that price may be less than the value of
the security at the time the option is exercised. When the Fund
sells covered call options, it will receive a cash premium which
can be used in whatever way is felt to be most beneficial to the
Fund. The risks associated with covered call writing are that in
the event of a price rise on the underlying security which would
likely trigger the exercise of the call option, the Fund will not
participate in the increase in price beyond the exercise price.
If the Fund determines that it does not wish to deliver the
underlying securities from its portfolio, it would have to enter
into a "closing purchase transaction," the premium on which may
be higher or lower than that received by the Fund for writing the
option. There is no assurance that a closing purchase transaction
will be available in every instance. Transactions in options are
generally considered "derivative securities."

Loans of Portfolio Securities. Consistent with procedures
approved by the Board of Directors and subject to the following
conditions, the Fund may lend its portfolio securities to
qualified securities 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 loaned 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, its agencies or instrumentalities, or
irrevocable letters of credit. The lending of securities is a
common practice in the securities industry. The Fund engages 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 or by
receiving a loan premium from the borrower. Under the securities
loan agreement, the Fund continues to be entitled to all
dividends or interest on any loaned securities. As with any
extension of credit, there are risks of delay in recovery and
loss of rights in the collateral should the borrower of the
security fail financially.

Convertible Securities. The Fund may invest in convertible
securities. A convertible security is generally a debt obligation
or a preferred stock which may be converted at a stated price
within a specified period of time into a certain quantity of the
common stock of the same or different issuer. A convertible
security may also be subject to redemption by the issuer but only
after a particular date and under certain circumstances
established upon issue. Convertible securities provide a fixed-
income stream and the opportunity, through their conversion
feature, to participate in the capital appreciation resulting
from a market price advance in the convertible security's
underlying common stock.

The convertible debt obligations in which the Fund may invest are
subject to the same rating criteria as that Fund's investments in
debt obligations. However unlike convertible debt obligations,
convertible preferred stocks are equity securities. Like common
stocks, preferred stocks are subordinated to all debt obligations
in the event of insolvency, and an issuer's failure to make a
dividend payment is generally not an event of default entitling
the preferred shareholder to take action. Like common stocks,
preferred stocks generally have no maturity date, so that their
market value is dependent on the issuer's business prospects for
an indefinite period of time. Finally, preferred stock dividends
are dividends, rather than interest payments, and are treated as
such for corporate tax purposes. For these reasons, convertible
preferred stocks are treated as preferred stocks for the Fund's
financial reporting, credit rating, and investment limitation
purposes.

The Fund may invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption
Cumulative Stock ("PERCS"), which provide an investor, such as
the Fund, with the opportunity to earn higher dividend income
than is available on a company's common stock. A PERCS is a
preferred stock which generally features a mandatory conversion
date, as well as a capital appreciation limit which is usually
expressed in terms of a stated price. Most PERCS expire three
years from the date of issue, at which time they are convertible
into common stock of the issuer (PERCS are generally not
convertible into cash at maturity).Under a typical arrangement,
if after three years the issuer's common stock is trading at a
price below that set by the capital appreciation limit, each
PERCS would convert to one share of common stock. If, however,
the issuer's common stock is trading at a price above that set by
the capital appreciation limit, the holder of the PERCS would
receive less than one full share of common stock. The amount of
that fractional share of common stock received by the PERCS
holder is determined by dividing the price set by the capital
appreciation limit of the PERCS by the market price of the
issuer's common stock. PERCS can be called at any time prior to
maturity, and hence do not provide call protection. However if
called early the issuer must pay a call premium over the market
price to the investor. This call premium declines at a preset
rate daily, up to the maturity date of the PERCS.

The Fund may also invest in other enhanced convertible
securities. These include but are not limited to ACES
(Automatically Convertible Equity Securities), PEPS
(Participating Equity Preferred Stock), PRIDES (Preferred
Redeemable Increased Dividend Equity Securities), SAILS (Stock
Appreciation Income Linked Securities), TECONS (Term Convertible
Notes), QICS (Quarterly Income Cumulative Securities), and DECS
(Dividend Enhanced Convertible Securities). ACES, PEPS, PRIDES,
SAILS, TECONS, QICS, and DECS all have the following features;
they are company issued convertible preferred stock, unlike PERCS
they do not have a capital appreciation limit, they seek to
provide the investor with high current income with some prospect
of future capital appreciation, they are typically issued with
three to four-year maturities, they typically have some built-in
call protection for the first two to three years, investors have
the right to convert them into shares of common stock at a preset
conversion ratio or hold them until maturity, and upon maturity
they will automatically convert to either cash or a specified
number of shares of common stock.

An investment in an enhanced convertible security or any other
security may involve additional risks to the Fund. The Fund may
have difficulty disposing of such securities because there may be
a thin trading market for a particular security at any given
time. Reduced liquidity may have an adverse impact on market
price and the Fund's ability to dispose of particular securities,
when necessary, to meet the Fund's liquidity needs or in response
to a specific economic event, such as a deterioration in the
credit worthiness of an issuer. Reduced liquidity in the
secondary market for certain securities may also make it more
difficult for the Fund to obtain market quotations based on
actual trades for purposes of valuing the Fund's portfolio. The
Fund, however, intends to acquire liquid securities, though there
can be no assurances that this will be achieved.

Repurchase Agreements. The Fund may engage in repurchase
transactions, in which the Fund purchases a U.S. government
security subject to resale to a bank or dealer at an agreed-upon
price and date. The transaction requires the collateralization of
the seller's obligation by the transfer of securities with an
initial market value, including accrued interest, equal to at
least 102% of the dollar amount invested by the Fund in each
agreement, with the value of the underlying security marked to
market daily to maintain coverage of at least 100%. A default by
the seller might cause the Fund to experience a loss or delay in
the liquidation of the collateral securing the repurchase
agreement. The Fund might also incur disposition costs in
liquidating the collateral. The Fund, however, intends to enter
into repurchase agreements only with financial institutions such
as broker-dealers and banks which are deemed creditworthy by the
Fund's investment manager. A repurchase agreement is deemed to be
a loan by the Fund under the 1940 Act. The U.S. government
security subject to resale (the collateral) will be held on
behalf of the Fund by a custodian approved by the Fund's Board
and will be held pursuant to a written agreement.

Borrowing. The Fund does not borrow money or mortgage or pledge
any of the assets of the Fund, except that it may borrow for
temporary or emergency purposes in an amount up to 5% of its
total asset value.

Illiquid Investments. It is the policy of the Fund that illiquid
securities (securities that cannot be disposed of within seven
days in the normal course of business at approximately the amount
at which the Fund has valued the securities) may not constitute,
at the time of purchase more than 10% of the value of the total
net assets of the Fund. Subject to this limitation, the Fund's
Board of Directors has authorized the Fund to invest in
restricted securities where such investment is consistent with
the Fund's investment objective and has authorized such
securities to be considered to be liquid to the extent the
investment manager determines on a daily basis that there is a
liquid institutional or other market for such securities.
Notwithstanding the investment manager's determinations in this
regard, the Fund's Board of Directors will remain responsible for
such determinations and will consider appropriate action,
consistent with the objective and policies of the Fund, if the
security should become illiquid subsequent to its purchase. To
the extent the Fund invests in restricted securities that are
deemed liquid, the general level of illiquidity in the Fund may
be increased if qualified institutional buyers become
uninterested in purchasing these securities or the market for
these securities contracts. See "Investment Objectives and
Policies of the Fund" in the SAI.

Foreign Securities. There are no restrictions on investment of
assets of the Fund in foreign securities, providing such
investments are consistent with its objective and comply with its
concentration and diversification policies.

The Fund will ordinarily purchase foreign securities which are
traded in the U.S. or purchase American Depositary Receipts
("ADRs"), which are certificates issued by U.S. banks
representing the right to receive securities of a foreign issuer
deposited with that bank or a correspondent bank. However, the
Fund may also purchase the securities of foreign issuers directly
in foreign markets.

Investments in foreign securities where delivery takes place
outside the U.S. will be made in compliance with any applicable
U.S. and foreign currency restrictions and other tax laws and
laws limiting the amount and types of foreign investments.
Changes of governmental administrations or of economic or
monetary policies, in the U.S. or abroad, or changed
circumstances in dealings between nations, or currency
convertibility or exchange rates could result in investment
losses for the Fund.

Investment in the shares of foreign issuers requires
consideration of certain factors that are not normally involved
in investments solely in U.S. issuers. Among other things, the
financial and economic policies of some foreign countries in
which the Fund may invest are not as stable as in the U.S.
Furthermore, foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. corporate issuers. There
may also be less government supervision and regulation of foreign
securities exchanges, brokers and issuers than exist in the U.S.
Restrictions and controls on investment in the securities markets
of some countries may have an adverse effect on the availability
and costs to the Fund of investments in those countries. In
addition, there may be the possibility of expropriations, foreign
withholding taxes, confiscatory taxation, political, economic or
social instability or diplomatic developments which could affect
assets of the Fund invested in issuers in foreign countries.

Securities which are acquired by the Fund outside the U.S. and
which are publicly traded in the U.S. or on a foreign securities
exchange or in a foreign securities market are not considered by
the Fund to be illiquid assets so long as the Fund acquires and
holds the securities with the intention of reselling them in the
foreign trading market, the Fund reasonably believes it can
readily dispose of the securities for cash in the U.S. or foreign
market and current market quotations are readily available.

Foreign exchange gains and losses realized by the Fund in
connection with 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 Fund's income or loss from
such transactions and in turn its distributions to shareholders.
These rules are discussed in the SAI.

The holding of foreign securities, however, may be limited by the
Fund to avoid investment in certain Passive Foreign Investment
Companies ("PFIC") and the imposition of a PFIC tax on the Fund
resulting from such investments.

The Fund is subject to a number of additional investment
restrictions, some of which may be changed only with the approval
of shareholders, which limit its activities to some extent. For a
list of these restrictions and more information concerning the
policies discussed herein, please see the SAI. There is, of
course, no assurance that the Fund's investment objectives
described above will be met.

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.

How Shareholders Participate in
the Results of the Fund's Activities

The assets of the Fund are invested in portfolio securities. If
the securities owned by the Fund increase in value, the value of
the shares of the Fund which the shareholder owns will increase.
If the securities owned by the Fund decrease in value, the value
of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the
securities owned by the Fund.

In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder
may anticipate that the value of Fund shares will fluctuate with
movements in the broader equity and bond markets, as well. In
particular, changes in interest rates will affect the value of
the Fund's portfolio and thus its share price. Increased rates of
interest which frequently accompany higher inflation and/or a
growing economy are likely to have a negative effect on the value
of Fund shares. To the extent the Fund's investments consist of
common stocks, a decline in the market, expressed for example by
a drop in the Dow Jones Industrials or the Standard & Poor's 500
average or any other equity based index, may also be reflected in
declines in the Fund's share price. History reflects both
increases and decreases in the prevailing rate of interest and in
the valuation of the market, and these may reoccur unpredictably
in the future.

