FRANKLIN STRATEGIC SERIES, 485APOS, 1995-07-03

FRANKLIN STRATEGIC SERIES
485APOS, 1995-07-03

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As filed with the Securities and Exchange Commission on July 3,
1995

File Nos.
33-39088
811-6243

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 15 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 18 (X)

FRANKLIN STRATEGIC SERIES
(Exact Name of Registrant as Specified in Charter)

777 MARINERS ISLAND BOULEVARD, SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (415) 312-2000

Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)

Approximate Date of Proposed Public Offering:

It is proposed that this filing will become effective (check
appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[X] on September 1, 1995 pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of
rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Declaration Pursuant to Rule 24f-2. The issuer has registered an indefinite
number or amount of securities under the Securities Act of 1933 pursuant to
Section 24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice
for the issuer's most recent fiscal year was filed on June 27, 1995.

The MidCap Growth Portfolio (the master fund of Franklin MidCap Growth Fund) has
executed this registration statement.

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in the Prospectus
(Franklin California Growth Fund)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Expense Table

3. Condensed Financial "Financial Highlights";
Information "Performance"

4. General Description "About the Fund";
"Investment Objective and
Policies of the Fund";
"General Information"

5. Management of the Fund "Management of the Fund";
"Portfolio Operations"

5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders

6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation of
the Fund and Its
Shareholders"; "General
Information"

7. Purchase of Securities "How to Buy Shares of the
Being Offered Fund"; "Purchasing Shares
of the Fund in Connection
with Retirement Plans
Involving Tax-Deferred
Investments"; "Other
Programs and Privileges
Available to Fund
Shareholders"; "Exchange
Privilege"; "Telephone
Transactions"; "Valuation
of Fund Shares"

8. Redemption or "Exchange Privilege"; "How
Repurchase to Sell Shares of the
Fund"; "Telephone
Transactions"; "How to Get
Information Regarding an
Investment in the Fund"

9. Pending Legal Not Applicable
Proceedings

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in the Prospectus
(Franklin Strategic Income Fund)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Expense Table

3. Condensed Financial "Financial Highlights";
Information "Performance"

4. General Description "Information About the
Fund"; "Investment
Objectives and Policies of
the Fund"; "Types of
Securities the Fund May
Purchase"; "Risk
Considerations"; "General
Information"

5. Management of the Fund "Management of the Fund";
"Portfolio Operations"

5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders

6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation of
the Fund and Its
Shareholders"; "General
Information"

8. Redemption or "Exchange Privilege"; "How
Repurchase to Sell Shares of the
Fund"; "Telephone
Transactions"; "How to Get
Information Regarding an
Investment in the Fund"

9. Pending Legal Not Applicable
Proceedings

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in the Prospectus
(Franklin MidCap Growth Fund)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Expense Table

3. Condensed Financial "Performance"
Information

4. General Description "About the Fund";
"Investment Objective and
Policies of the Fund";
"General Information"

5. Management of the Fund "Administration of the
Fund"; "Portfolio
Operations"

5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders

6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation of
the Fund and Its
Shareholders"; "General
Information"

8. Redemption or "Exchange Privilege"; "How
Repurchase to Sell Shares of the
Fund"; "How to Get
Information Regarding an
Investment in the Fund"

9. Pending Legal Not Applicable
Proceedings

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in the Prospectus
(Franklin Institutional MidCap Growth Fund)
(formerly named FISCO MidCap Growth Fund)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Expense Table

3. Condensed Financial "Financial Highlights";
Information "Performance"

4. General Description "About the Fund";
"Investment Objective
and Policies of the
Fund"; "General
Information"

5. Management of the Fund "Administration and
Management of the Fund";
"Portfolio Operations"

5A. Management's Contained in
Discussion of Fund Registrant's Annual
Performance Report to Shareholders

6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation
of the Fund and Its
Shareholders"; "General
Information"

7. Purchase of Securities "How to Buy Shares of
Being Offered the Fund"; "Exchange
Privilege"; "Valuation
of Fund Shares"

8. Redemption or "Exchange Privilege";
Repurchase "How to Sell Shares of
the Fund"; "How to Get
Information Regarding an
Investment in the Fund"

9. Pending Legal Not Applicable
Proceedings

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in the Prospectus
(Franklin Global Utilities Fund)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Expense Table

3. Condensed Financial "Financial Highlights";
Information "Performance"

4. General Description "About the Fund";
"Investment Objective
and Policies of the
Fund"; "General
Information"

5. Management of the Fund "Management of the
Fund";
"Portfolio Operations"

5A. Management's Contained in
Discussion of Fund Registrant's Annual
Performance Report to Shareholders

6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation
of the Fund and Its
Shareholders"; "General
Information"

7. Purchase of Securities "How to Buy Shares of
Being Offered the Fund"; "Purchasing
Shares of the Fund in
Connection with
Retirement Plans
Involving Tax-Deferred
Investments"; "Other
Programs and Privileges
Available to Fund
Shareholders"; "Exchange
Privilege"; "Telephone
Transactions";
"Valuation of Fund
Shares"

8. Redemption or "Exchange Privilege";
Repurchase "How to Sell Shares of
the Fund"; "Telephone
Transactions"; "How to
Get Information
Regarding an Investment
in the Fund"

9. Pending Legal Not Applicable
Proceedings

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in the Prospectus
(Franklin Small Cap Growth Fund)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Expense Table

3. Condensed Financial "Financial Highlights";
Information "Performance"

4. General Description "About the Fund";
"Investment Objective and
Policies of the Fund";
"General Information"

5. Management of the Fund "Management of the Fund";
"Portfolio Operations"

5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders

6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation
of the Fund and Its
Shareholders"; "General
Information"

8. Redemption or "Exchange Privilege";
Repurchase "How to Sell Shares of
the Fund"; "Telephone
Transactions"; "How to
Get Information Regarding
an Investment in the
Fund"

9. Pending Legal Not Applicable
Proceedings

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in the Prospectus
(Franklin Global Health Care Fund)

N-1A Location in
Item No. Item Registration Statement

1. Cover Page Cover Page

2. Synopsis Expense Table

3. Condensed Financial "Financial Highlights";
Information "Performance"

4. General Description "About the Fund";
"Investment Objective and
Policies of the Fund";
"General Information"

5. Management of the Fund "Management of the Fund";
"Portfolio Operations"

5A. Management's Contained in Registrant's
Discussion of Fund Annual Report to
Performance Shareholders

6. Capital Stock and "Distributions to
Other Securities Shareholders"; "Taxation
of the Fund and Its
Shareholders"; "General
Information"

8. Redemption or "Exchange Privilege";
Repurchase "How to Sell Shares of
the Fund"; "Telephone
Transactions"; "How to
Get Information Regarding
an Investment in the
Fund"

9. Pending Legal Not Applicable
Proceedings

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part B: Information Required in the
Statement of Additional Information
(Franklin California Growth Fund)

N-1A Location in
Item No. Item Registration Statement

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information Cover Page; About the
and History Fund (see also the
Prospectus "About the
Fund", "General
Information")

13. Investment Objectives "The Fund's Investment
and Policies Objective and
Restrictions" (See also
the Prospectus
"Investment Objective and
Policies of the Fund")

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "General Information"
Securities

16. Investment Advisory "Investment Advisory and
and Other Services Other Services" (See also
the Prospectus
"Management of the Fund")

17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"

18. Capital Stock and See "General Information"
Other Securities and "About the Fund" in
the Prospectus

19. Purchase, Redemption "Additional Information
and Pricing of Regarding Fund Shares"
Securities (See also the Prospectus
"How to Buy Shares of the
Fund", "How to Sell
Shares of the Fund",
"Valuation of Fund
Shares")

20. Tax Status "Additional Information
Regarding Taxation"

21. Underwriters "The Fund's Underwriter"

22. Calculation of "General Information"
Performance Data

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part B: Information Required in the
Statement of Additional Information
(Franklin Strategic Income Fund)

N-1A Location in
Item No. Item Registration Statement

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information Cover Page; About the
and History Fund (see also the
Prospectus "Information
About the Fund" "General
Information")

13. Investment Objectives "The Fund's Investment
and Policies Objectives and Policies"
(See also the Prospectus
"Investment Objectives
and Policies of the
Fund")

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "General Information"
Securities

16. Investment Advisory "Investment Advisory and
and Other Services Other Services" (See also
the Prospectus
"Management of the Fund")

17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"

18. Capital Stock and See "General Information"
Other Securities and "About the Fund" in
the Prospectus

20. Tax Status "Additional Information
Regarding Taxation"

21. Underwriters "The Fund's Underwriter"

22. Calculation of "General Information"
Performance Data

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part B: Information Required in the
Statement of Additional Information
(Franklin MidCap Growth Fund)

N-1A Location in
Item No. Item Registration Statement

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information Cover Page; About the
and History Fund (see also the
Prospectus " About the
Fund" "General
Information")

13. Investment Objectives "The Fund's Investment
and Policies Objective and
Restrictions" (See also
the Prospectus
"Investment Objective and
Policies of the Fund")

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "General Information"
Securities

16. Investment Advisory "Administration and Other
and Other Services Services" (See also the
Prospectus
"Administration of the
Fund")

17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"

18. Capital Stock and See "General Information"
Other Securities and "About the Fund" in
the Prospectus

20. Tax Status "Additional Information
Regarding Taxation"

21. Underwriters "The Fund's Underwriter"

22. Calculation of "Performance"
Performance Data

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part B: Information Required in the
Statement of Additional Information
(Franklin Institutional MidCap Growth Fund)
(formerly named FISCO MidCap Growth Fund)

N-1A Location in
Item No. Item Registration Statement

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information Cover Page; About the
and History Fund (see also the
Prospectus "Information
About the Fund" "General
Information")

13. Investment Objectives "The Fund's Investment
and Policies Objective and
Restrictions" (See also
the Prospectus
"Investment Objective and
Policies Followed by the
Fund")

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "General Information"
Securities

16. Investment Advisory "Administration and Other
and Other Services Services" (See also the
Prospectus
"Administration of the
Fund")

17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"

18. Capital Stock and See "General Information"
Other Securities and "About the Fund" in
the Prospectus

20. Tax Status "Additional Information
Regarding Taxation"

21. Underwriters "The Fund's Underwriter"

22. Calculation of "Performance"
Performance Data

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part B: Information Required in the
Statement of Additional Information
(Franklin Global Utilities Fund)

N-1A Location in
Item No. Item Registration Statement

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information Cover Page; About the
and History Fund (see also the
Prospectus "About the
Fund" "General
Information")

13. Investment Objectives "The Fund's Investment
and Policies Objective and
Restrictions" (See also
the Prospectus
"Investment Objective and
Policies of the Fund")

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "General Information"
Securities

16. Investment Advisory "Investment Advisory and
and Other Services Other Services" (See also
the Prospectus
"Management of the Fund")

17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"

18. Capital Stock and See "General Information"
Other Securities and "About the Fund" in
the Prospectus

20. Tax Status "Additional Information
Regarding Taxation"

21. Underwriters "The Fund's Underwriter"

22. Calculation of "Performance"
Performance Data

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part B: Information Required in the
Statement of Additional Information
(Franklin Small Cap Growth Fund)

N-1A Location in
Item No. Item Registration Statement

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information Cover Page; About the
and History Fund (see also the
Prospectus "About the
Fund"; "General
Information"

13. Investment Objectives "The Fund's Investment
and Policies Objective and
Restrictions" (See also
the Prospectus
"Investment Objective and
Policies of the Fund")

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees"
Principal Holders of
Securities

16. Investment Advisory "Investment Advisory and
and Other Services Other Services" (See also
the Prospectus
"Management of the Fund")

17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"

18. Capital Stock and See "General Information"
Other Securities and "About the Fund" in
the Prospectus

20. Tax Status "Additional Information
Regarding Taxation"

21. Underwriters "The Fund's Underwriter"

22. Calculation of "General Information"
Performance Data

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part B: Information Required in the
Statement of Additional Information
(Franklin Global Health Care Fund)

N-1A Location in
Item No. Item Registration Statement

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information Cover Page; "About the
and History Fund" (see also the
Prospectus "About the
Fund," "General
Information")

13. Investment Objectives "The Fund's Investment
and Policies Objective and
Restrictions" (See also
the Prospectus
"Investment Objective and
Policies of the Fund")

14. Management of the Fund "Officers and Trustees"

15. Control Persons and "Officers and Trustees";
Principal Holders of "General Information"
Securities

16. Investment Advisory "Investment Advisory and
and Other Services Other Services" (See also
the Prospectus
"Management of the Fund")

17. Brokerage Allocation "The Fund's Policies
Regarding Brokers Used on
Portfolio Transactions"

18. Capital Stock and See "General Information"
Other Securities and "About the Fund" in
the Prospectus

20. Tax Status "Additional Information
Regarding Taxation"

21. Underwriters "The Fund's Underwriter"

22. Calculation of "General Information"
Performance Data

23. Financial Statements "Financial Statements"

FRANKLIN
CALIFORNIA
GROWTH FUND

FRANKLIN STRATEGIC SERIES

PROSPECTUS SEPTEMBER 1, 1995

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

Franklin California Growth Fund (the "Fund") is a non-diversified series of
Franklin Strategic Series (the "Trust"), an open-end management investment
company. The Fund's investment objective is to seek capital appreciation. The
Fund seeks to accomplish its objective by investing primarily in a
non-diversified portfolio of securities of companies headquartered in, or
conducting a majority of operations in, the state of California.

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

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

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

THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE IN WHICH THE OFFERING IS NOT AUTHORIZED. NO SALES REPRESENTATIVE, DEALER,
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. FURTHER
INFORMATION MAY BE OBTAINED FROM THE UNDERWRITER.

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

CONTENTS PAGE

Expense Table

Financial Highlights

About the Fund

Investment Objective
and Policies of the Fund

Management of the Fund

Distributions to Shareholders

Taxation of the Fund
and Its Shareholders

How to Buy Shares of the Fund

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

Other Programs and Privileges
Available to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

EXPENSE TABLE

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund (before fee waivers and expense reductions) for
the fiscal year ended April 30, 1995.

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on Purchases
As a percentage of offering price) 4.50%
Deferred Sales Charge NONE*
Exchange Fee NONE

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

Management Fees 0.63%**
12b-1 Fees 0.13%***

Other Expenses:

Shareholder Servicing Costs 0.07%
Reports to Shareholders 0.13%
Other 0.31%
-----

Total Other Expenses 0.51%
-----
Total Fund Operating Expenses 1.27%**

*Investments of $1 million or more are not subject to a front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month following such investments. See "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge." **Represents the management fee before any
fee waiver by the investment manager. The investment manager has agreed in
advance, however, to waive a portion of its management fees and make certain
payments to reduce expenses. With this waiver and expense reduction, the Fund
paid no management fees and total operating expenses represented 0.25% of the
average net assets of the Fund. This arrangement may be terminated by the
investment manager at any time.

***Consistent with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.

Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.

EXAMPLE

As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge, that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period :

1 YEAR 3 YEARS 5 YEARS 10 YEARS

$57* $83 $112 $191

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

THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, BEFORE FEE
WAIVERS OR EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN. The operating expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund." In addition,
federal regulations require the example to assume an annual return of 5%, but
the Fund's actual return may be more or less than 5%.

FINANCIAL HIGHLIGHTS

Set forth below is a table containing the financial highlights for a share of
the Fund from October 18, 1991 (the effective date of the registration statement
for the Fund) through April 30, 1992, and for the fiscal years ended April 30,
1993, 1994 and 1995. The information for the four fiscal years in the period
ended April 30, 1995 has been audited by Coopers & Lybrand L.L.P., independent
auditors, whose audit report appears in the in the financial statements in the
Fund"s Annual Report to Shareholders dated April 30, 1995. See the discussion
"Reports to Shareholders" under "General Information."

</TABLE>
<TABLE>
<CAPTION>
RATIO/SUPPLEMENTAL DATA
- --------------------------------------------------
RATIO OF NET
INVESTMENT
NET RATIO OF INCOME TO
ASSETS AT EXPENSES TO AVERAGE PORTFOLIO
END OF YEAR AVERAGE NET NET ASSETS TURNOVER
(IN 000's) ASSETS*** (SEE NOTE 6) RATE
- ----------- ----------- ------------ ----------
<S> <C> <C> <C>
$3,091 --% 1.27% 13.73%
3,412 -- 1.23 38.28
4,646 0.09 1.16 135.12
13,844 0.25 1.63 79.52

1For the period October 18, 1991 (effective date) to April 30, 1992.

*Total return measures the change in value of an investment over the periods
indicated. It is not annualized, except as noted. It does not include the
maximum initial sales charge and assumes reinvestment of dividends and capital
gains, if any, at net asset value.

**Annualized

***During the periods indicated, Franklin Advisers, Inc. and FISCO agreed to
waive in advance a portion of their management fees and made payment of other
expenses incurred by the Fund. Had such action not been taken, the ratios of
expenses to average net assets would have been as follows:

Ratio of expenses
to average net assets

<C> <C>
19921.............................................................. 1.61%**
1993............................................................... 1.99
1994............................................................... 1.89
1995..... 1.27

</TABLE>

ABOUT THE FUND

The Fund is a non-diversified series of the Franklin Strategic Series, an
open-end management investment company, commonly called a "mutual fund,"
registered with the SEC under the Investment Company Act of 1940, as amended
(the "1940 Act"). Franklin Strategic Series is a Delaware business trust
organized on January 25, 1991 and is managed by Franklin Advisers, Inc. (the
"Manager" or "Advisers"). Prior to July 12, 1993, the Fund's name had been
Franklin California 250 Growth Fund. On that date, the Fund's investment
objective and various investment policies were changed and, consistent
therewith, its name was changed to the Franklin California Growth Fund.

