FCF P
SUPPLEMENT DATED MAY 1, 1995
TO THE PROSPECTUS FOR
FRANKLIN CUSTODIAN FUNDS, INC.
(Income Series, Growth Series, Utilities Series, DynaTech Series
and U.S. Government Securities Series)
dated February 1, 1995
Introduction. As of May 1, 1995, the Growth Series, Utilities
Series, Income Series, and U.S. Government Securities Series
offer two classes to their investors: the Growth Series - Class
I, Utilities Series - Class I, Income Series- Class I, and U.S.
Government Securities Series - Class I (individually or
collectively, "Class I") and the Growth Series - Class II,
Utilities Series - Class II, Income Series- Class II, and U.S.
Government Securities Series - Class II (collectively or
individually, "Class II"). The DynaTech Series offers only one
class of shares ("DynaTech Series - Class I") and is included in
all discussions of Class I shares in the Prospectus and this
Supplement. Investors can choose between Class I shares, which
generally bear a higher front-end sales charge and lower ongoing
Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and Class II
shares, which generally have a lower front-end sales charge and
higher ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of
sales charges and distribution fees, in choosing the more
suitable class, given their anticipated investment amount and
time horizon.
This Supplement must be read in conjunction with the Prospectus
for this Fund. All investment objectives and policies described
in the Prospectus apply equally to both classes of shares in the
new multiclass structure. Further, all operational procedures
apply equally to both classes, unless otherwise specified in the
following discussion. See "Deciding Which Class To Purchase"
below.
THE NEW APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST BE
USED FOR ALL PURCHASES. DO NOT USE THE APPLICATION FORM INCLUDED
IN THE PROSPECTUS.
Multiclass Fund Structure. All of the Series of the Fund except
the DynaTech Series have two classes of shares available for
investment: Class I and Class II. All shares of each Series
outstanding before the implementation of the multiclass structure
have been redesignated as Class I shares, and will retain their
previous rights and privileges. See the Prospectus for more
details about Class I shares. Class II shares are explained in
detail in the following discussion. Except as described below,
shares of both classes represent identical interests in each
Series' investment portfolio.
Expense Table
The purpose of these tables is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in each Series of the Fund. These figures are based on aggregate
operating expenses of the Class I shares for each Series for the
fiscal year ended September 30, 1994.
Class I
U.S.
Government
Growth Utilities Income Securities DynaTech
Series Series Series Series Series
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
(per NONE** $5.00** $5.00** $5.00** NONE**
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%
*Investments of $1 million or more are not subject to a front-end
sales charge; however, a contingent deferred sales charge of 1%
is generally imposed on certain redemptions within a contingency
period of 12 months of the calendar month following such
investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
**$5.00 fee imposed only on Timing Accounts in the Utilities,
Income and U.S. Government Securities Series; the Growth and
DynaTech Series currently do not permit investment by Timing
Accounts. See "Exchange Privilege" in the Prospectus for more
information. 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"" in the Prospectus. Actual 12b-1
fees incurred by the Growth Series, DynaTech Series, and
Utilities Series for the period May 1, 1994 through September 30,
1994 were .08%, .08%, and .05%, respectively, which represent an
annualized rate of .19%, .18%, and .11%, respectively. Consistent
with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and
Rule 12b-1 fees could cause long-term shareholders to pay more
than the economic equivalent of the maximum front-end sales
charges permitted under those same rules.
+Annualized. Actual 12b-1 fees incurred by the Income Series and
U.S. Government Securities Series for the period May 1, 1994
through September 30, 1994 were .05% and .03%, respectively.
Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
Class II
U.S.
Government
Growth Utilities Income Securities
Series Series Series Series
Shareholder
Transaction
Expenses
Maximum Sales
Charge
Imposed on
Purchases
(as a
percentage
of Offering 1.00%^ 1.00%^ 1.00%^ 1.00%^
price)
Deferred Sales 1.00%^^ 1.00%^^ 1.00%^^ 1.00%^^
Charge
Exchange Fee
(per NONE** $5.00** $5.00** $5.00**
transaction)
Annual Fund
Operating
Expenses (as a
percentage of
average net
assets)
Management Fees 0.49% 0.45% 0.46% 0.45%
Rule 12b-1 Fees 1.00%^^^ 0.65%^^^ 0.65%^^^ 0.65%^^^
Other Expenses:
Shareholder
Servicing costs 0.09% 0.05% 0.04% 0.03%
Reports to 0.07% 0.06% 0.04% 0.03%
Shareholders
Other 0.04% 0.03% 0.05% 0.01%
Total Other
Expenses 0.20% 0.14% 0.13% 0.07%
Total Fund
Operating
Expenses 1.69%^ 1.24%^ 1.24%^ 1.17%^
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fee for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take approximately six years or less for shareholders who
maintain total shares valued at less than $100,000 in the
Franklin Templeton Funds. Shareholders with larger investments in
the Franklin Templeton Funds will reach the crossover point more
quickly.
^^Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
**$5.00 fee imposed only on Timing Accounts in the Utilities,
Income and U.S. Government Securities Series; the Growth and
DynaTech Series currently do not permit investment by Timing
Accounts. See "Exchange Privilege" in the Prospectus for more
information. All other exchanges are processed without a fee.
^^^See the Class I Expense Table, above, for more information
about Class I's Rule 12b-1 expenses. Class I's plans were
effective May 1, 1994, and Class II's plans are effective May 1,
1994. "Other Expenses" for Class II shares are estimates based on
the actual expenses incurred by Class I shares of the respective
Series for the fiscal year ended September 30, 1994.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in any Series of the Fund. Rather,
the table has been provided only to assist investors in gaining a
more complete understanding of fees, charges and expenses. For a
more detailed discussion of these matters, investors should refer
to the appropriate sections of the Prospectus and this
Supplement.
Example
As required by SEC regulations, the following example illustrates
the expenses, including the maximum front-end sales charge and
applicable contingent deferred sales 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
U.S.
Government
Growth Utilities Income Securities DynaTech
Series Series Series Series Series
1 Year $ 54 $ 49 $ 50 $ 48 $ 56
3 Years $ 72 $ 64 $ 65 $ 61 $ 79
5 Years $ 92 $ 80 $ 81 $ 74 $104
10 Years $150 $127 $129 $113 $176
Class II
U.S.
Government
Growth Utilities Income Securities
Series Series Series Series
1 Year $ 37 $ 32 $ 32 $ 32
3 Years $ 63 $ 49 $ 49 $ 47
5 Years $101 $ 77 $ 77 $ 74
10 Years $208 $158 $158 $151
This example is based on the annualized aggregate annual
operating expenses shown above and should not be considered a
representation of past or future expenses, which may be more or
less than those shown. The operating expenses are borne by each
Series of the Fund and only indirectly by shareholders as a
result of their investment in the Series. In addition, federal
securities regulations require the example to assume an annual
return of 5%, but the actual return for each Series may be more
or less than 5%.
Deciding Which Class of Growth Series, Utilities Series, Income
Series or U.S. Government Securities Series To Purchase.
Investors should carefully evaluate their anticipated investment
amount and time horizon prior to determining which class of
shares of the Growth Series, Utilities Series, Income Series, or
the U.S. Government Securities Series to purchase. Generally, an
investor who expects to invest less than $100,000 in the Franklin
Templeton Funds and who expects to make substantial redemptions
within approximately six years or less of investment should
consider purchasing Class II shares. However, the higher annual
Rule 12b-1 fees on 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 front-end 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 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"
in the Prospectus.
Each class of each Series represents the same interest in the
investment portfolio of that 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.
Alternative Purchase Arrangements. The difference between Class I
and Class II shares lies primarily in their front-end and
contingent deferred sales charges and Rule 12b-1 fees as
described below.
A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively) for
each Series that has two classes of shares. These Plans were
approved and adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("1940 Act"). The Rule 12b-1 fees
charged to each class of each Series will be based solely on the
distribution and servicing fees attributable to that particular
class and Series. Any portion of fees remaining from the Plans
after distribution to securities dealers of up to the maximum
amount permitted under each Plan may be used by the class to
reimburse Franklin Templeton Distributors, Inc. ("Distributors")
for routine ongoing promotion and distribution expenses incurred
with respect to such class. See "Management of the Fund - Plan of
Distribution" in the Prospectus for a description of such
expenses.
Class I. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon
redemption. Class I shares are subject to Rule 12b-1 fees of up
to an annual maximum of 0.25% of average daily net assets of such
shares for the Growth and DynaTech Series, and .15% of average
daily net assets of such shares for the Utilities, Income, and
U.S. Government Securities Series. With this multiclass
structure, Class I shares have higher front-end sales charges
than Class II shares and comparatively lower Rule 12b-1 fees.
Plan of Distribution. Under the Class I Plan, the Fund will
reimburse Distributors or other securities dealers for expenses
incurred in the promotion, servicing, and distribution of Class I
Fund shares. (See "Plan of Distribution" in the Prospectus and
"The Fund's Underwriter - Distribution Plan" in the Statement of
Additional Information ("SAI")).
Quantity Discounts and Purchases At Net Asset Value. Class I
shares may be purchased at a reduced front-end sales charge or at
net asset value if certain conditions are met. See "How to Buy
Shares of the Fund."
Contingent Deferred Sales Charge. In most circumstances, a
contingent deferred sales charge will not be assessed against
redemptions of Class I shares. A contingent deferred sales charge
will be imposed on Class I shares only if shares valued at $1
million or more are purchased after February 1, 1995 without a
sales charge and are subsequently redeemed within 12 months of
the calendar month following their purchase. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund" in
this Supplement.
Class II. The current public offering price of Class II shares is
equal to the net asset value, plus a front-end sales charge of 1%
of the amount invested. Class II shares are also subject to a
contingent deferred sales charge of 1% if shares are redeemed
within 18 months of the calendar month following purchase. In
addition, Class II shares are subject to Rule 12b-1 fees of up to
a maximum of 1% of average daily net assets of such shares per
annum for the Growth Series, and a maximum of 0.65% of average
daily net assets of such shares per annum for the Utilities,
Income, and U.S. Government Securities Series. Class II shares
have lower front-end sales charges than Class I shares and
comparatively higher Rule 12b-1 fees.
Purchases of Class II shares are limited to amounts below $1
million. Any purchases of $1 million or more will automatically
be invested in Class I shares, since that is more beneficial to
investors. Such purchases, however, may be subject to a
contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million,
however, should consider purchasing Class I shares through a
Letter of Intent instead of purchasing Class II shares. See "How
to Buy Shares of the Fund" in the Prospectus for more
information.
Plan of Distribution. Class II's operating expenses will
generally be higher under the Class II Plan. During the first
year following a purchase of Class II shares, Distributors will
keep a portion of the Plan fees attributable to those shares to
partially recoup fees Distributors pays to securities dealers.