A decline in the stock market of any country in which the Fund is
invested may also be reflected in a decline in the Fund's share
price. Changes in currency valuations will also affect the price
of the Fund's shares. History reflects both increases and
decreases in the prevailing rate of interest and in worldwide
stock markets and currency valuations, and these may reoccur
unpredictably in the future. See also "Risk Factors" below.

Risk Factors

High yielding, fixed-income securities frequently have call or
buy-back features which would permit an issuer to call or
repurchase the securities from the Fund. Although such securities
are typically not callable for a period from three to five years
after their issuance, when calls are exercised by the issuer
during periods of declining interest rates, the Fund must replace
such called securities with lower yielding securities, decreasing
the net investment income to the Fund and thus dividends to
shareholders. The premature disposition of a high yielding
security due to a call or buy-back feature, the deterioration of
the issuer's creditworthiness, or a default may also make it more
difficult for the Fund to manage the timing of its receipt of
income, which may have tax implications. Further information is
included under "Taxation of the Fund and Its Shareholders."

The Fund may have difficulty disposing of certain high yielding
securities because there may be a thin trading market for a
particular security at any given time. The market for lower rated
fixed-income securities generally tends to be concentrated among
a smaller number of dealers than is the case for securities which
trade in a broader secondary retail market. Generally, purchasers
of these securities are predominantly dealers and other
institutional buyers, rather than individuals. To the extent the
secondary trading market for a particular high yielding, fixed-
income security does exist, it is generally not as liquid as the
secondary market for higher rated securities. Reduced liquidity
in the secondary market may have an adverse impact on market
price and the Fund's ability to dispose of particular issues,
when necessary, to meet the Fund's liquidity needs or in response
to a specific economic event, such as the deterioration in the
creditworthiness of the issuer. Reduced liquidity in the
secondary market for certain securities may also make it more
difficult for the Fund to obtain market quotations based on
actual trades for purposes of valuing the Fund's portfolio.
Current values for these high yield issues are obtained from
pricing services and/or a limited number of dealers and may be
based upon factors other than actual sales. (See "Valuation of
Fund Shares.")

The Fund is authorized to acquire high yielding, fixed-income
securities that are sold without registration under the federal
securities laws and therefore carry restrictions on resale. While
many recent high yielding securities have been sold with
registration rights, covenants and penalty provisions for delayed
registration, if the Fund were required to sell such restricted
securities before the securities have been registered, it may be
deemed an underwriter of such securities as defined in the
Securities Act of 1933, which entails special responsibilities
and liabilities. The Fund may incur special costs in disposing of
such securities; however, the Fund will generally incur no costs
when the issuer is responsible for registering the securities.

The Fund may acquire high yielding fixed-income securities during
an initial underwriting. Such securities involve special risks
because they are new issues. The Fund has no arrangement with its
underwriters or any other person concerning the acquisition of
such securities, and the investment manager will carefully review
the credit and other characteristics pertinent to such new
issues.

Certain provisions of federal income tax law impose limitations
on the use of high yielding securities by issuers in connection
with leveraged buy-outs, mergers and acquisitions, or limit the
deductibility of interest payments on such securities. This
legislation could reduce the market for such securities
generally, could negatively affect the financial condition of
issuers of high yield securities by removing or reducing a source
of future financing, and could negatively affect the value of
specific high yield issues and the high yield market in general.

Factors adversely impacting the market value of high yielding
securities will adversely impact the Fund's net asset value. For
example, adverse publicity regarding lower-rated bonds, which
appeared during 1989 and 1990, along with highly publicized
defaults of some high yield issuers, and concerns regarding a
sluggish economy which continued in 1993, depressed the prices
for many such securities. In addition, the Fund may incur
additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its
portfolio holdings. The Fund will rely on the investment
manager's judgment, analysis and experience in evaluating the
creditworthiness of an issuer. In this evaluation, the investment
manager will take into consideration, among other things, the
issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. As of September 30,
1994, five out of 219 issues (excluding short-term securities and
cash equivalents) in the Fund's portfolio were in default. No
issues defaulted in the past fiscal year and a total of 12 issues
have defaulted over the prior three fiscal years, of which the
Fund still holds the five issues mentioned above. Currently,
defaulted issues represent 0.53% of the net assets of the Fund,
however, current prices for defaulted bonds are generally
significantly lower than their purchase price, and the Fund may
have unrealized losses on such defaulted securities which are
reflected in the price of the Fund's shares. A defaulted security
may be retained because of its potential for price recovery.

The credit risk factors pertaining to lower-rated securities also
apply to lower-rated zero coupon, deferred interest and pay-in-
kind bonds. Such bonds carry an additional risk in that, unlike
bonds which pay interest throughout the period to maturity, the
Fund will realize no cash until the cash payment date and, if the
issuer defaults, the Fund may obtain no return at all on its
investment. Zero coupon, deferred interest and pay-in-kind bonds
involve additional special considerations.

Pay-in-kind bonds are securities which pay interest through the
issuance of additional bonds. The Fund will be deemed to receive
interest over the life of such bonds and be taxed as if interest
were paid on a current basis, although no cash interest payments
are received by the Fund until the cash payment date or until the
bonds mature.

The Fund's investment in zero coupon and delayed interest bonds,
or bonds that provide for payment of interest in kind may cause
the Fund to recognize income and make distributions to
shareholders prior to the receipt of cash payments. For example,
with respect to zero coupon and delayed interest bonds, the Fund
will be required to accrue as income a portion of the discount
(or deemed discount) at which securities were issued and to
distribute such income each year in order to maintain its
qualification as a regulated investment company and to avoid
income and excise taxes. Payment-in-kind obligations are subject
to special tax rules concerning the amount, character and timing
of income required to be accrued by the Fund.

Because of the Fund's policy of investing in higher yielding,
higher risk securities, an investment in the Fund is accompanied
by a higher degree of risk than is present with an investment in
higher rated, lower yielding securities. Accordingly, an
investment in the Fund should be carefully evaluated for its
appropriateness in light of the investor's overall investment
needs and goals. Persons on fixed incomes, such as retired
persons, should also consider the increased risk of loss of
principal which is present with an investment in higher risk
securities. As with any other investment, there is no assurance
that the Fund's objectives will be achieved.

Asset Composition Table

As of the fiscal year ended September 30, 1994, the Fund had
25.4% of its assets invested in bonds rated below investment
grade (Ba or lower by Moody's or BB or lower by S&P) and 0.91% in
bonds which had not been rated by any NRSRO. A total of 47.3% of
the Fund's assets were invested in bonds. A credit rating by an
NRSRO evaluates only the safety of principal and interest of the
bond, and does not consider the market value risk associated with
an investment in such a bond. The table below shows the
percentage invested in each of the specific rating categories by
Moody's or S&P and those that are not rated. A description of
each rating category by Moody's and S&P is included in the
Appendix.

Percentage of
Moody's or S&P Ratings Assets
AAA or Aaa 10.75%
AA or Aa 2.84%
A 0.01%
Baa or BBB 8.33%
Ba or BB 2.69%
B 17.38%
Caa or CCC* 4.26%
Ca or CC 1.08%
*0.91% of these securities which are unrated
by ratings services have been included in the Caa
category.

Management of the Fund

The Board of Directors of the Custodian Funds has the primary
responsibility for the overall management of the Fund and for
electing the officers of the Fund who are responsible for
administering its day-to-day operations.

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the
Fund's investment manager. Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly owned
holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately 20%
and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services
industry through its various subsidiaries (the "Franklin
Templeton Group"). Advisers acts as investment manager or
administrator to 33 U.S. registered investment companies (112
separate series) with aggregate assets of over $74 billion.

During the fiscal year ended September 30, 1994, management fees
totaling 0.46% of the average monthly net assets of the Fund were
paid to Advisers.

Among the responsibilities of the Manager under the management
agreement is the selection of brokers and dealers through whom
transactions in the Fund's portfolio securities will be effected.
The Manager tries to obtain the best execution on all such
transactions. If it is felt that more than one broker is able to
provide the best execution, the Manager will consider the
furnishing of quotations and of other market services, research,
statistical and other data for the Manager and its affiliates, as
well as the sale of shares of the Fund, as factors in selecting a
broker. Further information is included under "The Fund's
Policies Regarding Brokers Used on Portfolio Transactions" in the
SAI.

Shareholder accounting and many of the clerical functions for the
Fund are performed by Franklin/Templeton Investor Services, Inc.
("Investor Services" or "Shareholder Services Agent") in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.

During the fiscal year ended September 30, 1994, expenses borne
by Class I shares of the Fund, including fees paid to Advisers
and to Investor Services, totaled 0.64% of the average monthly
net assets of such class.

Plans of Distribution

A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 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 after
distribution to securities dealers of up to the maximum amount
permitted under each Plan may be used by the class to reimburse
Distributors for routine ongoing promotion and distribution
expense incurred with respect to each class. Such expenses may
include, but are 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 each class 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 the Fund, Distributors or its affiliates.

The maximum amount which the Fund may pay to Distributors or
others under the Class I Plan for such distribution expenses is
0.15% per annum of Class I's average daily net assets of the
Fund, payable on a quarterly basis. All expenses of distribution
and marketing in excess of .15% per annum will be borne by
Distributors, or others who have incurred them, without
reimbursement from the Fund.

Under the Class II Plan, the maximum amount which the Fund is
permitted to pay to Distributors or others for distribution
expenses and related expenses is 0.50% per annum of Class II's
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 Class II's 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.

During the first year following the purchase of Class II shares,
Distributors will retain 0.50% per annum of Class II's average
daily net assets 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.

Both Plans also cover 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 shares issued by the Fund within the context of Rule 12b-
1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund.
For more information, including a discussion of the Board's
policies with regard to the amount of each Plan's fees, please
see the SAI.

Distributions to Shareholders

There are two types of distributions which the Fund may make to
its shareholders:

1. Income dividends. The Fund receives income in the form of
dividends, interest and other income derived from its
investments. This income, less the expenses incurred in the
Fund's operations, is its net investment income from which income
dividends may be distributed. Thus, the amount of dividends paid
per share may vary with each distribution.

2. Capital gain distributions. The Fund may derive capital gains
or losses in connection with sales or other dispositions of its
portfolio securities. Distributions by the Fund derived from net
short-term and net long-term capital gains (after taking into
account any net capital loss carryovers) may generally be made
once a year in December to reflect any net short-term and net
long-term capital gains realized by the Fund as of October 31 of
the current fiscal year and any undistributed net capital gains
from the prior fiscal year. These distributions, when made, will
generally be fully taxable to the Fund's shareholders. The Fund
may make more than one distribution derived from net short-term
and net long-term capital gains in any year or adjust the timing
of these distributions for operational or other reasons.