The Board of Trustees may determine, at a future date, to offer shares of the
Fund in one or more "classes" to permit the Fund to take advantage of
alternative methods of selling Fund shares. "Classes" of shares represent
proportionate interests in the same portfolio of investment securities but with
different rights, privileges and attributes, as determined by the trustees.
Certain funds in the Franklin Templeton Funds, as that term is defined under
"How to Buy Shares of the Fund," currently offer their shares in two classes,
designated "Class I" and "Class II." Because the Fund's sales charge structure
and plan of distribution are similar to those of Class I shares, shares of the
Fund may be considered Class I shares for redemption, exchange and other
purposes.

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund"s net asset value (see "Valuation of Fund Shares") plus a sales charge
not exceeding 4.5% of the offering price. See "How to Buy Shares of the Fund."

INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND

The Fund's investment objective is to seek capital appreciation. Under normal
market conditions, the Fund invests at least 65% of its assets in the securities
of companies either headquartered or conducting a majority of their operations
in the state of California, consisting of the common stock, preferred stock,
warrants for the purchase of common stock, debt securities convertible or
exchangeable for common or preferred stock, and fixed-income securities issued
by such companies. The securities in which the Fund invests are traded primarily
on the New York or American stock exchanges or over-the-counter markets. The
Fund's investment objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. As with any investment, there is no
assurance that the Fund's objective will be achieved.

In attempting to achieve this objective, the Fund expects to invest to some
degree in small to mid-size capitalization companies with market capitalizations
of up to $2.5 billion at the time of the Fund's investment. The Fund may also
invest in relatively well known, larger capitalization companies in mature
industries which the Manager believes have the potential for capital
appreciation.

Although the Fund's assets are invested primarily in securities of
California-linked companies, the Fund may invest up to 35% of its investments in
the securities of companies headquartered or conducting a majority of their
operations outside the state of California, including the common stock,
preferred stock, warrants for the purchase of common stock, debt securities
convertible or exchangeable for common or preferred stock, and fixed-income
securities issued by such companies. In this way the Fund seeks to benefit from
its research into companies and industries within or beyond the Fund's primary
region.

The Fund may also invest up to 35% of its total assets in debt securities
consisting of bonds, notes and debentures if the Manager deems the investment to
present a favorable investment opportunity, consistent with the Fund's objective
of capital appreciation. As noted below, up to 5% of the Fund's net assets may
be invested in fixed-income securities rated below investment grade. The
remainder of the Fund's fixed-income securities will be limited to at least
investment grade and will be rated no lower than BBB by Standard & Poor's
Corporation ("S&P") or Baa by Moody's Investors Service ("Moody's"). Investment
grade securities are regarded as having an adequate capacity to pay principal
and interest but with greater vulnerability to adverse economic conditions and
some speculative characteristics. The Fund may seek capital appreciation by
investing in such debt securities which the Manager believes have the potential
for capital appreciation as a result of improvement in the creditworthiness of
the issuer. The prices of such securities generally increase when interest rates
decline while such prices generally decrease when interest rates rise. The
receipt of income from such debt securities will be incidental to the Fund's
investment objective of capital appreciation.

A portion of the Fund's assets may be invested in convertible debt and preferred
stock. A convertible security is generally a debt obligation or a preferred
stock which may be converted at a stated price within a specified period of time
into a certain quantity of the common or preferred stock of the same or a
different issuer. A convertible security may also be subject to redemption by
the issuer, but only after a particular date and under certain circumstances
established upon issue. Convertible securities provide a fixed-income stream and
the opportunity, through their conversion feature, to participate in the capital
appreciation resulting from a market price advance in the convertible security's
underlying common stock. Though the Fund intends to invest in liquid convertible
securities, there can be no assurance that this will always be achieved.
For more information regarding liquidity, please see
"Illiquid Investments" below; for more information regarding convertible
securities, please see the SAI.

The Fund is permitted to invest up to 5% of its assets in fixed-income
securities, including convertible debt and preferred stocks, bonds, notes and
debentures rated below investment grade. The remainder (up to 30% of total
assets) of such fixed income investments will be limited to investment grade
obligations. The 5% below investment grade portion includes securities that are
rated no lower than B by Moody's or S&P, or that are not rated but determined by
management to be of comparable quality.

Fixed-income securities within the top three categories (i.e., securities rated
AAA, AA and A by S&P or Aaa, Aa or A by Moody's) are generally known as
high-grade securities and are regarded as having a strong capacity to pay
interest or dividends, as the case may be. Medium-grade securities (i.e.,
securities rated BBB by S&P or Baa by Moody's) are regarded as having an
adequate capacity to pay interest or dividends but with greater vulnerability to
adverse economic conditions and some speculative characteristics. Lower rated
(below investment grade) securities, those rated BB or lower by S&P or Ba or
lower by Moody's, are considered by S&P and Moody's, on balance, to be
predominantly speculative with respect to capacity to pay stock obligations in
accordance with the terms of the obligation and will generally involve more
credit risk than securities in the higher rating categories. These lower rated
fixed-income securities are subject to credit risk considerations, and involve
higher risk, while typically offering relatively higher yield, and are commonly
referred to as "junk bonds." The SAI contains a discussion of the risks of
investing in lower rated securities and an Appendix which discusses these
ratings categories.

SPECIAL CONSIDERATIONS

To the extent that the Fund may invest in smaller capitalization companies or
other companies, the Fund may place greater emphasis upon investments in
relatively new or unseasoned companies which are in their early stages of
development, or in new and emerging industries where the opportunity for rapid
growth is expected to be above average. Securities of unseasoned companies
present greater risks than securities of larger, more established companies. The
companies in which the Fund may invest may have relatively small revenues,
limited product lines, and may have a small share of the market for their
products or services. Due to these and other factors, new or unseasoned
companies may suffer significant losses as well as realize substantial growth,
and investments in such companies tend to be volatile and are therefore
speculative. Any such investments, however, will be limited in the case of
issuers which have less than three years continuous operation, including the
operations of any predecessor companies, to no more than 5% of the Fund's total
assets.

The Fund is non-diversified under the federal securities laws. As a
non-diversified Fund, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. However, the Fund intends to comply with the diversification and
other requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable to "regulated investment companies" so that it will not be
subject to U.S. federal income tax on income and capital gains. Accordingly, the
Fund will not purchase securities if, as a result, more than 25% of its total
assets would be invested in the securities of a single issuer or, with respect
to 50% of its total assets, more than 5% of such assets would be invested in the
securities of a single issuer. To the extent the Fund is not fully diversified,
it may be more susceptible to adverse economic, political or regulatory
developments affecting a single issuer than would be the case if it were more
broadly diversified.

RISK FACTORS IN CALIFORNIA

The following information as to certain California risk factors is given to
investors in view of the Fund's policy of investing primarily in companies
currently headquartered or conducting a majority of their operations in
California. Such information constitutes only a brief discussion, does not
purport to be a complete description, and is based primarily upon information
derived from independent credit reports and historically reliable sources, but
has not been independently verified by the Fund.

Although California's economy suffered considerably during the national
recession of the early 1990's, recent data suggests that a recovery in
California is now underway. The State's unemployment rate fell from 10.1% in
January 1994 to 7.7% in October and November 1994. In 1994 over 150,000 new jobs
were added to the California economy, and it is estimated that in 1995 there
will be 220,000 more in sectors such as services, construction, and trade.
Further, inflation in California, as determined by the California consumer price
index, has run considerably below the national rate, and this trend is expected
to continue throughout 1995 and 1996.

California has also seen improvement in its retail sales and construction
sectors. According to survey data from the U.S. Department of Commerce, retail
sales in California are up over 8 percent in September and October 1994 as
compared to the same period in 1993. Residential building permits for November
and December 1994 rose 13 percent from the prior year's level, and the value of
nonresidential construction permits rose 3% during 1994. Improvements in retail
sales, home building activity, existing home sales and bank lending volume all
suggest that the state's economy may be on the upswing.

While much of the current information regarding California's economy indicates
that the state's economy may be improving, the California economy may still show
the effects of the recession and natural disasters to some extent. Federal
reports regarding nonfarm wage and salary employment figures indicate that they
have remained lackluster through 1994, and unemployment rose slightly in January
1995. Although transfer payments, including welfare payments and unemployment
compensation, are slowing, California's jobless rate still hovered approximately
two percent above the national average in October and November 1994. In
addition, the Northridge earthquake in early 1994 and the floods in January 1995
also negatively impacted the economy. The Mexican peso's devaluation may also
have some effect on the California economy, since the currency crisis is likely
to make California's exports to Mexican consumers more expensive.

However, projections for California for the next year are generally positive.
Without accounting for quake-related losses in rental income, income is expected
to grow by 5.7% in 1995 and 6.0% in 1996, with real income growth expected to
exceed 3.0% for both 1995 and 1996. The volume of home building permits is
expected to rise over the next two years, and in 1996 job growth is projected to
exceed 300,000. California is also likely to benefit from its strength in
computers and other high tech products, as well as from trading with Japan and
Western Europe.

The Fund's policy of investing primarily in the securities of California
companies versus a less concentrated investment policy does involve certain
additional risks, including the risk that an economic, business, political,
regulatory or other development or change affecting one portfolio security or
industry, could affect other securities or industries.

SOME OF THE FUND'S OTHER INVESTMENT POLICIES

LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
of Trustees and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 10% of the value of the Fund's
total assets at the time of the most recent loan. The borrower must deposit with
the Fund's custodian collateral with an initial market value of at least 102% of
the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. Such
collateral shall consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. The Fund engages in
security loan arrangements with the primary objective of increasing the Fund's
income either through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.

BORROWING. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of the assets of the Fund, except that the Fund may borrow up to
10% of its total asset value to meet redemption requests and for other temporary
or emergency purposes. While borrowings exceed 5% of the Fund's total assets,
the Fund will not make any additional investments.

ILLIQUID INVESTMENTS. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the fund as valued them) may not
constitute, at the time of purchase, more than 10% of the value of the total net
assets of the Fund. Illiquid securities include illiquid equity securities,
securities with legal or contractual restriction on resale, repurchase
agreements of more than seven days duration, illiquid real estate investment
trusts, securities of issuers with less than three years continuous operation
and other securities which are not readily marketable. The Trust's Board of
Trustees has authorized the Fund to invest in restricted securities (which might
otherwise be considered illiquid) where such investment is consistent with the
Fund's investment objective and has authorized such securities to be considered
liquid (and thus not subject to the foregoing 10% limitation), to the extent the
Manager determines on a daily basis that there is a liquid institutional or
other market for such securities. The Trust's Board of Trustees will review the
Manager's determinations of liquidity, retain ultimate responsibility for such
determinations and will consider appropriate action, consistent with the Fund's
objective and policies, if a security should become illiquid subsequent to its
purchase. For additional information, see "The Fund's Investment Objective and
Restrictions" in the SAI.

SECURITIES INDUSTRY RELATED INVESTMENTS. To the extent consistent with its
investment objective and certain limitations under the 1940 Act, the Fund may
invest its assets in securities issued by companies engaged in securities
related businesses, including such companies that are securities brokers,
dealers, underwriters or investment advisers. Such companies are considered part
of the financial services industry sector.

Pursuant to Section 12 of the 1940 Act, the Fund may not acquire a security or
any interest in a securities related business, to the extent such acquisition
would exceed certain limitations. The Fund does not believe that these
limitations will impede the attainment of its investment objective.

SHORT-TERM INVESTMENTS. The Fund may invest its cash, including cash resulting
from purchases and sales of Fund shares, in short-term debt instruments,
including U.S. government securities, high grade commercial paper, repurchase
agreements and other money market equivalents and, subject to an order of
exemption from the SEC, the shares of affiliated money market funds that invest
primarily in short-term debt securities. Such temporary investments may be made
either for liquidity purposes, to meet redemption requirements or as a temporary
defensive measure.

OPTIONS AND FINANCIAL FUTURES. The Fund may write covered put and call options
and purchase put and call options on securities and securities indices which
trade on securities exchanges and in the over-the-counter market. The Fund may
purchase and sell financial futures and options on financial futures with
respect to securities indices. Additionally, the Fund may purchase and sell
financial futures and options to "close out" financial futures and options it
has previously entered into. The Fund will not enter into any financial futures
contract or related options (except for closing transactions) if, immediately
thereafter, the sum of the amount of its initial deposits and premiums on open
contracts and options would exceed 5% of the Fund's total assets (taken at
current value). The Fund will not engage in any stock options or stock index
options if the option premiums paid regarding its open option positions exceed
5% of the value of the Fund's total assets. The Fund will not engage in
transactions in options or financial futures contracts or options related
thereto for speculation but only as a hedge against changes resulting from
market conditions in the values of its securities or securities which it intends
to purchase and, to the extent consistent therewith, to accommodate cash flows.
Notwithstanding the Fund's ability to enter into such transactions for hedging
purposes, it is not obligated to hedge its investment positions, but may do so
when deemed prudent and consistent with the Fund's objective and policies.

The Fund's option and futures investments involve certain risks. Such risks
include the risks that the effectiveness of an options and futures strategy
depends on the degree to which price movements in the underlying index or
securities correlate with price movements in the relevant portion of the Fund's
portfolio. The Fund bears the risk that the prices of its portfolio securities
will not move in the same amount as the option or future it has purchased, or
that there may be a negative correlation which would result in a loss on both
such securities and the option or future.

Positions in exchange traded options and financial futures may be closed out
only on an exchange which provides a secondary market. There may not always be a
liquid secondary market for a futures or option contract at a time when the Fund
seeks to "close out" its position. If the Fund were unable to "close out" a
futures position, and if prices moved adversely, the Fund would have to continue
to make daily cash payments to maintain its required margin and, if the Fund had
insufficient cash, it might have to sell portfolio securities at a
disadvantageous time. In addition, the Fund might be required to deliver the
stocks underlying futures or options contracts it holds. Over-the-counter
options ("OTC" options) may not be closed out on an exchange and the Fund may be
able to realize the value of an OTC option it has purchased only by exercising
it or entering into a closing sale transaction with the dealer that issued it.
There can be no assurance that a liquid secondary market will exist for any
particular option or financial futures contract at any specific time. Thus, it
may not be possible to close such an option or financial futures position. The
Fund will enter into an option or financial futures position only if there
appears to be a liquid secondary market for such option or financial futures.

The Fund understands the current position of the staff of the SEC to be that
purchased OTC options are illiquid securities. The Fund and Advisers disagree
with this position. Nevertheless, pending a change in the staff's position, the
Fund will treat OTC options as subject to its limitation on illiquid securities.
(See "Investment Objective and Policies Followed by the Fund - Illiquid
Investments" in this Prospectus.)

In addition, adverse market movements could cause the Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a financial futures contract which it has purchased.
There is also the risk of loss by the Fund of margin deposits in the event of
bankruptcy of a broker with whom the Fund has an open position in a financial
futures contract or option. (See "The Fund's Investment Objective and
Restrictions - Transactions in Options, Financial Futures and Options on
Financial Futures" in the SAI for a fuller discussion of the Fund's investments
in options and financial futures, including the risks associated with such
activity.)

The Fund's transactions in options and financial futures contracts may be
limited by the requirements of the Fund for qualification as a regulated
investment company. The Fund's investments in options and financial futures
contracts and certain security transactions (including loans of portfolio
securities) may also reduce the portion of the Fund's dividends which otherwise
would be eligible for the corporate dividends-received deduction. These
securities require the application of complex and special tax rules and
elections, more information about which is included in the SAI.

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

HOW SHAREHOLDERS PARTICIPATE
IN THE RESULTS OF THE FUND'S ACTIVITIES

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

In addition to the factors which affect the value of individual securities, as
described in the preceding sections, a shareholder may anticipate that the value
of Fund shares will fluctuate with movements in the broader equity and bond
markets, as well. A decline in the market, expressed for example by a drop in
the Dow Jones Industrials or the Standard & Poor's 500 average or any other
equity based index, may also be reflected in declines in the Fund's share price.
History reflects both decreases and increases in the valuation of the market,
and these may reoccur unpredictably in the future.

MANAGEMENT OF THE FUND

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

Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B. Johnson and Rupert
H. Johnson, Jr., who own approximately 20% and 16%, respectively, of Resources'
outstanding shares. Resources is engaged in various aspects of the financial
services industry through its various subsidiaries (the "Franklin Templeton
Group").. Advisers acts as investment manager or administrator to 34 U.S.
registered investment companies (113 separate series) with aggregate assets of
over $74 billion.

Pursuant to the management agreement, the Manager supervises and implements the
Fund's investment activities and provides certain administrative services and
facilities which are necessary to conduct the Fund's business.

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

During the fiscal year ended April 30, 1995, management fees before any advance
waiver totaled 0.63% of the average daily net assets of the Fund. Total
operating expenses, including management fees before any advance waiver, totaled
1.27% of the average net assets of the Fund. Pursuant to an agreement by
Advisers to limit its fees, the Fund paid no management fees and operating
expenses totaling 0.25% of the average daily net assets of the Fund.

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

PLAN OF DISTRIBUTION

The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may reimburse Distributors or
others for all expenses incurred by Distributors or others in the promotion and
distribution of the Fund's shares. Such expenses may include, but are not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors, or its affiliates. The maximum amount which the Fund may
pay to Distributors or others for such distribution expenses is 0.25% per annum
of the average daily net assets of the Fund, payable on a quarterly basis. All
expenses of distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Fund. The Plan also covers any payments to or by the Fund, Advisers,
Distributors, or other parties on behalf of the Fund, Advisers, or Distributors,
to the extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund. For more information please
see the SAI.

DISTRIBUTIONS TO SHAREHOLDERS

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

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

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

DISTRIBUTION DATE

Although subject to change by the Trust's Board of Trustees, without prior
notice to or approval by shareholders, the Fund's current policy is to declare
income dividends payable semiannually in June and December for shareholders of
record generally on the first business day preceding the 15th of the month,
payable on or about the last business day of such months. The amount of income
dividend payments by the Fund is dependent upon the amount of net income
received by the Fund from its portfolio holdings, is not guaranteed, and is
subject to the discretion of the Trust's Board of Trustees. Fund shares are
quoted ex-dividend on the first business day following the record date. The Fund
does not pay "interest" or guarantee any fixed rate of return on an investment
in its shares.

