FRANKLIN CUSTODIAN FUNDS INC, 497, 1999-08-31

FRANKLIN CUSTODIAN FUNDS INC
497, 1999-08-31

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PROSPECTUS

FRANKLIN
CUSTODIAN FUNDS, INC.

INVESTMENT STRATEGY

GROWTH DYNATECH SERIES - CLASS A & C
GROWTH SERIES - CLASS A, B & C

GROWTH & INCOME INCOME SERIES - CLASS A, B & C
UTILITIES SERIES - CLASS A, B & C

INCOME U.S. GOVERNMENT SECURITIES SERIES -
CLASS A, B & C

FEBRUARY 1, 1999
AS AMENDED AUGUST 30, 1999

[Insert Franklin Templeton Ben Head]

THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

CONTENTS

THE FUNDS

INFORMATION ABOUT EACH
FUND YOU SHOULD KNOW
BEFORE INVESTING

2 DynaTech Series

11 Growth Series

21 Income Series

32 Utilities Series

41 U.S. Government Securities Series

49 Distribution and tax information
for each fund; Year 2000 problem

YOUR ACCOUNT

INFORMATION ABOUT SALES
CHARGES, ACCOUNT TRANSACTIONS
AND SERVICES

51 Choosing a Share Class

58 Buying Shares

60 Investor Services

63 Selling Shares

65 Account Policies

68 Questions

FOR MORE INFORMATION

WHERE TO LEARN MORE
ABOUT EACH FUND

Back Cover

DYNATECH SERIES

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS The fund will normally invest primarily in the equity
securities of companies that emphasize technological development, in
fast-growing industries, as well as in undervalued stocks. The fund's manager
searches for industry leaders and companies that it believes have a
competitive advantage due, for example, to their state-of-the-art products or
technologies.

[Begin callout]
The fund normally invests primarily in common stocks of companies that
emphasize technological development, in fast-growing industries, as well as
in undervalued stocks.
[End callout]

The fund may invest a significant portion of its assets in smaller companies.
Smaller company stocks are generally those with market capitalizations of
less than $1.5 billion. From time to time the fund may have a significant
portion of its assets invested in cash or cash equivalents. The fund
generally invests up to 10% of its assets in foreign securities.

Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks, preferred stocks and
convertible securities. Depending upon current market conditions, the fund
may invest a portion of its assets in debt securities. Debt securities
represent an obligation of the issuer to repay a loan of money to it, and
generally provide for the payment of interest. These include bonds, notes and
debentures.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economy are
experiencing excessive volatility or a prolonged general decline, or other
adverse conditions exist. Under these circumstances, the fund may be unable
to pursue its investment goal because it may not invest or may invest
substantially less in companies that emphasize technological development, in
fast growing industries or undervalued stocks.

MAIN RISKS

STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole. Value stock prices
are considered "cheap" relative to the company's perceived value. They may
not increase in value, as anticipated by the manager, if other investors fail
to recognize the company's value and bid up the price or if they trade in
markets favoring faster-growing companies.

SMALLER COMPANIES Historically, smaller company securities have been more
volatile in price than larger company securities, especially over the
short-term. Among the reasons for the greater price volatility are the less
certain growth prospects of smaller companies, the lower degree of liquidity
in the markets for such securities, and the greater sensitivity of smaller
companies to changing economic conditions.

[Begin callout]
Investors should be aware of the special risks of aggressively seeking
capital appreciation, including investment in securities of a more
speculative nature with a greater emphasis on short-term trading profits.
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]

In addition, small companies may lack depth of management, they may be unable
to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not
yet established and may never become established.

Therefore, while smaller companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risks and should be considered speculative.

TECHNOLOGY COMPANIES Companies in the rapidly changing fields of science and
technology face special risks. For example, their products may not prove
commercially successful or may become obsolete quickly. Prices of technology
company securities historically have been more volatile than other
securities, especially over the short term.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. may involve risks that can increase the potential for losses in the
fund.

COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country.

COMPANY. Foreign companies are not subject to the same accounting, auditing
and financial reporting standards and practices as U.S. companies and their
stocks may not be as liquid as stocks of similar U.S. companies. Foreign
markets and their participants generally have less government supervision and
regulation than in the U.S.

CURRENCY. To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries
with currencies replaced by the euro, the investment process, including
trading, foreign exchange, payments, settlements, cash accounts, custody and
accounting will be impacted.

Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which the fund may hold in its
portfolio, and their impact on the value of fund shares. To the extent the
fund holds non-U.S. dollar (euro or other) denominated securities, it will
still be exposed to currency risk due to fluctuations in those currencies
versus the U.S. dollar.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency of the
U.S. government. Mutual fund shares involve investment risks, including the
possible loss of principal.
[End callout]

The manager will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may not be required to make the same
level of disclosure about Year 2000 readiness as is required in the U.S. The
manager, of course, cannot audit each company and its major suppliers to
verify their Year 2000 readiness.

If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares and the
fund's performance. Please see page 50 for more information.

More detailed information about the fund, its policies, including temporary
investments, and risks can be found in the fund's Statement of Additional
Information (SAI).

PERFORMANCE

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 10 calendar
years. The table shows how the fund's average annual total returns compare to
those of a broad-based securities market index. Of course, past performance
cannot predict or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS1

BEST
QUARTER:

Q1 '91
18.07%

WORST
QUARTER:

Q3 '90
- -16.06%

[Insert bar graph]

88 89 90 91 92 93 94 95 96 97
6.49% 29.76% 3.18% 35.45% 4.20% 7.43% 5.21% 26.13% 28.79% 14.62%

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------

Franklin DynaTech Series - Class A 2 8.02% 14.67% 14.84%
S&P 500(R)Index 3 33.36% 20.27% 18.05%

SINCE
INCEPTION
1 YEAR (9/16/96)

Franklin DynaTech Series - Class C 2 11.43% 20.69%
S&P 500(R)Index 3 33.36% 35.73%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of September 30, 1998, the fund's year-to-date return was 9.25% for Class
A.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

3. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A 1 CLASS C 1

Maximum sales charge (load)
as a percentage of offering price 5.75% 1.99%
Load imposed on purchases 5.75% 1.00%
Maximum Deferred Sales Charge (load) None 2 0.99% 3

Please see "Choosing a Share Class" on page 51 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A 1 CLASS C 1

Management fees 0.56% 0.56%
Distribution and service (12b-1) fees 4 0.23% 1.00%
Other expenses 0.23% 0.23%
---------------
Total annual fund operating expenses 1.02% 1.79%
===============

1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.

2. Except for investments of $1 million or more (see page 52) and purchases
by certain retirement plans without an initial sales charge.

3. This is equivalent to a charge of 1% based on net asset value.

4. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell
all of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------

CLASS A $673 1 $881 $1,106 $1,751
CLASS C $378 2 $658 $1,060 $2,184

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. For the same Class C investment, your costs would be $280 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

RUPERT H. JOHNSON, JR., PRESIDENT OF ADVISERS
Mr. Johnson has been a manager on the fund since inception. He joined the
Franklin Templeton Group in 1965.

LISA COSTA CMT, VICE PRESIDENT OF ADVISERS
Ms. Costa has been a manager on the fund since 1983. She joined the Franklin
Templeton Group in 1980.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended September 30, 1998, the fund
paid 0.56% of its average monthly net assets to the manager.

FINANCIAL HIGHLIGHTS

This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------
1998 1997 1996 1 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 18.48 14.03 12.78 9.85 10.29
-------------------------------------------------
Net investment income .27 .10 .06 .12 .07
Net realized and unrealized gains .23 4.81 1.54 2.99 .21
-------------------------------------------------
Total from investment operations .50 4.91 1.60 3.11 .28
-------------------------------------------------
Dividends from net investment income (.17) (.06) (.12) (.05) (.12)
Distributions from net realized gains (.97) (.40) (.23) (.13) (.60)
-------------------------------------------------
Total distributions (1.14) (.46) (.35) (.18) (.72)
-------------------------------------------------
Net asset value, end of year 17.84 18.48 14.03 12.78 9.85
=================================================
Total return (%)2 3.06 35.63 12.84 32.10 2.89

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 215,864 188,102 104,508 92,987 67,413
Ratios to average net assets: (%)
Expenses 1.02 1.04 1.05 1.01 1.00
Net investment income 1.55 .75 .43 1.11 .69
Portfolio turnover rate (%) 10.84 5.59 11.94 9.83 9.73

CLASS C

PER SHARE DATA ($)
Net asset value, beginning of year 18.30 14.03 13.57
-------------------------------------------------
Net investment income .15 .07 -
Net realized and unrealized gains .17 4.66 .46
-------------------------------------------------
Total from investment operations .32 4.73 .46
-------------------------------------------------
Dividends from net investment income (.12) (.06) -
Distributions from net realized gains (.97) (.40) -
-------------------------------------------------
Total distributions (1.09) (.46) -
-------------------------------------------------
Net asset value, end of year 17.53 18.30 14.03
=================================================
Total return (%)2 2.03 34.32 3.39

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 12,358 3,386 -
Ratios to average net assets: (%)
Expenses 1.79 1.82 1.85 3
Net investment income (loss) .81 .25 (.14) 3
Portfolio turnover rate (%) 10.84 5.59 11.94

</TABLE>

1. For the period September 16, 1996 (effective date) to September 30, 1996
for Class C.

2. Total return does not include sales charges, and is not annualized.

3. Annualized.

GROWTH SERIES

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS The fund will normally invest primarily in the equity
securities of companies that are leaders in their industries. The fund's
manager looks for securities it believes offer favorable possibilities for
capital appreciation. In selecting securities, the manager considers factors
such as historical and potential growth in revenues and earnings; assessment
of strength and quality of management; and determination of a company's
strategic positioning in its industry, among others.

[Begin callout]
The fund normally invests primarily in the common stocks of companies that
are leaders in their industries.
[End callout]

The fund may invest up to 40% of its assets in smaller companies, as well as
in new and emerging industries where growth is expected to be above average.
For this fund, smaller company stocks are generally those with market
capitalizations of less than $1 billion. From time to time the fund may have
a significant portion of its assets invested in cash or cash equivalents. The
fund generally invests up to 10% of its assets in foreign securities.

Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks, preferred stocks and
convertible securities. The fund's manager invests in growth securities,
which tend to pay lower dividends and in many cases no dividends. Depending
upon current market conditions, the fund may invest a portion of its assets
in debt securities. Debt securities represent an obligation of the issuer to
repay a loan of money to it, and generally provide for the payment of
interest. These include bonds, notes and debentures.

The manager considers the tax consequences of its investment decisions,
including capital gains or income that may result in taxable distributions to
shareholders. The manager generally uses a "buy-and-hold" strategy. The fund
has historically had low portfolio turnover, and its portfolio turnover is
expected to be significantly lower than that of comparable actively managed
equity funds. When selling portfolio securities, the manager uses an
identified cost lot system that generally selects higher cost lots with
long-term holding periods, where possible. The fund may also realize losses
to minimize or offset any capital gains. Because the fund uses a "buy and
hold" investment strategy and tries to minimize the tax impact to
shareholders of the fund's net capital gains, the fund's portfolio securities
may have a higher level of unrealized capital appreciation than if the fund
did not use these strategies. During periods of net redemptions of fund
shares, the manager may be required to sell these securities, generating a
higher level of taxable gain for shareholders than would occur if the fund
had not used these strategies.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economy are
experiencing excessive volatility or a prolonged general decline, or other
adverse conditions exist. Under these circumstances, the fund may be unable
to pursue its investment goal because it may not invest or may invest
substantially less in common stocks of companies that are leaders in their
industries.

MAIN RISKS

[Insert graphic of chart with line going up and down]

[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]

Therefore, while smaller companies may offer greater opportunities for
capital growth than larger, more established companies, they also involve
greater risks and should be considered speculative.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. may involve risks that can increase the potential for losses in the
fund.

COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns which trade in that country.

CURRENCY. To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority will
have a significant impact on the value of any securities denominated in that
currency. Currency markets generally are not as regulated as securities
markets.

Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which the fund may hold in its
portfolio, and their impact on fund performance. To the extent the fund holds
non-U.S. dollar (euro or other) denominated securities, it will still be
exposed to currency risk due to fluctuations in those currencies versus the
U.S. dollar.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

More detailed information about the fund, its policies, including temporary
investments, and risks can be found in the fund's Statement of Additional
Information (SAI).

PERFORMANCE

[Insert graphic of bull and bear]

CLASS A ANNUAL TOTAL RETURNS1

BEST
QUARTER:

Q1 '91
14.09%

WORST
QUARTER:

Q3 '90
- -12.73%

[Insert bar graph]

88 89 90 91 92 93 94 95 96 97
9.14% 23.79% 2.07% 26.71% 2.96% 7.10% 2.92% 38.40% 16.68% 18.60%

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------

Franklin Growth Series - Class A2 11.78% 14.76% 13.60%
S&P 500(R)Index3 33.36% 20.27% 18.05%

SINCE
INCEPTION
1 YEAR (5/1/95)

Franklin Growth Series - Class C2 15.53% 20.78%
S&P 500(R)Index3 33.36% 29.61%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of September 30, 1998, the fund's year-to-date return was 5.50% for Class
A.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A 1 CLASS B 2 CLASS C 1
- --------------------------------------------------------------------
Maximum sales charge (load)
as a percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum Deferred Sales Charge (load) None 3 4.00% 0.99% 4
Exchange fee $5.00 5 $5.00 5 $5.00 5

Please see "Choosing a Share Class" on page 51 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A 1 CLASS B 1 CLASS C 1
- --------------------------------------------------------------------

Management fees 0.46% 0.46% 0.46%
Distribution and service (12b-1) fees6 0.23% 1.00% 1.00%
Other expenses 0.19% 0.19% 0.19%
--------------------------
Total annual fund operating expenses 0.88% 1.65% 1.65%
==========================

1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.