Distributions To Each Class of Shares

According to the requirements of the Code, 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.

Distribution Date

Although subject to change by the Board of Directors without
prior notice to or approval by shareholders, the Fund's current
policy is to declare income dividends monthly for shareholders of
record on the last business day of the month, payable on or about
the 15th day of the following month. The Fund may determine to
defer the December 31st record date to a date shortly thereafter
in January for tax or other operational reasons. The amount of
income dividend payments by the Fund is dependent upon the amount
of net income received by the Fund from its portfolio holdings,
is not guaranteed and is subject to the discretion of the Board
of Directors. Fund shares are quoted ex-dividend on the first
business day following the record date. The Fund does not pay
"interest" or guarantee any fixed rate of return on an investment
in its shares.

In order to be entitled to a dividend, an investor must have
acquired Fund shares prior to the close of business on the record
date. An investor considering purchasing Fund shares shortly
before the record date of a distribution should be aware that
because the value of the Fund's shares is based directly on the
amount of its net assets, rather than on the principle of supply
and demand, any distribution of income or capital gain will
result in a decrease in the value of the Fund's shares equal to
the amount of the distribution. While a dividend or capital gain
distribution received shortly after purchasing shares represents,
in effect, a return of a portion of the shareholder's investment,
it may be taxable as dividend income or capital gain.

Dividend Reinvestment

Unless requested otherwise, 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 sales charge) on the
dividend reinvestment date ("ex-dividend date"). Dividend and
capital gain distributions are only eligible for reinvestment at
net asset value in the same class of shares of the Fund or the
same class of another of the Franklin Templeton Funds.
Shareholders have the right to change their election with respect
to the receipt of distributions by notifying the Fund, but any
such change will be effective only as to distributions for which
the record date is seven or more business days after the Fund has
been notified. See the SAI for more information.

Distributions in Cash

Taxation of the Fund and Its Shareholders

The Fund is treated as a separate entity for federal income tax
purposes. The Fund intends to continue to qualify for treatment
as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). By
distributing all of its income and meeting certain other
requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for
federal income or excise taxes.

For federal income tax purposes, any income dividends which the
shareholder receives from the Fund, as well as any distributions
derived from the excess of net short-term capital gain over net
long-term capital loss, are treated as ordinary income whether
the shareholder has elected to receive them in cash or in
additional shares.

Distributions derived from the excess of net long-term capital
gain over net short-term capital loss are treated as long-term
capital gain regardless of the length of time the shareholder has
owned Fund shares and regardless of whether such distributions
are received in cash or in additional shares.

For the fiscal year ended September 30, 1994, 31.87% of the
income dividends paid by the Fund qualified for the corporate
dividends-received deduction, subject to certain holding period
and debt financing restrictions imposed under the Code on the
corporation claiming the deduction. These restrictions are
discussed in the SAI.

Redemptions and exchanges of Fund shares are taxable events on
which a shareholder may realize a gain or loss. Any loss incurred
on sale or exchange of the Fund's shares, held for six months or
less, will be treated as a long-term capital loss to the extent
of capital gain dividends received with respect to such shares.
All or a portion of the sales charge incurred in purchasing
shares of the Fund will not be included in the federal tax basis
of such shares sold or exchanged within ninety (90) days of their
purchase (for purposes of determining gain or loss with respect
to such shares) if the sales proceeds are reinvested in the Fund
or in another fund in the Franklin Group of Funds or the
Templeton Group and a sales charge which would otherwise apply to
the reinvestment is reduced or eliminated. Any portion of such
sales charge excluded from the tax basis of the shares sold will
be added to the tax basis of the shares acquired in the
reinvestment. Shareholders should consult with their tax advisor
concerning the tax rules applicable to the redemption or exchange
of Fund shares.

The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid and will,
promptly after the close of each calendar year, advise them of
the tax status for federal income tax purposes of such dividends
and distributions.

Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes to distributions received by them from the Fund and the
application of foreign tax laws to these distributions.

Shareholders should also consult their tax advisors with respect
to the applicability of any state and local intangible property
or income taxes on their shares of the Fund and distributions and
redemption proceeds received from the Fund.

Additional information on tax matters relating to the Fund and
its shareholders is included in the section entitled "Additional
Information Regarding Taxation" in the SAI.

How to Buy Shares of the Fund

Shares of the Fund are continuously offered through securities
dealers which execute an agreement with Distributors, the
principal underwriter of the Fund's shares. The use of the term
"securities dealer" 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. The minimum initial
investment is $100 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are purchased
through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for
the purchase of shares.

Class I. 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 of each class will be the same on matters affecting
the Fund as a whole, but each will vote separately on matters
affecting its class. 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 0.15% of average daily net
assets of such shares. With this multiclass structure, Class I
shares have higher front-end sales charges than Class II shares
and comparatively lower Rule 12b-1 fees. Class I shares may be
purchased at a reduced front-end sales charges or at net asset
value if certain conditions are met. In most circumstances,
contingent deferred sales charges will not be assessed against
redemptions of Class I shares. See "Management of the Fund," and
"How to Sell Shares of the Fund" for more information.

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% 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% per annum of average daily net assets of such
shares, 0.50% of which will be retained by Distributors during
the first year of investment. Class II shares have lower front-
end sales charges than Class I shares and comparatively higher
Rule 12b-1 fees. See "Contingent Deferred Sales Charge" under
"How to Sell Shares of the Fund".

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. However,
the higher annual Rule 12b-1 fees on the Class II shares will
result in slightly higher operating expenses and lower income
dividends for Class II shares, which will accumulate over time 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 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 approximately
six years or more. Investors who qualify to purchase Class I
shares at reduced sales charges but who intend to hold their
shares approximately 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.

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.

Purchase Price of Fund Shares

Shares of both classes of the Fund are offered at then 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).

Set forth below is a table of total front-end sales charges or
underwriting commissions and dealer concessions for Class I
shares.

Total Sales Charge
Dealer
As a As a Concession
Percentage of Percentage of As a
Size of Transaction Offering Net Amount Percentage
at Offering Price Price Invested Of Offering
Price*, ***
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less
than $250,000 3.50% 3.63% 3.25%
$250,000 but less
than $500,000 2.75% 2.83% 2.50%
$500,000 but less
than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more
NONE NONE (see
below)**

*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.

**The following commissions will be paid by Distributors, out of
its own resources, to securities dealers who initiate and are
responsible for purchases of $1 million or more: 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. Dealer concession breakpoints are reset every 12
months for purposes of additional purchases.

***At the discretion of Distributors, all sales charges may at
times be allowed to the securities dealer. If 90% or more of the
sales commission is allowed, such securities dealer may be deemed
to be an underwriter as that term is defined in the Securities
Act of 1933, as amended.

No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of all or a portion of investments of $1
million within the contingency period. See "How to Sell Shares
of the Fund - Contingent Deferred Sales Charge."

Other Payments to Securities Dealers.

Distributors, or one of its affiliates, may make payments, out of
its own resources, of up to 0.75% of the amount purchased to
securities dealers who initiate and are responsible for purchases
made at net asset value by non-designated retirement plans, and
up to 1% of the amount purchased to securities dealers who
initiate and are responsible for purchases made at net asset
value by certain designated retirement plans (excluding IRA and
IRA rollovers), certain trust company and trust departments of
banks and certain retirement plans of organizations with
collective retirement plan assets of $10 million or more. See
"Description of Special Net Asset Value Purchases" as described
under "Purchases at Net Asset Value" and as set forth in the SAI.

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
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)

*Distributors, or one of its affiliates, may make additional
payments to securities dealers, from its own resources, of up to
1% of the amount invested. During the first year following a
purchase of Class II shares, Distributors will keep a portion of
the Rule 12b-1 fees assessed to those shares to partially recoup
fees Distributors pays to securities dealers.

Class II shares redeemed within 18 months of their purchase will
be assessed a contingent deferred sales charge of 1% 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 under "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."

Distributors or one of its affiliates, out of its own resources,
may also provide additional compensation to securities dealers in
connection with sales of shares of the Franklin Templeton Funds.
Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training
programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and
programs regarding one or more of the Franklin Templeton Funds
and other dealer-sponsored programs or events. In some instances,
this compensation may be made available only to certain
securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin
Templeton Funds. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and members of their
families to locations within or outside of the United States for
meetings or seminars of a business nature. Securities dealers may
not use sales of the Fund's shares to qualify for this
compensation to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by the Fund or
its shareholders.

Additional terms concerning the offering of the Fund's shares are
included in the SAI.

Certain officers and directors of the Fund are also affiliated
with Distributors. A detailed description is included in the SAI.

Quantity Discounts in Sales Charges - Class I Shares Only

In addition, an investment in Class I shares may qualify for a
reduction in the sales charge under the following programs:

2. Letter of Intent. An investor may immediately qualify for a
reduced sales charge on a purchase of Class I shares of the Fund
by completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or the "Letter"). By
completing the Letter, the investor expresses an intention to
invest during the next 13 months a specified amount which, if
made at one time, would qualify for a reduced sales charge and
grants to Distributors a security interest in the reserved shares
and irrevocably appoints Distributors as attorney-in-fact with
full power of substitution to surrender for redemption any or all
shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors
that this Letter is in effect each time a purchase is made.

Group Purchases of Class I Shares

An individual who is a member of a qualified group may also
purchase Class I shares of the Fund at the reduced sales charge
applicable to the group as a whole. The sales charge is based
upon the aggregate dollar value of shares previously purchased
and still owned by members of the group, plus the amount of the
current purchase. For example, if members of the group had
previously invested and still held $80,000 of Fund shares and now
were investing $25,000, the sales charge would be 3.50%. In
addition, as stated above, no front-end sales charge applies on
investments of $1 million or more by individuals or groups, but a
contingent deferred sales charge of 1% is imposed on certain
redemptions within 12 months of the calendar month of the
purchase. Information concerning the current sales charge
applicable to a group may be obtained by contacting Distributors.

If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of
the payroll deduction and the time the money reaches the Fund.
The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll
deduction data are received in required form by the Fund.

Purchases at Net Asset Value

Class I shares of the Fund may be purchased without the
imposition of a front-end sales charge ("net asset value") or a
contingent deferred sales charge by (1) officers, trustees,
directors, and full-time employees of the Fund, any of the
Franklin Templeton Funds, or of the Franklin Templeton Group, and
by their spouses and family members, including any subsequent
payments made by such parties after cessation of employment; (2)
companies exchanging shares with or selling assets pursuant to a
merger, acquisition or exchange offer; (3) insurance company
separate accounts for pension plan contracts; (4) accounts
managed by the Franklin Templeton Group; (5) shareholders of
Templeton Institutional Funds, Inc. reinvesting redemption
proceeds from that fund under an employee benefit plan qualified
under Section 401 of the Code, in shares of the Fund; (6) certain
unit investment trusts and unit holders of such trusts
reinvesting their distributions from the trusts in the Fund; (7)
registered securities dealers and their affiliates, for their
investment account only, and (8) registered personnel and
employees of securities dealers, and by their spouses and family
members, in accordance with the internal policies and procedures
of the employing securities dealer.