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

DIVIDEND REINVESTMENT

Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without sales
charge) on the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset value in the Fund
or Class I shares of other Franklin Templeton Funds. Shareholders have the right
to change their election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as to
distributions for which the record date is seven or more business days after the
Fund has been notified. See the SAI for more information.

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

DISTRIBUTIONS IN CASH

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

TAXATION OF THE FUND AND ITS SHAREHOLDERS

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

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

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

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

For corporate shareholders, 52.66% of the income dividends paid by the Fund for
the fiscal year ended April 30, 1995 qualified for the corporate
dividends-received deduction, subject to certain holding period and debt
financing restrictions imposed under the Code on the corporation claiming the
deduction. These restrictions are discussed in the SAI.

Pursuant to the Code, certain distributions which are declared in October,
November or December but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
received by the shareholder on December 31 of the calendar year in which they
are declared.

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

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

Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes on distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Fund and distributions and redemption proceeds received from
the Fund.

HOW TO BUY SHARES OF THE FUND

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

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price, which is determined
by adding the net asset value per share, plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives the order which
is promptly transmitted to the Fund or (2) after receipt of an order by mail
from the shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The sales charge is
a variable percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places using standard
rounding criteria. A description of the method of calculating net asset value
per share is included under the caption "Valuation of Fund Shares."

Set forth below is a table of total front-end sales charges or underwriting
commissions and dealer concessions.
<TABLE>
<CAPTION>

......... TOTAL SALES CHARGE
------------------
SIZE OF TRANSACTION AT AS A PERCENTAGE OF OFFERING AS A PERCENTAGE OF NET DEALER CONCESSION AS A
OFFERING PRICE PRICE AMOUNT INVESTED PERCENTAGE OF OFFERING

PRICE*, ***

CONCESSION
DEALER CONCESSION
AS A PERCENTAGE AS A PERCENTAGE AS A PERCENTAGE OF
OF OFFERING PRICE OF NET AMOUNT OFFERING PRICE
INVESTED

SIZE OF TRANSACTION
AT OFFERING PRICE

<S> <C> <C> <C>
Less than 4.50% 4.71% 4.00%
$100,000
$100,000 but less than
$250,000 3.75% 3.90% 3.25%
$250,000 but less than
$500,000 2.75% 2.83% 2.50%
$500,000 but less than 2.25% 2.30% 2.00%
$1,000,000

$1,000,000 or more none none (see below)**

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

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

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

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

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

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

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

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

QUANTITY DISCOUNTS IN SALES CHARGES

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

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

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

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

AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in shares of the Fund, registered in the investor"s
name, to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will be included in the
total shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Purchases" in the SAI.

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

GROUP PURCHASES

An individual who is a member of a qualified group may also purchase shares of
the Fund at the reduced sales charge applicable to the group as a whole. The
sales charge is based upon the aggregate dollar value of shares previously
purchased and still owned by the group, plus the amount of the current purchase.
For example, if members of the group had previously invested and still held
$80,000 of Fund shares and now were investing $25,000, the sales charge would be
3.75%. Information concerning the current sales charge applicable to a group may
be obtained by contacting Distributors.

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

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

PURCHASES AT NET ASSET VALUE

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

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 360 days, their shares of the Fund or another of
the Class I Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end sales charge must be
paid at the time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed and subsequently
repurchased, a new contingency period will begin. Shares redeemed in connection
with an exchange into another of the Franklin Templeton Funds (see "Exchange
Privilege") are not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of shares of the Fund
must be received by the Fund or the Fund"s Shareholder Services Agent within 360
days after the redemption. The 360 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.

Shares of the Fund or another of the Franklin Templeton Funds Class I shares may
be purchased at net asset value and without a contingent deferred sales charge
by persons who have received dividends and capital gains distributions in cash
from investments in the Fund within 360 days of the payment date of such
distribution. To exercise this privilege, a written request to reinvest the
distribution must accompany the purchase order. Additional information may be
obtained from Shareholder Services at 1-800/632-2301. See "Distributions in
Cash" under "Distributions to Shareholders."

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds and which was subject to a front-end sales charge
or a contingent deferred sales charge and which has investment objectives
similar to those of the Fund.

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

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton Profit
Sharing 401(k) plan), to the extent of such distribution. In order to exercise
this privilege a written order for the purchase of shares of the Fund must be
received by "Franklin Templeton Trust Company (the "Trust Company"), the Fund or
Investor Services, within 360 days after the plan distribution.

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

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Shares of the Fund may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans including profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by Distributors. Currently those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent 13-month period in the Fund or in any of
the Franklin Templeton Investments totals at least $1,000,000. Employee benefit
plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales related expenses.

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

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

Refer to the SAI for further information regarding net asset value purchases.

GENERAL

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

PURCHASING SHARES OF THE FUND
IN CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS

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

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

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

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

OTHER PROGRAMS AND PRIVILEGE
AVAILABLE TO FUND SHAREHOLDERS

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE SHARES ARE HELD, OF
RECORD, BY A FINANCIAL INSTITUTION OR IN A "STREET NAME" ACCOUNT OR NETWORKED
ACCOUNT THROUGH THE NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE
SECTION CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).

SHARE CERTIFICATES

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

CONFIRMATIONS

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

AUTOMATIC INVESTMENT PLAN

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

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

SYSTEMATIC WITHDRAWAL PLAN

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

The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. Also, redemptions of shares may be subject
to a contingent deferred sales charge if the shares are redeemed within 12
months of the calendar month of the original purchase date. The shareholder
should ordinarily not make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time such a plan is in
effect. The applicable contingent deferred sales charge is waived for share
redemptions of up to 1% monthly of an account's net asset value (12% annually,
6% semiannually, 3% quarterly). For example, if an account maintained an annual
balance of $1,000,000, only $120,000 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge; any amount over that $120,000 would
be assessed a 1% (or applicable) contingent deferred sales charge. A Systematic
Withdrawal Plan may be terminated on written notice by the shareholder or the
Fund, and it will terminate automatically if all shares are liquidated or
withdrawn from the account, or upon the Fund"s receipt of notification of the
death or incapacity of the shareholder. Shareholders may change the amount (but
not below the specified minimum) and schedule of withdrawal payments, or suspend
one such payment by giving written notice to Investor Services at least seven
business days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.

INSTITUTIONAL ACCOUNTS

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

EXCHANGE PRIVILEGE

The Franklin(Registered Trademark) Templeton Funds consist of a number of mutual
funds with various investment objectives or policies. The shares of most of
these mutual funds are offered to the public with a sales charge. If a
shareholder's investment objective or outlook for the securities markets
changes, the Fund shares may be exchanged for shares of other Franklin
Templeton Funds Class I shares which are eligible for sale in the shareholder's
state of residence and in conformity with such fund's stated eligibility
requirements and investment minimums. Investors should review the prospectus of
the fund they wish to exchange from and the fund they wish to exchange into for
all specific requirements or limitations on exercising the exchange privilege,
for example, minimum holding periods or applicable sales charges.

No exchanges between different classes of shares are allowed and, therefore,
shares of the Fund may not be exchanged for Class II shares of other Franklin
Templeton Funds. Shareholders may choose to redeem shares of the Fund and
purchase Class II shares of other Franklin Templeton Funds but such purchase
will be subject to that Fund's Class II front-end and contingent deferred sales
charges for the contingency period of 18 months.

Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

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

EXCHANGES BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(REGISTERED TRADEMARK) SYSTEM (DAY OR
NIGHT)AT 1-800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE
EXTENDED TO A PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE
NOTIFIED.

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

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

EXCHANGES THROUGH SECURITIES DEALERS

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

ADDITIONAL INFORMATION REGARDING EXCHANGES

The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period such shares are exchanged
into and held in a Franklin or Templeton money market fund. If the account has
shares subject to a contingent deferred sales charge, the shares will be
exchanged into the new account on a "first-in, first-out" basis. See also "How
to Sell Shares of the Fund - Contingent Deferred Sales Charge."

Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, declared but unpaid income and
capital gain dividends will be transferred to the fund being exchanged into and
will be invested at net asset value. Because the exchange is considered a
redemption and purchase of shares, the shareholder may realize a gain or loss
for federal income tax purposes. Backup withholding and information reporting
may also apply. Information regarding the possible tax consequences of such an
exchange is included in the tax section in this Prospectus and in the SAI.

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

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

The Fund currently will not accept investments from Timing Accounts.

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

RETIREMENT ACCOUNTS

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

HOW TO SELL SHARES OF THE FUND

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

REDEMPTIONS BY MAIL

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

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

REDEMPTIONS BY TELEPHONE

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

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

REDEEMING SHARES THROUGH SECURITIES DEALERS

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

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers on investments of $1
million or more redeemed within the contingency period of 12 months of the
calendar month following their purchase will be assessed a contingent deferred
sales charge, unless one of the exceptions described below applies. The charge
is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the net asset value at the time of
purchase of such shares, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances.

In determining if a contingent deferred sales charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation of those shares held less than the
contingency period; (ii) shares purchased with reinvested dividends and capital
gain distributions; and (iii) other shares held longer than the contingency
period; and followed by any shares held less than the contingency period, on a
"first in, first out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.

The contingent deferred sales charge is waived for: exchanges; any account fees;
distributions to participants or their beneficiaries in Trust Company individual
retirement plan accounts due to death, disability or attainment of age 59 1/2;
tax-free returns of excess contributions from employee benefit plans;
distributions from employee benefit plans, including those due to termination or
plan transfer; redemptions through a Systematic Withdrawal Plan set up for
shares prior to February 1, 1995, and for Systematic Withdrawal Plans set up
thereafter, redemptions of up to 1% monthly of an account's net asset value (3%
quarterly, 6% semiannually or 12% annually); redemptions initiated by the Fund
due to a shareholder's account falling below the minimum specified account size;
and redemptions following the death of the shareholder or the beneficial owner.

All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.

Requests for redemptions for a SPECIFIED DOLLAR AMOUNT, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of a
SPECIFIC NUMBER OF SHARES will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

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

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

RETIREMENT PLAN ACCOUNTS

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

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

OTHER

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

TELEPHONE TRANSACTIONS

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

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

VERIFICATION PROCEDURES

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

RESTRICTED ACCOUNTS

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

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

GENERAL

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

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

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

VALUATION OF FUND SHARES

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

The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities is deducted from the aggregate gross value of
all assets, and the difference is divided by the number of shares of the Fund
outstanding at the time. For the purpose of determining the aggregate net assets
of the Fund, cash and receivables are valued at their realizable amounts.
Interest is recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such reported
sale, within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The current market
value of any option held by the Fund is its last sales price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices if such valuation is
believed to fairly reflect the contract's market value. Other securities for
which market quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. All money market instruments with a maturity
of more than 60 days are valued at current market, as discussed above. With the
approval of trustees, the Fund may utilize a pricing service, bank or securities
dealer to perform any of the above described functions.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND

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

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

Fund information may be accessed by entering Fund Code 180 followed by the #
sign. The system's automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.

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

HOURS OF OPERATION
(PACIFIC TIME)

DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
<S> <C> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.

8:30 a.m. to 5:00 p.m.

(Saturday)

Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>

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

PERFORMANCE

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

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

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

Yield, which is calculated according to a formula prescribed by the SEC (see the
SAI), is not indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to shareholders
are reflected in the current distribution rate, which may be quoted to
shareholders. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past 12 months by a
current maximum offering price. Under certain circumstances, such as when there
has been a change in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the dividends paid
during the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing and short-term capital gain, and is calculated over a different
period of time.

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

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

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

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

ORGANIZATION AND VOTING RIGHTS

The Fund is a series of Franklin Strategic Series (the "Trust"), a Delaware
business trust organized on January 25, 1991. The Trust is authorized to issue
an unlimited number of shares of beneficial interest, with a par value of $.01
per share in various series. Each series, in effect, represents a separate
mutual fund with its own investment objective and policies. All shares have one
vote and, when issued, are fully paid, non-assessable, and redeemable. The Trust
issues shares in six other series: the Franklin Small Cap Growth Fund, the
Franklin Institutional MidCap Growth Fund, the Franklin MidCap Growth Fund, the
Franklin Global Health Care Fund, the Franklin Strategic Income Fund and the
Franklin Global Utilities Fund. Additional series may be added in the future by
the Board of Trustees. All shares of the Fund have equal voting, dividend and
liquidation rights.

The Trust's shareholders will vote together to elect trustees and on other
matters affecting the entire Trust, but will vote separately on matters
affecting separate series. The shares have non-cumulative voting rights, which
means that holders of more than 50% of the shares voting for the election of
trustees can elect 100% of the trustees if they choose to do so. The Fund does
not intend to hold annual shareholders' meetings. The Fund may, however, hold a
special meeting for such purposes as changing fundamental investment
restrictions, approving a new management agreement or any other matters which
are required to be acted on by shareholders under the 1940 Act. A meeting may
also be called by a majority of the Board of Trustees or by shareholders holding
at least 10% of the shares entitled to vote at the meeting. Shareholders may
receive assistance in communicating with other shareholders in connection with
the election or removal of trustees such as that provided in Section 16(c) of
the 1940 Act.

REDEMPTIONS BY THE FUND

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

OTHER INFORMATION

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

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

ACCOUNT REGISTRATIONS

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

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

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

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

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

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

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

IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS

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

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

PORTFOLIO OPERATIONS

Frank Felicelli, Portfolio Manager - Mr. Felicelli has been generally involved
with investment strategy and stock selection of the Fund's portfolio since its
inception. Mr. Felicelli joined Advisers in 1989 and has a bachelor of arts
degree in economics from the University of Illinois and a masters degree in
business administration and finance from Golden Gate University. He is a
Chartered Financial Analyst and a member of several industry-related
associations.

Conrad B. Herrmann, Portfolio Manager - Mr. Herrmann has been responsible
for the day-to-day management of the Fund's portfolio since its inception. Mr.
Herrman joined Advisers in 1989. He received a bachelor of arts degree from
Brown University and a masters degree in business administration from Harvard
University. Mr. Herrmann is a Chartered Financial Analyst, and is a member of
the Security Analysts of San Francisco and the Association for Investment
Management and Research.

Nick Moore, Portfolio Manager - Mr. Moore has been responsible for the
day-to-day management of the Fund's portfolio since its inception. He joined
Advisers in 1986 and has a bachelor of science in business administration with a
focus in accounting and finance from Menlo College.

Kei Yamamoto, Portfolio Manager - Ms. Yamamoto has been responsible for the
day-to-day management of the Fund's portfolio since April, 1995. Ms. Yamamoto
joined Advisers in 1994. She has a bachelor of science degree in material
science and engineering and a master of science degree from Massachusetts
Institute of Technology. Prior to joining Advisers, Ms. Yamamoto worked at
Goldman Sachs & Co. as a financial analyst and at Wasserstein Perella & Co.,
Inc. as an associate and vice president. Ms. Yamamoto has been in the industry
since 1987.

FRANKLIN STRATEGIC INCOME FUND
FRANKLIN STRATEGIC SERIES
PROSPECTUS SEPTEMBER 1, 1995

777 MARINERS ISLAND BLVD., P.O. BOX 7777

SAN MATEO, CA 94403-7777 1-800/DIAL BEN

Franklin Strategic Income Fund (the "Fund") is a non-diversified series of
Franklin Strategic Series (the "Trust"), an open-end management investment
company. The Fund's primary investment objective is to obtain a high level of
current income, with capital appreciation over the long term as a secondary
objective. The Fund seeks to achieve its objectives by using an active asset
allocation process and a flexible policy of investing in: securities of the
United States ("U.S.") and foreign governments, their agencies, authorities and
instrumentalities; U.S. and foreign corporate high yield fixed-income
securities; various types of fixed or adjustable rate mortgage securities;
asset-backed securities; common stocks which pay dividends; preferred stocks;
and income producing securities which are convertible into common stocks.

THE FUND MAY INVEST UP TO 100% OF ITS PORTFOLIO IN NON-INVESTMENT GRADE BONDS
ISSUED BY BOTH U.S. AND FOREIGN ISSUERS, COMMONLY KNOWN AS "JUNK BONDS," WHICH
ENTAIL DEFAULT AND OTHER RISKS GREATER THAN THOSE ASSOCIATED WITH HIGHER RATED
SECURITIES. INVESTORS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE FUND IN LIGHT OF THE SECURITIES IN WHICH THE FUND INVESTS. SEE
"RISK CONSIDERATIONS - HIGH YIELDING, FIXED-INCOME SECURITIES" AND "RISK
CONSIDERATIONS - FOREIGN SECURITIES."

CONTENTS PAGE

Expense Table

Financial Highlights

About the Fund

Investment Objectives and Policies
of the Fund

Risk Considerations

Management of the Fund

Distributions to Shareholders

Taxation of the Fund and
Its Shareholders

How to Buy Shares of the Fund

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

Other Programs and Privileges
Available to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

Appendix

EXPENSE TABLE

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
annualized operating expenses of the Fund, before fee waivers and expense
reductions, for the period May 24, 1994 (effective date of registration) to
April 30, 1995.

<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.25%
Deferred Sales Charge NONE*
Exchange Fee (per transaction) $5.00**

ANNUAL FUND OPERATING EXPENSES+
(as a percentage of average net assets)

Management Fees 0.63%***
12b-1 Fees 0.02%++

Other Expenses:

Reports to Shareholders 0.33%
Professional Fees 0.23%
Other 0.17%
Total Other Expenses 0.73%
Total Fund Operating Expenses 1.38%***
</TABLE>

**$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.

*** Represents the amount that would have been payable to the investment
manager, absent a fee reduction by the investment manager. The investment
manager, however, agreed in advance to waive its management fees and to assume
responsibility for making payments to offset certain operating expenses
otherwise payable by the Fund. With this reduction, the Fund paid no management
fees and total operating expenses represented 0.25% of the average net assets of
the Fund.