2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses for Class B
are annualized.

3. Except for investments of $1 million or more (see page 52) and purchases
by certain retirement plans without an initial sales charge.

4. This is equivalent to a charge of 1% based on net asset value.

5. This fee is only for market timers (see page 66).

6. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
CLASS A $660 1 $840 $1,035 $1,597
CLASS B
Assuming you sold your shares
at the end of the period $568 $820 $1,097 $1,749 2
Assuming you stayed in the fund $168 $520 $ 897 $1,749 2
CLASS C $364 3 $615 $ 988 $2,035
</TABLE>

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.

3. For the same Class C investment, your costs would be $266 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Investment Advisory Services, Inc. (Investment Advisory), 16 South
Main Street, Suite 303, Norwalk, Connecticut 06854, is the fund's investment
manager. Together, Investment Advisory and its affiliates manage over $227
billion in assets.

The team responsible for the fund's management is:

VIVIAN J. PALMIERI, VICE PRESIDENT OF INVESTMENT ADVISORY
Mr. Palmieri has been a manager on the fund since 1965. He joined the
Franklin Templeton Group in 1965.

CONRAD B. HERRMANN CFA, PORTFOLIO MANAGER OF
INVESTMENT ADVISORY
Mr. Herrmann has been a manager on the fund since 1993. He joined the
Franklin Templeton Group in 1989.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended September 30, 1998, the fund
paid 0.46% of its average monthly net assets to the manager.

FINANCIAL HIGHLIGHTS

[Insert graphic of dollar bill]

This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 27.09 22.82 19.38 14.96 14.25
-------------------------------------------------
Net investment income .49 .36 .22 .17 .19
Net realized and unrealized gains 1.71 4.34 3.53 4.43 .90
-------------------------------------------------
Total from investment operations 2.20 4.70 3.75 4.60 1.09
-------------------------------------------------
Dividends from net investment income (.47) (.23) (.16) (.14) (.30)
Distributions from net realized gains (.24) (.20) (.15) (.04) (.08)
-------------------------------------------------
Total distributions (.71) (.43) (.31) (.18) (.38)
-------------------------------------------------
Net asset value, end of year 28.58 27.09 22.82 19.38 14.96
=================================================
Total return (%)2 8.22 20.84 19.60 31.11 7.63

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 1,635,780 1,435,561 1,020,486 712,866 516,620
Ratios to average net assets: (%)
Expenses .88 .89 .87 .90 .77
Net investment income 1.78 1.60 1.16 1.08 1.23
Portfolio turnover rate (%) .58 1.77 2.03 1.39 6.52

CLASS C

PER SHARE DATA ($)
Net asset value, beginning of year 26.70 22.60 19.33 16.88
-------------------------------------------------
Net investment income .29 .20 .12 .02
Net realized and unrealized gains 1.66 4.25 3.46 2.43
-------------------------------------------------
Total from investment operations 1.95 4.45 3.58 2.45
-------------------------------------------------
Dividends from net investment income (.30) (.15) (.16) -
Distributions from net realized gains (.24) (.20) (.15) -
-------------------------------------------------
Total distributions (.54) (.35) (.31) -
-------------------------------------------------
Net asset value, end of year 28.11 26.70 22.60 19.33
=================================================
Total return (%)2 7.39 19.91 18.73 14.72

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 189,572 117,218 43,417 4,161
Ratios to average net assets: (%)
Expenses 1.65 1.66 1.63 1.79 3
Net investment income (loss) 1.02 .85 .40 .37 3
Portfolio turnover rate (%) .58 1.77 2.03 1.39

</TABLE>

1. For the period May 1, 1995 (effective date) to September 30, 1995 for
Class C.

2. Total return does not include sales charges, and is not annualized.

3. Annualized.

INCOME SERIES

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is to maximize income while maintaining
prospects for capital appreciation.

PRINCIPAL INVESTMENTS The fund will normally invest in a diversified
portfolio of equity securities, debt securities and cash equivalents. Equity
securities generally entitle the holder to participate in a company's general
operating results. These include common stocks, preferred stocks and
convertible securities. Debt securities represent an obligation of the issuer
to repay a loan of money to it, and generally provide for the payment of
interest. These include bonds, notes and debentures.

[Begin callout]
The fund normally invests in a diversified portfolio of stocks, bonds and
cash equivalents in the U.S. and abroad.
[End callout]

The fund seeks income by selecting investments such as corporate, foreign and
U.S. Treasury bonds, as well as stocks with attractive dividend yields. In
its search for growth opportunities, the fund invests in common stocks of
companies from a variety of industries such as utilities, oil, gas, real
estate and consumer goods.

The fund may invest up to 100% of total assets in debt securities that are
rated below investment grade, but it is not currently expected that the fund
will invest more than 50% of its assets in these securities. Investment grade
debt securities are rated in the top four ratings categories by independent
rating organizations such as Standard & Poor's Corporation (S&P) and Moody's
Investors Service, Inc. (Moody's). The fund generally invests in securities
rated at least Caa by Moody's or CCC by S&P or unrated securities the fund's
manager determines are comparable. Generally, lower rated securities pay
higher yields than more highly rated securities to compensate investors for
the higher risk. As of September 30, 1998, approximately 32.5% of the fund's
net assets were invested in lower rated and comparable quality unrated debt
securities.

The fund may invest up to 25% of its assets in foreign securities. It
ordinarily buys foreign securities that are traded in the U.S. or American
Depositary Receipts, which are certificates typically issued by a bank or
trust company that give their holders the right to receive securities issued
by a foreign or a domestic company.

The fund's manager searches for undervalued or out-of-favor securities it
believes offer opportunities for income today and significant growth
tomorrow. It performs independent analysis of the securities being considered
for the fund's portfolio, rather than relying principally on the ratings
assigned by rating agencies. In its analysis, the manager considers a variety
of factors, including:

o the experience and managerial strength of the company;

o responsiveness to changes in interest rates and business conditions;

o debt maturity schedules and borrowing requirements;

o the company's changing financial condition and market recognition of the
change; and

o a security's relative value based on such factors as anticipated cash
flow, interest or dividend coverage, asset coverage, and earnings
prospects.

MAIN RISKS

[Insert graphic of chart with line going up and down]

INTEREST RATE When interest rates rise, debt security prices fall. When
interest rates fall, debt security prices go up. Generally, interest rates
rise during times of inflation or a growing economy, and will fall during an
economic slowdown or recession. Securities with longer maturities usually are
more sensitive to interest rate changes than securities with shorter
maturities.

INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.

CREDIT There is the possibility that an issuer will be unable to make
interest payments and repay principal. Changes in an issuer's financial
strength or in a security's credit rating may affect a security's value and,
thus, impact fund performance.

LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes
called "junk bonds," generally have more credit risk than higher-rated
securities.

Companies issuing high yield, fixed-income securities are not as strong
financially as those issuing securities with higher credit ratings. These
companies are more likely to encounter financial difficulties and are more
vulnerable to changes in the economy, such as a recession or a sustained
period of rising interest rates, that could affect their ability to make
interest and principal payments. If an issuer stops making interest and/or
principal payments, payments on the securities may never resume. These
securities may be worthless and the fund could lose its entire investment.

The prices of high yield, fixed-income securities fluctuate more than
higher-quality securities. Prices are especially sensitive to developments
affecting the company's business and to changes in the ratings assigned by
ratings agencies. Prices often are closely linked with the company's stock
prices and typically rise and fall in response to factors that affect stock
prices. In addition, the entire high yield securities market can experience
sudden and sharp price swings due to changes in economic conditions, stock
market activity, large sustained sales by major investors, a high-profile
default, or other factors.

High yield securities generally are less liquid than higher-quality
securities. Many of these securities do not trade frequently, and when they
do their prices may be significantly higher or lower than expected. At times,
it may be difficult to sell these securities promptly at an acceptable price,
which may limit the fund's ability to sell securities in response to specific
economic events or to meet redemption requests.

STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole. Utility company
securities are particularly sensitive to interest rate movements: when
interest rates rise, the stock prices of these companies tend to fall.

CONVERTIBLE SECURITIES The value of convertible securities may rise and fall
with the market value of the underlying stock or, like a debt security, vary
with changes in interest rates and the credit quality of the issuer. A
convertible security tends to perform more like a stock when the underlying
stock price is high (because it is assumed it will be converted) and more
like a debt security when the underlying stock price is low (because it is
assumed it will not be converted). Because its value can be influenced by
many different factors, a convertible security is not as sensitive to
interest rate changes as a similar non-convertible debt security, and
generally has less potential for gain or loss than the underlying stock.

[Begin callout]
If a security's credit rating is downgraded or a company's financial
condition deteriorates, the price of the security will fall and so too will
the fund's share price. If interest rates rise, the value of the fund's debt
securities will also fall. Because the value of the fund's holdings
fluctuates in price, the value of your investment in the fund will go up and
down. This means you could lose money over short or even extended periods.
[End callout]

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. may involve risks that can increase the potential for losses in the
fund. Investments in Depositary Receipts also involve some or all of the
following risks.

COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns which trade in that country. These movements will affect the fund's
share price and fund performance.

The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, currency devaluations, foreign ownership
limitations, expropriation, restrictions on removal of currency or other
assets, nationalization of assets, punitive taxes and certain custody and
settlement risks.

The fund's investments in developing or emerging markets are subject to all
of the risks of foreign investing generally, and have additional heightened
risks due to a lack of established legal, business and social frameworks to
support securities markets. Foreign securities markets, including emerging
markets, may have substantially lower trading volumes than U.S. markets,
resulting in less liquidity and more volatility than experienced in the U.S.
While short-term volatility in these markets can be disconcerting, declines
in excess of 50% are not unusual.

COMPANY. Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and
companies generally have less government supervision and regulation than in
the U.S. The fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with
respect to foreign investments in foreign courts than with respect to U.S.
companies in U.S. courts.

CURRENCY. To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because the currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
has a significant impact on the value of any securities denominated in that
currency.

EURO. On January 1, 1999, the European Monetary Union (EMU) plans to
introduce a new single currency, the euro, which will replace the national
currency for the eleven participating member countries. If the fund holds
investments in countries with currencies replaced by the euro, the investment
process, including trading, foreign exchange, payments, settlements, cash
accounts, custody and accounting will be impacted.

Because this change to a single currency is new and untested, the
establishment of the euro may result in market volatility. For the same
reason, it is not possible to predict the impact of the euro on the business
or financial condition of European issuers which the fund may hold in its
portfolio, and their impact on the value of fund shares and fund performance.
To the extent the fund holds non-U.S. dollar (euro or other) denominated
securities, it will still be exposed to currency risk due to fluctuations in
those currencies versus the U.S. dollar.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

More detailed information about the fund, its policies, including temporary
investments, risks and the ratings of debt securities can be found in the
fund's Statement of Additional Information (SAI).

PERFORMANCE

[Insert graphic of bull and bear]

CLASS A ANNUAL TOTAL RETURNS1

BEST
QUARTER:

Q1 '91
16.67%

WORST
QUARTER:

Q3 '90
- -8.58%

[Insert bar graph]

88 89 90 91 92 93 94 95 96 97
8.81% 12.67% -8.77% 41.15% 15.24% 21.53% -6.38%21.29% 10.45% 16.85%

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------

Franklin Income Series - Class A2 12.10% 11.25% 12.01%
S&P 500(R)Index3 33.36% 20.27% 18.05%
Lehman Bros. Gov't/Corp. Bond Index4 9.76% 7.61% 9.15%

SINCE
INCEPTION
1 YEAR (5/1/95)

Franklin Income Series - Class C2 14.29% 14.34%
S&P 500(R)Index3 33.36% 29.61%
Lehman Bros. Gov't/Corp. Bond Index4 9.76% 9.22%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of September 30, 1998, the fund's year-to-date return was -2.30% for Class
A.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

4. Source: Standard & Poor's(R) Micropal. Lehman Brothers Government/Corporate
Bond Index is an unmanaged index of fixed-rate U.S. government and foreign
and domestic corporate bonds that are rated investment grade or higher and
have maturities of one year or more and at least $50 million outstanding. One
cannot invest directly in an index, nor is an index representative of the
fund's portfolio.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

CLASS A 1 CLASS B 2 CLASS C 1
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load)
as a percentage of offering price 4.25% 4.00% 1.99%
Load imposed on purchases 4.25% None 1.00%
Maximum Deferred Sales Charge (load) None 3 4.00% 0.99% 4
Exchange fee $5.00 5 $5.00 5 $5.00 5

Please see "Choosing a Share Class" on page 51 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A 1 CLASS B 2 CLASS C 1
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management fees 0.45% 0.45% 0.45%
Distribution and service (12b-1) fees6 0.15% 0.65% 0.65%
Other expenses 0.12% 0.12% 0.12%
----------------------------------
Total annual fund operating expenses 0.72% 1.22% 1.22%
==================================

</TABLE>

1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.

2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses for Class B are annualized.

3. Except for investments of $1 million or more (see page 52) and purchases
by certain retirement plans without an initial sales charge.

4. This is equivalent to a charge of 1% based on net asset value.

5. This fee is only for market timers (see page 66).

6. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
CLASS A $495 1 $645 $809 $1,281
CLASS B
Assuming you sold your shares
at the end of the period $524 $687 $870 $1,339 2
Assuming you stayed in the fund $124 $387 $670 $1,339 2
CLASS C $321 3 $483 $764 $1,563

</TABLE>

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.

3. For the same Class C investment, your costs would be $223 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

CHARLES B. JOHNSON, CHAIRMAN OF THE BOARD OF ADVISERS
Mr. Johnson has been a manager on the fund since 1957. He joined the Franklin
Templeton Group in 1957.

MATTHEW F. AVERY, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Avery has been a manager on the fund since 1989. He joined the Franklin
Templeton Group in 1987.