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 a credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingent
period will begin. Matured shares will be reinvested at net asset
value and will not be subject to a new contingent deferral sales
charge. 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 this 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 to Shareholders -
Distributions in Cash."

Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by investors
who have, within the past 60 days, redeemed an investment in a
mutual fund which is not part of the Franklin Templeton Funds and
which charged the investor a contingent deferred sales charge
upon redemption and which has investment objectives similar to
those of the Fund.

Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by broker
dealers who have entered into a supplemental agreement with
Distributors, or by registered investment advisors affiliated
with such broker-dealers, on behalf of their clients who are
participating in a comprehensive fee program (sometimes known as
a wrap fee program).

Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by anyone
who has taken a distribution from an existing retirement plan
already invested in the Franklin Templeton Funds (including
former participants of the Franklin Templeton Profit Sharing
401(k) plan, to the extent of such distribution. In order to
exercise this privilege a written order for the purchase of
shares of the Fund must be received by Franklin Templeton Trust
Company (the "Trust Company"), the Fund or Investor Services,
within 120 days after the plan distribution.

Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
any state, county, or city, or any instrumentality, department,
authority or agency thereof which has determined that the Fund is
a legally permissible investment and which is prohibited by
applicable investment laws from paying a sales charge or
commission in connection with the purchase of shares of any
registered management investment company ("an eligible
governmental authority"). SUCH INVESTORS SHOULD CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES
OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Municipal
investors considering investment of proceeds of bond offerings
into the Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or its
investment manager on arbitrage rebate calculations. If an
investment by an eligible governmental authority at net asset
value is made through a securities dealer who has executed a
dealer agreement with Distributors, Distributors or one of its
affiliates may make a payment, out of their own resources, to
such securities dealer in an amount not to exceed 0.25% of the
amount invested. Contact Franklin's Institutional Sales
Department for additional information.

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.

Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by trust
companies and bank trust departments for funds over which they
exercise exclusive discretionary investment authority and which
are held in a fiduciary, agency, advisory, custodial or similar
capacity. Such purchases are subject to minimum requirements with
respect to amount of purchase, which may be established by
Distributors. Currently, those criteria require that the amount
invested or to be invested during the subsequent 13-month period
in this Fund or any of the Franklin Templeton Investments must
total at least $1,000,000. Orders for such accounts will be
accepted by mail accompanied by a check or by telephone or other
means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of
business on the next business day following such order.

Class I shares may be purchased at net asset value and without
the imposition of a contingent deferred sales charge by trustees
or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of
$10 million or more, without regard to where such assets are
currently invested.

Refer to the SAI for further information regarding net asset
value purchases of Class I shares.

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. 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.

General

Securities laws of states in which the Fund's shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions selling Fund shares may be
required to register as dealers pursuant to state law.

Purchasing Shares of the Fund in Connection with Retirement Plans
Involving Tax-Deferred Investments

Shares of the Fund may be used for individual or employer-
sponsored retirement plans involving tax-deferred investments.
The Fund may be used as an investment vehicle for an existing
retirement plan, or Franklin Templeton Trust Company ( the "Trust
Company") may provide the plan documents and serve as custodian
or trustee. A plan document must be adopted in order for a
retirement plan to be in existence.

Other Programs and Privileges
Available to Fund Shareholders

Certain of the programs and privileges described in this section
may not be available directly from the Fund to shareholders whose
shares are held, of record, by a financial institution or in a
"street name" account or networked account through the National
Securities Clearing Corporation ("NSCC") (see the section
captioned "Account Registrations" in this Prospectus).

Share Certificates

Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and capital
gain distributions, are generally credited to an account in the
name of an investor on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the
risk of loss or theft of a share certificate. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the securities dealer.

Confirmations

A confirmation statement will be sent to each shareholder
quarterly to reflect the dividends reinvested during that period
and after each other transaction which affects the shareholder's
account. This statement will also show the total number of shares
owned by the shareholder, including the number of shares in "plan
balance" for the account of the shareholder.

Automatic Investment Plan

The market value of each class of the Fund's shares is subject to
fluctuation. Before undertaking any plan for systematic
investment, the investor should keep in mind that such a program
does not assure a profit or protect against a loss.

Systematic Withdrawal Plan

A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. Retirement plans subject to mandatory distribution
requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis.
If the shareholder establishes a plan, any capital gain
distributions and income dividends paid by the Fund will be
reinvested for the shareholder's account in additional shares at
net asset value. Payments will then be made from the liquidation
of shares at net asset value on the day of the transaction (which
is generally the first business day of the month in which the
payment is scheduled) with payment generally received by the
shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to
another of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the account
is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments which may be paid
in the interim will be sent to the address of record. Liquidation
of shares may reduce or possibly exhaust the shares in the
shareholder's account, to the extent withdrawals exceed shares
earned through dividends and distributions, particularly in the
event of a market decline. If the withdrawal amount exceeds the
total plan balance, the account will be closed and the remaining
balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a sale
for federal income tax purposes. Because the amount withdrawn
under the plan may be more than the shareholder's actual yield or
income, part of the payment may be a return of the shareholder's
investment.

The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of Class I shares and Class II
shares may be subject to a contingent deferred sales charge if
the shares are redeemed within 12 months (Class I shares) or 18
months (Class II shares) of the calendar month of the original
purchase date. The shareholder should ordinarily not make
additional investments of less than $5,000 or three times the
annual withdrawals under the plan during the time such a plan is
in effect.

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,
however, 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%
semiannually, 3% quarterly). For example, if a Class I account
maintained an annual balance of $1,000,000, only $120,000 could
be withdrawn through a once-yearly Systematic Withdrawal Plan
free of charge; any amount over that $120,000 would be assessed a
1% (or applicable) contingent deferred sales charge. Likewise, if
a Class II account maintained an annual balance of $10,000, only
$1,200 could be withdrawn through a once-yearly Systematic
Withdrawal Plan free of charge.

A Systematic Withdrawal Plan may be terminated on written notice
by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments or suspend one such payment by giving written
notice to Investor Services at least seven business days prior to
the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan
is in effect.

Institutional Accounts

There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact the Franklin Templeton
Institutional Services Department at 1-800/321-8563.

Exchange Privilege

The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives or policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, the Fund shares may be exchanged
for the same class of shares 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 12 months (Class I
shares) or 18 months (Class II shares) of the calendar month
following 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 may be made in any of the following ways:

Exchanges By Mail

Exchanges By Telephone

Shareholders, or their investment representative of record, if
any, may exchange shares of the Fund by telephone by calling
Investor Services at 1-800/632-2301 or the automated Franklin
TeleFACTS(Registered Trademark) system (day or night) at 1-
800/247-1753. If the shareholder does not wish this privilege
extended to a particular account, the Fund or Investor Services
should be notified.

The Telephone Exchange Privilege allows a shareholder to effect
exchanges from the Fund into an identically registered account of
the same class of shares in one of the other available Franklin
Templeton Funds. The Telephone Exchange Privilege is available
only for uncertificated shares or those which have previously
been deposited in the shareholder's account. The Fund and
Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. Please
refer to "Telephone Transactions - Verification Procedures."

During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be difficult
to implement and the TeleFACTS option may not be available. In
this event, shareholders should follow the other exchange
procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.

Exchanges Through Securities Dealers

As is the case with all purchases and redemptions of the Fund's
shares, Investor Services will accept exchange orders from
securities dealers who execute a dealer or similar agreement with
Distributors. See also "Exchanges By Telephone" above. Such a
dealer-ordered exchange will be effective only for uncertificated
shares on deposit in the shareholder's account or for which
certificates have previously been deposited. A securities dealer
may charge a fee for handling an exchange.

Additional Information Regarding Exchanges

Exchanges of the same class of shares are made on the basis of
the net asset values of the class involved, except as set forth
below. Exchanges of shares of a class which were originally
purchased without a sales charge will be charged a sales charge
in accordance with the terms of the prospectus of the fund and
the class of shares being purchased, unless the original
investment on which no sales charge was paid was transferred in
from a fund on which the investor paid a sales charge. Exchanges
of Class I shares of the Fund which were purchased with a lower
sales charge into a fund which has a higher sales charge will be
charged the difference in sales charges, unless the shares were
held in the Fund for at least six months prior to executing the
exchange.

When an investor requests the exchange of the total value of the
Fund account, declared but unpaid income dividends and capital
gain distributions will be transferred to the account in the fund
being exchanged into and will be invested at net asset value.
Because the exchange is considered a redemption and purchase of
shares, the shareholder may realize a gain or loss for federal
income tax purposes. Backup withholding and information reporting
may also apply. Information regarding the possible tax
consequences of such an exchange is included in the tax section
in this Prospectus and in the SAI.

If a substantial portion of the Fund's shareholders should,
within a short period, elect to redeem their shares of the Fund
pursuant to the exchange privilege, the Fund might have to
liquidate portfolio securities it might otherwise hold and incur
the additional costs related to such transactions. On the other
hand, increased use of the exchange privilege may result in
periodic large inflows of money. If this should occur, it is the
general policy of the Fund to initially invest this money in
short-term, interest-bearing money market instruments, unless it
is felt that attractive investment opportunities consistent with
the Fund's investment objectives exist immediately. Subsequently,
this money will be withdrawn from such short-term money market
instruments and invested in portfolio securities in as orderly a
manner as is possible when attractive investment opportunities
arise.

The Exchange Privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.

Exchanges of Class I Shares

Exchanges of Class II Shares

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.

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. Shares of each class will be transferred on
the same basis as described above for exchanges.

Conversion Rights

Retirement Accounts

Timing Accounts

Restrictions on Exchanges

In accordance with the terms of their respective prospectuses,
certain funds do not accept or may place differing limitations
than those below on exchanges by Timing Accounts.

The Fund reserves the right to temporarily or permanently
terminate the exchange privilege or reject any specific purchase
order for any Timing Account or any person whose transactions
seem to follow a timing pattern who: (i) makes an exchange
request out of the Fund within two weeks of an earlier exchange
request out of the Fund, or (ii) makes more than two exchanges
out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1% of the
Fund's net assets. Accounts under common ownership or control,
including accounts administered so as to redeem or purchase
shares based upon certain predetermined market indicators, will
be aggregated for purposes of the exchange limits.

The Fund also reserves the right to refuse the purchase side of
an exchange request by any Timing Account, person, or group if,
in the Manager's judgment, the Fund would be unable to invest
effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if
the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing"
strategy may be disruptive to the Fund and therefore may be
refused.