+ Annualized.

++Consistent with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.

Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with an individual's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.

EXAMPLE

ONE YEAR* THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C>
$56 $84 $115 $201

* For the purpose of this example, it is assumed that the 1% contingent deferred
sales charge will not apply.

THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUALIZED OPERATING EXPENSES, BEFORE FEE
WAIVERS AND EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE
SHOWN. The operating expenses are borne by the Fund and only indirectly by
shareholders as a result of their investment in the Fund. In addition, federal
securities regulations require the example to assume an annual return of 5%, but
the Fund's actual return may be more or less than 5%.
</TABLE>

<PAGE>

FINANCIAL HIGHLIGHTS

Set forth below is a table containing the financial highlights for a share of
the Fund for the period May 24, 1994 (effective date of registration) to April
30, 1995. The information has been audited by Coopers & Lybrand L.L.P.,
independent auditors, whose audit report appears in the financial statements in
the Trust's Annual Report to Shareholders dated April 30, 1995. See the
discussion "Reports to Shareholders" under "General Information."
<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET NET REALIZED DISTRIBUTIONS NET ASSET
PERIOD VALUE AT NET & UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUES
ENDED BEGINNING INVESTMENT GAINS ON INVESTMENT INVESTMENT FROM CAPITAL TOTAL AT END TOTAL
APRIL 30 OF YEAR INCOME SECURITIES OPERATIONS INCOME GAINS DISTRIBUTIONS OF YEAR RETURN**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995* $10.00 $0.70 $0.154 $0.854 (0.674) - (0.674) $10.18 8.94%
</TABLE>

<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
PERIOD AT END EXPENSES INCOME PORTFOLIO
ENDED OF YEAR TO AVERAGE TO AVERAGE TURNOVER
APRIL 30 (IN 000'S) NET ASSETS NET ASSETS RATE
- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995* $6,736 0.25%*** 7.93% 68.43%
</TABLE>

* For the period May 24, 1994 (effective date) to April 30, 1995.

**Total return measures the change in value of an investment over the period
indicated. It is not annualized. It does not include the maximum front-end sales
charge and assumes reinvestment of dividends and capital gains, if any, at net
asset value. ***During the period indicated, the investment manager agreed in
advance to waive its management fees and to assume responsibility for making
payments to offset certain operating expenses otherwise payable by the Fund. Had
such action not been taken, the ratio of operating expenses to average net
assets would have been 1.38+%. + Annualized.

ABOUT THE FUND

The Trust is an open-end management investment company, or mutual fund,
organized as a Delaware business trust in January 1991 and registered with the
SEC under the Investment Company Act of 1940, as amended (the "1940 Act"). The
Trust currently consists of nine series, each of which issues a separate series
of the Trust's shares and maintains a totally separate investment portfolio.
This Prospectus relates only to the Franklin Strategic Income Fund, a
non-diversified series of the Trust.

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

The Board of Trustees may determine, at a future date, to offer shares of the
Fund in one or more "classes" to permit the Fund to take advantage of
alternative methods of selling Fund shares. "Classes" of shares represent
proportionate interests in the same portfolio of investment securities but with
different rights, privileges and attributes, as determined by the trustees.
Certain funds in the Franklin Templeton Funds, as defined under "How to Buy
Shares of the Fund," currently offer their shares in two classes, designated
"Class I" and "Class II." Because the Fund's sales charge structure and plan of
distribution are similar to those of Class I shares, shares of the Fund may be
considered Class I shares for redemption, exchange or other purposes.

INVESTMENT OBJECTIVES

AND POLICIES OF THE FUND

The Fund's primary investment objective is to obtain a high level of current
income, with capital appreciation over the long term as a secondary objective.
The Fund will seek to achieve these objectives by using an active asset
allocation process and a flexible policy of investing in securities of U.S. and
foreign governments, their agencies, authorities and instrumentalities; U.S. and
foreign corporate high yield fixed-income securities; various types of fixed or
adjustable rate mortgage securities; asset-backed securities; common stocks
which pay dividends; preferred stocks; and income producing securities which are
convertible into common stocks, generally with particular consideration to
current income but which may also be purchased for long-term capital
appreciation. The investment objectives are fundamental policies of the Fund and
may not be changed without shareholder approval. The policies used to achieve
these objectives are not fundamental policies and are subject to change without
shareholder approval. Because of the Fund's ability to invest in lower rated
U.S. and foreign corporate bonds, an investment in the Fund is subject to a
higher degree of risk than an investment in a more conservative type of income
fund. As with any other investment, there is no assurance that the Fund's
objectives will be achieved.

Under normal circumstances, at least 65% of the Fund's assets will be invested
in U.S. and foreign debt securities which include bonds, notes, mortgage-backed
securities and asset-backed securities, U.S. and foreign corporate high yield
securities, convertible securities, and preferred stock. The Fund may invest the
remainder of its assets, up to 35%, in common stocks, generally with particular
consideration to current income but which may also be purchased for potential
long-term capital appreciation. There are no restrictions, other than as set
forth above, as to the proportion of the Fund's assets which may be invested in
a particular type of security and such determination is entirely within the
investment manager's discretion.

The Fund will use an active asset allocation strategy in order to maximize both
income and capital appreciation, which means that the Fund will allocate its
assets among securities in various market sectors in anticipation of, and in
response to, varying economic, market, industry and issuer conditions. The
investment manager will use a two-sided analysis to take advantage of varying
sector reactions to economic events. The investment manager will use a
"top-down" macroeconomic analysis combined with a "bottom-up" fundamental
sector, industry and issuer analysis. Country risk, business cycles, yield
curves and values between and within markets will be evaluated.

TYPES OF SECURITIES THE FUND MAY PURCHASE

High Yield Corporate Securities. The Fund may invest in securities rated in any
category by Standard & Poor's Corporation ("S&P") or Moody's Investors Service,
Inc. ("Moody's"), two nationally recognized statistical rating organizations
("NRSROs"), including, without limitation, lower rated, fixed-income U.S. and
foreign corporate high yield securities and unrated securities of comparable
quality, commonly called "junk bonds." See "Risk Considerations - High Yielding,
Fixed-Income Securities" and "Risk Considerations - Foreign Securities." As an
operating policy, the Fund will generally invest in securities that are rated at
least Caa by Moody's or CCC by S&P, or in unrated securities of comparable
quality as determined by the investment manager. While unrated debt securities
are not necessarily of lower quality, they may not be as attractive of an
investment as rated securities to many buyers. (See "Appendix" for a description
of the ratings assigned by Moody's and S&P.) Regardless of ratings, all debt
securities considered for purchase (whether rated or unrated) will be carefully
analyzed by the investment manager to insure, to the extent possible, that the
planned investment is consistent with the Fund's investment objectives.

Foreign Securities. The Fund may invest in foreign government and corporate debt
securities and in American Depositary Receipts ("ADRs"), which are certificates
issued by U.S. banks representing the right to receive securities of a foreign
issuer deposited with that bank or a correspondent bank. The Fund's investment
in ADRs may be sponsored and unsponsored. Further information about ADRs is
included in the SAI. The Fund may purchase foreign securities which are traded
in the U.S. and may purchase the securities of foreign issuers directly in
foreign markets. The Fund may also purchase securities of U.S. issuers which are
denominated in a foreign currency. See "Risk Considerations - Foreign
Securities."

Government Securities. The Fund may invest in Treasury bills and bonds, which
are obligations of, or guaranteed by, the U.S. government and are supported by
the full faith and credit of the U.S. Treasury. The Fund may also invest in U.S.
government agency securities, which are obligations of, or guaranteed by, U.S.
government agencies or instrumentalities, such as Federal Home Loan Banks, and
are supported by the right of the issuer to borrow from the Treasury. Securities
of other agencies, such as those issued or guaranteed by the Federal National
Mortgage Association, which are supported only by the credit of the
instrumentality, may also be purchased by the Fund. See the discussion of
mortgage securities below.

Mortgage Securities - General Characteristics. The Fund may invest in mortgage
securities issued or guaranteed by the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal
Home Loan Mortgage Corporation ("FHLMC"), adjustable rate mortgage securities
("ARMs"), collateralized mortgage obligations ("CMOs"), and stripped
mortgage-backed securities, any of which may be privately issued. The Fund may
also invest in asset-backed securities. Please see the discussion below for a
description of the types of municipal or asset-backed securities in which the
Fund invests.

A mortgage security is an interest in a pool of mortgage loans. The primary
issuers or guarantors of mortgage securities are GNMA, FNMA and FHLMC. GNMA
creates mortgage securities from pools of government guaranteed or insured
(Federal Housing Authority or Veterans Administration) mortgages originated by
mortgage bankers, commercial banks, and savings and loan associations. FNMA and
FHLMC issue mortgage securities from pools of conventional and federally insured
and/or guaranteed residential mortgages obtained from various entities,
including savings and loan associations, savings banks, commercial banks, credit
unions, and mortgage bankers. The principal and interest on GNMA securities are
guaranteed by GNMA and backed by the full faith and credit of the U.S.
government. Mortgage securities from FNMA and FHLMC are not backed by the full
faith and credit of the U.S. government. FNMA guarantees full and timely payment
of all interest and principal, and FHLMC guarantees timely payment of interest
and the ultimate collection of principal. Securities issued by FNMA are
supported by the agency's right to borrow money from the U.S. Treasury under
certain circumstances. Securities issued by FHLMC are supported only by the
credit of the agency. There is no guarantee that the government would support
government agency securities and, accordingly, they may involve a risk of
non-payment of principal and interest. Notwithstanding the foregoing, because
FNMA and FHLMC are instrumentalities of the U.S. government, these securities
are generally considered to be high quality investments having minimal credit
risks.

Most mortgage securities are pass-through securities, which means that they
provide investors with monthly payments consisting of a pro rata share of both
regular interest and principal payments, as well as unscheduled early
prepayments, on the underlying mortgage pool. The Fund invests in both
"modified" and "straight" pass-through securities. For "modified pass-through"
type mortgage securities, principal and interest are guaranteed, whereas such
guarantee is not available for "straight pass-through" securities. CMOs and
stripped mortgage securities are not pass-through securities.

Guarantees as to the timely payment of principal and interest do not extend to
the value or yield of mortgage securities nor do they extend to the value of the
Fund's shares. In general, the value of fixed-income securities varies with
changes in market interest rates. Fixed-rate mortgage securities generally
decline in value during periods of rising interest rates, whereas interest rates
of ARMs move with market interest rates, and thus their value tends to fluctuate
to a lesser degree. In view of such factors, the ability of the Fund to obtain a
high level of total return may be limited under varying market conditions.

Adjustable Rate Mortgage Securities. ARMs, like traditional mortgage securities,
are an interest in a pool of mortgage loans and are issued or guaranteed by a
federal agency or by private issuers. Unlike fixed-rate mortgages, which
generally decline in value during periods of rising interest rates, the interest
rates on the mortgages underlying ARMs are reset periodically and thus allow the
Fund to participate in increases in interest rates, resulting in both higher
current yields and lower price fluctuations. The rate of amortization of
principal, as well as interest payments, for certain types of ARMs change in
accordance with movements in a pre-specified, published interest rate index.
There are several categories of indices, including those based on U.S. Treasury
securities, those derived from a calculated measure, such as a cost of funds
index, or a moving average of mortgage rates and actual market rates. The amount
of interest due to an ARM security holder is calculated by adding a specified
additional amount, the "margin," to the index, subject to limitations or "caps"
on the maximum and minimum interest that is charged to the mortgagor during the
life of the mortgage or to maximum and minimum changes to that interest rate
during a given period. The interest rates paid on the ARMs in which the Fund
will invest are generally readjusted at intervals of one year or less, although
instruments with longer resets such as three years and five years are also
permissible investments.

The underlying mortgages which collateralize the ARMs in which the Fund will
invest will frequently have caps and floors which limit the maximum amount by
which the loan rate to the residential borrower may change up or down (1) per
reset or adjustment interval and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting interest
rate changes. These payment caps may result in negative amortization, which can
extend the average life of the securities. Since most ARMs in the Fund's
portfolio will generally have annual reset limits or caps of 100 to 200 basis
points, fluctuations in interest rates above these levels could cause such
mortgage securities to "cap out" and to behave more like long-term, fixed-rate
debt securities.

Stripped Mortgage-Backed Securities. The Fund may invest in stripped
mortgage-backed securities to achieve a higher yield than may be available from
fixed-rate mortgage securities. The stripped mortgage securities in which the
Fund may invest will not be limited to those issued or guaranteed by agencies or
instrumentalities of the U.S. government, although such securities are more
liquid than privately issued stripped mortgage securities. Stripped
mortgage-backed securities are usually structured with two classes, each
receiving different proportions of the interest and principal distributions on a
pool of mortgage assets. Typically, one class will receive some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity of an IO and PO class is
extremely sensitive not only to changes in prevailing interest rates but also to
the rate of principal payments (including prepayments) on the related underlying
mortgage assets.

Stripped mortgage-backed securities have greater market volatility than other
types of mortgage securities in which the Fund invests and are purchased and
sold by institutional investors, such as the Fund, through several investment
banking firms acting as brokers or dealers. As these securities were only
recently developed, traditional trading markets have not yet been established
for all such securities. Accordingly, some of these securities may generally be
illiquid. The staff of the SEC has indicated that only government-issued IO or
PO securities which are backed by fixed-rate mortgages may be deemed liquid, if
procedures with respect to determining liquidity are established by the Fund's
trustees. The Board of Trustees may, in the future, adopt procedures which would
permit the Fund to acquire, hold, and treat as liquid government-issued IO and
PO securities. At the present time, however, all such securities will continue
to be treated as illiquid and will, together with any other illiquid
investments, not exceed 10% of the Fund's net assets. Such position may be
changed in the future, without notice to shareholders, in response to the SEC
staff's continued reassessment of this matter, as well as to changing market
conditions.

Collateralized Mortgage Obligations. CMOs are fixed-income securities which are
collateralized by pools of mortgage loans created by commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage bankers
and other issuers in the U.S. Timely payment of interest and principal (but not
the market value) of some of these pools is supported by various forms of
insurance or guarantees issued by private issuers, those who pool the mortgage
assets and, in some cases, by U.S. government agencies. The Fund may buy CMOs
which are rated in any category by the NRSROs without insurance or guarantee if,
in the opinion of the investment manager, the sponsor is creditworthy.
Prepayments of the mortgages underlying a CMO, which usually increase when
interest rates decrease, will generally reduce the life of the mortgage pool,
thus impacting the CMO's yield. Under such circumstances, the reinvestment of
prepayments will generally be at a rate lower than the rate applicable to the
original CMO.

With a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of a CMO, often referred to as a "tranche," is issued at a specified
coupon rate or adjustable rate and has a stated maturity or final distribution
date. Principal prepayments on collateral underlying a CMO, however, may cause
it to be retired substantially earlier than the stated maturities or final
distribution dates. Interest is paid or accrues on all classes of a CMO on a
monthly, quarterly or semiannual basis. The principal and interest on the
underlying mortgages may be allocated among several classes of a series in many
ways. In a common structure, payments of principal, including any principal
prepayments, on the underlying mortgages are applied to the classes of a series
of a CMO in the order of their respective stated maturities or final
distribution dates, so that no payment of principal will be made on any class of
a CMO until all other classes having an earlier stated maturity or final
distribution date have been paid in full.

To the extent any privately issued CMOs in which the Fund invests are considered
by the SEC to be an investment company, the Fund will limit its investments in
such securities in a manner consistent with the provisions of the 1940 Act.

Asset-Backed Securities. The Fund may invest in various asset-backed securities
rated in any category by an NRSRO. The underlying assets may include, but are
not limited to, receivables on home equity and credit card loans, and
automobile, mobile home and recreational vehicle loans and leases. There may be
other types of asset-backed securities that are developed in the future in which
the Fund may invest. Asset-backed securities are issued in either a pass-through
structure (similar to a mortgage pass-through structure) or in a pay-through
structure (similar to a CMO structure). In general, asset-backed securities
contain shorter maturities than bonds or mortgage loans and historically have
been less likely to experience substantial prepayment.

Asset-backed securities entail certain risks not presented by mortgage-backed
securities as they do not have the benefit of the same type of security
interests in the underlying collateral. Credit card receivables are generally
unsecured and a number of state and federal consumer credit laws give debtors
the right to set off certain amounts owed on the credit cards, thereby reducing
the outstanding balance. In the case of automobile receivables, there is a risk
that the holders may not have either a proper or first security interest in all
of the obligations backing such receivables due to the large number of vehicles
involved in a typical issuance and the technical requirements imposed under
state laws. Therefore, recoveries on repossessed collateral may not always be
available to support payments on securities backed by these receivables.

Options on Securities, Indices and Futures Contracts. The Fund may write (i.e.,
sell) covered put and call options and purchase put and call options on
securities, securities indices or futures contracts that are traded on U. S. or
foreign exchanges or in the over-the-counter markets. An option on a security or
futures contract is a contract that grants the purchaser of the option, in
return for the premium paid, the right to buy a specified security or futures
contract (in the case of a call option) or to sell a specified security or
futures contract (in the case of a put option) from or to the writer of the
option at a designated price during the term of the option. An option on a
securities index grants the purchaser of the option, in return for the premium
paid, the right to receive from the seller cash equal to the difference between
the closing price of the index and the exercise price of the option. The Fund
may write a call or put option only if the option is "covered." This means that
so long as the Fund is obligated as the writer of a call option, it will own the
underlying securities or futures contracts subject to the call, or hold a call
at the same or lower exercise price, for the same exercise period, and on the
same securities or futures contracts as the written call. A put is covered if
the Fund maintains liquid assets with a value equal to the exercise price in a
segregated account, or holds a put on the same underlying securities or futures
contracts at an equal or greater exercise price. The Fund will not engage in any
stock options or stock index options if the option premiums paid on its open
option positions exceed 5% of the value of the Fund's total assets.