Distributors, or its affiliates, may pay from its own resources,
a commission of up to 1% of the amount invested to securities
dealers who initiate and are responsible for purchases of Class
II shares.
Contingent Deferred Sales Charge. Unless a waiver applies, a
contingent deferred sales charge of 1% will be imposed on Class
II shares redeemed within 18 months of their purchase. See
"Contingent Deferred Sales Charges" under "How to Sell Shares of
the Fund" in this Supplement.
Investment Objectives and Policies of Each Series
Shareholders recently approved an amendment to the Income Series'
investment polices to permit the Series to invest in trade
claims.
Income Series
Trade Claims. The Income Series may invest up to 5% of its assets
in trade claims. Trade claims are purchased from creditors of
companies in financial difficulty. For purchasers such as the
Series, trade claims offer the potential for profits since they
are often purchased at a significantly discounted value and,
consequently, may generate capital appreciation in the event that
the value of the claim increases as the debtor's financial
position improves. In the event that the debtor is able to pay
the full obligation on the face of the claim as a result of a
restructuring or an improvement in the debtor's financial
condition, trade claims offer the potential for higher return 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 Income Series' investment in
these instruments will not exceed 5% of its net assets at time of
acquisition.
Management of the Fund
The subsidiaries of Resources are described as the "Franklin
Templeton Group."
The Board of Trustees has carefully reviewed the multiclass
structure to ensure that no material conflict exists between the
two classes of shares. Although the Board does not expect to
encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to
resolve such conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the
authority to establish additional classes of shares. It is the
Fund's present intention to offer only two classes of shares, but
new classes may be offered in the future.
For more information regarding the responsibilities of the Board
and the management of the Fund, please see "Management of the
Fund" in the Prospectus.
Class II Plan of Distribution
Under the Class II Plans, the Growth Series is permitted to pay a
maximum amount of 0.75% per annum of its Class II shares' daily
net assets, and the Utilities, Income, and U.S. Government
Securities Series are permitted to pay a maximum of 0.50% per
annum of each Series' Class II shares' daily net assets, to
Distributors or others for these services. All expenses of
distribution, marketing and related services over that amount
will be borne by Distributors or others who have incurred them,
without reimbursement by the Fund. In addition, the Class II
Plans provide for an additional payment of up to 0.25% per annum
of the class' average daily net assets for the Growth Series and
0.15% for the Utilities, Income, and U.S. Government Securities
Series as a servicing fee, payable quarterly. This fee will be
used to pay securities dealers or others for, among other things,
assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests;
receiving and answering correspondence; monitoring dividend
payments from the Fund on behalf of customers, or similar
activities related to furnishing personal services and/or
maintaining shareholder accounts.
The Class II Plans also cover any payments to or by each Series,
Advisers, Distributors, or other parties on behalf of a Series,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of Class II shares issued by a Series within
the context of Rule 12b-1. The payments under the Plans are
included in the maximum operating expenses which may be borne by
Class II of each Series.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of Plan fees assessed on Class
II shares to partially recoup fees Distributors pays to
securities dealers.
See the "Plan of Distribution" discussion in the "Management of
the Fund" section in the Prospectus and "Distribution Plan" under
"The Fund's Underwriter" in the SAI for more information about
both Class I and Class II Plans.
Distributions to Shareholders
According to the requirements of the Internal Revenue Code of
1986, as amended (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.
Unless otherwise requested, income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a front-end sales charge) on
the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for 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. See "Distributions to
Shareholders" in the Prospectus for more information.
How to Buy Shares of the Fund
The following discussion supplements the one included in the
Prospectus under "How to Buy Shares of the Fund." THE APPLICATION
FORM INCLUDED WITH THIS SUPPLEMENT MUST ACCOMPANY ANY PURCHASE OF
SHARES. DO NOT USE THE APPLICATION INCLUDED IN THE PROSPECTUS.
Purchase Price of Fund Shares
Shares of both classes of each 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
Fund, or (2) after receipt of an order by mail from the
shareholder directly in proper form (which generally means a
completed Shareholder Application accompanied by a negotiable
check).
Class 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. See "How to Buy Shares of the
Fund - Purchase Price of Fund Shares" in the Prospectus.
The table on page 27 refers to the Utilities, Income, and U.S.
Government Securities Series.
Class II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. The DynaTech Series currently does not
offer Class II shares. See table below:
Total Sales Charge
Size of As a As a Dealer
Transaction Percentage of Percentage of Concession As
at Offering Net Offering Net Amount a Percentage
Price Price Invested of Offering
Price*
any amount 1.00% 1.01% 1.00%
(less than $1
million)
* 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."
The sections in the Prospectus titled "Quantity Discounts in
Sales Charges" and "Group Purchases" only apply to Class I
shares. Although sales charges on Class II shares may not be
reduced through a Letter of Intent or Rights of Accumulation as
described under "Quantity Discounts in Sales Charges," the value
of Class II shares owned by an investor may be included in
determining the appropriate sales charges for Class I shares.
Purchases at Net Asset Value
EACH OF THE REMAINING PARAGRAPHS IN THIS SECTION OF THE
PROSPECTUS, WHICH DEFINES THE CATEGORIES OF INVESTORS WHO MAY
PURCHASE AT NET ASSET VALUE, INCLUDING "DESCRIPTION OF SPECIAL
NET ASSET VALUE PURCHASES," IS REVISED TO REFLECT THAT SUCH
PURCHASES ARE WITHOUT A FRONT-END SALES CHARGE (NET ASSET VALUE)
AND WITHOUT THE IMPOSITION OF A CONTINGENT DEFERRED SALES CHARGE.
IN ADDITION, THIS ENTIRE SECTION OF THE PROSPECTUS IS REVISED TO
STATE THAT THIS SECTION ONLY APPLIES TO CLASS I SHARES, WITH THE
EXCEPTION OF THE SECOND AND THIRD PARAGRAPHS, WHICH ARE REPLACED
WITH THE FOLLOWING:
For either Class I or Class II, the same class of shares of 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. 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 the
Prospectus and the SAI.
For either Class I or Class II, the same class of shares of a
series of the Fund or of another of the Franklin Templeton Funds
may be purchased at net asset value and without a contingent
deferred sales charge by persons who have received dividends and
capital gain distributions in cash from investments in that class
of shares of 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 in Cash" under
"Distributions to Shareholders" in the Prospectus.
Substitute the following paragraph for the first paragraph under
"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 total at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
For a complete understanding of how to buy shares of a Series of
the Fund, this Supplement must be read in conjunction with the
Prospectus. Refer to the SAI for further information regarding
net asset value purchases of Class I shares.
The following subsection is added to the end of this section:
Purchasing Class I and Class II Shares
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares 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 and in the Prospectus
for a discussion of when shares may be purchased at net asset
value.
Other Programs and Privileges Available to Fund Shareholders
With the exception of Systematic Withdrawal Plans, all programs
and privileges detailed under the discussion of "Other Programs
and Privileges Available to the Fund Shareholders" in the
Prospectus will remain in effect for the new multiclass
structure. For a complete discussion of these programs, see
"Other Programs and Privileges Available to Fund Shareholders" in
the Prospectus.
Systematic Withdrawal Plans. Subject to the requirements outlined
in the Prospectus, a shareholder may establish a Systematic
Withdrawal Plan for his or her account. With respect to Class I
shares, the contingent deferred sales charge is waived for
redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set
up on or after February 1, 1995, the applicable contingent
deferred sales charge is waived for Class I and Class II share
redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% 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.
Exchange Privilege
Shareholders are entitled to exchange their shares for shares of
the same class of other Franklin Templeton Funds which are
eligible for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and
investment minimums. Some funds, however, may not offer Class II
shares. Class I shares may be exchanged for Class I shares of any
Franklin Templeton Funds. Class II shares may be exchanged for
Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent
deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent
deferred sales charge in the original fund purchased and shares
are subsequently redeemed within 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 of Class I Shares
The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and held
in a Franklin or Templeton money market fund. If a Class I
account has shares subject to a contingent deferred sales charge,
Class I shares will be exchanged into the new account on a "first-
in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge" in the Prospectus and this
Supplement.
Exchanges of Class II Shares
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and shares that are not, the
shares will be transferred proportionately into the new fund.
Shares received from reinvestment of dividends and capital gains
are referred to as "free shares," shares which were originally
subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called
"matured shares," and shares still subject to the contingent
deferred sales charge are referred to as "CDSC liable shares."
CDSC liable shares held for different periods of time are
considered different types of CDSC liable shares. For instance,
if a shareholder has $1,000 in free shares, $2,000 in matured
shares, and $3,000 in CDSC liable shares, and the shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from
free shares, $1,000 from matured shares, and $1,500 from CDSC
liable shares. Similarly, if CDSC liable shares have been
purchased at different periods, a proportionate amount will be
taken from shares held for each period. If, for example, a
shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into a new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money Fund
II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may
shareholders purchase shares of Money Fund II directly. Class II
shares exchanged for shares of Money Fund II will continue to age
and a contingent deferred sales charge will be assessed if CDSC
liable shares are redeemed. No other money market funds are
available for Class II shareholders for exchange purposes. Class
I shares may be exchanged for shares of any of the money market
funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these
other money market funds as described in their respective
prospectuses.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund.
Transfers
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the date
of original purchase. Like exchanges, Class II shares will be
moved proportionately from each type of shares in the original
account.
Conversion Rights
It is not presently anticipated that Class II shares will be
converted to Class I shares. A shareholder may, however, sell his
Class II shares and use the proceeds to purchase Class I shares,
subject to all applicable sales charges.
See "Exchange Privilege" in the Prospectus for more information.
How to Sell Shares of the Fund
For a discussion regarding the sale of either class of a Series
of Fund shares, refer to the section in the Prospectus titled
"How to Sell Shares of the Fund." In addition, the charges
described in this Supplement will also apply to the sale of all
Fund shares.
Contingent Deferred Sales Charge
Class I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the net asset value of the shares redeemed (exclusive
of reinvested dividends and capital gain distributions) or the
total cost of such shares at the time of purchase, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below and "Purchases at Net
Asset Value" under "How to Buy Shares of the Fund" in the
Prospectus and this Supplement.
Class II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net
asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below.
Class I and Class II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the following
order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
distributions to participants 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 a
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 will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for
redemption of a specific number of shares will result in the
applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
Valuation of Fund Shares
The following sentence replaces the first sentence of the first
paragraph in this section; the subsequent paragraph is added to
the end of this section.
The net asset value per share of each class of a Series is
determined as of the scheduled closing time of the New York Stock
Exchange ("Exchange") (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading.
Each class of a Series will bear, pro rata, all of the common
expenses of a Series. The net asset value of all outstanding
shares of each class of a Series will be computed on a pro rata
basis for each outstanding share based on the proportionate
participation in the Series represented by the value of shares of
such classes, except that the Class I and Class II shares will
bear the Rule 12b-1 expenses payable under their respective
plans. Due to the specific distribution expenses and other costs
that will be allocable to each class, the dividends paid to each
class of the Fund may vary.