FREDERICK G. FROMM, VICE PRESIDENT OF ADVISERS
Mr. Fromm has been a manager on the fund since 1998. He joined the Franklin
Templeton Group in 1992.

The fund pays the manager a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended September 30, 1998, the fund
paid 0.45% of its average monthly net assets to the manager.

FINANCIAL HIGHLIGHTS

[Insert graphic of dollar bill]

This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 2.49 2.30 2.30 2.22 2.46
-------------------------------------------------
Net investment income .17 .18 .19 .18 .17
Net realized and unrealized
gains (losses) (.11) .20 .02 .11 (.20)
-------------------------------------------------
Total from investment operations .06 .38 .21 .29 (.03)
-------------------------------------------------
Dividends from net investment
income (.18) (.18) (.18) (.18) (.18)
Distributions from net
realized gains (.03) (.01) (.03) (.03) (.03)
-------------------------------------------------
Total distributions (.21) (.19) (.21) (.21) (.21)
-------------------------------------------------
Net asset value, end of year 2.34 2.49 2.30 2.30 2.22
=================================================
Total return (%)2 2.23 17.31 9.43 14.00 (1.52)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 7,704,983 7,738,746 6,780,1535,885,788 4,891,505
Ratios to average net assets: (%)
Expenses .72 .72 .70 .71 .64
Net investment income 6.83 7.45 8.27 8.26 7.37
Portfolio turnover rate (%) 22.01 16.15 25.29 58.64 23.37

CLASS C

PER SHARE DATA ($)
Net asset value, beginning of year 2.49 2.30 2.30 2.18
-------------------------------------------------
Net investment income .16 .16 .17 .08
Net realized and unrealized
gains (losses) (.11) .21 .03 .11
-------------------------------------------------
Total from investment operations .05 .37 .20 .19
-------------------------------------------------
Dividends from net investment
income (.17) (.17) (.17) (.07)
Distributions from net
realized gains (.03) (.01) (.03) -
-------------------------------------------------
Total distributions (.20) (.18) (.20) (.07)
-------------------------------------------------
Net asset value, end of year 2.34 2.49 2.30 2.30
=================================================
Total return (%)2 1.70 16.72 8.86 8.96

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 1,014,634 695,355 343,314 65,822
Ratios to average net assets: (%)
Expenses 1.22 1.22 1.21 1.23 3
Net investment income 6.35 6.96 7.84 7.89 3
Portfolio turnover rate (%) 22.01 16.15 25.29 58.64

</TABLE>

1. For the period May 1, 1995 (effective date) to September 30, 1995 for
Class C.

2. Total return does not include sales charges, and is not annualized.

3. Annualized.

UTILITIES SERIES

GOALS AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOALS The fund's investment goals are capital appreciation and current
income.

PRINCIPAL INVESTMENTS The fund will normally invest substantially all of its
assets in the securities of public utilities companies. These are companies
that provide electricity, natural gas, water, and communications services to
the public and companies that provide services to public utilities companies.
The manager expects that more than 50% of the fund's assets will be invested
in electric utilities securities.

[Begin callout]
The fund normally invests substantially all of its assets in equity
securities of public utilities companies.
[End callout]

The fund invests primarily in equity securities. Equity securities generally
entitle the holder to participate in a company's general operating results.
These include common stocks, preferred stocks and convertible securities.

The fund may invest up to 25% of its assets in debt securities. Debt
securities represent an obligation of the issuer to repay a loan of money to
it, and generally provide for the payment of interest. These include bonds,
notes and debentures. The fund focuses on "investment grade" debt securities.
These are issues rated in the top four ratings categories by independent
rating agencies such as Standard & Poor's Corporation or Moody's Investors
Service, Inc. or, if unrated, determined by the fund's manager to be
comparable.

The fund generally invests up to 10% of its assets in foreign securities.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economy are
experiencing excessive volatility or a prolonged general decline, or other
adverse conditions exist. Under these circumstances, the fund may be unable
to pursue its investment goals because it may not invest or may invest
substantially less in public utilities stocks.

MAIN RISKS

[Insert graphic of chart with line going up and down]

UTILITIES INDUSTRY The fund's performance is closely tied to conditions
affecting the public utilities industry, which may change rapidly. Utility
company securities are particularly sensitive to interest rate movements:
when interest rates rise, the stock prices of these companies tend to fall.
On-going regulatory changes have led to greater competition in the industry
and the emergence of non-regulated providers as a significant part of the
industry which may make some companies less profitable. In addition, the
industry is subject to risks associated with the difficulty of obtaining
adequate returns on invested capital in spite of frequent rate increases and
of financing large construction programs during inflationary periods;
restrictions on operations and increased costs due to environmental and
safety regulations; difficulties of the capital markets in absorbing utility
debt and equity securities; difficulties in obtaining fuel for electric
generation at reasonable prices; risks associated with the operation of
nuclear power plants; and the effects of energy conservation and other
factors affecting the level of demand for services.

[Begin callout]
Utility company securities are particularly sensitive to interest rate
movements: when interest rates rise, the stock prices of these companies tend
to fall. Because the securities the fund holds fluctuate in price, the value
of your investment in the fund will go up and down. This means you could lose
money over short or even extended periods.
[End callout]

INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.

CREDIT This is the possibility that an issuer will be unable to make
interest payments or repay principal. Changes in an issuer's financial
strength or in a security's credit rating may affect its value and, thus,
impact the value of fund shares.

FOREIGN SECURITIES Securities of companies and governments located outside
the U.S. may involve risks that can increase the potential for losses in the
fund.

COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns which trade in that country.

CURRENCY. To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
has a significant impact on the value of any securities denominated in that
currency.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

More detailed information about the fund, its policies, including temporary
investments, risks and the ratings of debt securities can be found in the
fund's Statement of Additional Information (SAI).

PERFORMANCE

[Insert graphic of bull and bear]

CLASS A ANNUAL TOTAL RETURNS1

[Begin callout]
BEST
QUARTER:

Q4 '97
15.02%

WORST
QUARTER:

Q1 '94
- -9.95%
[End callout]

[Insert bar graph]

88 89 90 91 92 93 94 95 96 97
11.64% 25.83% 0.38% 24.18% 9.08% 11.52% -11.69%30.68%2.03% 24.90%

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------

Franklin Utilities Series - Class A 2 19.56% 9.44% 11.61%
S&P 500(R)Index3 33.36% 20.27% 18.05%

SINCE
INCEPTION
1 YEAR (5/1/95)

Franklin Utilities Series - Class C 2 21.95% 17.33%
S&P 500(R)Index3 33.36% 29.61%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of September 30, 1998, the fund's year-to-date return was 5.81% for Class
A.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

Please see "Choosing a Share Class" on page 51 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A 1 CLASS B 1 CLASS C 1
- ---------------------------------------------------------------------------------------------
Management fees 0.46% 0.46% 0.46%
Distribution and service (12b-1) fees6 0.13% 0.65% 0.65%
Other expenses 0.17% 0.17% 0.17%
----------------------------------
Total annual fund operating expenses 0.76% 1.28% 1.28%
==================================

</TABLE>

1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.

2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses for Class B
are annualized.

3. Except for investments of $1 million or more (see page 52) and purchases
by certain retirement plans without an initial sales charge.

4. This is equivalent to a charge of 1% based on net asset value.

5. This fee is only for market timers (see page 66).

6. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
CLASS A $499 1 $658 $829 $1,327
CLASS B
Assuming you sold your shares
at the end of the period $530 $706 $902 $1,402 2
Assuming you stayed in the fund $130 $406 $702 $1,402 2
CLASS C $327 3 $502 $795 $1,630
</TABLE>

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.

3. For the same Class C investment, your costs would be $229 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

SALLY EDWARDS HAFF CFA, SENIOR VICE PRESIDENT OF ADVISERS
Ms. Haff has been a manager on the fund since 1990. She joined the Franklin
Templeton Group in 1986.

GREGORY E. JOHNSON, VICE PRESIDENT OF ADVISERS
Mr. Johnson has been a manager on the fund since 1987. He joined the Franklin
Templeton Group in 1986.

IAN LINK CFA, VICE PRESIDENT OF ADVISERS
Mr. Link has been a manager on the fund since 1995. He joined the Franklin
Templeton Group in 1989.

FINANCIAL HIGHLIGHTS

[Insert graphic of dollar bill]

This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------
1998 1997 1996 19951 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 10.04 9.73 9.75 8.33 10.78
-------------------------------------------------
Net investment income .52 .53 .54 .53 .55
Net realized and unrealized
gains (losses) 1.58 .73 .03 1.42 (2.44)
-------------------------------------------------
Total from investment operations 2.10 1.26 .57 1.95 (1.89)
-------------------------------------------------
Dividends from net investment
income (.52) (.52) (.52) (.52) (.52)
Distributions from net
realized gains (.26) (.43) (.07) (.01) (.04)
-------------------------------------------------
Total distributions (.78) (.95) (.59) (.53) (.56)
-------------------------------------------------
Net asset value, end of year 11.36 10.04 9.73 9.75 8.33
=================================================
Total return (%)2 21.71 13.72 5.94 24.19 (17.94)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 2,054,546 1,953,273 2,400,561 2,765,976 2,572,508
Ratios to average net assets: (%)
Expenses .76 .75 .71 .73 .64
Net investment income 4.73 5.26 5.24 5.88 5.76
Portfolio turnover rate (%) 11.77 7.24 17.05 5.55 6.34

CLASS C
PER SHARE DATA ($)
Net asset value, beginning of year 10.02 9.72 9.75 8.89
-------------------------------------------------
Net investment income .46 .45 .46 .23
Net realized and unrealized gains 1.60 .76 .06 .88
-------------------------------------------------
Total from investment operations 2.06 1.21 .52 1.11
-------------------------------------------------
Dividends from net investment
income (.47) (.48) (.48) (.25)
Distributions from net
realized gains (.26) (.43) (.07) -
Total distributions (.73) (.91) (.55) (.25)
-------------------------------------------------
Net asset value, end of year 11.35 10.02 9.72 9.75
=================================================
Total return (%)2 21.24 13.06 5.39 13.01

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 40,628 21,906 19,655 8,369
Ratios to average net assets: (%)
Expenses 1.28 1.27 1.23 1.213
Net investment income 4.19 4.78 4.86 5.153
Portfolio turnover rate (%) 11.77 7.24 17.05 5.55

</TABLE>

1. For the period May 1, 1995 (effective date) to September 30, 1995 for
Class C.

2. Total return does not include sales charges, and is not annualized.

3. Annualized.

U.S. GOVERNMENT SECURITIES SERIES

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is income.

PRINCIPAL INVESTMENTS The fund invests in a portfolio limited to U.S.
government securities. These include U.S. Treasury bonds, notes and bills,
U.S. Treasury STRIPS and securities issued by U.S. government agencies. Other
than investments in short-term government securities and cash, substantially
all of the fund's investments are currently held in Government National
Mortgage Association obligations (Ginnie Maes).

Ginnie Maes represent an ownership interest in mortgage loans made by banks
and other financial institutions to finance purchases of homes. The mortgage
loans may have either fixed or adjustable interest rates. The individual
loans are packaged or "pooled" together for sale to investors. As the
underlying mortgage loans are paid off, investors receive principal and
interest payments.

[Begin callout]
The fund invests in a portfolio limited to U.S. government securities. Other
than investments in short-term government securities and cash, substantially
all of the fund's investments are currently held in Ginnie Maes.
[End callout]

Ginnie Maes carry a guarantee backed by the full faith and credit of the U.S.
government. The guarantee applies only to the timely repayment of principal
and interest and not to the market prices and yields of the Ginnie Maes or to
the net asset value or performance of the fund, which will vary with changes
in interest rates and other market conditions.

The fund may buy Ginnie Maes on a "to-be-announced" and "delayed delivery"
basis. This means that the securities will be paid for and delivered to the
fund at a future date, generally in 30 to 45 days.

MAIN RISKS

[Insert graphic of chart with line going up and down]

INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.

[Begin callout]
Changes in interest rates affect the prices of the fund's debt securities. If
rates rise, the value of the fund's debt securities will fall and so too will
the fund's shares price. If rates fall, mortgage holders may refinance their
mortgage loans at lower interest rates, which may reduce the fund's income
and yield. This means you could lose money over short or even extended
periods.
[End callout]

GINNIE MAES Ginnie Maes differ from conventional debt securities because
principal is paid back over the life of the security rather than at maturity.
The fund may receive unscheduled prepayments of principal due to voluntary
prepayments, refinancing or foreclosure on the underlying mortgage loans.
During periods of declining interest rates, the volume of principal
prepayments generally increases as borrowers refinance their mortgages at
lower rates. The fund may be forced to reinvest returned principal at lower
interest rates, reducing the fund's income. For this reason, Ginnie Maes may
be less effective than other types of securities as a means of "locking in"
long-term interest rates and may have less potential for capital appreciation
during periods of falling interest rates than other investments with similar
maturities. A reduction in the anticipated rate of principal prepayments,
especially during periods of rising interest rates, may increase the
effective maturity of Ginnie Maes, making them more susceptible than other
debt securities to a decline in market value when interest rates rise. This
could increase the volatility of the fund's performance and share price.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by
issuers about their Year 2000 readiness. The manager, of course, cannot audit
each issuer and its major suppliers to verify their Year 2000 readiness.

If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the price of the fund's shares and the
fund's performance. Please see page 50 for more information.

More detailed information about the fund, its policies, including temporary
investments, and risks can be found in the fund's Statement of Additional
Information (SAI).