Options on Foreign Currencies. The Fund may purchase and write put and call
options on foreign currencies traded on U.S. and foreign exchanges or in the
over-the-counter markets. The Fund will purchase and write such options for
hedging purposes to protect against declines in the U.S. dollar value of foreign
portfolio securities and against increases in the U.S. dollar cost of foreign
securities or other assets to be acquired.

Forward Currency Exchange Contracts. The Fund may enter into forward currency
exchange contracts to attempt to minimize the risk to the Fund from adverse
changes in the relationship between currencies or to enhance income. A forward
currency exchange contract is an obligation to purchase or sell a specific
currency for an agreed price at a future date which is individually negotiated
and privately traded by currency traders and their customers.

Futures Contracts. For hedging purposes only, the Fund may buy and sell
financial futures contracts, stock and bond index futures contracts and foreign
currency futures contracts. A financial futures contract is an agreement between
two parties to buy or sell a specified debt security at a set price on a future
date. An index futures contract is an agreement to take or make delivery of an
amount of cash based on the difference between the value of the index at the
beginning and at the end of the contract period. A futures contract on a foreign
currency is an agreement to buy or sell a specified amount of a currency for a
set price on a future date. The Fund may not commit more than 5% of its total
assets to initial margin deposits on futures contracts. See "The Fund's
Investment Objectives and Policies - Futures Contracts" in the SAI.

The Fund's investment in options, forward currency exchange contracts and
futures contracts, as described above, may be limited by the requirements of the
Internal Revenue Code of 1986, as amended (the "Code") for qualification as a
regulated investment company and are subject to special tax rules that may
affect the amount, timing and character of distributions to shareholders. These
securities require the application of complex and special tax rules and
elections, a discussion of which is included in the SAI.

Inverse Floaters. The Fund may invest up to 5% of its total assets in inverse
floaters. Inverse floaters are instruments with floating or variable interest
rates that move in the opposite direction, usually at an accelerated speed, to
short-term interest rates or interest rate indices.

OTHER STRATEGIES

When Issued and Delayed Delivery Transactions. The Fund may purchase U.S.
government obligations on a "when issued" or "delayed delivery" basis. These
transactions are arrangements under which the Fund purchases securities which
have been authorized but not yet issued with payment for and delivery of the
security scheduled for a future time, generally in 30 to 60 days. Purchases of
U.S. government securities on a when issued or delayed delivery basis are
subject to the risk that the value or yields at delivery may be more or less
than the purchase price or the yields available when the transaction was entered
into. Although the Fund will generally purchase U.S. government securities on a
when issued basis with the intention of holding such securities, it may sell
such securities before the settlement date if it is deemed advisable. When the
Fund is the buyer in such a transaction, it will maintain, in a segregated
account with its custodian, cash or high-grade marketable securities having an
aggregate value equal to the amount of the Fund's purchase commitments until
payment is made. To the extent the Fund engages in when issued and delayed
delivery transactions, it will do so only for the purpose of acquiring portfolio
securities consistent with the Fund's investment objectives and policies, and
not for the purpose of investment leverage. In when issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to do so may cause the Fund to miss a price or yield considered
advantageous. Securities purchased on a when issued or delayed delivery basis do
not generally earn interest until their scheduled delivery date. Entering into a
when issued or delayed delivery transaction is a form of leverage that may
exacerbate changes in net asset value per share.

Mortgage Dollar Rolls. The Fund may enter into mortgage dollar rolls in which
the Fund sells mortgage-backed securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (name, type, coupon
and maturity) securities on a specified future date. During the period between
the sale and repurchase, the Fund forgoes principal and interest paid on the
mortgage-backed securities. The Fund is compensated by the difference between
the current sale price and the lower price for the future purchase (often
referred to as the "drop"), as well as by the interest earned on the cash
proceeds of the initial sale. A "covered roll" is a specific type of mortgage
dollar roll for which there is an offsetting cash position or a cash equivalent
security position. The Fund could suffer a loss if the contracting party fails
to perform the future transaction in that the Fund may not be able to buy back
the mortgage-backed securities it initially sold. The Fund intends to enter into
mortgage dollar rolls only with government securities dealers recognized by the
Federal Reserve Board or with member banks of the Federal Reserve System.

Interest Rate and Currency Swaps. Interest rate swaps involve an exchange
between the Fund and another party of their respective commitments to pay or
receive interest, such as an exchange of fixed rate payments for floating rate
payments. Currency swaps involve the exchange of the parties' respective rights
to make or receive payments in specified currencies. Since interest rate and
currency swaps are individually negotiated, the Fund expects to achieve an
acceptable degree of correlation between its portfolio investments and its
interest rate or currency swap positions.

The use of interest rate and currency swaps is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the investment manager is
incorrect in its forecasts of market values, interest rates and currency
exchange rates, the investment performance of the Fund would be less favorable
than it would have been if this investment technique were not used.

Loan Participations and Defaulted Debt Securities. Loan participations are
interests in floating or variable rate senior loans to U.S. corporations,
partnerships and other entities. While loan participations generally trade at
par value, the Fund will acquire those which sell at a discount because of the
borrower's credit problems. To the extent the borrower's credit problems are
resolved, the loan participation may appreciate in value. The investment manager
may acquire loan participations for the Fund when it believes, over the long
term, appreciation will occur. An investment in such securities, however,
carries substantially the same risks associated with an investment in defaulted
debt securities and may result in the loss of the Fund's entire investment. The
Fund will purchase defaulted debt securities if, in the opinion of the
investment manager, it appears the issuer may resume interest payments or other
advantageous developments appear likely in the near future. Loan participations
and defaulted debt securities may be considered illiquid and, if so, will be
included in the 10% limitation discussed under "Illiquid Investments." See also
"Risk Considerations - High Yielding, Fixed-Income Securities."

Loans of Portfolio Securities. Consistent with procedures approved by the Board
of Trustees and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 33 1/3% of the value of the
Fund's total assets at the time of the most recent loan. It is the Fund's
current intention, however, not to exceed 10% of the value of the Fund's total
assets at the time of the most recent loan. The borrower must deposit with the
Fund's custodian collateral with an initial market value of at least 102% of the
initial market value of the securities loaned, including any accrued interest,
with the value of the collateral and loaned securities marked to the market
daily to maintain collateral coverage of at least 100%. Such collateral shall
consist of cash, securities issued by the U.S. Government, its agencies or
instrumentalities, or irrevocable letters of credit. The lending of securities
is a common practice in the securities industry. The Fund engages in security
loan arrangements with the primary objective of increasing the Fund's income
either through investing cash collateral in short-term interest bearing
obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.

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

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

Illiquid Investments. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities, including illiquid equity securities, defaulted debt securities,
loan participations, repurchase agreements of more than seven days duration, and
other securities which are not readily marketable) may not constitute, at the
time of purchase, more than 10% of the value of the total net assets of the
Fund. Subject to this limitation, the Board of Trustees has authorized the Fund
to invest in restricted securities where such investments are consistent with
the Fund's investment objectives and has authorized such securities to be
considered liquid to the extent the investment manager determines on a daily
basis that there is a liquid institutional or other market for such securities.

Short-Term Investments. The Fund may invest its cash, including cash resulting
from purchases and sales of Fund shares, in short-term debt instruments,
including U.S. government securities, high grade commercial paper, repurchase
agreements and other money market equivalents and, subject to the terms of an
order of exemption from the SEC, the shares of affiliated money market funds
that invest primarily in short-term debt securities. Such temporary investments
may be made either for liquidity purposes, to meet shareholder redemption
requirements or as a temporary defensive measure.

Portfolio Turnover. The Fund anticipates that its annual portfolio turnover rate
generally will not exceed 100%, but this rate should not be construed as a
limiting factor in the operation of the Fund's portfolio. High portfolio
turnover increases transaction costs which must be paid by the Fund and may also
result in the realization of net capital gain, which is taxable when distributed
to shareholders.

OTHER POLICIES

The Fund is non-diversified under the federal securities laws. As a
non-diversified Fund, there is no restriction under the 1940 Act on the
percentage of the Fund's assets that may be invested in the securities of any
one issuer. The Fund, however, intends to comply with the diversification and
other requirements of the Code applicable to regulated investment companies,
such as the Fund, so that it will not be subject to U.S. federal income tax on
income and capital gain distributions to shareholders. Accordingly, the Fund
will not purchase securities if, as a result, more than 25% of its total assets
would be invested in the securities of a single issuer, or with respect to 50%
of its total assets, more than 5% of such assets would be invested in the
securities of a single issuer. To the extent the Fund is not fully diversified,
it may be more susceptible to adverse economic, political or regulatory
developments affecting a single issuer than if it were more fully diversified.

In addition, it is the present policy of the Fund (which may be changed without
the approval of shareholders) not to invest more than 5% of its total assets in
companies which have a record of less than three years continuous operation,
including predecessors, nor to engage in joint or joint and several trading
accounts in securities, except that an order to purchase or sell may be combined
with orders from other persons to obtain lower brokerage commissions. These
investments, together with any illiquid securities, may not exceed 10% of the
Fund's net assets.

The Fund will not invest more than 25% of its total assets in any one industry.
To the extent required by and in conformance with an interpretive position taken
by the SEC, securities issued by a foreign government, its agencies or
instrumentalities are deemed to constitute an "industry" for purposes of this
limitation.

As long as percentage restrictions are observed by the Fund at the time of
purchase, changes in the value of particular Fund assets, or the assets of the
Fund as a whole, will not cause a violation of any of the foregoing
restrictions.

The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of shareholders, which limit its
activities to some extent. For a list of these restrictions and more information
concerning the policies discussed herein, please see the SAI.

RISK CONSIDERATIONS

HIGH YIELDING, FIXED-INCOME SECURITIES

Because the Fund invests in higher yielding, lower rated securities which entail
greater risks, an investment in the Fund is accompanied by a higher degree of
risk than an investment in higher rated, lower yielding securities. Accordingly,
an investment in the Fund should not be considered a complete investment program
and should be carefully evaluated for its appropriateness in light of the
investor's overall investment needs and goals. Persons on fixed incomes, such as
retired persons, should also consider the increased risk of loss to principal
which is present with an investment in higher risk securities, such as those in
which the Fund invests.

The market values of lower rated, fixed-income securities and unrated securities
of comparable quality (commonly known as "junk bonds") tend to reflect
individual corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Such lower rated securities also tend to be more sensitive to
economic conditions than higher rated securities. Bonds rated BB or below by S&P
or Ba or below by Moody's are considered, on balance, to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation and will generally
involve more credit risk than securities in the higher rating categories. Even
bonds rated BBB by S&P or Baa by Moody's, ratings which are considered
investment grade, possess some speculative characteristics.

Companies that issue lower rated, fixed-income securities are often highly
leveraged and may not have more traditional methods of financing available to
them. Therefore, the risk associated with acquiring the securities of such
issuers is generally greater than is the case with higher rated securities. For
example, during an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of high yielding securities may experience
financial stress. During these periods, such issuers may not have sufficient
cash flow to meet their interest payment obligations. The issuer's ability to
service its debt obligations may also be adversely affected by specific
corporate developments, the issuer's inability to meet specific projected
business forecasts, or the unavailability of additional financing. The risk of
loss due to default by the issuer may be significantly greater for the holders
of high yielding securities because such securities are generally unsecured and
are often subordinated to other creditors of the issuer. In general, securities
which default lose much of their value in the time period prior to the actual
default so that the Fund's assets are impacted prior to the default. The Fund
may retain an issue which has defaulted because such issue may present an
opportunity for subsequent price recovery. As of April 30, 1995, no issues in
the Fund's portfolio were in default.

High yielding, fixed-income securities frequently have call or buy-back features
which permit an issuer to call or repurchase the securities from the Fund.
Although such securities are typically not callable for a period from three to
five years after their issuance, if a call were exercised by the issuer during
periods of declining interest rates, the Fund would likely have to replace such
called securities with lower yielding securities, thus decreasing the net
investment income to the Fund and the dividends to shareholders. The premature
disposition of a high yielding security due to a call or buy-back feature, the
deterioration of the issuer's creditworthiness, or a default may also make it
more difficult for the Fund to manage the timing of its receipt of income, which
may have tax implications. The Fund may be required under the Code and U.S.
Treasury regulations to accrue income for income tax purposes on defaulted
obligations and to distribute such income to the Fund's shareholders even though
the Fund is not currently receiving interest or principal payments on such
obligations. In order to generate cash to satisfy any or all of these
distribution requirements, the Fund may be required to dispose of portfolio
securities that it otherwise would have continued to hold or to use cash flows
from other sources such as the sale of Fund shares. Further information is
included under "Taxation of the Fund and Its Shareholders."

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

The Fund is authorized to acquire high yielding, fixed-income securities that
are sold without registration under the federal securities laws and therefore
carry restrictions on resale. While many recent high yielding securities have
been sold with registration rights, covenants and penalty provisions for delayed
registration, if the Fund is required to sell such restricted securities before
the securities have been registered, it may be deemed an underwriter of such
securities, as defined in the Securities Act of 1933, which entails special
responsibilities and liabilities. While the Fund may incur special costs in
disposing of such securities, the Fund will generally not incur such costs when
the issuer is responsible for registering the securities.

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

The high yield securities market is relatively new and much of its growth prior
to 1990 paralleled a long economic expansion. The recent recession disrupted the
market for high yield securities and adversely affected the value of outstanding
securities and the ability of issuers of such securities to meet their
obligations. Those adverse effects may continue even as the economy recovers.
Factors adversely impacting the market value of high yielding securities will
adversely impact the Fund's net asset value. For example, adverse publicity
regarding lower-rated bonds, which appeared during 1989 and 1990, along with
highly publicized defaults of some issuers of high yield securities, and
concerns regarding a sluggish economy which continued in 1993, depressed the
prices for many such securities. In addition, the Fund may incur additional
expenses to the extent it is required to seek recovery upon a default in the
payment of principal or interest on any of its portfolio holdings. The Fund will
rely on the investment manager's judgment, analysis and experience in evaluating
the creditworthiness of an issuer. In this evaluation, the investment manager
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.

<TABLE>
ASSET COMPOSITION TABLE

Ratings published by rating services, such as S&P, will be considered in
connection with the Fund's investment in bonds, although such ratings will not
be determinative. The table below shows the percentage of the Fund's assets
invested in securities rated in each of the S&P rating categories and those that
are not rated but deemed by the investment manager to be of comparable quality.
The information was prepared using a dollar weighted average of the Fund's
portfolio composition based on month-end assets for the period July 1, 1994
through April 30, 1995.

The Appendix to this Prospectus includes a description of each rating category.
<CAPTION>

AVERAGE WEIGHTED

S&P RATING PERCENTAGE OF ASSETS
- ---------- --------------------
<S> <C>
AAA 46.90%*
AA+ 0.28%
AA 3.52%
A+ 1.75%
A 0.14%
BBB+ 0.21%
BBB 0.19%
BB+ 2.63%
BB 4.49%
BB- 5.46%
B+ 9.78%
B 20.04%**
B- 4.61%

* 23.27% of these securities are unrated by rating services.
** 7.48% of these securities are unrated by rating services.

</TABLE>

FOREIGN SECURITIES

Investments in the securities of companies organized outside the U.S. or whose
securities are principally traded outside the U.S. ("foreign issuers") or
investments in securities denominated or quoted in a foreign currency
("non-dollar securities") may offer potential benefits not available from
investments solely in securities of U.S. issuers or U.S. dollar denominated
securities. Such benefits may include the opportunity to invest in foreign
issuers that appear, in the opinion of the investment manager, to offer more
potential for long-term capital appreciation or current earnings than
investments in U.S. issuers, the opportunity to invest in foreign countries with
economic policies or business cycles different from those of the U.S. and the
opportunity to reduce fluctuations in portfolio value by taking advantage of
foreign securities markets that do not necessarily move in a manner parallel to
U.S. markets.

Investments in non-dollar securities or in the securities of foreign issuers
involve significant risks that are not typically associated with investments in
U.S. dollar denominated securities or in securities of U.S. issuers. These
risks, which may involve possible losses, include political, social or economic
instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Changes in government administrations and economic or
monetary policies in the U.S. or abroad, changes in circumstances surrounding
dealings between nations, and changes in currency convertibility or exchange
rates could result in investment losses for the Fund. In addition, public
information may not be as available for a foreign company as it is for a U.S.
domiciled company, foreign companies are generally not subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to U.S. companies, and there is usually less government regulation of
securities exchanges, brokers and listed companies. Confiscatory taxation or
diplomatic developments could also affect these investments.

Investments in foreign securities where delivery takes place outside the U.S.
will be made in compliance with applicable U.S. and foreign currency
restrictions and other laws limiting the amount and types of foreign
investments. Investments may be in securities of foreign issuers located in both
developed or developing countries, but investments will not be made in any
securities issued without stock certificates or comparable stock documents.

Foreign securities may be subject to greater fluctuations in price than U.S.
corporate debt or U.S. government securities. The markets on which such
securities trade may have less volume and liquidity, and may be more volatile
than securities markets in the U.S. Under certain market conditions, these
investments may be less liquid than U.S. debt securities and are certainly less
liquid than U.S. government securities. Finally, in the event of a default of
any such foreign debt obligations, it may be more difficult for the Fund to
obtain or to enforce a judgment against the issuer of such security.

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

The Fund may purchase securities in any foreign country, developed or
developing. Investors should consider carefully the substantial risks involved
in investing in securities issued by companies and governments of foreign
countries, risks that are often heightened for investments in developing
markets. For example, the small size, inexperience and limited volume of trading
of securities markets in certain developing countries may make the Fund's
investments in developing countries illiquid and more volatile than investments
in more developed countries, and the Fund may be required to establish special
custody or other arrangements before making certain investments in such
countries. The laws of some foreign countries may also limit the ability of the
Fund to invest in securities of certain issuers located in those countries.