How to Get Information Regarding an Investment in the Fund
Replace the second and third paragraphs in this section with the
following language:
From a touch tone phone, Franklin and Templeton shareholders may
access an automated system (day or night) which offers the
following features.
By calling the Franklin TeleFACTS system, Class I shareholders
may obtain current price, yield or other performance information
specific to a Franklin fund, process an exchange into an
identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.
By calling the Templeton Star Service, shareholders may obtain
current price and yield information specific to a Templeton fund,
regardless of class, or Franklin Class II shares; obtain current
account information, request duplicate confirmation or year-end
statements and money fund checks, if applicable.
Share prices and account information specific to Templeton Class
I or II shares and Franklin Class II shares may also be accessed
on TeleFACTS by Franklin Class I and Class II shareholders.
The TeleFACTS system is accessible by calling 1-800/247-1753. The
Star Service is accessible by calling 1-800/654-0123. Franklin
Class I and Class II 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, 107 for Utilities
Series - Class I, 207 for Utilities Series - Class II, 108 for
DynaTech Series - Class I, 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, respectively. The system's automated operator will
prompt the caller with easy to follow step-by-step instructions
from the main menu. Other features may be added in the future.
Performance (Class II)
Because Class II shares were not offered prior to May 1, 1995, no
performance data is available for these shares. After a
sufficient period of time has passed, Class II performance data
as described in the "Performance" section of the Prospectus will
be available.
General Information
With the exception of "Organization and Voting Rights," all
rights and privileges detailed under the discussion of "General
Information" will remain in effect as described in the Prospectus
for the new multiclass structure. For a complete discussion of
these rights and privileges, see "General Information" in the
Prospectus.
Voting Rights
Shares of each class of a Series represent proportionate
interests in the assets of the Series and have the same voting
and other rights and preferences as the other classes and 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 changes to the Rule 12b-1 plan
affecting that class. Similarly, if a change to the Rule 12b-1
plan relating to Class II shares requires shareholder approval,
only shareholders of Class II of such Series may vote on the
change to such plan. On the other hand, if there is a proposed
change to the investment objective of the Series, this affects
all shareholders of such Series, regardless of which class of
shares they hold, and therefore, each share has the same voting
rights. For more information regarding voting rights, see the
"Voting Rights" discussion in the Prospectus under the heading
"General Information."
09 P
SUPPLEMENT DATED MAY 1, 1995
TO THE PROSPECTUS FOR THE
INCOME SERIES OF
FRANKLIN CUSTODIAN FUNDS, INC.
dated February 1, 1995
Introduction. As of May 1, 1995, the Fund offers two classes to
its investors: Income Series - Class I ("Class I") and Income
Series - Class II ("Class II"). Investors can choose between
Class I shares, which generally bear a higher front-end sales
charge and lower ongoing Rule 12b-1 distribution fees ("Rule 12b-
1 fees"), and Class II shares, which generally have a lower front-
end sales charge and higher ongoing Rule 12b-1 fees. Investors
should consider the differences between the two classes,
including the impact of sales charges and distribution fees, in
choosing the more suitable class given their anticipated
investment amount and time horizon.
This Supplement must be read in conjunction with the Prospectus
for this Fund. All investment objectives and policies described
in the Prospectus apply equally to both classes of shares in the
new multiclass structure. Further, all operational procedures
apply equally to both classes, unless otherwise specified in the
following discussion. See "Deciding Which Class To Purchase"
below.
THE NEW APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST BE
USED FOR ALL PURCHASES. DO NOT USE THE APPLICATION FORM INCLUDED
IN THE PROSPECTUS.
Multiclass Fund Structure. The Fund has two classes of shares
available for investment: Class I and Class II. All Fund shares
outstanding before the implementation of the multiclass structure
have been redesignated as Class I shares, and will retain their
previous rights and privileges. See the Prospectus for more
details about Class I shares. Class II shares are explained in
detail in the following discussion. Except as described below,
shares of both classes represent identical interests in the
Fund's investment portfolio.
Expense Table
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. The figures for both classes of shares are based on
aggregate operating expenses of Class I shares for the fiscal
year ended September 30, 1994.
Shareholder Transaction Expenses
Class I Class II
Maximum Sales Charge Imposed on
Purchases
(as a percentage of offering 4.25% 1.00%^
price)
Deferred Sales Charge NONE^^ 1.00%+
Exchange Fee (per transaction) $5.00++ $5.00++
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.46% 0.46%
Rule 12b-1 Fees 0.13%* 0.65%**
Other Expenses:
Shareholder Servicing Costs 0.04% 0.04%
Reports to Shareholders 0.04% 0.04%
Other 0.05% 0.05%
Total Other Expenses 0.13% 0.13%
Total Fund Operating Expenses 0.72% 1.24%^
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fee for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take approximately six years or less for shareholders who
maintain total shares valued at less than $100,000 in the
Franklin Templeton Funds. Shareholders with larger investments in
the Franklin Templeton Funds will reach the crossover point more
quickly.
^^Class I investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1%, which has not been reflected in the Example below,
is generally imposed on certain redemptions within a "contingency
period" of 12 months of the calendar month following such
investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
+Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
++$5.00 fee is only imposed on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
*Annualized. Actual Rule 12b-1 fees incurred by Class I of the
Fund for the period May 1, 1994 through September 30, 1994
represented 0.05% of average net assets. Consistent with National
Association of Securities Dealers, Inc.'s rules, it is possible
that the combination of front-end sales charges and Rule 12b-1
fees could cause long-term shareholders to pay more than the
economic equivalent of the maximum front-end sales charges
permitted under those same rules.
**Class I's plan was effective May 1, 1994, and Class II's plan
is effective on May 1, 1995. "Other Expenses" for Class II shares
are estimates based on the actual expenses incurred by Class I
shares for the fiscal year ended September 30, 1994.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather, the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of the Prospectus and this Supplement.
Example
As required by SEC regulations, the following example illustrates
the expenses, including the maximum front-end sales charge and
applicable contingent deferred sales charges, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period:
One Year Three Years Five Years Ten Years
Class I $50 $65 $81 $129
Class II $32 $49 $77 $158
This example is based on the aggregate annual operating expenses
shown above and should not be considered a representation of past
or future expenses, which may be more or less than those shown.
The operating expenses are borne by the Fund and only indirectly
by shareholders as a result of their investment in the Fund. In
addition, federal regulations require the example to assume an
annual return of 5%, but the Fund's actual return may be more or
less than 5%.
Deciding Which Class To Purchase. Investors should carefully
evaluate their anticipated investment amount and time horizon
prior to determining which class of shares to purchase.
Generally, an investor who expects to invest less than $100,000
in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of
investment should consider purchasing Class II shares. However,
the higher annual Rule 12b-1 fees on 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 front-end 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 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"
in the Prospectus.
Each class represents the same interest in the investment
portfolio of the Fund and has the same rights, except that each
class has a different sales charge, bears the separate expenses
of its Rule 12b-1 distribution plan, and has exclusive voting
rights with respect to such plan. The two classes also have
separate exchange privileges.
Alternative Purchase Arrangements. The difference between Class I
and Class II shares lies primarily in their front-end and
contingent deferred sales charges and Rule 12b-1 fees as
described below.
A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively)
pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended ("1940 Act"). The Rule 12b-1 fees charged to each
class will be based solely on the distribution and servicing fees
attributable to that particular class. Any portion of fees
remaining from either Plan after distribution to securities
dealers of up to the maximum amount permitted under each Plan may
be used by the class to reimburse Franklin Templeton
Distributors, Inc. ("Distributors") for routine ongoing promotion
and distribution expenses incurred with respect to such class.
See "Management of the Fund - Plan of Distribution" in the
Prospectus for a description of such expenses.
Class I. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon
redemption. Class I shares are subject to Rule 12b-1 fees of up
to an annual maximum of 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.
Plan of Distribution. Under the Class I Plan, the Fund will
reimburse Distributors or other securities dealers for expenses
incurred in the promotion, servicing, and distribution of Class I
Fund shares. (See "Plan of Distribution" in the Prospectus and
"The Fund's Underwriter - Distribution Plan" in the Statement of
Additional Information ("SAI")).
Quantity Discounts and Purchases At Net Asset Value. Class I
shares may be purchased at a reduced front-end sales charge or at
net asset value if certain conditions are met. See "How to Buy
Shares of the Fund."
Contingent Deferred Sales Charge. In most circumstances, a
contingent deferred sales charge will not be assessed against
redemptions of Class I shares. A contingent deferred sales charge
will be imposed on Class I shares only if shares valued at $1
million or more are purchased after February 1, 1995 without a
sales charge and are subsequently redeemed within 12 months of
the calendar month following their purchase. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund" in
this Supplement.
Class II. The current public offering price of Class II shares is
equal to the net asset value, plus a front-end sales charge of 1%
of the amount invested. Class II shares are also subject to a
contingent deferred sales charge of 1% if shares are redeemed
within 18 months of the calendar month following purchase. In
addition, Class II shares are subject to Rule 12b-1 fees of up to
a maximum of 0.65% of average daily net assets of such shares.
Class II shares have lower front-end sales charges than Class I
shares and comparatively higher Rule 12b-1 fees.
Purchases of Class II shares are limited to amounts below $1
million. Any purchases of $1 million or more will automatically
be invested in Class I shares, since that is more beneficial to
investors. Such purchases, however, may be subject to a
contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million,
however, should consider purchasing Class I shares through a
Letter of Intent instead of purchasing Class II shares. See "How
to Buy Shares of the Fund" in the Prospectus for more
information.
Plan of Distribution. Class II's operating expenses will
generally be higher under the Class II Plan. During the first
year following a purchase of Class II shares, Distributors will
keep a portion of the Plan fees attributable to those shares to
partially recoup fees Distributors pays to securities dealers.
Distributors, or its affiliates, may pay from its own resources,
a commission of up to 1% of the amount invested to securities
dealers who initiate and are responsible for purchases of Class
II shares.
Contingent Deferred Sales Charge. Unless a waiver applies, a
contingent deferred sales charge of 1% will be imposed on Class
II shares redeemed within 18 months of their purchase. See
"Contingent Deferred Sales Charges" under "How to Sell Shares of
the Fund" in this Supplement.
Investment Objectives and Policies
Shareholders recently approved an amendment to the Fund's
investment policies to permit the Fund to invest in trade claims.
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 return due to the difference in
the face value of the claim as compared to the discounted
purchase price.
An investment in trade claims is speculative and carries a high
degree of risk. There can be no guarantee that the debtor will
ever be able to satisfy the obligation on the trade claim.