PERFORMANCE

[Insert graphic of bull and bear]

CLASS A ANNUAL TOTAL RETURNS 1

[Begin callout]
BEST
QUARTER:

Q2 '89
6.72%

WORST
QUARTER:

Q1 '94
- -2.84%
[End callout]

[Insert bar graph]

88 89 90 91 92 93 94 95 96 97
7.45% 13.11% 10.78% 13.71% 7.40% 6.92% -2.69%16.73% 4.60% 9.46%

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS
- -------------------------------------------------------------------
Franklin U.S. Government
Securities Series - Class A2 4.82% 5.89% 8.15%
Lehman Bros. Interm. Gov't Bond Index3 7.72% 6.39% 8.13%

SINCE
INCEPTION
1 YEAR (5/1/95)

Franklin U.S. Government
Securities Series - Class C2 6.76% 7.76%
Lehman Bros. Interm. Gov't Bond Index3 7.72% 7.65%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of September 30, 1998, the fund's year-to-date return was 6.13% for Class
A.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains. May
1, 1994, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

3. Source: Standard & Poor's(R) Micropal. Lehman Brothers Intermediate
Government Bond Index is an unmanaged index of fixed-rate bonds issued by the
U.S. government and its agencies that are rated investment grade or higher
and have one to ten years remaining until maturity and at least $100 million
outstanding. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Please see "Choosing a Share Class" on page 51 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A 1 CLASS B 1 CLASS C 1
- ---------------------------------------------------------------------------------------------

Management fees 0.45% 0.45% 0.45%
Distribution and service (12b-1) fees 6 0.09% 0.65% 0.65%
Other expenses 0.11% 0.11% 0.11%
----------------------------------
Total annual fund operating expenses 0.65% 1.21% 1.21%
==================================

</TABLE>

1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.

2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses for Class B
are annualized.

3. Except for investments of $1 million or more (see page 52) and purchases
by certain retirement plans without an initial sales charge.

4. This is equivalent to a charge of 1% based on net asset value.

5. This fee is only for market timers (see page 66).

6. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A $489 1 $624 $772 $1,201
CLASS B
Assuming you sold your shares
at the end of the period $523 $684 $865 $1,310 2
Assuming you stayed in the fund $123 $384 $665 $1,310 2
CLASS C $320 3 $480 $758 $1,551
</TABLE>

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.

3. For the same Class C investment, your costs would be $222 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

JACK LEMEIN, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Lemein has been a manager on the fund since 1984. He joined the Franklin
Templeton Group in 1984.

T. ANTHONY COFFEY CFA, PORTFOLIO MANAGER OF ADVISERS
Mr. Coffey has been a manager on the fund since 1989. He joined the Franklin
Templeton Group in 1989.

ROGER BAYSTON CFA, PORTFOLIO MANAGER OF ADVISERS
Mr. Bayston has been a manager on the fund since 1991. He joined the Franklin
Templeton Group in 1991.

FINANCIAL HIGHLIGHTS

[Insert graphic of dollar bill]

This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 6.89 6.72 6.87 6.51 7.20
--------------------------------------------------------
Net investment income .46 .48 .49 .50 .50
Net realized and unrealized
gains (losses) .10 .17 (.15) .35 (.68)
--------------------------------------------------------
Total from investment operations .56 .65 .34 .85 (.18)
--------------------------------------------------------
Dividends from net investment
income (.46) (.48) (.49) (.49) (.51)
--------------------------------------------------------
Net asset value, end of year 6.99 6.89 6.72 6.87 6.51
========================================================
Total return (%)2 8.41 10.08 5.15 13.56 (2.75)

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 9,049,829 9,350,751 10,129,48311,101,605 11,668,747
Ratios to average net assets: (%)
Expenses .65 .64 .61 .61 .55
Net investment income 6.67 7.01 7.18 7.50 7.37
Portfolio turnover rate (%)4 25.98 1.74 8.01 5.48 18.28

CLASS C
PER SHARE DATA ($)
Net asset value, beginning of year 6.87 6.70 6.85 6.67
--------------------------------------------------------
Net investment income .42 .44 .45 .21
Net realized and unrealized
gains (losses) .10 .17 (.15) .16
--------------------------------------------------------
Total from investment operations .52 .61 .30 .37
--------------------------------------------------------
Dividends from net investment
income (.42) (.44) (.45) (.19)
--------------------------------------------------------
Net asset value, end of year 6.97 6.87 6.70 6.85
========================================================
Total return (%)2 7.85 9.48 4.55 5.66

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 271,665 120,818 57,657 11,695
Ratios to average net assets: (%)
Expenses 1.21 1.20 1.17 1.18 3
Net investment income 6.10 6.44 6.80 6.48 3
Portfolio turnover rate (%)4 25.98 1.74 8.01 5.48

</TABLE>

1. For the period May 1, 1995 (effective date) to September 30, 1995 for
Class C.

2. Total return does not include sales charges, and is not annualized.

3. Annualized.

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

DISTRIBUTIONS AND TAXES;
YEAR 2000 PROBLEM

[Insert graphic of dollar signs and stacks of coins]

INCOME AND CAPITAL GAINS DISTRIBUTION DynaTech Series and Growth Series
intend to pay a dividend at least annually representing substantially all of
the fund's net investment income. Income Series and U.S. Government
Securities Series intend to pay a dividend at least monthly, on or about the
15th day of each month, representing each fund's net investment income.
Utilities Series intends to pay a dividend at least quarterly in March, June,
September and December representing its net investment income. Capital gains,
if any, may be distributed annually by the funds. The amount of the funds'
distributions will vary and there is no guarantee the funds will pay
dividends.

To receive a distribution, you must be a shareholder on the record date. The
record dates for the funds' distributions will vary. Please keep in mind that
if you invest in a fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of
a taxable distribution. If you would like information on upcoming record
dates for the fund's distributions, please call 1-800/DIAL BEN.

[Begin callout]
Backup Withholding

By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, or if the IRS instructs the fund to do so.
[End callout]

TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional shares of a fund or receive them in cash.
Any capital gains a fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.

Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.

When you sell your shares, you may have a capital gain or loss. For tax
purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale. The individual tax rate on any gain
from the sale or exchange of your shares depends on how long you have held
your shares.

Fund distributions and gains from the sale or exchange of your shares will
generally be subject to state and local income tax. Any foreign taxes the
fund pays on its investments may be passed through to you as a foreign tax
credit. Non-U.S. investors may be subject to U.S. withholding and estate tax.
You should consult your tax advisor about federal, state, local or foreign
tax consequences.

YEAR 2000 PROBLEM Each fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a leap year
may create difficulties for some systems.

When the Year 2000 arrives, a fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, a
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others. A fund could experience difficulties in effecting transactions if any
of its foreign subcustodians, or if foreign broker-dealers or foreign markets
are not ready for Year 2000.

Each fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, a fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.

YOUR ACCOUNT

CHOOSING A SHARE CLASS

[Insert graphic of pencil marking an X]

Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. Your investment
representative can help you decide.

CLASS A CLASS B CLASS C
- ----------------------------------------------------------------------

o Initial sales o No initial o Initial sales
charge of 5.75% sales charge charge of 1%
(DynaTech and
Growth Series),
4.25% (Income,
Utilities and U.S.
Government
Securities Series)
or less

o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% or charge of 1% on
purchases of $1 less on shares you shares you sell
million or more sell within six within 18 months
sold within 12 years
months

o Lower annual o Higher annual o Higher annual
expenses than expenses than expenses than Class
Class B or C due Class A (same as A (same as Class B)
to lower Class C) due to due to higher
distribution fees higher distribution fees.
distribution fees. No conversion to
Automatic Class A shares, so
conversion to annual expenses do
Class A shares not decrease.
after eight years,
reducing future
annual expenses.

BEFORE JANUARY 1, 1999, CLASS A SHARES WERE DESIGNATED CLASS I AND CLASS C
SHARES WERE DESIGNATED CLASS II. GROWTH, INCOME, UTILITIES AND U.S.
GOVERNMENT SECURITIES SERIES BEGAN OFFERING CLASS B SHARES ON JANUARY 1, 1999.

SALES CHARGES - CLASS A - DYNATECH AND GROWTH SERIES

THE SALES CHARGE WHICH EQUALS
MAKES UP THIS % OF THIS % OF YOUR
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE NET INVESTMENT

Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04

SALES CHARGES - CLASS A - INCOME, UTILITIES AND
U.S. GOVERNMENT SECURITIES SERIES

THE SALES CHARGE WHICH EQUALS
MAKES UP THIS % OF THIS % OF YOUR
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE NET INVESTMENT

Under $100,000 4.25 4.44
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04

INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either
as a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 55), you can buy Class A shares without an initial sales
charge. However, there is a 1% contingent deferred sales charge (CDSC) on any
shares you sell within 12 months of purchase. The way we calculate the CDSC
is the same for each class (please see page 54).

DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows DynaTech and Growth Series
to pay distribution fees of up to 0.25% per year and Income, Utilities and
U.S. Government Securities Series to pay distributions fees of up to 0.15%
per year to those who sell and distribute Class A shares and provide other
services to shareholders. Because these fees are paid out of Class A's assets
on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

SALES CHARGES - CLASS B

IF YOU SELL YOUR SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC

1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 54). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.

MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We place any investment of $250,000 or more in Class
A shares, since a reduced initial sales charge is available and Class A's
annual expenses are lower.

RETIREMENT PLANS Class B shares are not available to all retirement plans.
Class B shares are only available to IRAs (of any type), Franklin Templeton
Trust Company 403(b) plans, and Franklin Templeton Trust Company qualified
plans with participant or earmarked accounts.

DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows Growth Series to pay
distribution and other fees of up to 1% per year and Income, Utilities and
U.S. Government Securities Series to pay distribution and other fees of up to
0.65% per year for the sale of Class B shares and for services provided to
shareholders. Because these fees are paid out of Class B's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

SALES CHARGES - CLASS C

THE SALES CHARGE WHICH EQUALS
MAKES UP THIS % OF THIS % OF YOUR
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE NET INVESTMENT

Under $1 million 1.00 1.01

WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.

CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please see below).

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows DynaTech and Growth Series
to pay distribution and other fees of up to 1% per year and Income, Utilities
and U.S. Government Securities Series to pay distribution and other fees of
up to 0.65% per year for the sale of Class C shares and for services provided
to shareholders. Because these fees are paid out of Class C's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

[Begin callout]
The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.

For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
[End callout]

CONTINGENT DEFERRED SALES CHARGE
(CDSC) - CLASS A, B & C

The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends or capital gains
distributions.

To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton Fund (please see
page 61 for exchange information).

SALES CHARGE REDUCTIONS AND WAIVERS

If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.

QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A shares.

[Begin callout]
The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust, Templeton Capital Accumulator Fund, Inc., and Templeton
Variable Products Series Fund.
[End callout]

o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in
the Franklin Templeton Funds for purposes of calculating the sales charge.
You also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.

o LETTER OF INTENT (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.

TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR
ACCOUNT APPLICATION.

REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.

If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.

Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.

This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.

WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS Class A shares may be
purchased without an initial sales charge or CDSC by investors who reinvest
within 365 days:

o certain payments received under an annuity contract that offers a
Franklin Templeton insurance fund option

o distributions from an existing retirement plan invested in the Franklin
Templeton Funds

o dividend or capital gain distributions from a real estate investment
trust sponsored or advised by Franklin Properties, Inc.

o redemption proceeds from a repurchase of Franklin Floating Rate Trust
shares held continuously for at least 12 months

o redemption proceeds from Class A of any Templeton Global Strategy Fund,
if you are a qualified investor. If you paid a CDSC when you sold your
shares, we will credit your account with the amount of the CDSC paid but a
new CDSC will apply.

WAIVERS FOR CERTAIN INVESTORS Class A shares also may be purchased without
an initial sales charge or CDSC by various individuals and institutions,
including:

o certain trust companies and bank trust departments investing $1 million
or more in assets over which they have full or shared investment discretion

o government entities that are prohibited from paying mutual fund sales
charges

o certain unit investment trusts and their holders reinvesting trust
distributions

o group annuity separate accounts offered to retirement plans

o employees and other associated persons or entities of Franklin Templeton
or of certain dealers

o Chilean retirement plans that meet the requirements for retirement plans
described below.

IF YOU THINK YOU MAY BE ELIGIBLE FOR A SALES CHARGE WAIVER,
CALL YOUR INVESTMENT REPRESENTATIVE OR CALL SHAREHOLDER SERVICES
AT 1-800/632-2301 FOR MORE INFORMATION.

CDSC WAIVERS The CDSC for each class generally will be waived:

o to pay account fees

o to make payments through systematic withdrawal plans, up to 1% monthly,
3% quarterly, 6% semiannually or 12% annually depending on the frequency of
your plan

o for redemptions by Franklin Templeton Trust Company employee benefit
plans or employee benefit plans serviced by ValuSelect(R) (not applicable to
Class B)

o for IRA distributions due to death or disability or upon periodic
distributions based on life expectancy (for Class B, this applies to all
retirement plan accounts, not only IRAs)

o to return excess contributions (and earnings, if applicable) from
retirement plan accounts

o for redemptions following the death of the shareholder or beneficial
owner

o for participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)

RETIREMENT PLANS Certain retirement plans may buy Class A shares without an
initial sales charge. To qualify, the plan must be sponsored by an employer:

o with at least 100 employees, or

o with retirement plan assets of $1 million or more, or

o that agrees to invest at least $500,000 in the Franklin Templeton Funds
over a 13-month period

A CDSC may apply. Retirement plans other than SIMPLEs, SEPs, or plans that
qualify under section 401 of the Internal Revenue Code also must qualify
under our group investment program to buy Class A shares without an initial
sales charge.

FOR MORE INFORMATION, CALL YOUR INVESTMENT REPRESENTATIVE OR
RETIREMENT PLAN SERVICES AT 1-800/527-2020.

GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors
to invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying fund shares at a discount.