The Fund and Distributors also, as indicated in "How to Buy
Shares of the Fund," reserve the right to refuse any order for
the purchase of shares.

How to Sell Shares of the Fund

A shareholder may at any time liquidate shares owned and receive
from the Fund the value of the shares. Shares may be redeemed in
any of the following ways:

Redemptions by Mail

Send a written request, signed by all registered owners, to
Investor Services, at the address shown on the back cover of this
Prospectus, and any share certificates which have been issued for
the shares being redeemed, properly endorsed and in order for
transfer. The shareholder will then receive from the Fund the
value of the class of shares redeemed based upon the net asset
value per share (less a contingent deferred sales charge, if
applicable) next computed after the written request in proper
form is received by Investor Services. Redemption requests
received after the time at which the net asset value is
calculated (at the scheduled close of the New York Stock Exchange
["Exchange"], which is generally 1:00 p.m. Pacific time) each day
that the Exchange is open for business will receive the price
calculated on the following business day. Shareholders are
requested to provide a telephone number(s) where they may be
reached during business hours, or in the evening if preferred.
Investor Services' ability to contact a shareholder promptly when
necessary will speed the processing of the redemption.

To be considered in proper form, signature(s) must be guaranteed
if the redemption request involves any of the following:

(1) the proceeds of the redemption are over $50,000;

(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;

(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record, preauthorized
bank account or brokerage firm account;

(4) share certificates, if the redemption proceeds are in excess
of $50,000; or

Where shares to be redeemed are represented by share
certificates, the request for redemption must be accompanied by
the share certificate and a share assignment form signed by the
registered shareholders exactly as the account is registered,
with the signature(s) guaranteed as referenced above.
Shareholders are advised, for their own protection, to send the
share certificate and assignment form in separate envelopes if
they are being mailed in for redemption.

Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction
require the following documentation to be in proper form:

Corporation - (1) Signature guaranteed letter of instruction from
the authorized officer(s) of the corporation, and (2) a corporate
resolution.

Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.

Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.

Payment for redeemed shares will be sent to the shareholder
within seven days after receipt of the request in proper form.

Redemptions by Telephone

For shareholder accounts with the completed Agreement on file,
redemptions of uncertificated shares or shares which have
previously been deposited with the Fund or Investor Services may
be made for up to $50,000 per day per Fund account. Telephone
redemption requests received before the scheduled close of the
Exchange (generally 1:00 p.m. Pacific time) on any business day
will be processed that same day. The redemption check will be
sent within seven days, made payable to all the registered owners
on the account, and will be sent only to the address of record.
Redemption requests by telephone will not be accepted within 30
days following an address change by telephone. In that case, a
shareholder should follow the other redemption procedures set
forth in this Prospectus. Institutional accounts (certain
corporations, bank trust departments, government entities, and
qualified retirement plans which qualify to purchase shares at
net asset value pursuant to the terms of this Prospectus) which
wish to execute redemptions in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement which is available
from the Franklin Templeton Institutional Services Department by
telephoning 1-800/321-8563.

Redeeming Shares Through Securities Dealers

The Fund will accept redemption orders from securities dealers
who have entered into an agreement with Distributors. This is
known as a repurchase. The only difference between a normal
redemption and a repurchase is that if the shareholder redeems
shares through a dealer, the redemption price will be the net
asset value next calculated after the shareholder's dealer
receives the order which is promptly transmitted to the Fund,
rather than on the day the Fund receives the shareholder's
written request in proper form. The documents, as described in
the preceding section, are required even if the shareholder's
securities dealer has placed the repurchase order. After receipt
of a repurchase order from the dealer, the Fund will still
require a signed letter of instruction and all other documents
set forth above. A shareholder's letter should reference the Fund
and the class, the account number, the fact that the repurchase
was ordered by a dealer and the dealer's name. Details of the
dealer-ordered trade, such as trade date, confirmation number,
and the amount of shares or dollars, will help speed processing
of the redemption. The seven-day period within which the proceeds
of the shareholder's redemption will be sent will begin when the
Fund receives all documents required to complete ("settle") the
repurchase in proper form. The redemption proceeds will not earn
dividends or interest during the time between receipt of the
dealer's repurchase order and the date the redemption is
processed upon receipt of all documents necessary to settle the
repurchase. Thus, it is in a shareholder's best interest to have
the required documentation completed and forwarded to the Fund as
soon as possible. The shareholder's dealer may charge a fee for
handling the order. The SAI contains more information on the
redemption of shares.

Contingent Deferred Sales Charge

The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
distributions to participants or their beneficiaries in Trust
Company individual retirement plan accounts due to death,
disability or attainment of age 59 1/2; tax-free returns of
excess contributions from 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; and redemptions following the death of
the shareholder or the beneficial owner.

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.

Additional Information Regarding Redemptions

The Fund may delay the mailing of the redemption check, or a
portion thereof, until the clearance of the check used to
purchase Fund shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally
reduce this delay, shares purchased with these checks will also
be held pending clearance. Shares purchased by federal funds wire
are available for immediate redemption. In addition, the right of
redemption may be suspended or the date of payment postponed if
the Exchange is closed (other than customary closing) or upon the
determination of the SEC that trading on the Exchange is
restricted or an emergency exists, or if the SEC permits it, by
order, for the protection of shareholders. Of course, the amount
received may be more or less than the amount invested by the
shareholder, depending on fluctuations in the market value of
securities owned by the Fund.

Retirement Plan Accounts

Retirement plan account liquidations require the completion of
certain additional forms to ensure compliance with Internal
Revenue Service ("IRS") regulations. To liquidate a retirement
account, a shareholder or securities dealer may call Franklin's
Retirement Plans Department to obtain the necessary forms. Tax
penalties will generally apply to any distribution from such
plans to a participant under age 59 1/2, unless the distribution
meets one of the exceptions set forth in the Code.

Other

For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.

Telephone Transactions

Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.

All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option (see "Restricted Accounts" below),
(iii) transfer Fund shares in one account to another identically
registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition,
shareholders who complete and file an Agreement as described
under "How to Sell Shares of the Fund - Redemptions by Telephone"
will be able to redeem shares of the Fund.

Verification Procedures

Restricted Accounts

To obtain further information regarding distribution or transfer
procedures, including any required forms, retirement account
shareholders may call to speak to a Retirement Plan Specialist at
1-800/527-2020 for Franklin accounts or 1-800/354-9191 (press "2"
when prompted to do so) for Templeton accounts.

General

Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.

The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice
to shareholders

Valuation of Fund Shares

The net asset value per share of each class of the Fund is
determined as of the scheduled close of the Exchange (generally
1:00 p.m. Pacific time) each day that the Exchange is open for
trading. Many newspapers carry daily quotations of the prior
trading day's closing "bid" (net asset value) and "ask" (offering
price, which includes the maximum sales charge of each class of
shares of the Fund).

The net asset value per share for each class of the Fund is
determined in the following manner: The aggregate of all
liabilities, is deducted from the aggregate gross value of all
assets, and the difference is divided by the number of shares of
the respective class of the Fund outstanding at the time. For the
purpose of determining the aggregate net assets of each class of
the Fund, cash and receivables are valued at their realizable
amounts. Interest is recorded as accrued and dividends are
recorded on the ex-dividend date. 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
ask prices. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued
according to the broadest and most representative market as
determined by the Manager. Other securities for which market
quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, 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 issues.
Securities and other assets for which market prices are not
readily available are valued at fair value as determined
following procedures approved by the Board of Directors. With the
approval of directors, the Fund may utilize a pricing service,
bank or securities dealer to perform any of the above described
functions. The value of a foreign security is determined as of
the close of trading on the foreign exchange on which it is
traded or as of the scheduled close of trading on the Exchange,
if that is earlier, and that value is then converted into its
U.S. dollar equivalent at the foreign exchange rate in effect at
noon, New York time, on the day the value of the foreign security
is determined. If no sale is reported at that time, the mean
between the current bid and asked price is used. Occasionally,
events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are
determined and the close of the exchange and will, therefore, not
be reflected in the computation of the Fund's net asset value. If
events materially affect the value of these foreign securities
occur during such period, then these securities will be valued at
fair value as determined by management and approved in good faith
by the Board of Directors.

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

Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.

From a touch tone phone, shareholders may access an automated
system (day or night) which offers the following features.

Franklin Class I and Class II share codes for the Fund, which
will be needed to access system information, are 109 and 209,
respectively. The system will prompt the caller with easy to
follow step-by-step instructions from the main menu. Other
features may be added in the future.

Hours of Operation
(Pacific Time)
(Monday through
Department Name Telephone No. Friday)
Shareholder Services 1-800/632-2301 6:00a.m. to 5:00p.m.
Dealer Services 1-800/524-4040 6:00a.m. to 5:00p.m.
Fund Information 1-800/DIAL BEN 6:00a.m. to 8:00p.m.
8:30a.m. to 5:00p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00a.m. to 5:00p.m.
TDD (hearing impaired) 1-800/851-0637 6:00a.m. to 5:00p.m.

Performance

Advertisements, sales literature and communications to
shareholders may contain various measures of a class'
performance, including current yield, various expressions of
total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.

Average annual total return figures as prescribed by the SEC
represent the average annual percentage change in value of $1,000
invested at the maximum public offering price (offering price
includes sales charge) for one-, five- and ten-year periods, or
portion thereof, to the extent applicable, through the end of the
most recent calendar quarter, assuming reinvestment of all
distributions. The Fund may also furnish total return quotations
for each class for other periods or based on investments at
various sales charge levels or at net asset value. For such
purposes, total return equals the total of all income and capital
gain paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the
original investment, expressed as a percentage of the purchase
price.

Current yield for each class reflects the income per share earned
by the Fund's portfolio investments; it is calculated for each
class by dividing that class' net investment income per share
during a recent 30-day period by the maximum public offering
price for that class of shares on the last day of that period and
annualizing the result.

Yield for each class, which is calculated according to a formula
prescribed by the SEC (see the SAI), is not indicative of the
dividends or distributions which were or will be paid to the
Fund's shareholders. Dividends or distributions paid to
shareholders of a class are reflected in the current distribution
rate, which may be quoted to shareholders. The current
distribution rate is computed by dividing the total amount of
dividends per share paid by a class during the past 12 months by
a current maximum offering price for that class of shares. 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 during 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 gain, and is
calculated over a different period of time.

In each case, performance figures are based upon past
performance, reflect all recurring charges against a class'
income and will assume the payment of the maximum sales charge on
the purchase of that class of shares. When there has been a
change in the sales charge structure, the historical performance
figures will be restated to reflect the new rate. The investment
results of each class, like all other investment companies, will
fluctuate over time; thus, performance figures should not be
considered to represent what an investment may earn in the future
or what a class' yield, distribution rate or total return may be
in any future period.