Trading in claims is not regulated by federal securities laws or
the SEC. Currently, trading in claims is regulated primarily by
bankruptcy laws. Because trade claims are unsecured, holders of
trade claims may have a lower priority in terms of payment than
most other creditors in a bankruptcy proceeding. In light of the
nature and risk of trade claims, the Fund's investment in these
instruments will not exceed 5% of its net assets at time of
acquisition.
Management of the Fund
The subsidiaries of Resources are described as the "Franklin
Templeton Group."
The Board of Directors has carefully reviewed the multiclass
structure to ensure that no material conflict exists between the
two classes of shares. Although the Board does not expect to
encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to
resolve such conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the
authority to establish additional classes of shares. It is the
Fund's present intention to offer only two classes of shares, but
new classes may be offered in the future.
For more information regarding the responsibilities of the Board
and the management of the Fund, please see "Management of the
Fund" in the Prospectus.
Class II Plan of Distribution
Under the Class II Plan, the maximum amount which the Fund is
permitted to pay to Distributors or others for distribution and
related expenses is 0.50% per annum of Class II shares' daily
average net assets, payable quarterly. All expenses of
distribution, marketing and related services over that amount
will be borne by Distributors or others who have incurred them,
without reimbursement by the Fund. In addition, the Class II Plan
provides for an additional payment by the Fund of up to 0.15% per
annum of the class' average daily net assets as a servicing fee,
payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the
Fund on behalf of customers, or similar activities related to
furnishing personal services and/or maintaining shareholder
accounts.
The Class II Plan also covers any payments to or by the Fund,
Advisers, Distributors, or other parties on behalf of the Fund,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of Class II shares issued by the Fund within
the context of Rule 12b-1. The payments under the Plan are
included in the maximum operating expenses which may be borne by
Class II of the Fund.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Plan fees assessed on
Class II shares to partially recoup fees Distributors pays to
securities dealers.
See the "Plan of Distribution" discussion in the "Management of
the Fund" section in the Prospectus and "Distribution Plan" under
"The Fund's Underwriter" in the SAI for more information about
both Class I and Class II Plans.
Distributions to Shareholders
According to the requirements of the Internal Revenue Code of
1986, as amended (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.
Unless otherwise requested, income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a front-end sales charge) on
the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for 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. See "Distributions to
Shareholders" in the Prospectus for more information.
How to Buy Shares of the Fund
The following discussion supplements the one included in the
Prospectus under "How to Buy Shares of the Fund." THE APPLICATION
FORM INCLUDED WITH THIS SUPPLEMENT MUST ACCOMPANY ANY PURCHASE OF
SHARES. DO NOT USE THE APPLICATION INCLUDED IN THE PROSPECTUS.
Purchase Price of Fund Shares
Shares of both classes of the Fund are offered at their
respective public offering prices, which are determined by adding
the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund, or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check).
Class 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. See "How to Buy Shares of the
Fund - Purchase Price of Fund Shares" in the Prospectus.
Class II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. See table below:
Total Sales Charge
As a Dealer
Size of Transaction As a Percentage Percentage Concession As
at Offering Price of Net Offering of Net a Percentage
Price Amount of Offering
Invested Price*
any amount (less
than $1 million) 1.00% 1.01% 1.00%
*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 eighteen months of their purchase
will be assessed a contingent deferred sales charge of 1.0% on
the lesser of the then-current net asset value or the net asset
value of such shares at the time of purchase, unless such charge
is waived as described under "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
The sections in the Prospectus titled "Quantity Discounts in
Sales Charges" and "Group Purchases" only apply to Class I
shares. Although sales charges on Class II shares may not be
reduced through a Letter of Intent or Rights of Accumulation as
described under "Quantity Discounts in Sales Charges," the value
of Class II shares owned by an investor may be included in
determining the appropriate sales charges for Class I shares.
Purchases at Net Asset Value
EACH OF THE REMAINING PARAGRAPHS IN THE SECTION WHICH DEFINES THE
CATEGORIES OF INVESTORS WHO MAY PURCHASE AT NET ASSET VALUE,
INCLUDING "DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES," IS
REVISED TO REFLECT THAT SUCH PURCHASES ARE WITHOUT A FRONT-END
SALES CHARGE (NET ASSET VALUE) AND WITHOUT THE IMPOSITION OF A
CONTINGENT DEFERRED SALES CHARGE. IN ADDITION, THIS ENTIRE
SECTION OF THE PROSPECTUS IS REVISED TO STATE THAT THIS SECTION
ONLY APPLIES TO CLASS I SHARES, WITH THE EXCEPTION OF THE SECOND
AND THIRD PARAGRAPHS, WHICH ARE REPLACED WITH THE FOLLOWING:
For either Class I or Class II, the same class of shares of the
Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund
or another of the Franklin Templeton Funds which were purchased
with a front-end sales charge or assessed a contingent deferred
sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the
time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of the Prospectus and the SAI.
For either Class I or Class II, the same class of shares of the
Fund or of another of the Franklin Templeton Funds may be
purchased at net asset value and without a contingent deferred
sales charge by persons who have received dividends and capital
gain distributions in cash from investments in that class of
shares of the Fund within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to
reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders" in the Prospectus.
Substitute the following paragraph for the first paragraph under
"Description of Special Net Asset Value Purchases:"
Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with
respect to number of employees or amount of purchase, which may
be established by Distributors. Currently those criteria require
that the employer establishing the plan have 200 or more
employees or that the amount invested or to be invested during
the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
For a complete understanding of how to buy shares of the Fund,
this Supplement must be read in conjunction with the Prospectus.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
The following subsection is added to the end of this section:
Purchasing Class I and Class II Shares
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares. 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 and in this Prospectus
for a discussion of when shares may be purchased at net asset
value.
Other Programs and Privileges Available to Fund Shareholders
With the exception of Systematic Withdrawal Plans, all programs
and privileges detailed under the discussion of "Other Programs
and Privileges Available to the Fund Shareholders" will remain in
effect as described in the Prospectus for the new multiclass
structure. For a complete discussion of these programs, see
"Other Programs and Privileges Available to Fund Shareholders" in
the Prospectus.
Systematic Withdrawal Plans. Subject to the requirements outlined
in the Prospectus, a shareholder may establish a Systematic
Withdrawal Plan for his or her account. With respect to Class I
shares, the contingent deferred sales charge is waived for
redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans
set up on or after February 1, 1995, the applicable contingent
deferred sales charge is waived for Class I and Class II share
redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% 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.
Exchange Privilege
Shareholders are entitled to exchange their shares for shares of
the same class of other Franklin Templeton Funds which are
eligible for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and
investment minimums. Some funds, however, may not offer Class II
shares. Class I shares may be exchanged for Class I shares of any
Franklin Templeton Funds. Class II shares may be exchanged for
Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent
deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent
deferred sales charge in the original fund purchased and shares
are subsequently redeemed within 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 of Class I Shares
The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and held
in a Franklin or Templeton money market fund. If a Class I
account has shares subject to a contingent deferred sales charge,
Class I shares will be exchanged into the new account on a "first-
in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge" in this Supplement.
Exchanges of Class II Shares
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and shares that are not, the
shares will be transferred proportionately into the new fund.
Shares received from reinvestment of dividends and capital gains
are referred to as "free shares," shares which were originally
subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called
"matured shares," and shares still subject to the contingent
deferred sales charge are referred to as "CDSC liable shares."
CDSC liable shares held for different periods of time are
considered different types of CDSC liable shares. For instance,
if a shareholder has $1,000 in free shares, $2,000 in matured
shares, and $3,000 in CDSC liable shares, and the shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from
free shares, $1,000 from matured shares, and $1,500 from CDSC
liable shares. Similarly, if CDSC liable shares have been
purchased at different periods, a proportionate amount will be
taken from shares held for each period. If, for example, a
shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into a new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money Fund
II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may
shareholders purchase shares of Money Fund II directly. Class II
shares exchanged for shares of Money Fund II will continue to age
and a contingent deferred sales charge will be assessed if CDSC
liable shares are redeemed. No other money market funds are
available for Class II shareholders for exchange purposes. Class
I shares may be exchanged for shares of any of the money market
funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these
other money market funds as described in their respective
prospectuses.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund.
Transfers
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the date
of original purchase. Like exchanges, Class II shares will be
moved proportionately from each type of shares in the original
account.
Conversion Rights
It is not presently anticipated that Class II shares will be
converted to Class I shares. A shareholder may, however, sell his
Class II shares and use the proceeds to purchase Class I shares,
subject to all applicable sales charges.
See "Exchange Privilege" in the Prospectus for more information.
How to Sell Shares of the Fund
For a discussion regarding the sale of either class of Fund
shares, refer to the section in the Prospectus titled "How to
Sell Shares of the Fund." In addition, the charges described in
this Supplement will also apply to the sale of all Fund shares.
Contingent Deferred Sales Charge
Class I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the net asset value of the shares redeemed (exclusive
of reinvested dividends and capital gain distributions) or the
total cost of such shares at the time of purchase, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below and "Purchases at Net
Asset Value" under "How to Buy Shares of the Fund" in the
Prospectus and in this Supplement.
Class II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net
asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below.
Class I and Class II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the following
order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
distributions to participants 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 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 will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for
redemption of a specific number of shares will result in the
applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
Valuation of Fund Shares
The following sentence replaces the first sentence of the first
paragraph in this section; the subsequent paragraph is added to
the end of this section.
The net asset value per share of each class of the Fund is
determined as of the scheduled closing time of the New York Stock
Exchange ("Exchange") (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading.
Each of the Fund's classes will bear, pro rata, all of the common
expenses of the Fund. The net asset value of all outstanding
shares of each class of the Fund will be computed on a pro rata
basis for each outstanding share based on the proportionate
participation in the Fund represented by the value of shares of
such classes, except that the Class I and Class II shares will
bear the Rule 12b-1 expenses payable under their respective
plans. Due to the specific distribution expenses and other costs
that will be allocable to each class, the dividends paid to each
class of the Fund may vary.
How to Get Information Regarding an Investment in the Fund
Replace the second and third paragraphs in this section with the
following language:
From a touch tone phone, Franklin and Templeton shareholders may
access an automated system (day or night) which offers the
following features.
By calling the Franklin TeleFACTS system, Class I shareholders
may obtain current price, yield or other performance information
specific to a Franklin fund, process an exchange into an
identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.
By calling the Templeton Star Service, shareholders may obtain
current price and yield information specific to a Templeton fund,
regardless of class, or Franklin Class II shares; obtain current
account information, request duplicate confirmation or year-end
statements and money fund checks, if applicable.
Share prices and account information specific to Templeton Class
I or II shares and Franklin Class II shares may also be accessed
on TeleFACTS by Franklin Class I and Class II shareholders.