BUYING SHARES

[Insert graphic of paper with lines and someone writing]

MINIMUM INVESTMENTS
- ----------------------------------------------------------------------
INITIAL ADDITIONAL
- ----------------------------------------------------------------------
Regular accounts $1,000 $50
- ----------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
- ----------------------------------------------------------------------
Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers, Education IRAs
or Roth IRAs)
- ----------------------------------------------------------------------
IRAs, IRA rollovers, Education IRAs or Roth $250 $50
IRAs
- ----------------------------------------------------------------------
Broker-dealer sponsored wrap account programs $250 $50
- ----------------------------------------------------------------------
Full-time employees, officers, trustees and $100 $50
directors of
Franklin Templeton entities, and their
immediate family members
- ----------------------------------------------------------------------

ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see the next page).

BUYING SHARES
OPENING AN ACCOUNT ADDING TO AN ACCOUNT

[Insert graphic of Contact your Contact your
hands shaking] investment investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
- ---------------------------------------------------------------------

[Insert graphic of Make your check Make your check
envelope] payable to the fund payable to the fund in
BY MAIL in which you are which you are
investing. investing. Include
your account number on
Mail the check and the check.
your signed
application to Fill out the deposit
Investor Services. slip from your account
statement. If you do
not have a slip,
include a note with
your name, the fund
name, and your account
number.

Mail the check and
deposit slip or note
to Investor Services.
- ---------------------------------------------------------------------

[Insert graphic of Call to receive a Call to receive a wire
three lightning bolts] wire control number control number and
BY WIRE and wire wire instructions.
1-800/632-2301 instructions.
(or 1-650/312-2000 To make a same day
collect) Wire the funds and wire investment,
mail your signed please call us by 1:00
application to p.m. pacific time and
Investor Services. make sure your wire
Please include the arrives by 3:00 p.m.
wire control number
or your new account
number on the
application.

To make a same day
wire investment,
please call us by
1:00 p.m. pacific
time and make sure
your wire arrives
by 3:00 p.m.
- ---------------------------------------------------------------------

[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the number
opposite directions] number below, or below or our automated
BY EXCHANGE send signed written TeleFACTS system, or
instructions. The send signed written
TeleFACTS(R) TeleFACTS system instructions.
1-800/247-1753 cannot be used to
(around-the-clock open a new account. (Please see page 61
access) for information on
(Please see page 61 exchanges.)
for information on
exchanges.)

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

FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

INVESTOR SERVICES

[Insert graphic of person with handset]

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to
invest in a fund by automatically transferring money from your checking or
savings account each month to buy shares. The minimum investment to open an
account with an automatic investment plan is $50 ($25 for an Education IRA).
To sign up, complete the appropriate section of your account application.

AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in Class
A shares of the fund by transferring money from your paycheck to the fund by
electronic funds transfer. If you are interested, indicate on your
application that you would like to receive an Automatic Payroll Deduction
Program kit.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from a fund
in an existing account in the same share class* of the fund or another
Franklin Templeton Fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.

*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.

RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Plan Services at 1-800/527-2020.

TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to
information about your account or any Franklin Templeton Fund. This service
is available from touch-tone phones at 1-800/247-1753. For a free TeleFACTS
brochure, call 1-800/DIAL BEN.

TELEPHONE PRIVILEGES You will automatically receive telephone privileges
when you open your account, allowing you and your investment representative
to sell or exchange your shares and make certain other changes to your
account by phone.

For accounts with more than one registered owner, telephone privileges also
allow the funds to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.

As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class*, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%. If you exchange shares from a
money fund, a sales charge may apply no matter how long you have held the
shares.

*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may
exchange into Class A without any sales charge. Advisor Class shareholders of
another Franklin Templeton Fund also may exchange into Class A shares of
DynaTech Series without any sales charge. Advisor Class shareholders who
exchange their shares for DynaTech Series Class A shares and later decide
they would like to exchange into another fund that offers Advisor Class may
do so.

[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.

If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.

Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 66).

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.

SELLING SHARES

[Insert graphic of certificate]

You can sell your shares at any time.

SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can
generally be made over the phone or with a simple letter. Sometimes, however,
to protect you and the funds we will need written instructions signed by all
registered owners, with a signature guarantee for each owner, if:

[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[End callout]

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account

We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
funds against potential claims based on the instructions received.

SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.

REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.

RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.

SELLING SHARES
TO SELL SOME OR ALL OF YOUR SHARES
- ----------------------------------------------------------------------

[Insert graphic of hands Contact your investment representative
shaking]
THROUGH YOUR INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------------------

[Insert graphic of Send written instructions and endorsed
envelope] share certificates (if you hold share
BY MAIL certificates) to Investor Services.
Corporate, partnership or trust accounts
may need to send additional documents.

Specify the fund, the account number and
the dollar value or number of shares you
wish to sell. If you own both Class A and
B shares, also specify the class of
shares, otherwise we will sell your Class
A shares first. Be sure to include all
necessary signatures and any additional
documents, as well as signature
guarantees if required.

A check will be mailed to the name(s) and
address on the account, or otherwise
according to your written instructions.
- ----------------------------------------------------------------------

[Insert graphic of phone] As long as your transaction is for
BY PHONE $100,000 or less, you do not hold share
1-800/632-2301 certificates and you have not changed
your address by phone within the last 15
days, you can sell your shares by phone.

[Insert graphic of three You can call or write to have redemption
lightning bolts] proceeds of $1,000 or more wired to a
BY WIRE bank or escrow account. See the policies
above for selling shares by mail or phone.

Before requesting a bank wire, please
make sure we have your bank account
information on file. If we do not have
this information, you will need to send
written instructions with your bank's
name and address, your bank account
number, the ABA routing number, and a
signature guarantee.

Requests received in proper form by 1:00
p.m. pacific time will be wired the next
business day.
- ----------------------------------------------------------------------

[Insert graphic of two Obtain a current prospectus for the fund
arrows pointing in you are considering.
opposite directions]
BY EXCHANGE Call Shareholder Services at the number
below or our automated TeleFACTS system,
TeleFACTS(R) or send signed written instructions. See
1-800/247-1753 the policies above for selling shares by
(around-the-clock access) mail or phone.

If you hold share certificates, you will
need to return them to the fund before
your exchange can be processed.
- ----------------------------------------------------------------------

ACCOUNT POLICIES

[Insert graphic of paper and pen]

CALCULATING SHARE PRICE Each fund calculates the net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.

[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.

When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]

The funds' assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If a fund holds securities listed primarily on a foreign exchange that
trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250
($50 for employee and UGMA/UTMA accounts) because you sell some of your
shares, we may mail you a notice asking you to bring the account back up to
its applicable minimum investment amount. If you choose not to do so within
30 days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.

STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You will also receive the funds'
financial reports every six months. To reduce fund expenses, we try to
identify related shareholders in a household and send only one copy of the
financial reports. If you need additional copies, please call 1-800/DIAL BEN.

If there is a dealer or other investment representative of record on your
account, he or she will also receive confirmations, account statements and
other information about your account directly from the fund.

STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.

JOINT ACCOUNTS Unless you specify a different registration, accounts with
two or more owners are registered as "joint tenants with rights of
survivorship" (shown as "Jt Ten" on your account statement). To make any
ownership changes to a joint account, all owners must agree in writing,
regardless of the law in your state.

MARKET TIMERS The funds may restrict or refuse exchanges by market timers.
If accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent.
DynaTech Series does not allow investments by market timers. You will be
considered a market timer if you have (i) requested an exchange out of a fund
within two weeks of an earlier exchange request, or (ii) exchanged shares out
of a fund more than twice in a calendar quarter, or (iii) exchanged shares
equal to at least $5 million, or more than 1% of a fund's net assets, or (iv)
otherwise seem to follow a timing pattern. Shares under common ownership or
control are combined for these limits.

ADDITIONAL POLICIES Please note that the funds maintain additional policies
and reserve certain rights, including:

o The funds may refuse any order to buy shares, including any purchase under
the exchange privilege.

o At any time, the funds may change their investment minimums or waive or
lower their minimums for certain purchases.

o The funds may modify or discontinue the exchange privilege on 60 days'
notice.

o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.

o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.

o For redemptions over a certain amount, each fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check or wire would be harmful to existing
shareholders.

o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.

DEALER COMPENSATION Qualifying dealers who sell fund shares may receive
sales commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.

DYNATECH (CLASS A AND CLASS C ONLY) AND GROWTH SERIES

CLASS A CLASS B CLASS C
Commission (%) - 4.00 2.00
Investment under $50,000 5.00 - -
$50,000 but under $100,000 3.75 - -
$100,000 but under $250,000 2.80 - -
$250,000 but under $500,000 2.00 - -
$500,000 but under $1 million 1.60 - -
$1 million or more up to 1.00 1 - -
12B-1 FEE TO DEALER 0.25 0.25 2 1.00 3

INCOME, UTILITIES AND U.S. GOVERNMENT SECURITIES SERIES

CLASS A CLASS B CLASS C
Commission (%) - 3.00 2.00
Investment under $100,000 4.00 - -
$100,000 but under $250,000 3.25 - -
$250,000 but under $500,000 2.25 - -
$500,000 but under $1 million 1.85 - -
$1 million or more up to 0.75 1 - -
12B-1 FEE TO DEALER 0.15 0.15 2 0.65 3

A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and up to 0.25% on Class A NAV purchases by certain
trust companies and bank trust departments, eligible governmental
authorities, and broker-dealers or others on behalf of clients participating
in comprehensive fee programs.

1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.

2. Dealers may be eligible to receive up to 0.25% for Growth Series and 0.15%
for Income, Utilities and U.S. Government Securities Series from the date of
purchase. After 8 years, Class B shares convert to Class A shares and dealers
may then receive the 12b-1 fee applicable to Class A.

3. Dealers may be eligible to receive up to 0.25% for DynaTech and Growth
Series and 0.15% for Income, Utilities and U.S. Government Securities Series
during the first year after purchase and may be eligible to receive the full
12b-1 fee starting in the 13th month.

QUESTIONS

[Insert graphic of question mark]

If you have any questions about the funds or your account, you can write to
us at P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one
of the following numbers. For your protection and to help ensure we provide
you with quality service, all calls may be monitored or recorded.

HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)

Shareholder Services 1-800/ 632-2301 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/ DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/ 342-5236) 6:30 a.m. to 2:30 p.m.(Saturday)
Retirement Plan Services 1-800/ 527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/ 524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/ 321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/ 851-0637 5:30 a.m. to 5:00 p.m.

FOR MORE INFORMATION

You can learn more about each fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about each fund, its investments and policies. It
is incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com

You can also obtain information about each fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.

Investment Company Act file #811-537
FCF P 08/99

PROSPECTUS

FRANKLIN
CUSTODIAN
FUNDS, INC.

ADVISOR CLASS

INVESTMENT STRATEGY

GROWTH

GROWTH & INCOME

INCOME

GROWTH SERIES

INCOME SERIES
UTILITIES SERIES

U.S. GOVERNMENT SECURITIES SERIES

FEBRUARY 1, 1999
AS AMENDED AUGUST 30, 1999

[Insert Franklin Templeton Ben Head]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation of to the contrary is a criminal
offense.

CONTENTS

THE FUND

[Begin callout]
Information about each fund you should know before investing
[End callout]

2 Growth Series

11 Income Series

21 Utilities Series

29 U.S. Government Securities Series

37 Distribution and tax information for each fund; Year 2000 problem

YOUR ACCOUNT

[Begin callout]
Information about qualified investors, account transactions and services
[End callout]

40 Qualified Investors

42 Buying Shares

43 Investor Services

46 Selling Shares

48 Account Policies

50 Questions

FOR MORE INFORMATION

[Begin callout]
Where to learn more about each fund
[End callout]

Back Cover

GROWTH SERIES

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
- -------------------------------------------------------------------------------

GOAL The fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS The fund will normally invest primarily in the equity
securities of companies that are leaders in their industries. The fund's manager
looks for securities it believes offer favorable possibilities for capital
appreciation. In selecting securities, the manager considers factors such as
historical and potential growth in revenues and earnings; assessment of strength
and quality of management; and determination of a company's strategic
positioning in its industry, among others.

The fund may invest up to 40% of its assets in smaller companies, as well as in
new and emerging industries where growth is expected to be above average. For
this fund, smaller company stocks are generally those with market
capitalizations of less than $1 billion. From time to time the fund may have a
significant portion of its assets invested in cash or cash equivalents. The fund
generally invests up to 10% of its assets in foreign securities.

Equity securities generally entitle the holder to participate in a company's
general operating results. These include common stocks, preferred stocks and
convertible securities. The fund's manager invests in growth securities, which
tend to pay lower dividends and in many cases no dividends. Depending upon
current market conditions, the fund may invest a portion of its assets in debt
securities. Debt securities represent an obligation of the issuer to repay a
loan of money to it, and generally provide for the payment of interest. These
include bonds, notes and debentures.

[Begin callout]
The fund normally invests primarily in the common stocks of companies that are
leaders in their industries.
[End callout]

The manager considers the tax consequences of its investment decisions,
including capital gains or income that may result in taxable distributions to
shareholders. The manager generally uses a "buy-and-hold" strategy. The fund has
historically had low portfolio turnover, and its portfolio turnover is expected
to be significantly lower than that of comparable actively managed equity funds.
When selling portfolio securities, the manager uses an identified cost lot
system that generally selects higher cost lots with long-term holding periods,
where possible. The fund may also realize losses to minimize or offset any
capital gains. Because the fund uses a "buy and hold" investment strategy and
tries to minimize the tax impact to shareholders of the fund's net capital
gains, the fund's portfolio securities may have a higher level of unrealized
capital appreciation than if the fund did not use these strategies. During
periods of net redemptions of fund shares, the manager may be required to sell
these securities, generating a higher level of taxable gain for shareholders
than would occur if the fund had not used these strategies.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other adverse conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goal because it may not invest or may invest substantially less in
common stocks of companies that are leaders in their industries.