General Information

Reports to Shareholders

The Fund's fiscal year ends September 30. Annual Reports
containing audited financial statements of the Fund, including
the auditors' report, and Semi-Annual Reports containing
unaudited financial statements are automatically sent to
shareholders. Copies may be obtained, without charge, upon
request to the Fund at the telephone number or address set forth
on the cover page of this Prospectus.

Additional information on Fund performance is included in the
Fund's Annual Report to Shareholders and the SAI.

Organization and Voting Rights

The authorized capital stock of the Custodian Funds consists of
ten billion shares of Capital Stock of $0.01 par value, all of
which has been authorized by the Board of Directors to be issued
in five separate series, 6,000,000,000 of which have been
designated as Class I shares, and 4,000,000,000 of which have
been designated as Class II shares. Of those shares,
2,600,000,000 have been designated as Class I shares of the Fund,
and 600,000,000 have been designated as Class II shares of the
Fund. The Board of Directors is empowered by the Charter to issue
other series of Capital Stock and to increase or decrease the
number, but not below that at the time outstanding.

The assets received for the issue or sale of each series of the
Capital Stock of the Custodian Funds and all income, earnings,
profits and proceeds thereof, subject only to the rights of
creditors, are especially allocated to such series, and
constitute the underlying assets of such series. The underlying
assets of each series are required to be segregated on the books
of account, and are to be charged with the liabilities in respect
to such series and with a share of the general liabilities of the
Custodian Funds. Liabilities in respect to any two or more series
are to be allocated in proportion to the asset value of the
respective series except where direct expenses can otherwise be
fairly allocated. The Board of Directors has the right to
determine which liabilities are allocable to a given series, and
which are general or allocable to two or more series. In the
event of the dissolution or liquidation of the Custodian Funds,
the registered holders of the Capital Stock of any series are
entitled to receive as a class the underlying assets of such
series available for distribution to shareholders.

Shares of Capital Stock entitle their holders to one vote per
share; however, votes are made by series on matters affecting an
individual series. Shares have noncumulative voting rights, which
means that in all elections of directors, holders of more than
50% of the shares voting can elect 100% of the directors if they
choose to do so and, in such event, the holders of the remaining
shares voting will not be able to elect any person or persons to
the Board of Directors. Shares have no preemptive or subscription
rights and are fully transferable. There are no conversion
rights; however, holders of shares of each class of any series
may reinvest all or any portion of the proceeds from the
redemption or repurchase of such shares into shares of the same
class of any other series as described under "Exchange
Privilege."

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
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 shareholders approval, only shareholders of
Class II 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.

Shareholders' Meetings

Maryland General Corporation Law does not require corporations
registered as management investment companies under the 1940 Act
to hold routine annual meetings of shareholders and the Fund does
not intend to hold annual meetings. The Fund may, however, hold a
meeting for such purposes as changing fundamental investment
restrictions, approving a new management agreement or any other
matters which are required to be acted on by shareholders under
the 1940 Act. A meeting may also be called by a majority of the
Board of Directors or by shareholders holding at least ten
percent of the shares entitled to vote at the meeting for the
purpose of voting upon the removal of directors, in which case
shareholders may receive assistance in communicating with other
shareholders such as that provided in Section 16(c) of the 1940
Act. In addition, Maryland General Corporation Law provides that
a special meeting may be called by a majority of the Board of
Directors or by the written request of shareholders holding at
least 25% of the shares entitled to vote at the meeting.

Redemptions by the Fund

The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account has a value of less than $50,
but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a
period of at least six months, provided advance notice is given
to the shareholder. More information is included in the SAI.

Other Information

"Cash" payments to or from the Fund may be made by check, draft
or wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.

Account Registrations

Shares, whether in certificate form or not, registered as joint
tenants or "Jt Ten" shall mean "as joint tenants with rights of
survivorship" and not "as tenants in common."

Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer agreements
on file with Distributors. Unless a dealer agreement has been
executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures, the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.

Any questions regarding an intended registration should be
answered by the securities dealer handling the investment or by
calling Franklin's Fund Information Department.

Important Notice Regarding
Taxpayer IRS Certifications

Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the IRS any taxable dividend, capital
gain distribution, or other reportable payment (including share
redemption proceeds) and withhold 31% of any such payments made
to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and
made certain required certifications that appear in the
Shareholder Application. A shareholder may also be subject to
backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for
previous under-reporting of interest or dividend income.

Portfolio Operations

The following persons are primarily responsible for the day-to-
day management of the Fund's portfolio: Mr. Charles B. Johnson
since 1957, and Mr. Matt Avery since 1989.

Charles B. Johnson
Chairman of the Board
Franklin Advisers, Inc.

Mr. Johnson holds a Bachelor of Arts degree in economics and
political science from Yale University. He has been with Advisers
since 1957. Mr. Johnson is a member of several securities
industry-related committees and associations.

Matt Avery
Portfolio Manager
Franklin Advisers, Inc.

Mr. Avery has a Master's Degree from U.C.L.A. Graduate School of
Management and a Bachelor of Science degree in industrial
engineering from Stanford University. He has been in the
securities industry since 1982, with Advisers since 1987.

Appendix
Description of Moody's corporate bond ratings:

Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

Description of S&P Corporation's corporate bond ratings:

AAA - This is the highest rating assigned by Standard & Poor's to
a debt obligation and indicates an extremely strong capacity to
pay principal and interest.

A - Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions.

C: - This rating is reserved for income bonds on which no
interest is being paid.

D - Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears.

U.S. Government
Securities Series
Franklin Custodian Funds, Inc.

PROSPECTUS February 1, 1995 as amended June 1, 1995

777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN

The U.S. Government Securities Series (the "Fund") is a
diversified series of Franklin Custodian Funds, Inc. ("Custodian
Funds"), an open-end management investment company. The primary
investment objective of the Fund is income through investment in
obligations of the U.S. government or its instrumentalities. At
the present time, the assets of the Fund are invested in
obligations of the Government National Mortgage Association
("Ginnie Maes" or "GNMA"). This Prospectus is intended to set
forth in a clear and concise manner information about the Fund
that a prospective investor should know before investing. After
reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of
shares and other items which the prospective investor will find
useful to have.

This Prospectus pertains only to the U.S. Government Securities
Series. A separate Prospectus, also dated February 1, 1995, as
amended June 1, 1995 as may be further amended from time to time,
describes all five series of Custodian Funds and is incorporated
herein by reference. A Statement of Additional Information
("SAI")concerning Custodian Funds dated February 1, 1995, as
amended May 1, 1995, as may be further amended from time to time,
provides a further discussion of certain areas in this Prospectus
and other matters which may be of interest to some investors. It
has been filed with the Securities and Exchange Commission
("SEC") and is incorporated herein by reference. A copy is
available without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.

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. See "How to Buy Shares of the
Fund - Differences Between Class I and Class II."

Contents Page

Expense Table

Financial Highlights

About the Fund

Investment Objective
and Policies of the Fund

Management of the Fund

Distributions to Shareholders

Taxation of the Fund
and Its Shareholders

How to Buy Shares of the Fund

Purchasing Shares of the Fund in
Connection with Retirement Plans
Involving Tax-Deferred Investments

Other Programs and Privileges
Available to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

<TABLE>

Expense Table

<S> <C> <C>
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 less than six 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. (See
"How to Buy shares of the Fund - Purchase Price of Fund Shares"
for a definition of Franklin Templeton Funds and similar
references.")
^^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% 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 12b-1 fees incurred by Class I of the Fund
for the period May 1, 1994 through September 30, 1994 were .03%
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.
**"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. 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
<S> <C> <C> <C> <C>
Class I* $48 $61 $74 $113
Class II $32 $47 $74 $151
*For the purposes of this example, it is assumed that a
contingent deferred sales charge will not apply to Class I
shares.

You would pay the following expenses on Class II shares on the
same investment assuming no redemption:

1 year 3 years 5 years 10 years
<C> <C> <C> <C>
$22 $47 $74 $151

This example is based on the aggregate annual operating expenses,
as 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%.

</TABLE>

Financial Highlights
- -----------------------------------------------------------------------

Set forth below is a table containing the financial highlights for a
share of the Fund throughout the ten fiscal years in the period ended
September 30, 1994. The information for each of the five fiscal years
in the period ended September 30, 1994 has been audited by Coopers &
Lybrand L.L.P., independent auditors, whose audit report appears in the
financial statements in the Fund's SAI. The remaining figures, which
are also audited, are not covered by the auditor's current
report. Information regarding Class II shares will be included in
this table after they have been offered to the public for a
reasonable period of time. See
the discussion "Reports to Shareholders" under "General
Information."

<TABLE>
<CAPTION>
Per Share Operating PerformanceRatios/Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net Asset Net Realized Dividends
Year Value Net Unrealized Total From From Net Distributions
Ended Beginning Investment Gain (Loss) Investment Investment From Capital Total
Sep. 30 of Year Income on Securities Operations Income Gains Distribution
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>

1985 $6.85 $0.880 $ 0.500 $ 1.380 $(0.900) $ -- $(0.900)
1986 7.33 0.790 0.165 0.955 (0.875) -- (0.875)
1987 7.41 0.698 (0.500) 0.198 (0.724) (0.014) (0.738)
1988 6.87 0.691 0.115 0.806 (0.696) -- (0.696)
1989 6.98 0.688 (0.072) 0.616 (0.696) -- (0.696)
1990 6.90 0.668 (0.020) 0.648 (0.688) -- (0.688)
1991 6.86 0.653 0.287 0.940 (0.660) -- (0.660)
1992 7.14 0.609 0.106 0.715 (0.595) -- (0.595)
1993 7.26 0.557 (0.056) 0.501 (0.561) -- (0.561)
1994 7.20 0.500 (0.678) (0.178) (0.512) -- (0.512)
- -----------------------------------------------------------------------------------------------------------------

<CAPTION>
Per Share Operating PerformanceRatios/Supplemental Data
- --------------------------------------------------------------------------------------------------
Net Asset Net Assets Ratio of Ratio of
Year Value at End Expenses Net Income Portfolio
Ended at End Total of Year to Average to Average Turnover
Sep. 30 of Year Return+ (in 000's) Net Assets Net Assets Rate*
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

1985 $7.33 20.83% $ 6,512,982 0.57% 11.06% 9.27%
1986 7.41 13.25 14,361,682 0.54 9.93 36.02
1987 6.87 2.22 13,024,437 0.52 9.49 52.92
1988 6.98 11.77 12,112,775 0.53 9.85 34.14
1989 6.90 8.95 11,260,310 0.52 9.99 25.70
1990 6.86 9.47 11,143,333 0.52 9.72 18.23
1991 7.14 13.97 12,426,910 0.52 9.26 22.14
1992 7.26 10.14 13,617,157 0.53 8.46 38.75
1993 7.20 6.86 14,268,516 0.52 7.71 43.10
1994 6.51 (2.75) 11,668,747 0.55 7.37 18.28
- --------------------------------------------------------------------------------------------------
</TABLE>

+Total return measures the change in value of an investment over the
periods indicated. It does not include the maximum front-end sales
charge and assumes reinvestment of dividends at the maximum offering price and
capital gains, if any, at net asset value. Effective May 1, 1994, with
the implementation of the Rule 12b-1 distribution plan, the existing
sales charge on reinvested dividends has been eliminated.