The TeleFACTS system is accessible by calling 1-800/247-1753. The
Star Service is accessible by calling 1-800/654-0123. 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's automated operator will prompt the
caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
Performance (Class II)
Because Class II shares were not offered prior to May 1, 1995, no
performance data is available for these shares. After a
sufficient period of time has passed, Class II performance data
as described in the "Performance" section of the Prospectus will
be available.
General Information
With the exception of Voting Rights, all rights and privileges
detailed under the discussion of "General Information" will
remain in effect as described in the Prospectus for the new
multiclass structure. For a complete discussion of these rights
and privileges, see "General Information" in the Prospectus.
Voting Rights. Shares of each class represent proportionate
interests in the assets of the Fund and have the same voting and
other rights and preferences as the other class of the Fund for
matters that affect the Fund as a whole. For matters that only
affect a certain class of the Fund's shares, however, only
shareholders of that class will be entitled to vote. Therefore,
each class of shares will vote separately on matters (1)
affecting only that class, (2) expressly required to be voted on
separately by state corporation law, or (3) required to be voted
on separately by the 1940 Act or the rules adopted thereunder.
For instance, if a change to the Rule 12b-1 plan relating to the
Fund's Class I shares requires shareholder approval, only
shareholders of Class I may vote on changes to the Rule 12b-1
plan affecting that class. Similarly, if a change to the Rule 12b-
1 plan relating to Class II shares requires shareholder approval,
only shareholders of Class II may vote on the change to such
plan. On the other hand, if there is a proposed change to the
investment objective of the Fund, this affects all shareholders,
regardless of which class of shares they hold, and therefore,
each share has the same voting rights. For more information
regarding voting rights, see the "Voting Rights" discussion in
the Prospectus under the heading "General Information."
10 P
SUPPLEMENT DATED MAY 1, 1995
TO THE PROSPECTUS FOR THE
U.S. GOVERNMENT SECURITIES SERIES OF
FRANKLIN CUSTODIAN FUNDS, INC.
dated February 1, 1995
Introduction. As of May 1, 1995, the Fund offers two classes to
its investors: U.S. Government Securities Series - Class I
("Class I") and U.S. Government Securities Series - Class II
("Class II"). Investors can choose between Class I shares, which
generally bear a higher front-end sales charge and lower ongoing
Rule 12b-1 distribution fees ("Rule 12b-1 fees"), and Class II
shares, which generally have a lower front-end sales charge and
higher ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of
sales charges and distribution fees, in choosing the more
suitable class given their anticipated investment amount and time
horizon.
This Supplement must be read in conjunction with the Prospectus
for this Fund. All investment objectives and policies described
in the Prospectus apply equally to both classes of shares in the
new multiclass structure. Further, all operational procedures
apply equally to both classes, unless otherwise specified in the
following discussion. See "Deciding Which Class To Purchase"
below.
THE NEW APPLICATION FORM INCLUDED WITH THIS SUPPLEMENT MUST BE
USED FOR ALL PURCHASES. DO NOT USE THE APPLICATION FORM INCLUDED
IN THE PROSPECTUS.
Multiclass Fund Structure. The Fund has two classes of shares
available for investment: Class I and Class II. All Fund shares
outstanding before the implementation of the multiclass structure
have been redesignated as Class I shares, and will retain their
previous rights and privileges. See the Prospectus for more
details about Class I shares. Class II shares are explained in
detail in the following discussion. Except as described below,
shares of both classes represent identical interests in the
Fund's investment portfolio.
Expense Table
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. The figures for both classes of shares are based on
aggregate operating expenses of Class I shares for the fiscal
year ended September 30, 1994.
Class I Class II
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.25% 1.00%^
Deferred Sales Charge NONE^^ 1.00%+
Exchange Fee (per transaction $5.00++ $5.00++
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.45% 0.45%
Rule 12b-1 Fees 0.07%* 0.65%**
Other Expenses:
Shareholder Service Costs 0.03% 0.03%
Reports to Shareholders 0.03% 0.03%
Other 0.01% 0.01%
Total Other Expenses 0.07% 0.07%
Total Fund Operating Expenses 0.59% 1.17%
^Although Class II has a lower front-end sales charge than Class
I, over time the higher Rule 12b-1 fee for Class II may cause
shareholders to pay more for Class II shares than for Class I
shares. Given the maximum front-end sales charge and the rate of
Rule 12b-1 fees of each class, it is estimated that this will
take approximately six years or less for shareholders who
maintain total shares valued at less than $100,000 in the
Franklin Templeton Funds. Shareholders with larger investments in
the Franklin Templeton Funds will reach the crossover point more
quickly.
^^Class I investments of $1 million or more are not subject to a
front-end sales charge; however, a contingent deferred sales
charge of 1%, which has not been reflected in the Example below,
is generally imposed on certain redemptions within a "contingency
period" of 12 months of the calendar month following such
investments. See "How to Sell Shares of the Fund - Contingent
Deferred Sales Charge."
+Class II shares redeemed within a "contingency period" of 18
months of the calendar month following such investments are
subject to a 1% contingent deferred sales charge. See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."
++$5.00 fee is only imposed on Timing Accounts as described under
"Exchange Privilege." All other exchanges are processed without a
fee.
*Annualized. Actual 12b-1 fees incurred by Class I of the Fund
for the period May 1, 1994 through September 30, 1994 were .03%.
Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
**The Rule 12b-1 distribution plan for Class II was implemented
on May 1, 1995. "Other Expenses" for Class II shares are
estimates based on the actual expenses incurred by Class I shares
for the fiscal year ended September 30, 1994.
Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with
an individual's own investment in the Fund. Rather, the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of the Prospectus and this Supplement.
Example
As required by SEC regulations, the following example illustrates
the expenses, including the maximum front-end sales charge and
applicable contingent deferred sales charges, that apply to a
$1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of
each time period:
One Year Three Years Five Years Ten Years
Class I $48 $61 $74 $113
Class II $32 $47 $74 $151
This example is based on the aggregate annual operating expenses
shown above and should not be considered a representation of past
or future expenses, which may be more or less than those shown.
The operating expenses are borne by the Fund and only indirectly
by shareholders as a result of their investment in the Fund. In
addition, federal regulations require the example to assume an
annual return of 5%, but the Fund's actual return may be more or
less than 5%.
Deciding Which Class To Purchase. Investors should carefully
evaluate their anticipated investment amount and time horizon
prior to determining which class of shares to purchase.
Generally, an investor who expects to invest less than $100,000
in the Franklin Templeton Funds and who expects to make
substantial redemptions within approximately six years or less of
investment should consider purchasing Class II shares. However,
the higher annual Rule 12b-1 fees on 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 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"
in the Prospectus.
Each class represents the same interest in the investment
portfolio of the Fund and has the same rights, except that each
class has a different sales charge, bears the separate expenses
of its Rule 12b-1 distribution plan, and has exclusive voting
rights with respect to such plan. The two classes also have
separate exchange privileges.
Alternative Purchase Arrangements. The difference between Class I
and Class II shares lies primarily in their front-end and
contingent deferred sales charges and Rule 12b-1 fees as
described below.
A separate Plan of Distribution has been approved and adopted for
each class ("Class I Plan" and "Class II Plan," respectively)
pursuant to Rule 12b-1 under the Investment Company Act of 1940,
as amended ("1940 Act"). The Rule 12b-1 fees charged to each
class will be based solely on the distribution and servicing fees
attributable to that particular class. Any portion of fees
remaining from either Plan after distribution to securities
dealers of up to the maximum amount permitted under each Plan may
be used by the class to reimburse Franklin Templeton
Distributors, Inc. ("Distributors") for routine ongoing promotion
and distribution expenses incurred with respect to such class.
See "Management of the Fund - Plan of Distribution" in the
Prospectus for a description of such expenses.
Class I. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon
redemption. Class I shares are subject to Rule 12b-1 fees of up
to an annual maximum of 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.
Plan of Distribution. Under the Class I Plan, the Fund will
reimburse Distributors or other securities dealers for expenses
incurred in the promotion, servicing, and distribution of Class I
Fund shares. (See "Plan of Distribution" in the Prospectus and
"The Fund's Underwriter - Distribution Plan" in the Statement of
Additional Information ("SAI")).
Quantity Discounts and Purchases At Net Asset Value. Class I
shares may be purchased at a reduced front-end sales charge or at
net asset value if certain conditions are met. See "How to Buy
Shares of the Fund."
Contingent Deferred Sales Charge. In most circumstances, a
contingent deferred sales charge will not be assessed against
redemptions of Class I shares. A contingent deferred sales charge
will be imposed on Class I shares only if shares valued at $1
million or more are purchased after February 1, 1995 without a
sales charge and are subsequently redeemed within 12 months of
the calendar month following their purchase. See "Contingent
Deferred Sales Charge" under "How to Sell Shares of the Fund" in
this Supplement.
Class II. The current public offering price of Class II shares is
equal to the net asset value, plus a front-end sales charge of 1%
of the amount invested. Class II shares are also subject to a
contingent deferred sales charge of 1% if shares are redeemed
within 18 months of the calendar month following purchase. In
addition, Class II shares are subject to Rule 12b-1 fees of up to
a maximum of 0.65% of average daily net assets of such shares.
Class II shares have lower front-end sales charges than Class I
shares and comparatively higher Rule 12b-1 fees.
Purchases of Class II shares are limited to amounts below $1
million. Any purchases of $1 million or more will automatically
be invested in Class I shares, since that is more beneficial to
investors. Such purchases, however, may be subject to a
contingent deferred sales charge. Investors may exceed $1 million
in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million,
however, should consider purchasing Class I shares through a
Letter of Intent instead of purchasing Class II shares. See "How
to Buy Shares of the Fund" in the Prospectus for more
information.
Plan of Distribution. Class II's operating expenses will
generally be higher under the Class II Plan. During the first
year following a purchase of Class II shares, Distributors will
keep a portion of the Plan fees attributable to those shares to
partially recoup fees Distributors pays to securities dealers.
Distributors, or its affiliates may pay, from its own resources,
a commission of up to 1% of the amount invested to securities
dealers who initiate and are responsible for purchases of Class
II shares.
Contingent Deferred Sales Charge. Unless a waiver applies, a
contingent deferred sales charge of 1% will be imposed on Class
II shares redeemed within 18 months of their purchase. See
"Contingent Deferred Sales Charges" under "How to Sell Shares of
the Fund" in this Supplement.
Management of the Fund
The subsidiaries of Resources are described as the "Franklin
Templeton Group."
The Board of Directors has carefully reviewed the multiclass
structure to ensure that no material conflict exists between the
two classes of shares. Although the Board does not expect to
encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to
resolve such conflicts if any should later arise.
In developing the multiclass structure, the Fund has retained the
authority to establish additional classes of shares. It is the
Fund's present intention to offer only two classes of shares, but
new classes may be offered in the future.
For more information regarding the responsibilities of the Board
and the management of the Fund, please see "Management of the
Fund" in the Prospectus.