[Insert graphic of chart with line going up and down] MAIN RISKS
- -------------------------------------------------------------------------------

[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money over
short or even extended periods. [End callout]

SMALLER COMPANIES Historically, smaller company securities have been more
volatile in price than larger company securities, especially over the
short-term. Among the reasons for the greater price volatility are the less
certain growth prospects of smaller companies, the lower degree of liquidity in
the markets for such securities, and the greater sensitivity of smaller
companies to changing economic conditions.

In addition, small companies may lack depth of management, they may be unable to
generate funds necessary for growth or development, or they may be developing or
marketing new products or services for which markets are not yet established and
may never become established.

Therefore, while smaller companies may offer greater opportunities for capital
growth than larger, more established companies, they also involve greater risks
and should be considered speculative.

FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.

COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country.

CURRENCY. To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value of
what the fund owns and the fund's share price. Generally, when the U.S. dollar
rises in value against a foreign currency, an investment in that country loses
value because that currency is worth fewer U.S. dollars. Devaluation of a
currency by a country's government or banking authority will have a significant
impact on the value of any securities denominated in that currency. Currency
markets generally are not as regulated as securities markets.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries with
currencies replaced by the euro, the investment process, including trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted.

Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on fund performance. To the extent the fund holds non-U.S. dollar
(euro or other) denominated securities, it will still be exposed to currency
risk due to fluctuations in those currencies versus the U.S. dollar.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit each company and its major suppliers to verify their Year
2000 readiness.

More detailed information about the fund, its policies, including temporary
investments, and risks can be found in the fund's Statement of Additional
Information (SAI).

[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal. [End callout]

[Insert graphic of bull and bear] PERFORMANCE
- -------------------------------------------------------------------------------

This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

ADVISOR CLASS ANNUAL TOTAL RETURNS 1, 2

[Insert bar graph]

9.14% 23.79% 2.07% 26.71% 2.96% 7.10% 2.92% 38.40% 16.68% 18.85%
- -----------------------------------------------------------------------------
88 89 90 91 92 93 94 95 96 97
YEAR

[Begin callout]
BEST
QUARTER:
Q1 '91
14.09%

WORST
QUARTER:
Q3 '90
- -12.73%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
Franklin Growth Series - Advisor Class 2 18.85% 16.17% 14.30%
S&P 500(R)Index 3 33.36% 20.27% 18.05%

1. As of September 30, 1998, the fund's year-to-date return was 5.68%.
2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.

[Insert graphic of percentage sign] FEES AND EXPENSES
- -------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

ADVISOR CLASS
- ----------------------------------------------------------------------
Maximum sales charge (load)
imposed on purchases None
Exchange fee $5.00 1

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS
- ----------------------------------------------------------------------
Management fees 0.46%
Distribution and service (12b-1) fees None
Other expenses 0.19%
------------
Total annual fund operating expenses 0.65%
------------

1. This fee is only for market timers (see page 49).

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
$66 $208 $362 $810

[Insert graphic of briefcase] MANAGEMENT
- -------------------------------------------------------------------------------

Franklin Investment Advisory Services, Inc. (Investment Advisory), 16 South Main
Street, Suite 303, Norwalk, Connecticut 06854, is the fund's investment manager.
Together, Investment Advisory and its affiliates manage over $227 billion in
assets.

The team responsible for the fund's management is:

VIVIAN J. PALMIERI, VICE PRESIDENT OF INVESTMENT ADVISORY
Mr. Palmieri has been a manager on the fund since 1965. He joined the
Franklin Templeton Group in 1965.

CONRAD B. HERRMANN CFA, PORTFOLIO MANAGER OF
INVESTMENT ADVISORY
Mr. Herrmann has been a manager on the fund since 1993. He joined the
Franklin Templeton Group in 1989.

[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.

YEAR ENDED
ADVISOR CLASS SEPTEMBER 30,
- ----------------------------------------------------------------------
1998 1997 1
- ----------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 27.13 23.24
-----------------------
Net investment income .57 .25
Net realized and unrealized gains 1.69 3.64
-----------------------
Total from investment operations 2.26 3.89
-----------------------
Less distributions from:
Net investment income (.52) -
Net realized gains (.24) -
-----------------------
Total distributions (.76) -
-----------------------
Net asset value, end of year 28.63 27.13
-----------------------
Total return (%) 2 8.47 16.74

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) 41,871 25,823
Ratios to average net assets: (%)
Expenses .65 .66 3
Net investment income 2.01 1.93 3
Portfolio turnover rate (%) .58 1.77

1. For the period January 2, 1997 (effective date) to September 30, 1997.
2. Total return is not annualized.
3. Annualized.

INCOME SERIES

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
- -------------------------------------------------------------------------------

GOAL The fund's investment goal is to maximize income while maintaining
prospects for capital appreciation.

PRINCIPAL INVESTMENTS The fund will normally invest in a diversified portfolio
of equity securities, debt securities and cash equivalents. Equity securities
generally entitle the holder to participate in a company's general operating
results. These include common stocks, preferred stocks and convertible
securities. Debt securities represent an obligation of the issuer to repay a
loan of money to it, and generally provide for the payment of interest. These
include bonds, notes and debentures.

The fund seeks income by selecting investments such as corporate, foreign and
U.S. Treasury bonds, as well as stocks with attractive dividend yields. In its
search for growth opportunities, the fund invests in common stocks of companies
from a variety of industries such as utilities, oil, gas, real estate and
consumer goods.

[Begin callout]
The fund normally invests in a diversified portfolio of stocks, bonds and
cash equivalents in the U.S. and abroad.
[End callout]

The fund may invest up to 100% of total assets in debt securities that are rated
below investment grade, but it is not currently expected that the fund will
invest more than 50% of its assets in these securities. Investment grade debt
securities are rated in the top four ratings categories by independent rating
organizations such as Standard & Poor's Corporation (S&P) and Moody's Investors
Service, Inc. (Moody's). The fund generally invests in securities rated at least
Caa by Moody's or CCC by S&P or unrated securities the fund's manager determines
are comparable. Generally, lower rated securities pay higher yields than more
highly rated securities to compensate investors for the higher risk. As of
September 30, 1998, approximately 32.5% of the fund's net assets were invested
in lower rated and comparable quality unrated debt securities.

The fund may invest up to 25% of its assets in foreign securities. It ordinarily
buys foreign securities that are traded in the U.S. or American Depositary
Receipts, which are certificates typically issued by a bank or trust company
that give their holders the right to receive securities issued by a foreign or a
domestic company.

The fund's manager searches for undervalued or out-of-favor securities it
believes offer opportunities for income today and significant growth tomorrow.
It performs independent analysis of the securities being considered for the
fund's portfolio, rather than relying principally on the ratings assigned by
rating agencies. In its analysis, the manager considers a variety of factors,
including:

o the experience and managerial strength of the company;

o responsiveness to changes in interest rates and business conditions;

o debt maturity schedules and borrowing requirements;

o the company's changing financial condition and market recognition of the
change; and

o a security's relative value based on such factors as anticipated cash flow,
interest or dividend coverage, asset coverage, and earnings prospects.

[Insert graphic of chart with line going up and down] MAIN RISKS
- -------------------------------------------------------------------------------

INTEREST RATE When interest rates rise, debt security prices fall. When interest
rates fall, debt security prices go up. Generally, interest rates rise during
times of inflation or a growing economy, and will fall during an economic
slowdown or recession. Securities with longer maturities usually are more
sensitive to interest rate changes than securities with shorter maturities.

INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.

CREDIT There is the possibility that an issuer will be unable to make interest
payments and repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect a security's value and, thus, impact fund
performance.

LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes
called "junk bonds," generally have more credit risk than higher-rated
securities.

Companies issuing high yield, fixed-income securities are not as strong
financially as those issuing securities with higher credit ratings. These
companies are more likely to encounter financial difficulties and are more
vulnerable to changes in the economy, such as a recession or a sustained period
of rising interest rates, that could affect their ability to make interest and
principal payments. If an issuer stops making interest and/or principal
payments, payments on the securities may never resume. These securities may be
worthless and the fund could lose its entire investment.

High yield securities generally are less liquid than higher-quality securities.
Many of these securities do not trade frequently, and when they do their prices
may be significantly higher or lower than expected. At times, it may be
difficult to sell these securities promptly at an acceptable price, which may
limit the fund's ability to sell securities in response to specific economic
events or to meet redemption requests.

STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole. Utility company securities are
particularly sensitive to interest rate movements: when interest rates rise, the
stock prices of these companies tend to fall.

CONVERTIBLE SECURITIES The value of convertible securities may rise and fall
with the market value of the underlying stock or, like a debt security, vary
with changes in interest rates and the credit quality of the issuer. A
convertible security tends to perform more like a stock when the underlying
stock price is high (because it is assumed it will be converted) and more like a
debt security when the underlying stock price is low (because it is assumed it
will not be converted). Because its value can be influenced by many different
factors, a convertible security is not as sensitive to interest rate changes as
a similar non-convertible debt security, and generally has less potential for
gain or loss than the underlying stock.

[Begin callout]
If a security's credit rating is downgraded or a company's financial condition
deteriorates, the price of the security will fall and so too will the fund's
share price. If interest rates rise, the value of the fund's debt securities
will also fall. Because the value of the fund's holdings fluctuates in price,
the value of your investment in the fund will go up and down. This means you
could lose money over short or even extended periods.
[End callout]

FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.
Investments in Depositary Receipts also involve some or all of the following
risks.

COUNTRY. General securities market movements in any country where the fund has
investments are likely to affect the value of the securities the fund owns which
trade in that country. These movements will affect the fund's share price and
fund performance.

The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, currency devaluations, foreign ownership limitations,
expropriation, restrictions on removal of currency or other assets,
nationalization of assets, punitive taxes and certain custody and settlement
risks.

The fund's investments in developing or emerging markets are subject to all of
the risks of foreign investing generally, and have additional heightened risks
due to a lack of established legal, business and social frameworks to support
securities markets. Foreign securities markets, including emerging markets, may
have substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. While short-term
volatility in these markets can be disconcerting, declines in excess of 50% are
not unusual.

COMPANY. Foreign companies are not subject to the same disclosure, accounting,
auditing and financial reporting standards and practices as U.S. companies and
their securities may not be as liquid as securities of similar U.S. companies.
Foreign stock exchanges, trading systems, brokers and companies generally have
less government supervision and regulation than in the U.S. The fund may have
greater difficulty voting proxies, exercising shareholder rights, pursuing legal
remedies and obtaining judgments with respect to foreign investments in foreign
courts than with respect to U.S.
companies in U.S. courts.

CURRENCY To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value of
what the fund owns and the fund's share price. Generally, when the U.S. dollar
rises in value against a foreign currency, an investment in that country loses
value because the currency is worth fewer U.S. dollars. Devaluation of a
currency by a country's government or banking authority also has a significant
impact on the value of any securities denominated in that currency.

EURO. On January 1, 1999, the European Monetary Union (EMU) plans to introduce a
new single currency, the euro, which will replace the national currency for the
eleven participating member countries. If the fund holds investments in
countries with currencies replaced by the euro, the investment process,
including trading, foreign exchange, payments, settlements, cash accounts,
custody and accounting will be impacted.

Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on the value of fund shares and fund performance. To the extent the
fund holds non-U.S. dollar (euro or other) denominated securities, it will still
be exposed to currency risk due to fluctuations in those currencies versus the
U.S. dollar.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit each company and its major suppliers to verify their Year
2000 readiness.

More detailed information about the fund, its policies, including temporary
investments, risks and the ratings of debt securities can be found in the fund's
Statement of Additional Information (SAI).

[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal. [End callout]

[Insert graphic of bull and bear] PERFORMANCE
- -------------------------------------------------------------------------------

This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

ADVISOR CLASS ANNUAL TOTAL RETURNS 1, 2

[Begin callout]
BEST
QUARTER:
Q1 '91
16.67%

WORST
QUARTER:
Q3 '90
- -8.58%
[End callout]

[Insert bar graph]

8.81% 12.67% -8.77% 41.15% 15.24% 21.53% -6.38% 21.29% 10.45% 17.04%
- --------------------------------------------------------------------------
88 89 90 91 92 93 94 95 96 97
YEAR

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS

- ----------------------------------------------------------------------
Franklin Income Series - Advisor Class 2 17.04% 12.28% 12.49%
S&P 500(R)Index 3 33.36% 20.27% 18.05%
Lehman Bros. Gov't/Corp. Bond Index 4 9.76% 7.61% 9.15%

1. As of September 30, 1998, the fund's year-to-date return was -2.18%.
2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.
4. Source: Standard & Poor's(R) Micropal. Lehman Brothers Government/Corporate
Bond Index is an unmanaged index of fixed-rate U.S. government and foreign and
domestic corporate bonds that are rated investment grade or higher and have
maturities of one year or more and at least $50 million outstanding. One cannot
invest directly in an index, nor is an index representative of the fund's
portfolio.

[Insert graphic of percentage sign] FEES AND EXPENSES
- -------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

ADVISOR CLASS
- -----------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None
Exchange fee $5.00 1

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS
- -----------------------------------------------------------------
Management fees 0.45%
Distribution and service (12b-1) fees None
Other expenses 0.12%
-------------
Total annual fund operating expenses 0.57%
-------------

1. This fee is only for market timers (see page 49).

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
$58 $183 $318 $714

[Insert graphic of briefcase] MANAGEMENT
- -------------------------------------------------------------------------------

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its affiliates
manage over $227 billion in assets.

The team responsible for the fund's management is:

CHARLES B. JOHNSON, CHAIRMAN OF THE BOARD OF ADVISERS
Mr. Johnson has been a manager on the fund since 1957. He joined the Franklin
Templeton Group in 1957.

MATTHEW F. AVERY, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Avery has been a manager on the fund since 1989. He joined the Franklin
Templeton Group in 1987.