MORTGAGE SECURITIES

Mortgage securities differ from conventional bonds in that principal is paid
back over the life of the mortgage security rather than at maturity. As a
result, the holder of a mortgage security (i.e., the Fund) receives scheduled
monthly payments of principal and interest, and may receive unscheduled
principal payments representing prepayments on the underlying mortgages. When
the holder reinvests the payments and any unscheduled prepayments of principal
it receives, it may receive a rate of interest which is lower than the rate on
the existing mortgage security. For this reason, mortgage securities may be less
effective than other types of U.S. government securities as a means of "locking
in" long-term interest rates.

The market value of mortgage securities, like other U.S. government securities,
will generally vary inversely with changes in market interest rates, declining
when interest rates rise and rising when interest rates decline. Mortgage
securities may have less potential for capital appreciation than other
investments of comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline. In addition, to the extent
mortgage securities are purchased at a premium, unscheduled principal
prepayments, including prepayments resulting from mortgage foreclosures, may
result in some loss of the holder's principal investment to the extent of the
premium paid. On the other hand, if mortgage securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled prepayment of
principal will increase current and total returns and will accelerate the
recognition of income which, when distributed to shareholders, will be taxable
as ordinary income.

OPTIONS AND FUTURES CONTRACTS

The purchase and sale of futures contracts and options thereon, as well as the
purchase and writing of options on securities and securities indices and
currencies, involve risks different from those involved with direct investments
in securities. A liquid secondary market for a futures or options contract may
not be available when a futures or options position is sought to be closed and
the inability to close a position may have an adverse impact on the Fund's
ability to effectively hedge securities or foreign currency exposure. In
addition, there may be an imperfect correlation between movements in the
securities or foreign currency on which the futures or options contract is based
and movements in the securities or currency in the Fund's portfolio. Successful
use of futures or options contracts is further dependent on the investment
manager's ability to correctly predict movements in the securities or foreign
currency markets and no assurance can be given that its judgment will be
correct. In addition, by writing covered call options, the Fund gives up the
opportunity to profit from any price increase in the underlying security above
the option exercise price, while the option is in effect.

HOW SHAREHOLDERS PARTICIPATE IN
THE RESULTS OF THE FUND'S ACTIVITIES

To the extent the Fund's investments consist of debt securities, changes in
interest rates will affect the value of the Fund's portfolio and thus its share
price. Increased rates of interest which frequently accompany higher inflation
and/or a growing economy are likely to have a negative effect on the value of
Fund shares. To the extent the Fund's investments consist of common stocks, a
decline in the market, expressed for example by a drop in the Dow Jones
Industrial Average or the Standard & Poor's 500 Index or any other equity based
index, may also be reflected in declines in the Fund's share price. To the
extent of the Fund's investment in foreign securities, changes in the prevailing
rates of interest in any of the countries in which the Fund is invested will
likely affect the value of the Fund's holdings and thus the value of Fund
shares. In addition, changes in currency valuations or a decline in the stock
market of any country in which the Fund is invested will impact the price of
Fund shares. History reflects both increases and decreases in the prevailing
rates of interest, in foreign currency valuations and in the valuation of stock
markets in both the U.S. and in foreign countries. These may reoccur
unpredictably in the future.

MANAGEMENT OF THE FUND

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

Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the Fund's
investment manager. Advisers is a wholly-owned subsidiary of Franklin Resources,
Inc. ("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 34 U.S. registered investment
companies (113 separate series) with aggregate assets of over $74 billion.

Templeton Investment Counsel, Inc. ("TICI" or the "Sub-Adviser") is employed by
Advisers to act as sub-adviser to the Fund. TICI is an indirect subsidiary of
Templeton Worldwide, Inc., which, operating through its subsidiaries, is a major
investment management organization with approximately $41.8 billion of assets
currently under management and a long history of global investing.

Pursuant to the management and sub-advisory agreements, Advisers and TICI
supervise and implement the Fund's investment activities and provide certain
administrative services and facilities which are necessary to conduct the Fund's
business.

During the period from May 24, 1994 (effective date of registration) to April
30, 1995, fees totaling 0.63% of the average net assets of the Fund would have
accrued to Advisers. Total operating expenses, including management fees, would
have represented 1.38% of the average net assets of the Fund. Pursuant to an
agreement by Advisers to limit its fees, the Fund paid no management fees and
paid operating expenses totaling 0.25% of the average net assets of the Fund.

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

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

PLAN OF DISTRIBUTION

The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may reimburse Distributors or
others for all expenses incurred by Distributors or others in the promotion and
distribution of the Fund's shares. Such expenses may include, but are not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates. The maximum amount which the Fund may
pay to Distributors or others for such distribution expenses is 0.25% per annum
of the average daily net assets of the Fund, payable on a quarterly basis. All
expenses of distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Fund. The Plan also covers any payments to or by the Fund, Advisers,
Distributors, or other parties on behalf of the Fund, Advisers or Distributors,
to the extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund. For more information, please
see the SAI.

DISTRIBUTIONS TO SHAREHOLDERS

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

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

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

DISTRIBUTION DATE

Although subject to change by the Board of Trustees, without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends monthly for shareholders of record on the last business day of the
month, payable on or about the 15th day of the following month. The amount of
income dividend payments by the Fund is dependent upon the amount of net income
received by the Fund from its portfolio holdings, is not guaranteed and is
subject to the discretion of the Board of Trustees. Fund shares are quoted
ex-dividend on the first business day following the record date. THE FUND DOES
NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS
SHARES.

DIVIDEND REINVESTMENT

Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date ("ex-dividend date"). Dividend and
capital gain distributions are only eligible for reinvestment at net asset value
in the Fund or in Class I shares of other Franklin Templeton Funds, as defined
under "How to Buy Shares of the Fund." Shareholders have the right to change
their election with respect to the receipt of distributions by notifying the
Fund, but any such change will be effective only as to distributions for which
the record date is seven or more business days after the Fund has been notified.
See the SAI for more information.

course, any shares so acquired remain at market risk.

DISTRIBUTIONS IN CASH

TAXATION OF THE FUND AND ITS SHAREHOLDERS

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

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

For corporate investors, it is anticipated that only a small portion of the
Fund's dividends will qualify for the corporate dividends-received deduction
because of the Fund's principal investment in debt securities. To the extent
that the Fund pays dividends which qualify for this deduction, the availability
of the deduction is subject to certain holding period and debt financing
restrictions imposed under the Code on the corporation claiming the deduction.

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

HOW TO BUY SHARES OF THE FUND

Shares of the Fund are continuously offered through securities dealers which
execute an agreement with Distributors, the principal underwriter of the Fund's
shares. The use of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors (directly or
through affiliates), handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity. The minimum initial investment is $100 and subsequent
investments must be $25 or more. These minimums may be waived when the shares
are purchased through plans established by the Franklin Templeton Group. The
Fund and Distributors reserve the right to refuse any order for the purchase of
shares.

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price, which is determined
by adding the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives the order which
is promptly transmitted to the Fund, or (2) after receipt of an order by mail
from the shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The sales charge is
a variable percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places using standard
rounding criteria. A description of the method of calculating net asset value
per share is included under the caption "Valuation of Fund Shares."

Set forth below is a table of total front-end sales charges or underwriting
commissions and dealer concessions.
<TABLE>

TOTAL SALES CHARGE

DEALER
CONCESSION

AS A PERCENTAGE AS A PERCENTAGE AS A PERCENTAGE OF
OF OFFERING PRICE OF NET AMOUNT OFFERING PRICE*,***

INVESTED

SIZE OF TRANSACTION

AT OFFERING PRICE

<S> <C> <C> <C>
Less than $100,000 4.25% 4.44% 4.00%
$100,000 but less than $250,000 3.50% 3.63% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.15% 2.20% 2.00%
$1,000,000 or more none none (see below)**
</TABLE>

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

** The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 0.75% on sales of $1 million but less than $2 million,
plus 0.60% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases.

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

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

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

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

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

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

QUANTITY DISCOUNTS IN SALES CHARGES

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

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

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

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

AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in shares of the Fund, registered in the investor's
name, to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will be included in the
total shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Purchases" in the SAI.

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

GROUP PURCHASES

An individual who is a member of a "qualified group," as defined below, may also
purchase shares of the Fund at the reduced sales charge applicable to the group
as a whole. The sales charge is based upon the aggregate dollar value of shares
previously purchased and still owned by the group, plus the amount of the
current purchase. For example, if members of the group had previously invested
and still held $80,000 of Fund shares and now were investing $25,000, the sales
charge would be 3.50%. Information concerning the current sales charge
applicable to a group may be obtained by contacting Distributors.

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

PURCHASES AT NET ASSET VALUE

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

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 360 days, their shares of the Fund or Class I
shares of another of the Franklin Templeton Funds which were purchased with a
front-end sales charge or assessed a contingent deferred sales charge on
redemption. If a different class of shares is purchased, the full front-end
sales charge must be paid at the time of purchase of the new shares. An investor
may reinvest an amount not exceeding the redemption proceeds. While credit will
be given for any contingent deferred sales charge paid on the shares redeemed
and subsequently repurchased, a new contingency period will begin. Shares of the
Fund redeemed in connection with an exchange into Class I shares of another of
the Franklin Templeton Funds (see "Exchange Privilege") are not considered
"redeemed" for this privilege. In order to exercise this privilege, a written
order for the purchase of shares of the Fund must be received by the Fund or the
Fund's Shareholder Services Agent within 360 days after the redemption. The 360
days, however, do not begin to run on redemption proceeds placed immediately
after redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset value may also be
handled by a securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the amount of gain or loss
recognized and the tax basis of the shares reinvested. If there has been a loss
on the redemption, the loss may be disallowed if a reinvestment in the same fund
is made within a 30-day period. Information regarding the possible tax
consequences of such a reinvestment is included in the tax section of this
Prospectus and the SAI.

Shares of the Fund or Class I shares of another of the Franklin Templeton Funds
may be purchased at net asset value and without a contingent deferred sales
charge by persons who have received dividends and capital gains distributions in
cash from investments in the Fund within 360 days of the payment date of such
distribution. To exercise this privilege, a written request to reinvest the
distribution must accompany the purchase order. Additional information may be
obtained from Shareholder Services at 1-800/632-2301. See "Distributions in
Cash" under "Distributions to Shareholders."

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by investors who have, within
the past 60 days, redeemed an investment in a mutual fund which is not part of
the Franklin Templeton Funds and which was subject to a front-end sales charge
or a contingent deferred sales charge, and which has investment objectives
similar to those of the Fund.

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

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton Profit
Sharing 401(k) plan), to the extent of such distribution. In order to exercise
this privilege a written order for the purchase of shares of the Fund must be
received by Franklin Templeton Trust Company (the "Trust Company"), the Fund or
Investor Services, within 360 days after the plan distribution.

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

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans including profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by Distributors. Currently those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested in the Fund or in any of the Franklin Templeton Investments
during the subsequent 13-month period totals at least $1,000,000. Employee
benefit plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements, as well as the uniform criteria for qualified groups
previously described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales related expenses.

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

Refer to the SAI for further information regarding net asset value purchases.

GENERAL

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

PURCHASING SHARES OF THE FUND IN

CONNECTION WITH RETIREMENT PLANS

INVOLVING TAX-DEFERRED INVESTMENTS

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

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

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

OTHER PROGRAMS AND PRIVILEGES

AVAILABLE TO FUND SHAREHOLDERS

SHARE CERTIFICATES

CONFIRMATIONS

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

AUTOMATIC INVESTMENT PLAN

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

SYSTEMATIC WITHDRAWAL PLAN

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

The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. Also, redemptions of shares may be subject
to a contingent deferred sales charge if the shares are redeemed within 12
months of the calendar month of the original purchase date. The shareholder
should ordinarily not make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time such a plan is in
effect. The applicable contingent deferred sales charge is waived for share
redemptions of up to 1% monthly of an account's net asset value (12% annually,
6% semiannually, 3% quarterly). For example, if an account maintained an annual
balance of $1,000,000, only $120,000 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge; any amount over that $120,000 would
be assessed a 1% (or applicable) contingent deferred sales charge. A Systematic
Withdrawal Plan may be terminated on written notice by the shareholder or the
Fund, and it will terminate automatically if all shares are liquidated or
withdrawn from the account, or upon the Fund's receipt of notification of the
death or incapacity of the shareholder. Shareholders may change the amount (but
not below the specified minimum) and schedule of withdrawal payments, or suspend
one such payment by giving written notice to Investor Services at least seven
business days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.

INSTITUTIONAL ACCOUNTS

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

EXCHANGE PRIVILEGE

The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, Fund shares may be
exchanged for Class I shares of other Franklin Templeton Funds which are
eligible for sale in the shareholder's state of residence and in conformity with
such fund's stated eligibility requirements and investment minimums. Investors
should review the prospectus of the fund they wish to exchange from and the fund
they wish to exchange into for all specific requirements or limitations on
exercising the exchange privilege, for example, minimum holding periods or
applicable sales charges. No exchanges between different classes of shares are
allowed and, therefore, shares of the Fund may not be exchanged for Class II
shares of other Franklin Templeton Funds. Shareholders may choose to redeem
shares of the Fund and purchase Class II shares of other Franklin Templeton
Funds but such purchase will be subject to that fund's Class II front-end and
contingent deferred sales charges for the contingency period of 18 months.

Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(REGISTERED TRADEMARK) SYSTEM (DAY OR NIGHT)
AT 1-800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A
PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.

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

EXCHANGES THROUGH SECURITIES DEALERS

ADDITIONAL INFORMATION REGARDING EXCHANGES

The contingency period during which a contingent deferred sales charge may be
assessed will be tolled (or stopped) for the period shares are exchanged into
and held in a Franklin or Templeton money market fund. If an account has shares
subject to a contingent deferred sales charge, the shares will be exchanged into
the new account on a "first-in, first-out" basis. See also "How to Sell Shares
of the Fund - Contingent Deferred Sales Charge."

Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, declared but unpaid income
dividends and capital gain distributions will be transferred to the fund being
exchanged into and will be invested at net asset value. Because the exchange is
considered a redemption and purchase of shares, the shareholder may realize a
gain or loss for federal income tax purposes. Backup withholding and information
reporting may also apply. Information regarding the possible tax consequences of
such an exchange is included in the tax section in this Prospectus and in the
SAI.

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

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

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

RETIREMENT PLAN ACCOUNTS

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

TIMING ACCOUNTS

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

RESTRICTIONS ON EXCHANGES

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

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

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

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

HOW TO SELL SHARES OF THE FUND

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

REDEMPTIONS BY MAIL

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

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

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

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

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

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

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

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

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

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

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

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

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

REDEMPTIONS BY TELEPHONE

Shareholders who complete the Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN
CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."

REDEEMING SHARES THROUGH SECURITIES DEALERS

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

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers, investments of $1
million or more redeemed within the contingency period of 12 months of the
calendar month following their purchase will be assessed a contingent deferred
sales charge, unless one of the exceptions described below applies. The charge
is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the net asset value at the time of
purchase of such shares, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances.

In determining if a contingent deferred sales charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) a calculated number of shares representing amounts
attributable to capital appreciation of those shares held less than the
contingency period; (ii) shares purchased with reinvested dividends and capital
gain distributions; and (iii) other shares held longer than the contingency
period; and followed by any shares held less than the contingency period, on a
"first-in, first-out" basis. For tax purposes, a contingent deferred sales
charge is treated as either a reduction in redemption proceeds or an adjustment
to the cost basis of the shares redeemed.

All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.

Requests for redemptions of a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of a
SPECIFIC NUMBER of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

RETIREMENT PLAN ACCOUNTS

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

OTHER

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

TELEPHONE TRANSACTIONS

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

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

VERIFICATION PROCEDURES

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

RESTRICTED ACCOUNTS

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

GENERAL

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

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

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

VALUATION OF FUND SHARES

The net asset value per share of the Fund is determined in the following manner:
The aggregate of all liabilities is deducted from the aggregate gross value of
all assets, and the difference is divided by the number of shares of the Fund
outstanding at the time. For the purpose of determining the aggregate net assets
of the Fund, cash and receivables are valued at their realizable amounts,
interest is recorded as accrued and dividends are recorded on the ex-dividend
date. Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such reported
sale, within the range of the most recent quoted bid and ask prices.
Over-the-counter portfolio securities for which market quotations are readily
available are valued within the range of the most recent bid and ask prices as
obtained from one or more dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter market and on a stock
exchange are valued according to the broadest and most representative market as
determined by the Manager. Portfolio securities underlying actively traded call
options are valued at their market price as determined above. The current market
value of any option held by the Fund is its last sale price on the relevant
exchange prior to the time when assets are valued. Lacking any sales that day or
if the last sale price is outside the bid and ask prices, the options are valued
within the range of the current closing bid and ask prices, if such valuation is
believed to fairly reflect the contract's market value. Other securities for
which market quotations are readily available are valued at the current market
price, which may be obtained from a pricing service, based on a variety of
factors, including recent trades, institutional size trading in similar types of
securities (considering yield, risk and maturity) and/or developments related to
specific issues. Securities and other assets for which market prices are not
readily available are valued at fair value as determined following procedures
approved by the Board of Trustees. With the approval of trustees, the Fund may
utilize a pricing service, bank or securities dealer to perform any of the above
described functions.

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

HOW TO GET INFORMATION REGARDING

AN INVESTMENT IN THE FUND

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

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

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

Fund information may be accessed by entering Fund Code 194 followed by the #
sign. The system's automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.

HOURS OF OPERATION
(PACIFIC TIME)

DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- --------------- ------------- -----------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.

(Saturday)

Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.

</TABLE>

calls can be determined by the presence of a regular beeping tone.