*Maturity of U.S. government issues and the reinvestment of the
proceeds thereof are considered as purchases and sales of securities in
computing the portfolio turnover rate of the Fund.

About the Fund

The Fund is a diversified series of Custodian Funds, an open-end
management investment company, commonly called a "mutual fund"
and registered with the SEC under the Investment Company Act of
1940 ("1940 Act"). Custodian Funds was organized under the laws
of Delaware in 1947 and reincorporated under the laws of Maryland
in 1979. Custodian Funds has five separate diversified series:
Growth Series, DynaTech Series, Utilities Series, Income Series
and U.S. Government Securities Series. The Growth Series,
Utilities Series, Income Series and U.S. Government Securities
Series issue two classes: Growth Series - Class I, Growth Series
- - Class II, Utilities Series - Class I, Utilities Series - Class
II, Income Series - Class I, Income Series - Class II, U.S.
Government Securities Series - Class I and U.S. Government
Securities Series - Class II. All Fund shares outstanding before
May 1, 1995 have been redesignated as Class I shares, and will
retain their previous rights and privileges except for legally
required modifications to shareholder voting procedures as
discussed in "General Information - Voting Rights." According to
statistics published by Lipper Analytical Services, Inc., as of
September 30, 1994, the U.S. Government Securities Series is
still the largest non-money market government securities mutual
fund.

Shares of the Fund may be purchased (minimum investment of $100
initially and $25 thereafter) at the current public offering
price. The current public offering price of the Class I shares is
equal to the net asset value (see "Valuation of Fund Shares"),
plus a variable sales charge not exceeding 4.25% of the offering
price. The current public offering price of the Class II shares
is equal to the net asset value, plus a sales charge of 1.0% of
the amount invested. (See "How to Buy Shares of the Fund.")

Investment Objective
and Policies of the Fund

The Fund's principal investment objective is income through
investment in a portfolio limited to securities which are
obligations of the U.S. government or its instrumentalities. The
objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. U.S. government securities
include, but are not limited to, U.S. Treasury bonds, notes and
bills, Treasury certificates of indebtedness and securities
issued by instrumentalities of the U.S. government. Other than
investments in short-term U.S. Treasury securities, the assets of
the Fund are currently invested solely in obligations of the
Government National Mortgage Association (popularly called GNMAs
or Ginnie Maes).

The Fund believes that its investment policies, as stated in this
Prospectus and the SAI, make the Fund a permissible investment
for federal credit unions, based on the Fund's understanding of
the laws and regulations governing credit union regulations as of
September 30, 1994. 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. Please see the SAI ("The Fund's Investment Objectives and
Restrictions" -- "Credit Union Investment Regulations") for
details.

Information about GNMAs

GNMAs are mortgage backed securities representing part ownership
of a pool of mortgage loans. GNMA Certificates differ from bonds
in that principal is scheduled to be paid back by the borrower
over the length of the loan rather than returned in a lump sum at
maturity. The Fund purchases GNMA Certificates for which
principal and interest are guaranteed. The Fund also purchases
"variable rate" GNMA Certificates and may also purchase other
types which may be issued with GNMA's guarantee.

When mortgages in the pool underlying a GNMA Certificate are
prepaid by mortgagees or as a result of foreclosure, such
principal payments are passed through to the Certificate holders
(such as the Fund). Accordingly, the life of the GNMA Certificate
is likely to be substantially shorter than the stated maturity of
the mortgages in the underlying pool. Because of such variation
in prepayment rates, it is not possible to accurately predict the
life of a particular GNMA Certificate.

Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal less the GNMA and
issuer's fees. The portion of the monthly payment which
represents a return of principal will be reinvested by the Fund
in then-available GNMA obligations which may bear interest at a
rate higher or lower than the obligation from which the payment
was received. The actual yield to be earned by the holder of a
GNMA Certificate is calculated by dividing such payments by the
purchase price paid for the GNMA Certificate (which may be at a
premium or a discount from the face value of the Certificate).

The effects of interest rates and unpredictable prepayments of
principal, however, can greatly change realized yields. In a
period of declining interest rates it is more likely that
mortgages contained in GNMA pools will be prepaid thus reducing
the effective yield. This potential for prepayment during
periods of declining interest rates may reduce the general upward
price increase of GNMA Certificates experienced by other
noncallable debt securities. Moreover, any premium paid on the
purchase of a GNMA Certificate will be lost if the obligation is
prepaid. As with most bonds, in a period of rising interest
rates, the value of a GNMA Certificate will generally decline.

The Fund's investments are continually monitored and changes are
made as market conditions warrant. However, the Fund does not
engage in the trading of securities for the purpose of realizing
short-term profits.

Although the securities in the Fund's portfolio are guaranteed as
to payment of principal and interest by the U.S. government or
its instrumentalities, the market value of these securities, upon
which daily net asset value is based, will fluctuate based upon
factors such as changing interest rates. As a result, the price
per share the shareholder receives on redemption may be more or
less than the price paid for the shares. The dividends per share
paid by the Fund may also vary.

Some of the Other Investment
Policies of the Fund

The Fund does not borrow money or mortgage or pledge any of its
assets except that it may borrow for temporary or emergency
purposes in an amount up to 5% of total asset value. The Fund
does not currently engage in option transactions or repurchase
agreements. The Fund does not loan its securities or acquire
illiquid securities or the securities of foreign issuers.

The Fund may purchase and sell GNMA Certificates on a "To-Be-
Announced" ("TBA") and "delayed delivery" basis. These
transactions are arrangements under which the Fund may purchase
securities with payment and delivery scheduled for a future time
up to 60 days after purchase. The 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. In
TBA and delayed delivery transactions, the Fund relies on the
seller to complete the transaction. The other party's failure to
do so may cause the Fund to miss a price or yield considered
advantageous. Securities purchased on a TBA or delayed delivery
basis do not generally earn interest until their scheduled
delivery date. The Fund is not subject to any percentage limit on
the amount of its assets which may be invested in delayed
delivery and TBA purchase obligations. More information
concerning these transactions is included in the SAI.

How Shareholders Participate
in the Results of the Fund's Activities

The assets of the Fund are invested in portfolio securities. If
the securities owned by the Fund increase in value, the value of
the shares of the fund which the shareholder owns will increase.
If the securities owned by the Fund decrease in value, the value
of the shareholder's shares will also decline. In this way,
shareholders participate in any change in the value of the
securities owned by the Fund.

In particular, changes in interest rates will affect the value of
the Fund's portfolio and thus its share price. Increased rates of
interest which frequently accompany higher inflation and/or a
growing economy are likely to have a negative effect on the value
of Fund shares. History reflects both increases and decreases in
the prevailing rate of interest and these may reoccur
unpredictably in the future.

Management of the Fund

The Board of Directors of Custodian Funds has the primary
responsibility for the overall management of the Fund and for
electing the officers of Custodian Funds who are responsible for
administering its day-to-day operations.

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the
Fund's investment manager. Advisers is a wholly-owned subsidiary
of Franklin Resources, Inc. ("Resources"), a publicly-owned
holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately 20%
and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services
industry through its various subsidiaries (the "Franklin
Templeton Group"). Advisers acts as investment manager or
administrator to 34 U.S. registered investment companies (112
separate series) with aggregate assets of over $74 billion.

Pursuant to the management agreement, the Manager supervises and
implements the Fund's investment activities and provides certain
administrative services and facilities which are necessary to
conduct the Fund's business. During the fiscal year ended
September 30, 1994, fees totaling 0.45% of the average monthly
net assets of the Fund were paid to Advisers.

During the fiscal year ended September 30, 1994, expenses borne
by Class I shares of the Fund, including fees paid to Advisers
and to Investor Services totaled 0.55% of the average monthly net
assets of such class.

Plans of Distribution

A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively, or
"Plans") pursuant to Rule 12b-1 under the 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 after
distribution to securities dealers of up to the maximum amount
permitted under each Plan may be used by the class to reimburse
Distributors for routine ongoing promotion and distribution
expenses incurred with respect to such class. Such expenses may
include, but are 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 each class 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.

The maximum amount which the Fund may pay to Distributors or
others under the Class I Plan for such distribution expenses is
0.15% per annum of Class I's average daily net assets of the
Fund, payable on a quarterly basis. All expenses of distribution
and marketing in excess of 0.15% per annum will be borne by
Distributors, or others who have incurred them, without
reimbursement from the Fund.

Distributions to Shareholders

There are two types of distributions which the Fund may make to
its shareholders:

Distributions To Each Class of Shares

Distribution Date

Although subject to change by the Board of Directors, without
prior notice to or approval by shareholders, the Fund's current
policy is to declare income dividends monthly for shareholders of
record on the last business day of the month, payable on or about
the 15th day of the following month. The amount of income
dividend payments by the Fund is dependent upon the amount of net
income received by the Fund from its portfolio holdings, is not
guaranteed and is subject to the discretion of the Board of
Directors. Fund shares are quoted ex-dividend on the first
business day following the record date. The Fund does not pay
"interest" or guarantee any fixed rate of return on an investment
in its shares. The Fund may determine to defer the December 31
record date to a date shortly thereafter in January for tax or
other operational reasons.

Dividend Reinvestment

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 sales charge) on the
dividend reinvestment date ("ex-dividend date"). Dividend and
capital gain distributions are only eligible for reinvestment at
net asset value in the same class of shares of the Fund or the
same class of another of the Franklin Templeton Funds.
Shareholders have the right to change their election with respect
to the receipt of distributions by notifying the Fund, but any
such change will be effective only as to distributions for which
the record date is seven or more business days after the Fund has
been notified. See the SAI for more information.

Distributions in Cash

Taxation of the Fund and Its Shareholders

The Fund intends to continue to qualify for treatment as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). By distributing
all of its income and meeting certain other requirements relating
to the sources of its income and diversification of its assets,
the Fund will not be liable for federal income or excise taxes.

Distributions derived from the excess of net long-term capital
gain over net short-term capital loss are treated as long-term
capital gain regardless of the length of time the shareholder has
owned Fund shares and regardless of whether such distributions
are received in cash or in additional shares.

For corporate shareholders, none of the dividends paid by the
Fund will qualify for the dividends-received deduction.