FREDERICK G. FROMM, VICE PRESIDENT OF ADVISERS
Mr. Fromm has been a manager on the fund since 1998. He joined the Franklin
Templeton Group in 1992.

[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.

YEAR ENDED
ADVISOR CLASS SEPTEMBER 30,
- -------------------------------------------------------------------------------
1998 1997 1
- ----------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 2.48 2.34
------------------
Net investment income .17 .14
Net realized and unrealized gains (.10) .14
------------------
Total from investment operations .07 .28
------------------
Less distributions from:
Net investment income (.18) (.14)
Net realized gains (.03) -
------------------
Total distributions (.21) (.14)
------------------
Net asset value, end of year 2.34 2.48
------------------
Total return (%) 2 2.82 12.31

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) 21,851 13,318
Ratios to average net assets: (%)
Expenses .57 .57 3
Net investment income 7.02 7.583
Portfolio turnover rate (%) 22.01 16.15

1. For the period January 2, 1997 (effective date) to September 30, 1997.
2. Total return is not annualized.
3. Annualized.

UTILITIES SERIES

[Insert graphic of bullseye and arrows] GOALS AND STRATEGIES
- -------------------------------------------------------------------------------

GOALS The fund's investment goals are capital appreciation and current income.

PRINCIPAL INVESTMENTS The fund will normally invest substantially all of its
assets in the securities of public utilities companies. These are companies that
provide electricity, natural gas, water, and communications services to the
public and companies that provide services to public utilities companies. The
manager expects that more than 50% of the fund's assets will be invested in
electric utilities securities.

The fund may invest up to 25% of its assets in debt securities. Debt securities
represent an obligation of the issuer to repay a loan of money to it, and
generally provide for the payment of interest. These include bonds, notes and
debentures. The fund focuses on "investment grade" debt securities. These are
issues rated in the top four ratings categories by independent rating agencies
such as Standard & Poor's Corporation or Moody's Investors Service, Inc. or, if
unrated, determined by the fund's manager to be comparable.

The fund generally invests up to 10% of its assets in foreign securities.

[Begin callout]
The fund normally invests substantially all of its assets in equity securities
of public utilities companies.
[End callout]

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other adverse conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goals because it may not invest or may invest substantially less in
public utilities stocks.

[Insert graphic of chart with line going up and down] MAIN RISKS
- -------------------------------------------------------------------------------

UTILITIES INDUSTRY The fund's performance is closely tied to conditions
affecting the public utilities industry, which may change rapidly. Utility
company securities are particularly sensitive to interest rate movements: when
interest rates rise, the stock prices of these companies tend to fall. On-going
regulatory changes have led to greater competition in the industry and the
emergence of non-regulated providers as a significant part of the industry which
may make some companies less profitable. In addition, the industry is subject to
risks associated with the difficulty of obtaining adequate returns on invested
capital in spite of frequent rate increases and of financing large construction
programs during inflationary periods; restrictions on operations and increased
costs due to environmental and safety regulations; difficulties of the capital
markets in absorbing utility debt and equity securities; difficulties in
obtaining fuel for electric generation at reasonable prices; risks associated
with the operation of nuclear power plants; and the effects of energy
conservation and other factors affecting the level of demand for services.

[Begin callout]
Utility company securities are particularly sensitive to interest rate
movements: when interest rates rise, the stock prices of these companies tend to
fall. Because the securities the fund holds fluctuate in price, the value of
your investment in the fund will go up and down. This means you could lose money
over short or even extended periods. [End callout]

INTEREST RATE When interest rates rise, debt security prices fall. When interest
rates fall, debt security prices go up. Generally, interest rates rise during
times of inflation or a growing economy, and will fall during an economic
slowdown or recession. Securities with longer maturities usually are more
sensitive to interest rate changes than securities with shorter maturities.

INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.

CREDIT This is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value and, thus, impact the value of
fund shares.

FOREIGN SECURITIES Securities of companies and governments located outside the
U.S. may involve risks that can increase the potential for losses in the fund.

COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns which trade in that country.

CURRENCY. To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value of
what the fund owns and the fund's share price. Generally, when the U.S. dollar
rises in value against a foreign currency, an investment in that country loses
value because that currency is worth fewer U.S. dollars. Devaluation of a
currency by a country's government or banking authority also has a significant
impact on the value of any securities denominated in that currency.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries. If the fund holds investments in countries with
currencies replaced by the euro, the investment process, including trading,
foreign exchange, payments, settlements, cash accounts, custody and accounting
will be impacted.

Because this change to a single currency is new and untested, the establishment
of the euro may result in market volatility. For the same reason, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on the value of fund shares. To the extent the fund holds non-U.S.
dollar (euro or other) denominated securities, it will still be exposed to
currency risk due to fluctuations in those currencies versus the U.S. dollar.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. Issuers in countries outside the U.S.,
particularly in emerging markets, may not be required to make the same level of
disclosure about Year 2000 readiness as is required in the U.S. The manager, of
course, cannot audit each company and its major suppliers to verify their Year
2000 readiness.

More detailed information about the fund, its policies, including temporary
investments, risks and the ratings of debt securities can be found in the fund's
Statement of Additional Information (SAI).

[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal. [End callout]

[Insert graphic of bull and bear] PERFORMANCE
- -------------------------------------------------------------------------------

This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

ADVISOR CLASS ANNUAL TOTAL RETURNS 1, 2

[Begin callout]
BEST
QUARTER:
Q4 '97
15.06%

WORST
QUARTER:
Q1 '94
- -9.95%
[End callout]

[Insert bar graph]

11.64% 25.83% 0.38% 24.18% 9.08% 11.52% -11.69% 30.68% 2.03% 25.07%
- --------------------------------------------------------------------------
88 89 90 91 92 93 94 95 96 97
YEAR

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
Franklin Utilities Series - Advisor Class 2 25.07% 10.43% 12.11%
S&P 500(R)Index 3 33.36% 20.27% 18.05%

1. As of September 30, 1998, the fund's year-to-date return was 6.20%.
2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.

[Insert graphic of percentage sign] FEES AND EXPENSES
- -------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

ADVISOR CLASS
- ----------------------------------------------------------------------
Maximum sales charge (load) imposed on None
purchases
Exchange fee $5.00 1

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS
- ----------------------------------------------------------------------
Management fees 0.46%
Distribution and service (12b-1) fees None
Other expenses 0.17%
-------------
Total annual fund operating expenses 0.63%
-------------

1. This fee is only for market timers (see page 49).

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
$64 $202 $351 $786

[Insert graphic of briefcase] MANAGEMENT
- -------------------------------------------------------------------------------

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its affiliates
manage over $227 billion in assets.

The team responsible for the fund's management is:

SALLY EDWARDS HAFF CFA, SENIOR VICE PRESIDENT OF ADVISERS Ms. Haff has been a
manager on the fund since 1990. She joined the Franklin Templeton Group in 1986.

GREGORY E. JOHNSON, VICE PRESIDENT OF ADVISERS
Mr. Johnson has been a manager on the fund since 1987. He joined the Franklin
Templeton Group in 1986.

IAN LINK CFA, VICE PRESIDENT OF ADVISERS
Mr. Link has been a manager on the fund since 1995. He joined the Franklin
Templeton Group in 1989.

[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS

This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.

YEAR ENDED
ADVISOR CLASS SEPTEMBER 30,
- -------------------------------------------------------------------------------
1998 1997 1
- ----------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 10.04 9.55
----------------------
Net investment income .58 .36
Net realized and unrealized gains 1.57 .53
----------------------
Total from investment operations 2.15 .89
----------------------
Less distributions from:
Net investment income (.54) (.40)
Net realized gains (.26) -
----------------------
Total distributions (.80) (.40)
----------------------
Net asset value, end of year 11.39 10.04
----------------------
Total return (%) 2 22.20 9.61

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) 13,651 8,719
Ratios to average net assets: (%)
Expenses .63 .62 3
Net investment income 4.93 5.33 3
Portfolio turnover rate (%) 11.77 7.24

1. For the period January 2, 1997 (effective date) to September 30, 1997.
2. Total return is not annualized.
3. Annualized.

U.S. GOVERNMENT SECURITIES SERIES

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
- -------------------------------------------------------------------------------

GOAL The fund's investment goal is income.

PRINCIPAL INVESTMENTS The fund invests in a portfolio limited to U.S. government
securities. These include U.S. Treasury bonds, notes and bills, U.S. Treasury
STRIPS and securities issued by U.S. government agencies. Other than investments
in short-term government securities and cash, substantially all of the fund's
investments are currently held in Government National Mortgage Association
obligations (Ginnie Maes).

Ginnie Maes represent an ownership interest in mortgage loans made by banks and
other financial institutions to finance purchases of homes. The mortgage loans
may have either fixed or adjustable interest rates. The individual loans are
packaged or "pooled" together for sale to investors. As the underlying mortgage
loans are paid off, investors receive principal and interest payments.

Ginnie Maes carry a guarantee backed by the full faith and credit of the U.S.
government. The guarantee applies only to the timely repayment of principal and
interest and not to the market prices and yields of the Ginnie Maes or to the
net asset value or performance of the fund, which will vary with changes in
interest rates and other market conditions.

The fund may buy Ginnie Maes on a "to-be-announced" and "delayed delivery"
basis. This means that the securities will be paid for and delivered to the fund
at a future date, generally in 30 to 45 days.

[Begin callout]
The fund invests in a portfolio limited to U.S. government securities. Other
than investments in short-term government securities and cash, substantially all
of the fund's investments are currently held in Ginnie Maes.
[End callout]

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other adverse conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goal because it may not invest or may invest substantially less in
Ginnie Mae securities.

[Insert graphic of chart with line going up and down] MAIN RISKS
- -------------------------------------------------------------------------------

INTEREST RATE When interest rates rise, debt security prices fall. When interest
rates fall, debt security prices go up. Generally, interest rates rise during
times of inflation or a growing economy, and will fall during an economic
slowdown or recession. Securities with longer maturities usually are more
sensitive to interest rate changes than securities with shorter maturities. U.S.
Treasury STRIPS are more sensitive to interest rate changes and their price will
fluctuate more than the prices of interest-paying Treasury bonds or notes.

INCOME Since the fund can only distribute what it earns, the fund's
distributions to its shareholders may decline when interest rates fall.

GINNIE MAES Ginnie Maes differ from conventional debt securities because
principal is paid back over the life of the security rather than at maturity.
The fund may receive unscheduled prepayments of principal due to voluntary
prepayments, refinancing or foreclosure on the underlying mortgage loans. During
periods of declining interest rates, the volume of principal prepayments
generally increases as borrowers refinance their mortgages at lower rates. The
fund may be forced to reinvest returned principal at lower interest rates,
reducing the fund's income. For this reason, Ginnie Maes may be less effective
than other types of securities as a means of "locking in" long-term interest
rates and may have less potential for capital appreciation during periods of
falling interest rates than other investments with similar maturities. A
reduction in the anticipated rate of principal prepayments, especially during
periods of rising interest rates, may increase the effective maturity of Ginnie
Maes, making them more susceptible than other debt securities to a decline in
market value when interest rates rise. This could increase the volatility of the
fund's performance and share price.

[Begin callout]
Changes in interest rates affect the prices of the fund's debt securities. If
rates rise, the value of the fund's debt securities will fall and so too will
the fund's shares price. If rates fall, mortgage holders may refinance their
mortgage loans at lower interest rates, which may reduce the fund's income and
yield. This means you could lose money over short or even extended periods. [End
callout]

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by issuers
about their Year 2000 readiness. The manager, of course, cannot audit each
issuer and its major suppliers to verify their Year 2000 readiness.

More detailed information about the fund, its policies, including temporary
investments, and risks can be found in the fund's Statement of Additional
Information (SAI).

[Begin callout]
Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Mutual fund shares involve investment risks, including the possible
loss of principal. [End callout]

[Insert graphic of bull and bear] PERFORMANCE
- -------------------------------------------------------------------------------

This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows how the fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

ADVISOR CLASS ANNUAL TOTAL RETURNS 1, 2

[Begin callout]
BEST
QUARTER:
Q2 '89
6.72%

WORST
QUARTER:
Q1 '94
- -2.84%
[End callout]

[Insert bar graph]

7.45% 13.11% 10.78% 13.71% 7.40% 6.92% -2.69% 16.73% 4.60% 9.71%
- ----------------------------------------------------------------------
88 89 90 91 92 93 94 95 96 97
YEAR

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1997

1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------
Franklin U.S. Government Securities Series -
Advisor Class 2 9.71% 6.86% 8.64%
Lehman Bros. Interm. Gov't Bond Index3 7.72% 6.39% 8.13%

1. As of September 30, 1998, the fund's year-to-date return was 6.19%.
2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.
3. Source: Standard & Poor's(R) Micropal. Lehman Brothers Intermediate
Government Bond Index is an unmanaged index of fixed-rate bonds issued by the
U.S. government and its agencies that are rated investment grade or higher and
have one to ten years remaining until maturity and at least $100 million
outstanding. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.

[Insert graphic of percentage sign] FEES AND EXPENSES
- -------------------------------------------------------------------------------

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
ADVISOR CLASS
- ----------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None
Exchange fee $5.00 1

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS
- ----------------------------------------------------------------------
Management fees 0.45%
Distribution and service (12b-1) fees None
Other expenses 0.11%
------------
Total annual fund operating expenses 0.56%
------------
1. This fee is only for market timers (see page 49).

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------
$57 $179 $313 $701

[Insert graphic of briefcase] MANAGEMENT
- -------------------------------------------------------------------------------

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its affiliates
manage over $227 billion in assets.

The team responsible for the fund's management is:

JACK LEMEIN, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Lemein has been a manager on the fund since 1984. He joined the Franklin
Templeton Group in 1984.

T. ANTHONY COFFEY CFA, PORTFOLIO MANAGER OF ADVISERS
Mr. Coffey has been a manager on the fund since 1989. He joined the Franklin
Templeton Group in 1989.