PERFORMANCE

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

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

Yield, which is calculated according to a formula prescribed by the SEC (see the
SAI), is not indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to shareholders
are reflected in the current distribution rate, which may be quoted to
shareholders. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past 12 months by a
current maximum offering price. Under certain circumstances, such as when there
has been a change in the amount of dividend payout or a fundamental change in
investment policies, it might be appropriate to annualize the dividends paid
during the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing and short-term capital gain, and is calculated over a different
period of time.

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

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

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

ORGANIZATION AND VOTING RIGHTS

The Trust was organized as a Delaware business trust on January 25, 1991. The
Agreement and Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest, with a par value of
$.01 per share, which may be issued in any number of series and classes. Shares
issued will be fully paid and non-assessable and will have no preemptive,
conversion, or sinking rights. Shares of each series have equal and exclusive
rights as to dividends and distributions as declared by such series and the net
assets of such series upon liquidation or dissolution. The Trust reserves the
right to issue additional classes of shares of the Fund, or to add additional
series.

Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series, or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are noncumulative so that, in any election of trustees,
the holders of more than 50% of the shares voting can elect all of the trustees,
if they choose to do so, and, in such event, the holders of the remaining shares
voting will not be able to elect any person or persons to the Board of Trustees.
The Trust does not intend to hold annual shareholders' meetings. The Trust may,
however, hold a special shareholders' meeting of a series for such purposes as
changing fundamental investment restrictions for the series, approving a new
management agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. A meeting may also be called by the trustees,
in their discretion, or by shareholders holding at least ten percent of the
outstanding shares of the Trust. Shareholders will receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees, such as that provided in Section 16(c) of the 1940 Act.

REDEMPTIONS BY THE FUND

CONVERSION TO MASTER/FEEDER FUND STRUCTURE

Currently, in seeking to accomplish its objectives, the Fund invests directly in
a portfolio of securities, as described in "Investment Objectives and Policies
of the Fund." Certain funds administered by the Manager participate as feeder
funds in a master/feeder fund structure. Under a master/feeder structure, one or
more feeder funds invests its assets in a master fund, which, in turn, invests
its assets directly in securities. The Fund reserves the right to convert to a
master/feeder fund structure at a future date.

Various state governments have adopted the North American Securities
Administrators Association Guidelines for registration of master/feeder funds.
If required by those guidelines, as then in effect, the Fund will seek
shareholder approval prior to converting the Fund to a master/feeder structure,
subject to there not being adopted a superseding contrary provision or ruling
under federal law. If it is determined by the requisite regulatory authorities
that such approval is not required, shareholders will be deemed to have
consented to such conversion by their purchase of Fund shares and no further
shareholder approval will be sought or needed. Shareholders will, however, be
informed in writing in advance of the conversion. The determination to convert
the Fund to a master/feeder fund structure will not result in an increase in the
fees or expenses paid by the Fund or its shareholders. The investment objectives
and other fundamental policies of the Fund, which can be changed only with
shareholder approval, are structured so as to permit the Fund to invest directly
in securities or indirectly in securities through a master/feeder fund
structure.

OTHER INFORMATION

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

ACCOUNT REGISTRATIONS

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

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

IMPORTANT NOTICE REGARDING

TAXPAYER IRS CERTIFICATIONS

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

PORTFOLIO OPERATIONS

The following person is primarily responsible for the day-to-day management of
the Fund's portfolio: Mr. Molumphy since the Fund's inception.

Chris Molumphy
Portfolio Manager of Advisers

Mr. Molumphy is a Chartered Financial Analyst and holds a Master's of Business
Administration degree in finance from the University of Chicago. He earned his
Bachelor of Arts degree in economics from Stanford University. Mr. Molumphy is a
member of several securities industry associations. He joined Franklin in 1988.

APPENDIX

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

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

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

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

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

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

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

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

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

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

DESCRIPTION OF S&P CORPORATE BOND RATINGS

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

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

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

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

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

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

FRANKLIN MIDCAP GROWTH FUND
FRANKLIN STRATEGIC SERIES
PROSPECTUS

SEPTEMBER 1, 1995

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

Franklin MidCap Growth Fund (the "Fund") is a diversified series of Franklin
Strategic Series (the "Trust"), an open-end management investment company. The
Fund's investment objective is to seek total return (capital growth plus income)
exceeding the total return of the aggregate U.S. medium capitalization stocks,
as measured by the Standard and Poor's ("S&P") MidCap 400 Index* (the
"Benchmark"). The investment objective is to seek total return (capital growth
plus income) exceeding the total return of the aggregate U.S. medium
capitalization stocks, as measured by the Standard and Poor's MidCap 400 Index*
(the "Benchmark"). THE FUND, UNLIKE MOST FUNDS WHICH INVEST DIRECTLY IN
SECURITIES, SEEKS TO ACHIEVE THIS OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN
SHARES OF MIDCAP GROWTH PORTFOLIO, AN OPEN-END, DIVERSIFIED MANAGEMENT
INVESTMENT COMPANY (THE "PORTFOLIO") WHOSE INVESTMENT OBJECTIVES ARE THE SAME AS
THOSE OF THE FUND. The Portfolio in turn invests primarily in a broadly
diversified portfolio of medium capitalization stocks. Neither the Fund nor the
Portfolio are sponsored by or affiliated with S&P.

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

* "Standard & Poor's MidCap 400 Index" and "S&P MidCap 400 Index" are trademarks
of S&P. Neither the Fund nor the Portfolio are sponsored, endorsed, sold or
promoted by S&P.

CONTENTS PAGE

Expense Table

About the Fund

Investment Objective and
Policies of the Fund

Administration of the Fund

Distributions to Shareholders

Taxation of the Fund and Its Shareholders

How to Buy Shares of the Fund

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

Other Programs and Privileges Available
to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding Taxpayer
IRS Certifications

Portfolio Operations

<PAGE>

EXPENSE TABLE

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. Although the Fund's registration was
effective on August 17, 1993, it did not commence operations during the fiscal
year ended April 30, 1995. The figures for "Annual Operating Expenses" are based
on contractual amounts and, in the case of "Other Operating Expenses", on
estimated amounts for the Fund's initial fiscal period of operation.

SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases 4.50%
(as a percentage of offering price)
Deferred Sales Charge NONE*

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

Management Fees of the Portfolio 0.50%
Administration Fees of the Fund 0.15%
12b-1 Fees 0.25%**
Other Expenses
....Reports to Shareholders 0.06%
....Registration Expenses 0.11%
....Other Expenses 0.09%
Total Other Expenses 0.26%
-----
Total Operating Expenses 1.16%
-----

**Consistent with National Association of Securities Dealers, Inc.'s rules, it
is possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.

EXAMPLE

The following example illustrates the expenses that apply to a $1,000 investment
in the Fund over various time periods assuming (1) a 5% annual rate of return
and (2) redemption at the end of each time period. As noted in the table above,
the Fund charges no redemption fees:

1 YEAR 3 YEARS
$56 $80

*assumes that a contingent deferred sales charge will not apply.

This example is based on the contractual operating expenses shown above and
should not be considered a representation of future expenses, which may be more
or less than those shown. The operating expenses are borne by the Fund, and only
indirectly by shareholders as a result of their investment in the Fund. (See
"Administration of the Fund" for a description of the Fund's expenses.) In
addition, federal regulations require the example to assume an annual return of
5%, but the Fund's actual return may be more or less than 5%.

The above table summarizes the estimated aggregate fees and expenses of the Fund
and the Portfolio. The Board of Trustees considered the aggregate fees and
expenses to be paid by both the Fund and the Portfolio under the Fund's policy
of investing all of its assets in shares of the Portfolio, and such fees and
expenses that the Fund would pay if it invested directly in common stocks.
Because this arrangement enables various institutional investors, including the
Fund, to pool their assets, which may be expected to result in the achievement
of a variety of operating economies, the board concluded that the aggregate
expenses of the Fund and the Portfolio were expected to be lower than the
expenses that would be incurred by the Fund if it invested directly in common
stocks, although there is no guarantee or assurance that asset growth and lower
expenses will be recognized. Administrator has agreed to limit expenses so that
in no event will shareholders of the Fund incur higher expenses than if it
invested directly in common stocks. Further information regarding the Fund's and
the Portfolio's fees and expenses is included under "Administration of the
Fund."

ABOUT THE FUND

Franklin MidCap Growth Fund, is a diversified series of Franklin Strategic
Series (the "Trust"), an open-end management investment company, commonly called
a "mutual fund," which has registered as such under the Investment Company Act
of 1940 (the "1940 Act"). The Trust is a Delaware business trust organized on
January 25, 1991.

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price, which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge not
exceeding 4.5]% of the offering price. See "How to Buy Shares of the Fund."

Franklin Advisers, Inc., (the "Administrator") will serve as the Fund's
administrator, performing various administrative services as discussed under
"Administration of the Fund." Templeton Quantitative Advisors, Inc., ("TQA" or
"Manager") will serve as the investment manager for the Portfolio.

The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
1940 Act pursuant to which it will pay up to a maximum of 0.25% per annum of its
average daily net assets to Distributors or others as reimbursement for expenses
incurred in the distribution of the Fund's shares.

INVESTMENT OBJECTIVES AND POLICIES OF THE FUND

The investment objective is to seek total return (capital growth plus income)
exceeding the total return of the aggregate U.S. medium capitalization stocks,
as measured by the Standard and Poor's MidCap 400 Index* (the "Benchmark"). The
Fund pursues its investment objective by investing all of its assets in the
Portfolio, which has the same investment objective, goal and policies as the
Fund and pursues its objective by investing primarily in a broadly diversified
portfolio of medium capitalization stocks. The Portfolio invests in the common
stocks of companies selected by a structured quantitative investment strategy.
The Portfolio will not attempt to replicate the Benchmark with its portfolio
composition. Under normal market conditions, the Portfolio will invest 50% to
100% of its assets in the common stocks of companies represented in the
Benchmark. The Benchmark is a capitalization weighted index of 400 medium
capitalization companies chosen by S&P. The Portfolio's investments will be
distributed across the following industry sectors represented in the Benchmark:
industrial, utilities, financial and transportation sectors. In addition, the
Manager will regularly determine which stocks in the Benchmark and outside of
the Benchmark should be included in the Portfolio's portfolio for the purpose of
seeking to outperform the Benchmark. The Portfolio will invest at least 65% of
its assets in common stocks of medium capitalization companies, whether such
companies are included in the Benchmark or have the characteristics described
below.

The Portfolio will implement a structured quantitative stock selection strategy.
The Portfolio is not limited to stocks in the Benchmark as long as the total
portfolio maintains similar systematic characteristics of the Benchmark, such as
capitalization, beta and economic sector weightings. To avoid any potential
conflict of interest, the Portfolio will not purchase securities of issuers with
which it is affiliated. This includes, but is not limited to, the common shares
of Franklin Resources, Inc. The latter policy does not apply to the Portfolio's
short-term investments.

*"Standard & Poor's MidCap 400 Index" and "S&P MidCap 400 Index" are trademarks
of Standard & Poor's Corporation. Neither the Fund nor the Portfolio are
sponsored, endorsed, sold or promoted by S&P.

The Portfolio may invest up to 50% of its assets in stocks not represented in
the Benchmark, and in other securities and derivative instruments. The
securities outside of the Benchmark will be primarily medium capitalization
stocks, which TQA believes have superior prospects for return relative to the
Benchmark. Medium capitalization companies in which the Portfolio will invest
have a market capitalization between $200 million and $5 billion. Market
capitalization is defined as the total market value of a company's outstanding
common stock. If the purchase of a company's common stock is not appropriate in
light of current market factors or if sufficient shares of its common stock are
not available for purchase, the Portfolio may purchase such company's
outstanding convertible preferred stock. The Portfolio may also purchase options
on stocks and stock indices, and futures and options on futures contracts on
stock indices as a hedge against changes resulting from market conditions in the
values of its securities or securities which it intends to purchase and to
accommodate cash flows. Consistent with its objective, the Portfolio attempts to
be fully invested at all times in equity securities and, under normal market
conditions, its assets will be invested primarily in a broadly diversified
portfolio of medium capitalization stocks.

The Portfolio's portfolio will overweight, relative to the Benchmark, stocks
that are attractive on the basis of their valuation and growth prospects. TQA
has developed a proprietary stock selection model that combines certain
valuation and growth factors to create a composite rank score. The growth
factors include, but are not limited to: earnings momentum, estimate revision,
earnings surprise, consensus growth estimates and return on equity. Value
characteristics deemed to be important include, but are not limited to: dividend
discount model expected returns, price to earnings ratio, price to book ratio,
price to cash flow ratio and price to sales ratio. The proprietary stock
selection model dynamically weights these individual factors, based on their
relative attractiveness and stock selection potential. TQA believes that a
diversified portfolio of stocks that are favorably ranked based on its
proprietary stock selection model is consistent with the objective of exceeding
the performance of the Benchmark.

TQA will diversify the portfolio of stocks by generally holding a minimum of 50
stocks selected with assistance of quantitative modeling that includes specific
risk management technology. TQA believes that this diversification will increase
the likelihood that the Portfolio will meet its objective. Although the majority
of the Portfolio's assets will be held in stocks with attractive scores based
upon the proprietary stock selection model used by the Portfolio, the risk
management technology will sometimes require the holding of stocks that are less
attractive but comprise a substantial weight in the Benchmark. Although TQA does
not anticipate the number of stocks in the portfolio falling below the 50
minimum, it is possible that from time to time it may do so.

The Benchmark. The performance Benchmark is the S&P Midcap 400 Index, which
consists of 400 domestic stocks chosen for market size (the median
capitalization of the companies comprising the index as of November 30, 1992 was
approximately $806 million), liquidity and industry group representation. It is
a market value weighted index with each stock affecting the index in proportion
to its market value. The Benchmark is the property of Standard & Poor's, which
makes all the decisions with respect to its composition.

On December 31, 199[3], the Benchmark consisted of [261 companies listed on the
New York Stock Exchange, 12 companies listed on the American Stock Exchange and
127 NASDAQ companies]. The sector weights in the Benchmark on that date were
approximately as follows: Industrials 66%; Utilities 15%; Financial 17%; and
Transportation 2%. These weights will change in accordance with relative price
movements of the individual stocks. The Portfolio will attempt to maintain a
sector weighting similar to the Benchmark.]

The Benchmark is designed to capture growth companies, with less of an emphasis
on current income. As such, the Benchmark may experience greater price
volatility than broad market averages. In addition, there is no guarantee that
the Portfolio will perform similarly to the Benchmark.

Rebalancing Considerations. The Portfolio is re-balanced periodically based on
new scores resulting from the proprietary stock selection model in an attempt to
weight the portfolio so as to exceed the performance of the Benchmark. It is
TQA's reasonable expectation that there will be a close correlation between the
Portfolio's performance on a total return basis and that of the Benchmark in
both rising and falling markets. The Portfolio is managed to outperform the
Benchmark in both rising and falling markets.

The Portfolio's ability to outperform the Benchmark may be affected by, among
other things, changes in the security markets, daily execution price of stocks
purchased or sold compared to the closing price of the stocks comprising the
Benchmark, the manner in which the Benchmark is calculated, and the extent and
timing of purchases and redemption of Fund shares. Occasionally, stock positions
may not be sold from the Portfolio when to do so may involve adverse tax
consequences, excessive portfolio turnover or other expenses, restrictions
imposed by the SEC, or when it may require the disposition of such position
under circumstances which do not reflect the typical market for such stocks. The
Portfolio's trading strategy is designed to minimize portfolio turnover and
transaction costs. The Portfolio attempts to do this by buying or selling stock
positions that are under- or overvalued, which would improve performance
relative to the Benchmark, and by restricting Fund trades to only round-lot or
large block trades.

Investment Risk Considerations. Historically, the medium market capitalization
stocks, which will constitute the majority of the investments of the Portfolio,
have been more volatile in price than the larger capitalization stocks. Among
the reasons for greater price volatility of these securities are the less
certain growth prospects of smaller firms, the lower degree of liquidity in the
market for such stocks, and the greater sensitivity of small and medium size
companies to changing economic conditions. Besides exhibiting greater
volatility, medium and small company stocks may fluctuate independently of
larger company stocks. Medium and small company stocks may decline in price as
large company stocks rise or vice versa. Investors should therefore expect that
the value of the Fund's shares may be more volatile than the shares of a fund
that invests in larger capitalization stocks. In addition, medium size companies
in which the Fund invests may have products and management which have not been
thoroughly tested by time or by the marketplace. These companies may also be
more dependent on a limited number of key personnel and their financial
resources may not be as substantial as those of more established companies.
Adversity which leads to a decline in the value of such a security will have a
negative impact on the Fund's share price as well. Further information about the
Fund's structure is included under "Expense Table," "Administration of the
Fund," and "General Information."

SPECIAL INFORMATION REGARDING THE
FUND'S MASTER/FEEDER FUND STRUCTURE

The investment objectives of both the Fund and the Portfolio are fundamental and
may not be changed without shareholder approval. The investment policies
described herein, include those followed by the Portfolio in which the Fund
invests. Information on administration and expenses is included under
"Administration of the Fund;" see the SAI for information regarding the Fund's
and the Portfolio's investment restrictions.

An investment in the Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other future
shareholders in the Portfolio, the Fund's expenses may increase or economies of
scale which have been achieved as a result of the structure may be diminished.
Institutional investors in the Portfolio that have a greater pro rata ownership
interest in the Portfolio than the Fund could have effective voting control over
the operation of the Portfolio. Further, in the event that the shareholders of
the Fund do not approve a proposed future change in the Fund's objective or
fundamental policies, which has been approved for the Portfolio, the Fund may be
forced to withdraw its investment from the Portfolio and seek another investment
company with the same objective and policies. In addition, the Fund may withdraw
its investment in the Portfolio at any time, if the Board of Trustees of the
Trust considers that it is in the best interests of the Fund to do so. Upon any
such withdrawal, the Board of Trustees of the Trust would consider what action
to take, including the investment of all of the assets of the Fund in another
pooled investment entity having the same investment objectives and policies as
the Fund, or hiring of an investment adviser to manage the Fund's investments.
Such circumstances may cause an increase in Fund expenses. Further, the Fund's
structure is a relatively new format which often results in certain operational
and other complexities. However, the Franklin organization was one of the first
mutual fund complexes in the country to implement such a structure and the
trustees do not believe that the additional complexities outweigh the benefits
to be gained by shareholders.