Class II Plan of Distribution
Under the Class II Plan, the maximum amount which the Fund is
permitted to pay to Distributors or others for distribution and
related expenses is 0.50% per annum of Class II shares' daily
average net assets, payable quarterly. All expenses of
distribution, marketing and related services over that amount
will be borne by Distributors or others who have incurred them,
without reimbursement by the Fund. In addition, the Class II Plan
provides for an additional payment by the Fund of up to 0.15% per
annum of the class' average daily net assets as a servicing fee,
payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in
establishing and maintaining customer accounts and records;
assisting with purchase and redemption requests; receiving and
answering correspondence; monitoring dividend payments from the
Fund on behalf of customers, or similar activities related to
furnishing personal services and/or maintaining shareholder
accounts.
The Class II Plan also covers any payments to or by the Fund,
Advisers, Distributors, or other parties on behalf of the Fund,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of Class II shares issued by the Fund within
the context of Rule 12b-1. The payments under the Plan are
included in the maximum operating expenses which may be borne by
Class II of the Fund.
During the first year after the purchase of Class II shares,
Distributors will keep a portion of the Plan fees assessed on
Class II shares to partially recoup fees Distributors pays to
securities dealers.
See the "Plan of Distribution" discussion in the "Management of
the Fund" section in the Prospectus and "Distribution Plan" under
"The Fund's Underwriter" in the SAI for more information about
both Class I and Class II Plans.
Distributions to Shareholders
According to the requirements of the Internal Revenue Code of
1986, as amended (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.
Unless otherwise requested, income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a front-end sales charge) on
the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for 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. See "Distributions to
Shareholders" in the Prospectus for more information.
How to Buy Shares of the Fund
The following discussion supplements the one included in the
Prospectus under "How to Buy Shares of the Fund." THE APPLICATION
FORM INCLUDED WITH THIS SUPPLEMENT MUST ACCOMPANY ANY PURCHASE OF
SHARES. DO NOT USE THE APPLICATION INCLUDED IN THE PROSPECTUS.
Purchase Price of Fund Shares
Shares of both classes of the Fund are offered at their
respective public offering prices, which are determined by adding
the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives
the order which is promptly transmitted to the Fund, or (2) after
receipt of an order by mail from the shareholder directly in
proper form (which generally means a completed Shareholder
Application accompanied by a negotiable check).
Class 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. See "How to Buy Shares of the
Fund - Purchase Price of Fund Shares" in the Prospectus.
Class II. Unlike Class I shares, the front-end sales charges and
dealer concessions for Class II shares do not vary depending on
the amount of purchase. See table below:
Total Sales Charge
As a Dealer
Size of Transaction As a Percentage Percentage Concession As
at Offering Price of Net Offering of Net a Percentage
Price Amount of Offering
Invested Price*
any amount (less
than $1 million) 1.00% 1.01% 1.00%
*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 eighteen months of their purchase
will be assessed a contingent deferred sales charge of 1.0% on
the lesser of the then-current net asset value or the net asset
value of such shares at the time of purchase, unless such charge
is waived as described under "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."
The sections in the Prospectus titled "Quantity Discounts in
Sales Charges" and "Group Purchases" only apply to Class I
shares. Although sales charges on Class II shares may not be
reduced through a Letter of Intent or Rights of Accumulation as
described under "Quantity Discounts in Sales Charges," the value
of Class II shares owned by an investor may be included in
determining the appropriate sales charges for Class I shares.
Purchases at Net Asset Value
EACH OF THE REMAINING PARAGRAPHS IN THE SECTION WHICH DEFINES THE
CATEGORIES OF INVESTORS WHO MAY PURCHASE AT NET ASSET VALUE,
INCLUDING "DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES," IS
REVISED TO REFLECT THAT SUCH PURCHASES ARE WITHOUT A FRONT-END
SALES CHARGE (NET ASSET VALUE) AND WITHOUT THE IMPOSITION OF A
CONTINGENT DEFERRED SALES CHARGE. IN ADDITION, THIS ENTIRE
SECTION OF THE PROSPECTUS IS REVISED TO STATE THAT THIS SECTION
ONLY APPLIES TO CLASS I SHARES, WITH THE EXCEPTION OF THE SECOND
AND THIRD PARAGRAPHS, WHICH ARE REPLACED WITH THE FOLLOWING:
For either Class I or Class II, the same class of shares of the
Fund may be purchased at net asset value by persons who have
redeemed, within the previous 120 days, their shares of the Fund
or another of the Franklin Templeton Funds which were purchased
with a front-end sales charge or assessed a contingent deferred
sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the
time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the
shares redeemed and subsequently repurchased, a new contingency
period will begin. Shares of the Fund redeemed in connection with
an exchange into another fund (see "Exchange Privilege") are not
considered "redeemed" for this privilege. In order to exercise
this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder
Services Agent within 120 days after the redemption. The 120
days, however, do not begin to run on redemption proceeds placed
immediately after redemption in a Franklin Bank Certificate of
Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a
securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a
taxable transaction but reinvestment without a sales charge may
affect the amount of gain or loss recognized and the tax basis of
the shares reinvested. If there has been a loss on the
redemption, the loss may be disallowed if a reinvestment in the
same fund is made within a 30-day period. Information regarding
the possible tax consequences of such a reinvestment is included
in the tax section of the Prospectus and the SAI.
For either Class I or Class II, the same class of shares of the
Fund or of another of the Franklin Templeton Funds may be
purchased at net asset value and without a contingent deferred
sales charge by persons who have received dividends and capital
gain distributions in cash from investments in that class of
shares of the Fund within 120 days of the payment date of such
distribution. To exercise this privilege, a written request to
reinvest the distribution must accompany the purchase order.
Additional information may be obtained from Shareholder Services
at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders" in the Prospectus.
Substitute the following paragraph for the first paragraph under
"Description of Special Net Asset Value Purchases:"
Class I shares may also be purchased at net asset value and
without the imposition of a contingent deferred sales charge by
certain designated retirement plans, including profit sharing,
pension, 401(k) and simplified employee pension plans
("designated plans"), subject to minimum requirements with
respect to number of employees or amount of purchase, which may
be established by Distributors. Currently those criteria require
that the employer establishing the plan have 200 or more
employees or that the amount invested or to be invested during
the subsequent 13-month period in the Fund or in any of the
Franklin Templeton Investments totals at least $1,000,000.
Employee benefit plans not designated above or qualified under
Section 401 of the Code ("non-designated plans") may be afforded
the same privilege if they meet the above requirements as well as
the uniform criteria for qualified groups previously described
under "Group Purchases" which enable Distributors to realize
economies of scale in its sales efforts and sales related
expenses.
For a complete understanding of how to buy shares of the Fund,
this Supplement must be read in conjunction with the Prospectus.
Refer to the SAI for further information regarding net asset
value purchases of Class I shares.
The following subsection is added to the end of this section:
Purchasing Class I and Class II Shares
When placing purchase orders, investors should clearly indicate
which class of shares they intend to purchase. A purchase order
that fails to specify a class will automatically be invested in
Class I shares. 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 and in the Prospectus
for a discussion of when shares may be purchased at net asset
value.
Other Programs and Privileges Available to Fund Shareholders
With the exception of Systematic Withdrawal Plans, all programs
and privileges detailed under the discussion of "Other Programs
and Privileges Available to the Fund Shareholders" will remain in
effect as described in the Prospectus for the new multiclass
structure. For a complete discussion of these programs, see
"Other Programs and Privileges Available to Fund Shareholders" in
the Prospectus.
Systematic Withdrawal Plans. Subject to the requirements outlined
in the Prospectus, a shareholder may establish a Systematic
Withdrawal Plan for his or her account. With respect to Class I
shares, the contingent deferred sales charge is waived for
redemptions through a Systematic Withdrawal Plan set up prior to
February 1, 1995. With respect to Systematic Withdrawal Plans set
up on or after February 1, 1995, the applicable contingent
deferred sales charge is waived for Class I and Class II share
redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% 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.
Exchange Privilege
Shareholders are entitled to exchange their shares for shares of
the same class of other Franklin Templeton Funds which are
eligible for sale in the shareholder's state of residence and in
conformity with such fund's stated eligibility requirements and
investment minimums. Some funds, however, may not offer Class II
shares. Class I shares may be exchanged for Class I shares of any
Franklin Templeton Funds. Class II shares may be exchanged for
Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent
deferred sales charge will not be imposed on exchanges. If,
however, the exchanged shares were subject to a contingent
deferred sales charge in the original fund purchased and shares
are subsequently redeemed within 12 months (Class I shares) or 18
months (Class II shares) following the calendar month of the
original purchase date, a contingent deferred sales charge will
be imposed. Investors should review the prospectus of the fund
they wish to exchange from and the fund they wish to exchange
into for all specific requirements or limitations on exercising
the exchange privilege, for example, minimum holding periods or
applicable sales charges.
Exchanges of Class I Shares
The contingency period of Class I shares will be tolled (or
stopped) for the period such shares are exchanged into and held
in a Franklin or Templeton money market fund. If a Class I
account has shares subject to a contingent deferred sales charge,
Class I shares will be exchanged into the new account on a "first-
in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge" in this Supplement.
Exchanges of Class II Shares
When an account is composed of Class II shares subject to the
contingent deferred sales charge, and shares that are not, the
shares will be transferred proportionately into the new fund.
Shares received from reinvestment of dividends and capital gains
are referred to as "free shares," shares which were originally
subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called
"matured shares," and shares still subject to the contingent
deferred sales charge are referred to as "CDSC liable shares."
CDSC liable shares held for different periods of time are
considered different types of CDSC liable shares. For instance,
if a shareholder has $1,000 in free shares, $2,000 in matured
shares, and $3,000 in CDSC liable shares, and the shareholder
exchanges $3,000 into a new fund, $500 will be exchanged from
free shares, $1,000 from matured shares, and $1,500 from CDSC
liable shares. Similarly, if CDSC liable shares have been
purchased at different periods, a proportionate amount will be
taken from shares held for each period. If, for example, a
shareholder holds $1,000 in shares bought 3 months ago, $1,000
bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into a new fund, $500 from each of
these shares will be deemed exchanged into the new fund.
The only money market fund exchange option available to Class II
shareholders is the Franklin Templeton Money Fund II ("Money Fund
II"), a series of the Franklin Templeton Money Fund Trust. No
drafts (checks) may be written on Money Fund II accounts, nor may
shareholders purchase shares of Money Fund II directly. Class II
shares exchanged for shares of Money Fund II will continue to age
and a contingent deferred sales charge will be assessed if CDSC
liable shares are redeemed. No other money market funds are
available for Class II shareholders for exchange purposes. Class
I shares may be exchanged for shares of any of the money market
funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these
other money market funds as described in their respective
prospectuses.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund.