ROGER BAYSTON CFA, PORTFOLIO MANAGER OF ADVISERS
Mr. Bayston has been a manager on the fund since 1991. He joined the Franklin
Templeton Group in 1991.

[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------

This table presents the financial performance for Advisor Class since its
inception. This information has been audited by PricewaterhouseCoopers LLP.

YEAR ENDED
ADVISOR CLASS SEPTEMBER 30,
- -------------------------------------------------------------------------------
1998 1997 1
- -------------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 6.90 6.76
---------------------
Net investment income .47 .38
Net realized and unrealized gains .10 .12
---------------------
Total from investment operations .57 .50
---------------------
Less distributions from net investment income (.47) (.36)
---------------------
Net asset value, end of year 7.00 6.90
---------------------
Total return (%) 2 8.51 7.68

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) 36,308 14,469
Ratios to average net assets: (%)
Expenses .56 .56 3
Net investment income 6.75 7.01 3
Portfolio turnover rate (%) 4 25.98 1.74

1. For the period January 2, 1997 (effective date) to September 30, 1997.
2. Total return is not annualized.
3. Annualized.
4. Maturity of U.S. government issues and the reinvestment of the proceeds
thereof are considered as purchases and sales of securities in computing the
portfolio turnover rate.

[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES;
YEAR 2000 PROBLEM
- -------------------------------------------------------------------------------

INCOME AND CAPITAL GAINS DISTRIBUTIONS Growth Series intends to pay a dividend
at least annually representing substantially all of its net investment income.
Income Series and U.S. Government Securities Series intend to pay a dividend at
least monthly, on or about the 15th day of each month, representing each fund's
net investment income. Utilities Series intends to pay a dividend at least
quarterly in March, June, September and December representing its net investment
income. Capital gains, if any, may be distributed annually by the funds. The
amount of the funds' distributions will vary and there is no guarantee the funds
will pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record dates for the funds' distributions will vary. Please keep in mind that if
you invest in a fund shortly before the record date of a distribution, any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will receive some of your investment back in the form of a
taxable distribution. If you would like information on upcoming record dates for
the fund's distributions, please call 1-800/DIAL BEN.

TAX CONSIDERATIONS In general, fund distributions are taxable to you as either
ordinary income or capital gains. This is true whether you reinvest your
distributions in additional shares of a fund or receive them in cash. Any
capital gains a fund distributes are taxable to you as long-term capital gains
no matter how long you have owned your shares.

[Begin callout]
BACKUP WITHHOLDING

By law, each fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct taxpayer identification number (TIN) or
certify that your TIN is correct, or if the IRS instructs the fund to do so.
[End callout]

When you sell your shares, you may have a capital gain or loss. For tax
purposes, an exchange of your fund shares for shares of a different Franklin
Templeton Fund is the same as a sale. The individual tax rate on any gain from
the sale or exchange of your shares depends on how long you have held your
shares.

YEAR 2000 PROBLEM Each fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a non-standard leap
year may create difficulties for some systems.

When the Year 2000 arrives, a fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, a fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. A fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker-dealers or foreign markets are not ready for
Year 2000.

Each fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their Year
2000 problems. Of course, a fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties over
which the fund and its manager may have no control.

YOUR ACCOUNT

[Insert graphic of pencil marking an X] QUALIFIED INVESTORS
- -------------------------------------------------------------------------------

The following investors may qualify to buy Advisor Class shares of the funds.

o Qualified registered investment advisors with clients invested in any
series of Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy
through a broker-dealer or service agent who has an agreement with Franklin
Templeton Distributors, Inc. (Distributors). Minimum investments: $1,000
initial and $50 additional.

o Broker-dealers, registered investment advisors or certified financial planners
who have an agreement with Distributors for clients participating in
comprehensive fee programs. Minimum investments: $250,000 initial ($100,000
initial for an individual client) and $50 additional.

o Officers, trustees, directors and full-time employees of Franklin Templeton
and their immediate family members. Minimum investments: $100 initial ($50 for
accounts with an automatic investment plan) and $50 additional.

o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.

o Governments, municipalities, and tax-exempt entities that meet the
requirements for qualification under section 501 of the Internal Revenue Code.
Minimum investments: $1 million initial investment in Advisor Class or Class Z
shares of any of the Franklin Templeton Funds and $50 additional.

o Accounts managed by the Franklin Templeton Group. Minimum investments: No
initial minimum and $50 additional.

o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments: No
initial or additional minimums.

o Defined contribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section 401
of the Internal Revenue Code, including salary reduction plans qualified under
section 401(k) of the Internal Revenue Code, and that are sponsored by an
employer (i) with at least 10,000 employees, or (ii) with retirement plan
assets of $100 million or more. Minimum investments: No initial or additional
minimums.

o Trust companies and bank trust departments initially investing in the Franklin
Templeton Funds at least $1 million of assets held in a fiduciary, agency,
advisory, custodial or similar capacity and over which the trust companies and
bank trust departments or other plan fiduciaries or participants, in the case
of certain retirement plans, have full or shared investment discretion.
Minimum investments: No initial or additional minimums.

o Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in the Franklin Templeton Funds
for purposes of determining whether you meet the $5 million minimum, as long
as $1 million is in Advisor Class or Class Z shares of any of the Franklin
Templeton Funds.

o Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of an established group of 11 or more
investors. Minimum investments: $5 million initial and $50 additional. For
minimum investment purposes, the group's investments are added together. The
group may combine all of its shares in the Franklin Templeton Funds for
purposes of determining whether it meets the $5 million minimum, as long as $1
million is in Advisor Class or Class Z shares of any of the Franklin Templeton
Funds. There are certain other requirements and the group must have a purpose
other than buying fund shares without a sales charge.

Please note that Advisor Class shares of the funds are no longer available to
retirement plans through Franklin Templeton's ValuSelect(R) program. Retirement
plans in the ValuSelect program before January 1, 1998, however, may continue to
invest in the funds' Advisor Class shares.

[Insert graphic of paper with lines and someone writing]
BUYING SHARES
- -------------------------------------------------------------------------------

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. To save time, you can sign up now for services
you may want on your account by completing the appropriate sections of the
application (see the next page).

BUYING SHARES
- ----------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------
[Insert graphic Contact your investment Contact your investment
of hands representative representative
shaking] THROUGH
YOUR INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------------------
[Insert graphic Make your check payable Make your check payable
of envelope] BY to the fund in which you to the fund in which you
MAIL are investing. are investing. Include
your account number on
Mail the check and your the check.
signed application to
Investor Services. Fill out the deposit
slip from your account
statement. If you do not
have a slip, include a
note with your name, the
fund name, and your
account number.

Mail the check and deposit
slip or note to Investor
Services.
- ----------------------------------------------------------------------
[Insert graphic Call to receive a wire Call to receive a wire
of three control number and wire control number and wire
lightning bolts] instructions. instructions.
BY WIRE
Wire funds and mail your To make a same day wire
1-800/632-2301 signed application to investment, please call
(or Investor Services. us by 1:00 p.m. pacific
1-650/312-2000 Please include the wire time and make sure your
collect) control number or your wire arrives by 3:00 p.m.
new account number on
the application.

To make a same day wire
investment, please call
us by 1:00 p.m. pacific
time and make sure your
wire arrives by 3:00 p.m.
- ----------------------------------------------------------------------
[Insert graphic Call Shareholder Call Shareholder
of two arrows Services at the number Services at the number
pointing in below, or send signed below, or send signed
opposite written instructions. written instructions.
directions] BY (Please see page 44 for (Please see page 44 for
EXCHANGE information on information on
exchanges.) exchanges.)

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

[Insert graphic of person with handset] INVESTOR SERVICES
- -------------------------------------------------------------------------------

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
a fund by automatically transferring money from your checking or savings account
each month to buy shares. To sign up, complete the appropriate section of your
account application.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from a fund in
an existing account in the same share class of the fund or in Advisor Class or
Class A shares of another Franklin Templeton Fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton Fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton Fund, initial sales
charges and contingent deferred sales charges (CDSCs) will not apply if you
reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.

RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and their
policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure or
application, please call Retirement Plan Services at 1-800/527-2020.

TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.

TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.

For accounts with more than one registered owner, telephone privileges also
allow the funds to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.

As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class. You also may exchange your Advisor Class shares for Class
A shares of a fund that does not currently offer an Advisor Class (without any
sales charge)* or for Class Z shares of Franklin Mutual Series Fund Inc.

[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequences as ordinary sales and purchases.
[End callout]

If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust, Templeton Foreign Fund or Templeton Growth Fund, you also may
exchange your shares for Class A shares of those funds (without any sales
charge)* or for shares of Templeton Institutional Funds, Inc.

*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your Class A
shares for Advisor Class shares if you otherwise qualify to buy the fund's
Advisor Class.

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.

Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
49).

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.

[Insert graphic of certificate] SELLING SHARES
- -------------------------------------------------------------------------------

You can sell your shares at any time.

SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the funds we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:

[Begin callout]
A signature guarantee helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.

A notary public CANNOT provide a signature guarantee.
[End callout]

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of record, or
preauthorized bank or brokerage firm account

We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the funds
against potential claims based on the instructions received.

SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.

REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.

RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Trust Company retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Plan Services at 1-800/527-2020
for details.

SELLING SHARES
- ----------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ----------------------------------------------------------------------
[Insert graphic of Contact your investment representative
hands shaking]
THROUGH YOUR
INVESTMENT
REPRESENTATIVE
- ----------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] BY MAIL certificates (if you hold share certificates)
to Investor Services. Corporate, partnership
or trust accounts may need to send additional
documents.

Specify the fund, the account number and the dollar value
or number of shares you wish to sell. Be sure to include
all necessary signatures and any additional documents, as
well as signature guarantees if required.

A check will be mailed to the name(s) and address on the
account, or otherwise according to your written
instructions.
- ----------------------------------------------------------------------
[Insert graphic of As long as your transaction is for $100,000 or
phone] BY PHONE less, you do not hold share certificates and
you have not changed your address by phone
1-800/632-2301 within the last 15 days, you can sell your
shares by phone.

A check will be mailed to the name(s) and address on the
account. Written instructions, with a signature guarantee,
are required to send the check to another address or to
make it payable to another person.
- ----------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption
three lightning proceeds of $1,000 or more
bolts] BY WIRE wired to a bank or escrow account. See the
policies above for selling
shares by mail or phone.

Before requesting a bank wire, please make sure we have
your bank account information on file. If we do not have
this information, you will need to send written
instructions with your bank's name and address, your bank
account number, the ABA routing number, and a signature
guarantee.

Requests received in proper form by 1:00 p.m.
pacific time will be wired
the next business day.
- ----------------------------------------------------------------------
[Insert graphic of Obtain a current prospectus for the fund you
two arrows pointing are considering.
in opposite
directions] BY Call Shareholder Services at the number below,
EXCHANGE or send signed written instructions. See the
policies above for selling shares by mail or
phone.

If you hold share certificates, you will need
to return them to the fund before your exchange
can be processed.
- ----------------------------------------------------------------------

[Insert graphic of paper and pen] ACCOUNT POLICIES
- -------------------------------------------------------------------------------

CALCULATING SHARE PRICE Each fund calculates the net asset value per share (NAV)
each business day at the close of trading on the New York Stock Exchange
(normally 1:00 p.m. pacific time). The NAV for Advisor Class is calculated by
dividing its net assets by the number of its shares outstanding.

The funds' assets are generally valued at their market value. If market prices
are unavailable, or if an event occurs after the close of the trading market
that materially affects the values, assets may be valued at their fair value. If
a fund holds securities listed primarily on a foreign exchange that trades on
days when the fund is not open for business, the value of your shares may change
on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee accounts) because you sell some of your shares, we may mail you a
notice asking you to bring the account back up to its applicable minimum
investment amount. If you choose not to do so within 30 days, we may close your
account and mail the proceeds to the address of record.

STATEMENTS AND REPORTS You will receive confirmations and account statements
that show your account transactions. You also will receive the funds' financial
reports every six months. To reduce fund expenses, we try to identify related
shareholders in a household and send only one copy of the financial reports. If
you need additional copies, please call 1-800/DIAL BEN.

If there is a dealer or other investment representative of record on your
account, he or she also will receive confirmations, account statements and other
information about your account directly from the fund.

STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.

JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.

MARKET TIMERS The funds may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. You will
be considered a market timer if you have (i) requested an exchange out of a fund
within two weeks of an earlier exchange request, or (ii) exchanged shares out of
a fund more than twice in a calendar quarter, or (iii) exchanged shares equal to
at least $5 million, or more than 1% of a fund's net assets, or (iv) otherwise
seem to follow a timing pattern. Shares under common ownership or control are
combined for these limits.

ADDITIONAL POLICIES Please note that the funds maintain additional policies and
reserve certain rights, including:

o The funds may refuse any order to buy shares, including any purchase under the
exchange privilege.

o At any time, the funds may change their investment minimums or waive or lower
their minimums for certain purchases.

o The funds may modify or discontinue the exchange privilege on 60 days' notice.

o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.

o In unusual circumstances, we may temporarily suspend redemptions, or postpone
the payment of proceeds, as allowed by federal securities laws.

o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may
receive up to 0.25% of the amount invested. This amount is paid by Franklin
Templeton Distributors, Inc. from its own resources.

[Insert graphic of question mark] QUESTIONS
- -------------------------------------------------------------------------------

If you have any questions about the funds or your account, you can write to us
at P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.

HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- ----------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m.
(Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

FOR MORE INFORMATION

You can learn more about each fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and fund strategies, financial
statements, detailed performance information, portfolio holdings, and the
auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about each fund, its investments and policies. It is
incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com

You can also obtain information about each fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section, Washington,
D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.

Investment Company Act file #811-537 FCF PA 08/99