Redemptions and exchanges of Fund shares are taxable events on
which a shareholder may realize a gain or loss. Any loss incurred
on the sale or exchange of Fund shares held for six months or
less will be treated as a long-term capital loss to the extent of
capital gain dividends received with respect to such shares. All
or a portion of the sales charge incurred in purchasing shares of
the Fund will not be included in the federal tax basis of such
shares sold or exchanged within ninety (90) days of their
purchase (for purposes of determining gain or loss with respect
to such shares) if the sales proceeds are reinvested in the Fund
or in another fund in the Franklin Group of Funds or the
Templeton Group and a sales charge which would otherwise apply to
the reinvestment is reduced or eliminated. Any portion of such
sales charge excluded from the tax basis of the shares sold will
be added to the tax basis of the shares acquired in the
reinvestment. Shareholders should consult with their tax advisor
concerning the tax rules applicable to the redemption or exchange
of Fund shares.

Many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned by the
fund from direct obligations of the U.S. government, subject in
some states to minimum investment requirements that must be met
by the Fund. Investments in GNMA securities do not generally
qualify for tax-free treatment. At the end of each calendar year,
the Fund will provide shareholders with the percentage of any
dividends paid which may qualify for such tax-free treatment.
Shareholders should consult their own tax advisors with respect
to the application of their state and local income tax laws to
these distributions.

The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid and will
promptly, after the close of each calendar year, advise them of
the tax status for federal income tax purposes of such dividends
and distributions.

Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes to distributions received by them from the Fund and the
application of foreign tax laws to these distributions.

How to Buy Shares of the Fund

Shares of the Fund are continuously offered through securities
dealers which execute an agreement with Distributors, the
principal underwriter of the Fund's shares. The use of the term
"securities dealer" 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. The minimum initial
investment is $100 and subsequent investments must be $25 or
more. These minimums may be waived when the shares are purchased
through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for
the purchase of shares.

Class I. 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 of each class will be the same on matters affecting
the Fund as a whole, but each will vote separately on matters
affecting its class. 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 0.15% of average daily net
assets of such shares. With this multiclass structure, Class I
shares have higher front-end sales charges than Class II shares
and comparatively lower Rule 12b-1 fees. Class I shares may be
purchased at a reduced front-end sales charges or at net asset
value if certain conditions are met. In most circumstances,
contingent deferred sales charges will not be assessed against
redemptions of Class I shares. See "Management of the Fund," and
"How to Sell Shares of the Fund" for more information.

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% 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 .65% per annum of average daily net assets of such
shares 05.0 of which will be retained by Distributors during the
first year of investment. Class II shares have lower front-end
sales charges than Class I shares and comparatively higher Rule
12b-1 fees. See "Contingent Deferred Sales Charge" under "How to
Sell Shares of the Fund".

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 approximately
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 approximately 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."

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).

Set forth below is a table of total front-end sales charges or
underwriting commissions and dealer concessions for Class I
shares.

Total Sales charge
Size of As a Percentage As a Percentage Dealer
Transaction at of Offering of Net Amount Concession as a
Offering Price Price Invested Percentage of
Offering
Price*,***
Less than 4.25% 4.44% 4.00
$100,000
$100,000 but 3.50% 3.63% 3.25%
less than
$250,000
$250,000 but 2.75% 2.83% 2.50%
less than
$500,000
$500,000 but 2.15% 2.20% 2.00%
less than
$1,000,000
$1,000,000 none none (see
or more below)**

*Financial institutions or their affiliated brokers may receive
an agency transaction fee in the percentages set forth above.

No front-end sales charge applies on investments of $1 million or
more, but a contingent deferred sales charge of 1% is imposed on
certain redemptions of all or a portion of investments of $1
million within the contingency period. See "How to Sell Shares of
the Fund - Contingent Deferred Sales Charge."

Other Payments to Securities Dealers. Distributors, or one of its
affiliates, may make payments, out of its own resources, of up to
0.75% of the amount purchased to securities dealers who initiate
and are responsible for purchases made at net asset value by non-
designated retirement plans, and up to 1% of the amount purchased
to securities dealers who initiate and are responsible for
purchases made at net asset value by certain designated
retirement plans (excluding IRA and IRA rollovers), certain trust
companies and trust departments of banks and certain retirement
plans of organizations with collective retirement plan assets of
$10 million or more. See definitions under "Description of
Special Net Asset Value Purchases" below and as set forth in the
SAI.

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

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)

Distributors, or one of its affiliates, out of its own resources,
may also provide additional compensation to securities dealers in
connection with sales of shares of the Franklin Templeton Funds.
Compensation may include financial assistance to securities
dealers in connection with conferences, sales or training
programs for their employees, seminars for the public,
advertising, sales campaigns and/or shareholder services and
programs regarding one or more of the Franklin Templeton Funds
and other dealer-sponsored programs or events. In some instances,
this compensation may be made available only to certain
securities dealers whose representatives have sold or are
expected to sell significant amounts of shares of the Franklin
Templeton Funds. Compensation may include payment for travel
expenses, including lodging, incurred in connection with trips
taken by invited registered representatives and members of their
families to locations within or outside of the United States for
meetings or seminars of a business nature. Securities dealers may
not use sales of the Fund's shares to qualify for this
compensation to the extent such may be prohibited by the laws of
any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the
aforementioned additional compensation is paid for by the Fund or
its shareholders.

Additional terms concerning the offering of the Fund's shares are
included in the SAI.

Certain officers and directors of the Fund are also affiliated
with Distributors. A detailed description is included in the SAI.

Quantity Discounts in Sales Charges - Class I Shares Only

In addition, an investment in Class I shares may qualify for a
reduction in the sales charge under the following programs:

2. Letter of Intent. An investor may immediately qualify for a
reduced sales charge on a purchase of Class I shares by
completing the Letter of Intent section of the Shareholder
Application (the "Letter of Intent" or "Letter"). By completing
the Letter, the investor expresses an intention to invest during
the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge and grants to
Distributors a security interest in the reserved shares and
irrevocably appoints Distributors as attorney-in-fact with full
power of substitution to surrender for redemption any or all
shares for the purpose of paying any additional sales charge due.
Purchases under the Letter will conform with the requirements of
Rule 22d-1 under the 1940 Act. The investor or the investor's
securities dealer must inform Investor Services or Distributors
that this Letter is in effect each time a purchase is made.

Group Purchases of Class I Shares

If an investor selects a payroll deduction plan, subsequent
investments will be automatic and will continue until such time
as the investor notifies the Fund and the investor's employer to
discontinue further investments. Due to the varying procedures
used to prepare, process and forward the payroll deduction
information to the Fund, there may be a delay between the time of
the payroll deduction and the time the money reaches the Fund.
The investment in the Fund will be made at the offering price per
share determined on the day that both the check and payroll
deduction data are received in required form by the Fund.

Purchases at Net Asset Value

Class I shares may be purchased without the imposition of a front-
end sales charge ("net asset value") or a contingent deferred
sales charge by (1) officers, trustees, directors, and full-time
employees of the Fund, any of the Franklin Templeton Funds, or of
the Franklin Templeton Group, and by their spouses and family
members, including any subsequent payments made by such parties
after cessation of employment; (2) companies exchanging shares
with or selling assets pursuant to a merger, acquisition or
exchange offer; (3) insurance company separate accounts for
pension plan contracts; (4) accounts managed by the Franklin
Templeton Group; (5) shareholders of Templeton Institutional
Funds, Inc. reinvesting redemption proceeds from that fund under
an employee benefit plan qualified under Section 401 of the Code,
as amended, in shares of the Fund; (6) certain unit investment
trusts and unit holders of such trusts reinvesting their
distributions from the trusts in the Fund; (7) registered
securities dealers and their affiliates, for their investment
account only, and (8) registered personnel and employees of
securities dealers, and by their spouses and family members, in
accordance with the internal policies and procedures of the
employing securities dealer.

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. Matured shares will be reinvested at net asset
value and will not be subject to a new contingent deferred sales
charge. 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 this 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
gains 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 to Shareholders -
"Distributions in Cash."

Description of Special Net Asset Value Purchases.

Refer to the SAI for further information regarding net asset
value purchases of Class I shares.

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. 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.

General

Purchasing Shares of the Fund
in Connection with Retirement Plans
Involving Tax-Deferred Investments

Shares of the Fund may be used for individual or employer-
sponsored retirement plans involving tax-deferred investments.
The Fund may be used as an investment vehicle for an existing
retirement plan, or the Trust Company may provide the plan
documents and serve as custodian or trustee. A plan document must
be adopted in order for a retirement plan to be in existence.

Other Programs and Privileges
Available to Fund Shareholders

Share Certificates

Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends and capital
gain distributions, are generally credited to an account in the
name of an investor on the books of the Fund, without the
issuance of a share certificate. Maintaining shares in
uncertificated form (also known as "plan balance") minimizes the
risk of loss or theft of a share certificate. A lost, stolen or
destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond, which is
generally borne by the shareholder, can be 2% or more of the
value of the lost, stolen or destroyed certificate. A certificate
will be issued if requested in writing by the shareholder or by
the securities dealer.

Confirmations

Automatic Investment Plan

Systematic Withdrawal Plan

A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. Retirement plans subject to mandatory distribution
requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis.
If the shareholder establishes a plan, any capital gain
distributions and income dividends paid by the Fund will be
reinvested for the shareholder's account in additional shares at
net asset value. Payments will then be made from the liquidation
of shares at net asset value on the day of the transaction (which
is generally the first business day of the month in which the
payment is scheduled) with payment generally received by the
shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Application included with this
Prospectus, a shareholder may direct the selected withdrawals to
another of the Franklin Templeton Funds, to another person, or
directly to a checking account. If the bank at which the account
is maintained is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer.
If this last option is requested, the shareholder should allow at
least 15 days for initial processing. Payments made in the
interim will be sent to the address of record. Liquidation of
shares may reduce or possibly exhaust the shares in the
shareholder's account, to the extent withdrawals exceed shares
earned through dividends and distributions, particularly in the
event of a market decline. If the withdrawal amount exceeds the
total plan balance, the account will be closed and the remaining
balance will be sent to the shareholder. As with other
redemptions, a liquidation to make a withdrawal payment is a sale
for federal income tax purposes. Because the amount withdrawn
under the plan may be more than the shareholder's actual yield or
income, part of the payment may be a return of the shareholder's
investment.

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, however,
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 a Class I account maintained an
annual balance of $1,000,000, only $120,000 could be withdrawn
through a once-yearly Systematic Withdrawal Plan free of charge;
any amount over that $120,000 would be assessed a 1% (or
applicable) contingent deferred sales charge. Likewise, if a
Class II account maintained an annual balance of $10,000, only
$1,200 could be withdrawn through a once-yearly Systematic
Withdrawal Plan free of charge.

A Systematic Withdrawal Plan may be terminated on written notice
by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.

Institutional Accounts

Exchange Privilege

The Franklin Templeton Funds consist of a number of mutual funds
with various investment objectives or policies. The shares of
most of these mutual funds are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, the Fund shares may be exchanged
for the same class of shares 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 12 months (Class I
shares) or 18 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.