Transfers
Transfers between identically registered accounts in the same
fund and class are treated as non-monetary and non-taxable
events, and are not subject to a contingent deferred sales
charge. The transferred shares will continue to age from the date
of original purchase. Like exchanges, Class II shares will be
moved proportionately from each type of shares in the original
account.
Conversion Rights
It is not presently anticipated that Class II shares will be
converted to Class I shares. A shareholder may, however, sell his
Class II shares and use the proceeds to purchase Class I shares,
subject to all applicable sales charges.
See "Exchange Privilege" in the Prospectus for more information.
How to Sell Shares of the Fund
For a discussion regarding the sale of either class of Fund
shares, refer to the section in the Prospectus titled "How to
Sell Shares of the Fund." In addition, the charges described in
this Supplement will also apply to the sale of all Fund shares.
Contingent Deferred Sales Charge
Class I. In order to recover commissions paid to securities
dealers on investments of $1 million or more, a contingent
deferred sales charge of 1% applies to redemptions of those
investments within the contingency period of 12 months of the
calendar month following their purchase. The charge is 1% of the
lesser of the net asset value of the shares redeemed (exclusive
of reinvested dividends and capital gain distributions) or the
total cost of such shares at the time of purchase, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below and "Purchases at Net
Asset Value" under "How to Buy Shares of the Fund" in the
Prospectus and in this Supplement.
Class II. Class II shares redeemed within the contingency period
of 18 months of the calendar month following their purchase will
be assessed a contingent deferred sales charge, unless one of the
exceptions described below applies. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of
reinvested dividends and capital gain distributions) or the net
asset value at the time of purchase of such shares, and is
retained by Distributors. The contingent deferred sales charge is
waived in certain instances. See below.
Class I and Class II. In determining if a contingent deferred
sales charge applies, shares not subject to a contingent deferred
sales charge are deemed to be redeemed first, in the following
order: (i) Shares representing amounts attributable to capital
appreciation of those shares held less than the contingency
period (12 months in the case of Class I shares and 18 months in
the case of Class II shares); (ii) shares purchased with
reinvested dividends and capital gain distributions; and (iii)
other shares held longer than the contingency period; and
followed by any shares held less than the contingency period, on
a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in
redemption proceeds or an adjustment to the cost basis of the
shares redeemed.
The contingent deferred sales charge on each class of shares is
waived, as applicable, for: exchanges; any account fees;
distributions to participants 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 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 will
result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for
redemption of a specific number of shares will result in the
applicable contingent deferred sales charge being deducted from
the total dollar amount redeemed.
Valuation of Fund Shares
The following sentence replaces the first sentence of the first
paragraph in this section; the subsequent paragraph is added to
the end of this section.
The net asset value per share of each class of the Fund is
determined as of the scheduled closing time of the New York Stock
Exchange ("Exchange") (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading.
Each of the Fund's classes will bear, pro rata, all of the common
expenses of the Fund. The net asset value of all outstanding
shares of each class of the Fund will be computed on a pro rata
basis for each outstanding share based on the proportionate
participation in the Fund represented by the value of shares of
such classes, except that the Class I and Class II shares will
bear the Rule 12b-1 expenses payable under their respective
plans. Due to the specific distribution expenses and other costs
that will be allocable to each class, the dividends paid to each
class of the Fund may vary.
How to Get Information Regarding an Investment in the Fund
From a touch tone phone, Franklin and Templeton shareholders may
access an automated system (day or night) which offers the
following features.
By calling the Franklin TeleFACTS system, Class I shareholders
may obtain current price, yield or other performance information
specific to a Franklin fund, process an exchange into an
identically registered Franklin account; obtain account
information and request duplicate confirmation or year-end
statements, money fund checks, if applicable, and deposit slips.
By calling the Templeton Star Service, shareholders may obtain
current price and yield information specific to a Templeton fund,
regardless of class, or Franklin Class II shares; obtain current
account information, request duplicate confirmation or year-end
statements and money fund checks, if applicable.
Share prices and account information specific to Templeton Class
I or II shares and Franklin Class II shares may also be accessed
on TeleFACTS by Franklin Class I and Class II shareholders.
The TeleFACTS system is accessible by calling 1-800/247-1753. The
Star Service is accessible by calling 1-800/654-0123. Franklin
Class I and Class II share codes for the Fund, which will be
needed to access system information, are 110 and 210,
respectively. The system's automated operator will prompt the
caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
Performance (Class II)
Because Class II shares were not offered prior to May 1, 1995, no
performance data is available for these shares. After a
sufficient period of time has passed, Class II performance data
as described in the "Performance" section of the Prospectus will
be available.
General Information
With the exception of Voting Rights, all rights and privileges
detailed under the discussion of "General Information" will
remain in effect as described in the Prospectus for the new
multiclass structure. For a complete discussion of these rights
and privileges, see "General Information" in the Prospectus.
Voting Rights. Shares of each class represent proportionate
interests in the assets of the Fund and have the same voting and
other rights and preferences as the other class of the Fund for
matters that affect the Fund as a whole. For matters that only
affect a certain class of the Fund's shares, however, only
shareholders of that class will be entitled to vote. Therefore,
each class of shares will vote separately on matters (1)
affecting only that class, (2) expressly required to be voted on
separately by state corporation law, or (3) required to be voted
on separately by the 1940 Act or the rules adopted thereunder.
For instance, if a change to the Rule 12b-1 plan relating to the
Fund's Class I shares requires shareholder approval, only
shareholders of Class I may vote on changes to the Rule 12b-1
plan affecting that class. Similarly, if a change to the Rule 12b-
1 plan relating to Class II shares requires shareholder approval,
only shareholders of Class II may vote on the change to such
plan. On the other hand, if there is a proposed change to the
investment objective of the Fund, this affects all shareholders,
regardless of which class of shares they hold, and therefore,
each share has the same voting rights. For more information
regarding voting rights, see the "Voting Rights" discussion in
the Prospectus under the heading "General Information."
06 S
SUPPLEMENT DATED MAY 1, 1995
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN CUSTODIAN FUNDS, INC.
dated February 1, 1995
As described in the Prospectus, this Fund now offers two
classes of shares to investors in the Growth Series, Utilities
Series, Income Series and U.S. Government Securities Series:
Growth Series - Class I and Growth Series - Class II; Utilities
Series - Class I and Utilities Series - Class II; Income Series -
Class I and Income Series - Class II; and U.S. Government
Securities Series - Class I and U.S. Government Securities Series
- - Class II. The DynaTech Series currently issues only Class I
shares. This new structure allows investors to consider, among
other features, the impact of sales charges and distribution fees
("Rule 12b-1 fees") on their investments in the Growth Series,
Utilities Series, Income Series, and U.S. Government Securities
Series.
ADD THE FOLLOWING AS THE LAST SENTENCE OF THE PARAGRAPH
DESCRIBING FEES PAID TO THE MANAGER UNDER "INVESTMENT ADVISORY
AND OTHER SERVICES":
For each Series with two classes of shares, each class of each
such Series will pay its share of the fee as determined by the
proportion of the Series that it represents.
EACH NEW CLASS OF SHARES HAS A SEPARATE DISTRIBUTION PLAN. FOR
THIS REASON, THE FIRST PARAGRAPH OF THE SECTION "THE FUND'S
UNDERWRITER - DISTRIBUTION PLAN" HAS BEEN REPLACED WITH THE
FOLLOWING PARAGRAPH:
Plans of Distribution
Each class of the Fund has adopted a Distribution Plan ("Class I
Plan" and "Class II Plan," respectively, or "Plans") pursuant to
Rule 12b-1 under the 1940 Act.
THE FOLLOWING SENTENCE SHOULD BE ADDED AS THE FIRST SENTENCE IN
THE NEXT PARAGRAPH:
Pursuant to the Class I Plans, the Growth and DynaTech Series
may be required to pay up to a maximum of 0.25% per annum (0.25
of 1%), and the Income, Utilities and U.S. Government Series may
be required to pay up to a maximum of 0.15% per annum, of their
respective average daily net assets for expenses incurred in the
promotion and distribution of their shares.
THE PARAGRAPH DESCRIBED ABOVE ONLY CONCERNS THE CLASS I PLANS.
THE FOLLOWING PARAGRAPHS HAVE BEEN ADDED TO THIS SECTION AFTER
THE DISCUSSION OF THE CLASS I PLANS TO DESCRIBE THE PLANS FOR
CLASS II:
The Class II Plans
Under the Class II Plans, each Series (other than DynaTech) is
permitted to pay to Distributors or others annual distribution
fees, payable quarterly, of 0.75% per annum of the Growth Series
Class II's average daily net assets and 0.50% per annum of the
Utilities, Income and U.S. Government Securities Series Class
II's average daily net assets, in order to compensate
Distributors or others for providing distribution and related
services and bearing certain expenses of the Class. All expenses
of distribution and marketing over that amount will be borne by
Distributors, or others who have incurred them, without
reimbursement by each Series. In addition to this amount, under
the Class II Plans, the Growth Series shall pay 0.25% per annum,
and the Utilities Series, Income Series, and U.S. Government
Series shall pay 0.15% per annum, payable quarterly, of the
Class' average daily net assets as a servicing fee. This fee will
be used to pay dealers or others for, among other things,
assisting in establishing and maintaining customer accounts and
records; assisting with purchase and redemption requests;
receiving and answering correspondence; monitoring dividend
payments from the Fund on behalf of the customers, and similar
activities related to furnishing personal services and
maintaining shareholder accounts. Distributors may pay the
securities dealer, from its own resources, a commission of up to
1% of the amount invested.
THE SUBSEQUENT PARAGRAPHS IN THE SECTION "DISTRIBUTION PLAN"
APPLY EQUALLY TO BOTH CLASS I AND CLASS II PLANS, WITH THE
EXCEPTIONS THAT (1) THE SENTENCE REGARDING UNREIMBURSED EXPENSES
REFERS TO THE CLASS I PLANS ONLY, AND (2) THE CLASS II PLANS WERE
APPROVED BY THE BOARD OF DIRECTORS AND THE SOLE INITIAL
SHAREHOLDER FOR EACH SERIES PRIOR TO MAY 1, 1995, AND ARE
EFFECTIVE FROM MAY 1, 1995.
The Officers and DIRECTORS section is revised to read as follows:
Officers and Directors
The Board of Directors has the responsibility for the overall
management of the Fund, including general supervision and review
of its investment activities. The directors, in turn, elect the
officers of the Fund who are responsible for administering day-to-
day operations of the Fund. The affiliations of the officers and
directors and their principal occupations for the past five years
are listed below. Directors who are deemed to be "interested
persons" of the Fund, as defined in the 1940 Act, are indicated
by an asterisk (*).
Name, Address & Age
Positions and Offices with the Fund
Principal Occupations During Past Five Years
Harris J. Ashton
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
74
Director
President, Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers); Director,
RBC Holdings, Inc. (a bank holding company) and Bar-S Foods; and
director, trustee or managing general partner, as the case may
be, of 54 of the investment companies in the Franklin Templeton
Group of Funds.
S. Joseph Fortunato
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
62
Director
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director
of General Host Corporation; director, trustee or managing
general partner, as the case may be, of 56 of the investment
companies in the Franklin Templeton Group of Funds.
*Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
62
President and Director
President and Director, Franklin Resources, Inc.; Chairman of the
Board and Director, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton
Investor Services, Inc. and General Host Corporation; and officer
and/or director, trustee or managing general partner, as the case
may be, of most other subsidiaries of Franklin Resources, Inc.
and of 55 of the investment companies in the Franklin Templeton
Group of Funds.
*Rupert H. Johnson, Jr.
777 Mariners Island Blvd.
San Mateo, CA 94404
54
Vice President and Director
Executive Vice President and Director, Franklin Resources, Inc.
and Franklin Templeton Distributors, Inc.; President and
Director, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 42 of the
investment companies in the Franklin Templeton Group of Funds.
Gordon S. Macklin
8212 Burning Tree Road
Bethesda, MD 20817
66
Director
Chairman, White River Corporation (information services);
Director, Fund American Enterprises Holdings, Inc., Martin
Marietta Corporation, MCI Communications Corporation, MedImmune,
Inc. (biotechnology), Infovest Corporation (information
services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner,
as the case may be, of 51 of the investment companies in the
Franklin Templeton Group of Funds; formerly, Chairman, Hambrecht
and Quist Group; Director, H & Q Healthcare Investors; and
President, National Association of Securities Dealers, Inc.
Harmon E. Burns
777 Mariners Island Blvd.
San Mateo, CA 94404
50
Vice President
Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services,
Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee of 41 of the investment companies in the
Franklin Templeton Group of Funds.
Kenneth V. Domingues
777 Mariners Island Blvd.
San Mateo, CA 94404
62
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and Officer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.
Martin L. Flanagan
777 Mariners Island Blvd.
San Mateo, CA 94404
34
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer,
Franklin Resources, Inc.; Executive Vice President, Templeton
Worldwide, Inc.; Senior Vice President and Treasurer, Franklin
Advisers, Inc. and Franklin Templeton Distributors, Inc.; Senior
Vice President, Franklin/Templeton Investor Services, Inc.;
officer of most other subsidiaries of Franklin Resources, Inc.;
and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek
777 Mariners Island Blvd.
San Mateo, CA 94404
46
Vice President
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 36 of the investment companies in
the Franklin Group of Funds.
Diomedes Loo-Tam
777 Mariners Island Blvd.
San Mateo, CA 94404
56
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36 of the
investment companies in the Franklin Group of Funds.
Brian E. Lorenz
One North Lexington Avenue
White Plains, New York 10001-1700
Secretary
56
Attorney, member of the law firm of Bleakley Platt & Schmidt;
officer of three of the investment companies in the Franklin
Group of Funds.
Directors not affiliated with the investment manager are
currently paid fees of $1,350 per month plus $1,300 per meeting
attended and are reimbursed for expenses incurred in connection
with attending such meetings. During the fiscal year ended
September 30, 1994, fees totaling $95,400 were paid by the Fund
to directors who are not affiliated with the investment manager.
As indicated above, certain of the directors and officers hold
positions with other companies in the Franklin Group of
Funds(Registered Trademark) and the Templeton Funds. The
following table indicates the total fees received by such
directors from other Franklin Templeton Funds for which they
serve as directors, trustees or managing general partners.
Number of
Franklin Total
Aggregate Templeton Boards Compensation
Compensation on Which From Franklin
Name From Fund* Each Serves Templeton Funds**
Mr. Ashton $31,800 54 $319,925
Mr. Fortunato $31,800 56 $336,065
Mr. Macklin $31,800 51 $303,685
* For the fiscal year ended September 30, 1994.
** For the calendar year ended December 31, 1994.
No officer or director received any other compensation directly
from the Fund. As of March 31, 1995, the directors and officers,
as a group, owned of record and beneficially less than 1% of the
total outstanding shares of the Fund. In addition, many of the
Fund's directors own shares in various of the other funds in the
Franklin Group of Funds and the Templeton Group of Funds. Charles
B. Johnson and Rupert H. Johnson, Jr. are brothers.
During the last fiscal year, the law firm of which Mr. Lorenz is
a partner received payments totaling $72,398 for legal services
rendered and for reimbursement of expenses.
From time to time, the number of Fund shares held in the "street
name" accounts of various securities dealers for the benefit of
their clients or in centralized securities depositories may
exceed 5% of the total shares outstanding. To the best of the
Fund's knowledge, no other person holds beneficially or of record
more than 5% of the Fund's outstanding shares.
THE FOLLOWING REPLACES THE SUBSECTION "ADDITIONAL INFORMATION
REGARDING PURCHASES" UNDER "ADDITIONAL INFORMATION REGARDING FUND
SHARES":
Additional Information Regarding Purchases
Special Net Asset Value Purchases. As discussed in the Prospectus
under "How to Buy Shares of the Fund - Description of Special Net
Asset Value Purchases," certain categories of investors may
purchase Class I shares of the Fund at net asset value (without a
front-end or contingent deferred sales charge). Distributors or
one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible
for such purchases, as indicated below. Distributors may make
these payments in the form of contingent advance payments, which
may require reimbursement from the securities dealers with
respect to certain redemptions made within 12 months of the
calendar month following purchase, as well as other conditions,
all of which may be imposed by an agreement between Distributors,
or its affiliates, and the securities dealer.
The following amounts will be paid by Distributors or one of its
affiliates, out of its own resources, to securities dealers who
initiate and are responsible for (i) purchases of most equity and
fixed-income Franklin Templeton Funds made at net asset value by
certain designated retirement plans (excluding IRA and IRA
rollovers): 1.00% on sales of $1 million but less than $2
million, plus 0.80% on sales of $2 million but less than $3
million, plus 0.50% on sales of $3 million but less than $50
million, plus 0.25% on sales of $50 million but less than $100
million, plus 0.15% on sales of $100 million or more; and (ii)
purchases of most fixed-income Franklin Templeton Funds made at
net asset value by non-designated retirement plans: 0.75% on
sales of $1 million but less than $2 million, plus 0.60% on sales
of $2 million but less than $3 million, plus 0.50% on sales of $3
million but less than $50 million, plus 0.25% on sales of $50
million but less than $100 million, plus 0.15% on sales of $100
million or more. These payment breakpoints are reset every 12
months for purposes of additional purchases. With respect to
purchases made at net asset value by certain trust companies and
trust departments of banks and certain retirement plans of
organizations with collective retirement plan assets of $10
million or more, Distributors, or one of its affiliates, out of
its own resources, may pay up to 1% of the amount invested.
Letter of Intent. An investor may qualify for a reduced sales
charge on the purchase of Class I shares, as described in the
Prospectus. At any time within 90 days after the first investment
which the investor wants to qualify for the reduced sales charge,
a signed Shareholder Application, with the Letter of Intent
("Letter") section completed, may be filed with the Fund. After
the Letter is filed, each additional investment made will be
entitled to the sales charge applicable to the level of
investment indicated on the Letter. Sales charge reductions based
upon purchases in more than one company in the Franklin Templeton
Group will be effective only after notification to Distributors
that the investment qualifies for a discount. The shareholder's
holdings in the Franklin Templeton Group, including Class II
shares, acquired more than 90 days before the Letter of Intent is
filed will be counted towards completion of the Letter of Intent
but will not be entitled to a retroactive downward adjustment of
sales charge. Any redemptions made by the shareholder, other than
by a qualifying employee benefit plan (the "Benefit Plan"),
during the 13-month period will be subtracted from the amount of
the purchases for purposes of determining whether the terms of
the Letter have been completed. If the Letter is not completed
within the 13-month period, there will be an upward adjustment of
the sales charge, depending upon the amount actually purchased
(less redemptions) during the period. The upward adjustment does
not apply to qualifying employee benefit plans. An investor who
executes a Letter prior to a change in the sales charge structure
for the Fund will be entitled to complete the Letter at the lower
of (i) the new sales charge structure; or (ii) the sales charge
structure in effect at the time the Letter was filed with the
Fund.
As mentioned in the Prospectus, five percent (5%) of the amount
of the total intended purchase will be reserved in shares of the
Fund registered in the investor's name unless the investor is a
Benefit Plan. If the total purchases, less redemptions, equal the
amount specified under the Letter, the reserved shares will be
deposited to an account in the name of the investor or delivered
to the investor or the investor's order. If the total purchases,
less redemptions, exceed the amount specified under the Letter
and is an amount which would qualify for a further quantity
discount, a retroactive price adjustment will be made by
Distributors and the dealer through whom purchases were made
pursuant to the Letter (to reflect such further quantity
discount) on purchases made within 90 days before and on those
made after filing the Letter. The resulting difference in
offering price will be applied to the purchase of additional
shares at the offering price applicable to a single purchase or
the dollar amount of the total purchases. If the total purchases,
less redemptions, are less than the amount specified under the
Letter, the investor will remit to Distributors an amount equal
to the difference in the dollar amount of sales charge actually
paid and the amount of sales charge which would have applied to
the aggregate purchases if the total of such purchases had been
made at a single time. Upon such remittance the reserved shares
held for the investor's account will be deposited to an account
in the name of the investor or delivered to the investor or to
the investor's order. If within 20 days after written request
such difference in sales charge is not paid, the redemption of an
appropriate number of reserved shares to realize such difference
will be made. In the event of a total redemption of the account
prior to fulfillment of the Letter of Intent, the additional
sales charge due will be deducted from the proceeds of the
redemption, and the balance will be forwarded to the investor.
If a Letter of Intent is executed on behalf of a benefit plan
(such plans are described under "Purchases at Net Asset Value" in
the Prospectus), the level and any reduction in sales charge for
these employee benefit plans will be based on actual plan
participation and the projected investments in the Franklin
Templeton Group under the Letter. Benefit Plans are not subject
to the requirement to reserve 5% of the total intended purchase,
or to any penalty as a result of the early termination of a plan,
nor are Benefit Plans entitled to receive retroactive adjustments
in price for investments made before executing Letters.
THE FOLLOWING PARAGRAPH IS ADDED TO "ADDITIONAL INFORMATION
REGARDING FUND SHARES":
The Fund may impose a $10 charge for each returned item, against
any shareholder account which, in connection with the purchase of
Fund shares, submits a check or a draft which is returned unpaid
to the Fund.
THE "Purchases and Redemptions Through Securities Dealers" and
"Calculation of Net Asset Value" SUBSECTIONS ARE MODIFIED TO
REFLECT THAT the Fund'S net asset value IS CALCULATED FOR EACH
CLASS SEPARATELY as of the scheduled closing of the New York
Stock Exchange (generally 1:00 p.m. Pacific time).