The Franklin Group of Funds(Registered Trademark) has another fund which may
invest in the Portfolio, which is designed for institutional investors only. It
is possible that in the future other funds may be created which may likewise
invest in the Portfolio. If and when that happens, the Fund or Administrator
will forward any interested shareholder additional information, including a
prospectus and statement of additional information, if requested, regarding such
other institutions through which they may make investments in the Portfolio. Any
such fund may be offered at the same or a different public offering price thus,
an investor in such fund may experience a different return from an investor in
another investment company which invests exclusively in the Portfolio. Investors
interested in obtaining information on such funds may contact the departments
listed under "How to Get Information Regarding an Investment in the Fund."

the Portfolio is a management investment company which was organized as a
Delaware business trust on February 26, 1993. The Portfolio is authorized to
issue an unlimited number of shares of beneficial interest, with a par value of
$.01 per share. All shares have one vote and, when issued, are fully paid,
non-assessable, and redeemable. Currently, the Portfolio issues shares in only
two series; however, additional series may be added in the future by the Board
of Trustees, the assets and liabilities of which will be separate and distinct
from any other series. The Portfolio is treated as a partnership for federal and
state income tax purposes. As a result, investors in the Portfolio, such as the
Fund, will be subject to federal and state income tax on their distributive
shares of the Portfolio's income.

Whenever the Fund, as an investor in the Portfolio, is asked to vote on a matter
relating to the Portfolio, the Trust, on behalf of the Fund, will hold a meeting
of the Fund's shareholders and will cast its votes in the same proportions as
the Fund's shareholders have voted.

OTHER INVESTMENT POLICIES OF THE PORTFOLIO (AND THE FUND)

the Portfolio and the Fund have adopted substantially similar investment
policies; however, the Portfolio follows such policies through direct
investments and the Fund follows such policies indirectly through its investment
in the Portfolio.

OTHER POLICIES

Loans of Portfolio Securities. Up to 20% of the Portfolio's portfolio securities
may be loaned to qualified borrowers who deposit and maintain with the Portfolio
cash collateral with a value at least equal to the value of the securities
loaned. As with any extension of credit there are risks of delay in recovery and
loss of rights in the collateral should the borrower of the securities fail
financially. The Portfolio will engage in security loan arrangements with the
primary objective of increasing the Portfolio's income through investment of the
cash collateral in short-term, interest-bearing obligations, but will do so only
to the extent that the Portfolio will not lose the tax treatment available to
regulated investment companies.

Borrowing. As a fundamental policy, the Portfolio does not borrow money or
mortgage or pledge any of the assets of the Portfolio, except that the Portfolio
may borrow from banks up to 10% of its total asset value to meet redemption
requests and for other temporary or emergency purposes. While borrowings exceed
5% of the Portfolio's total assets, the Portfolio will not make any additional
investments.

Illiquid Investments. It is the Portfolio's policy that illiquid securities
(including illiquid equity securities, illiquid securities with legal or
contractual restriction on resale, repurchase agreements of more than seven days
duration, illiquid real estate investment trusts, securities of issuers with
less than three years continuous operation and other securities which are not
readily marketable) may not constitute, at the time of purchase or at any time,
more than 10% of the value of its total net assets. Subject to this limitation,
the Trust's Board of Trustees has authorized the Portfolio to invest in
restricted securities where such investment is consistent with the Portfolio's
investment objective and has authorized such securities to be considered to be
liquid to the extent TQA determines on a daily basis that there is a liquid
institutional or other market for such securities. Notwithstanding TQA's
determination in this regard, the Trust's Board of Trustees will remain
responsible for such determinations and will consider appropriate action,
consistent with its objective and policies, if a security should become illiquid
subsequent to its purchase. To the extent the Portfolio invests in restricted
securities that are deemed liquid, the general level of illiquidity in the
Portfolio may be increased if qualified institutional buyers become uninterested
in purchasing these securities or the market for these securities contracts. See
"Investment Objective and Policies - Short-term Investments" in the SAI.

Securities Industry Related Investments. To the extent it is consistent with its
investment objective and certain limitations under the 1940 Act, the Portfolio
may invest its assets in securities issued by companies engaged in securities
related businesses, including such companies that are securities brokers,
dealers, underwriters or investment advisers. Such companies are considered part
of the financial services industry sector.

Under *12(d)(3) under the 1940 Act and Rule 12d3-1 thereunder, the Portfolio may
not acquire a security or any interest in a securities related business, to the
extent such acquisition would exceed certain limitations. The Portfolio does not
believe that these limitations will impede the attainment of its investment
objective.

Short-Term Investments. The Portfolio may invest its cash, including cash
resulting from purchases and sales of Fund shares, temporarily in short-term
debt instruments, including high grade commercial paper, repurchase agreements
and other money market equivalents and the shares of money market funds managed
by Franklin Advisers, Inc., which invest primarily in short-term debt
securities. Such temporary investments will be made with cash held to maintain
liquidity or pending investment and will be consistent with the Portfolio's
overall policy of being fully invested. In addition, for temporary defensive
purposes in the event of or when the adviser anticipates a general decline in
the market prices of stocks in which the Portfolio invests, the Portfolio may
invest an unlimited amount of its assets in short-term debt instruments.

Options and Financial Futures. The Portfolio may write covered put and call
options and purchase put and call options which trade on securities exchanges
and in the over-the-counter market. The Portfolio may purchase and sell futures
and options on futures with respect to securities indices and enter into futures
and options to "close-out" futures and options it may have purchased or sold.
The Portfolio will not enter into any futures contract or related options
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial deposits and premiums on open contracts and options would
exceed 5% of the Portfolio's total assets (taken at current value). The
Portfolio will not engage in any stock options or stock index options if the
option premiums paid regarding its open option positions exceed 5% of the value
of the Portfolio's total assets.

A call option written by the Portfolio is "covered" if the Portfolio owns the
underlying security which is subject to the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Portfolio holds a call on the
same security and in the same principal amount as the call written where the
exercise price of the call held (a) is equal to or less than the exercise price
of the call written or (b) is greater than the exercise price of the call
written if the difference is maintained by the Portfolio in cash and high grade
debt securities in a segregated account with its custodian. A put option written
by the Portfolio is "covered" if the Portfolio maintains cash and high grade
debt securities with a value equal to the exercise price in a segregated account
with its custodian, or else holds a put on the same security and in the same
principal amount as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written.

The Portfolio's option and futures investments involve certain risks. Such risks
include the risks that the effectiveness of an options and futures strategy
depends on the degree to which price movements in the underlying index or
securities correlate with price movements in the relevant portion of the
Portfolio's portfolio. The Portfolio bears the risk that the prices of its
portfolio securities will not move in the same amount as the option or future it
has purchased, or that there may be a negative correlation which would result in
a loss on both such securities and the option or future.

Positions in exchange traded options and futures may be closed out only on an
exchange which provides a secondary market. There may not always be a liquid
secondary market for a futures or option contract at a time when the Portfolio
seeks to "close out" its position. If the Portfolio were unable to "close out" a
futures or option position, and if prices moved adversely, the Portfolio would
have to continue to make daily cash payments to maintain its required margin,
and if the Portfolio had insufficient cash, it might have to sell portfolio
securities at a disadvantageous time. In addition, the Portfolio might be
required to deliver the stocks underlying futures or options contracts it holds.
Over-the-counter options ("OTC" options) may not be closed out on an exchange
and the Portfolio may be able to realize the value of an OTC option it has
purchased only by exercising it or entering into a closing sale transaction with
the dealer that issued it. There can be no assurance that a liquid secondary
market will exist for any particular option or futures contract at any specific
time. Thus, it may not be possible to close such an option or futures position.
The Portfolio will enter into an option or futures position only if there
appears to be a liquid secondary market for such option or futures.

The Portfolio understands the current position of the staff of the SEC to be
that purchased OTC options are illiquid securities and that the assets used to
cover the sale of an OTC option are considered illiquid. The Portfolio and TQA
disagree with this position. Nevertheless, pending a change in the staff's
position, the Portfolio will treat OTC options and "cover" assets as subject to
the Portfolio's limitation on illiquid securities.

In addition, adverse market movements could cause the Portfolio to lose up to
its full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss by
the Portfolio of margin deposits in the event of bankruptcy of a broker with
whom the Portfolio has an open position in a futures contract or option.

The Portfolio's transactions in options and futures contracts (as described in
the section entitled "Other Policies" in this Prospectus) may be limited by the
requirements of the Portfolio for qualification as a regulated investment
company. These securities require the application of complex and special tax
rules and elections, more information about which is included in the SAI.

The Portfolio's investments in options and futures contracts and certain
security transactions (including loans of portfolio securities) may reduce the
portion of the Portfolio's dividends which otherwise would be eligible for the
corporate dividends-received deduction. These transactions are also subject to
special tax rules that may affect the amount, timing and character of
distributions to shareholders. These investments and transactions are discussed
in the SAI.

Repurchase Transactions. The Portfolio may enter into repurchase agreements with
government securities dealers recognized by the Federal Reserve Board or with
member banks of the Federal Reserve System. This is an agreement in which the
seller of a security agrees to repurchase the security at a mutually agreed upon
time and price. It may also be viewed as the loan of money by the Portfolio to
the seller. The resale price is normally in excess of the purchase price,
reflecting an agreed upon interest rate. The interest rate is effective for the
period of time in which the Portfolio is invested in the agreement and is not
related to the coupon rate on the underlying security. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will the Portfolio invest in repurchase agreements for more than one
year. However, the securities which are subject to repurchase agreements may
have maturity dates in excess of one year from the effective date of the
repurchase agreements. The transaction requires the initial collateralization of
the seller's obligation by securities with a market value, including accrued
interest, equal to at least 102% of the dollar amount invested by the Portfolio,
with the value marked to market daily to maintain 100% coverage. A default by
the seller might cause the Portfolio to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement. The Portfolio
might also incur disposition costs in liquidating the collateral. The Portfolio
will make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of its custodian bank. The Portfolio may not
enter into a repurchase agreement with more than seven days duration if, as a
result, more than 10% of the market value of the Portfolio's total assets would
be invested in repurchase agreement as well as other securities deemed to be
illiquid.

Portfolio Turnover. The Portfolio expects that its portfolio turnover rate will
generally not exceed 100%, but this rate should not be construed as a limiting
factor. High portfolio turnover increases transaction costs which must be paid
by the Portfolio. High turnover may also result in the realization of net
capital gain, which is taxable when distributed to shareholders.

The Portfolio may not invest in securities other than the types of securities
listed above and is subject to other specific investment restrictions. A list of
these restrictions and more information concerning the Fund's and the
Portfolio's investment objective and policies are discussed in the SAI.

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S ACTIVITIES

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

ADMINISTRATION OF THE FUND

The Board of Trustees has the primary responsibility for the overall management
of the Fund and for electing the Trust's officers who are responsible for
administering the day-to-day operations of the Fund. The officers and trustees
of the Trust are also officers and trustees of the Portfolio. For information
concerning the officers and trustees of the Trust and the Portfolio, see
Trustees and Officers in the SAI. The Board of Trustees, with all disinterested
trustees as well as the interested trustees voting in favor, have adopted
written procedures designed to deal with potential conflicts of interest which
may arise from the fact of having the same persons serving on each trust's Board
of Trustees. The procedures call for an annual review of the Fund's relationship
with the Portfolio, and in the event a conflict is deemed to exist, the board
may take action, up to and including the establishment of a new Board of
Trustees. The Board of Trustees has determined that there are no conflicts of
interest presented by this arrangement at the present time. A detailed
description of trustees and officers is included in the SAI (see "Trustees and
Officers" in that Statement).

Franklin Resources, Inc. ("Resources"), 777 Mariners Island Blvd., San Mateo,
California 94404, is a publicly owned holding company, the principal
shareholders of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of its outstanding shares. On October
30, 1992, Resources, directly and through newly formed subsidiaries which are
affiliates of Advisers, acquired the assets of Templeton, Galbraith &
Hansberger, Ltd., an investment advisory firm which manages the Templeton Funds.
The Administrator is a direct subsidiary of Resources and TQA, an affiliate of
the Templeton complex, is an indirect wholly owned subsidiary. Resources,
through its various subsidiaries, manages over $121 billion in assets worldwide
for over 3.84 million mutual fund shareholders, in addition to foundations and
endowments, employee benefit plans and individuals.

The Fund's administrative, statistical, and other services will be performed by
the Administrator in return for a monthly administration fee at the annual rate
of 0.15% of 1% of the Fund's average daily net assets.

The Fund is responsible for its own operating expenses, including, but not
limited to the Administrator's fee; taxes, if any; legal and auditing fees; fees
and costs of its custodian, transfer agent and shareholder services agent; the
fees and expenses of trustees who are not members of, affiliated with or
interested persons of the Administrator; salaries of any personnel not
affiliated with the Administrator; insurance premiums, trade association dues,
and expenses of obtaining quotations for calculating the value of the Fund's net
assets; printing and other expenses relating to the Fund's operations; filing
fees; brokerage fees and commissions, if any; costs of registering and
maintaining registration of the Fund's shares under federal and state securities
laws; plus any extraordinary and non-recurring expenses which are not expressly
assumed by Administrator.

The administration agreement specifies that the administration fee will be
reduced to the extent necessary to comply with the most stringent limits
prescribed by any state in which the Fund shares are offered for sale. The most
stringent current state restriction limits the Fund's allowable aggregate
operating expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) in any fiscal year to 2 1/2% of
the first $30 million of net assets of the Fund, 2% of the next $70 million of
net assets of the Fund and 1 1/2% of average net assets of the Fund in excess of
$100 million.

TQA will supervise and implement the Portfolio's investment activities. Under
the management agreement, the Manager will receive a monthly fee equal to an
annual rate of .50 of 1% or less, depending upon the total amount of the net
assets of the Fund.

Among the responsibilities of the Manager under the Management Agreement is the
selection of brokers and dealers through whom transactions in the Portfolio's
portfolio securities will be effected. The Manager tries to obtain the best
execution on all such transactions. If it is felt that more than one broker is
able to provide the best execution, the Manager will consider the furnishing of
quotations and of other market services, research, statistical and other data
for the Manager and its affiliates, as well as the sale of shares of the
Portfolio, as factors in selecting a broker. Further information is included
under "The Fund's Policies Regarding Brokers Used on Portfolio Transactions" in
the SAI. Fund shareholders will bear a portion of the Portfolio's operating
expenses, including its management fee, to the extent that the Fund, as a
shareholder of the Portfolio, bears such expenses. The portion of the
Portfolio's expenses borne by the Fund is dependent upon the number of other
shareholders of the Portfolio, if any.

The Fund may pay up to an additional 0.10% to broker-dealers, consultants and
others who may provide account or other administrative servicing functions to
shareholders, including 401(k) plan participants. Such payments are in addition
to any payments to be made pursuant to the Fund's Rule 12b-1 Distribution Plan.

Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of the
Fund and the Portfolio.

PLAN OF DISTRIBUTION

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act pursuant to which it will pay up to a maximum of 0.25% per
annum of its average daily net assets for expenses incurred in the distribution
of the Fund's shares.

The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may reimburse Distributors or
others for all expenses incurred by Distributors or others in the promotion and
distribution of the Fund's shares. Such expenses may include, but are not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates. The maximum amount which the Fund may
pay to Distributors or others for such distribution expenses is 0.25% per annum
of the average daily net assets of the Fund, payable on a quarterly basis. All
expenses of distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Fund. The Plan also covers any payments to or by the Fund, Advisers,
Distributors, or other parties on behalf of the Fund, Advisers or Distributors,
to the extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund. For more information, please
see the SAI.

DISTRIBUTIONS TO SHAREHOLDERS

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

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

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

DISTRIBUTION DATE

The Fund's dividend policy is established by the Board of Trustees, without
prior notice to or approval by shareholders. It is anticipated that the Fund's
will begin paying dividends, on a semiannual basis in June and December for
shareholders of record generally on the first business day preceding the 15th of
the month, payable on or about the last business day of such months,
approximately six-months after starting operations. The amount of income
dividend payments by the Fund will be dependent upon the amount of net income
received by the Fund from its investments in the Portfolio, is not guaranteed
and will be subject to the discretion of the Trust's Board of Trustees. Fund
shares are quoted ex-dividend on the first business day following the record
date. THE FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF RETURN ON
AN INVESTMENT IN ITS SHARES.

DIVIDEND REINVESTMENT

Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset value in the Fund
or Class I shares of other Franklin Templeton Funds. Shareholders have the right
to change their election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as to
distributions for which the record date is seven or more business days after the
Fund has been notified. See the SAI for more information.

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

DISTRIBUTIONS IN CASH

TAXATION OF THE FUND AND ITS SHAREHOLDERS

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

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

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

Shareholders should consult with their tax advisors concerning the tax rules
applicable to the redemption or exchange of Fund shares, more information about
which is included in the SAI.

For corporate shareholders, it is anticipated that significant portion of the
Fund's dividends will qualify for the corporate dividends-received deduction
because of the Midcap's principal investment objective of investing in domestic
equity securities. To the extent that the Fund pays dividends which qualify for
this deduction, the availability of the deduction is subject to certain holding
period and debt financing restrictions imposed under the Code on the corporation
claiming the deduction.

Corporate shareholders should note that dividends paid by the Fund from sources
other than the qualifying dividends it receives will not qualify for the
dividends-received deduction. For example, any interest income and net
short-term capital gain (in excess of any net long-term capital loss or capital
loss carryover) included in investment company taxable income and distributed by
the Fund as a dividend will not qualify for the dividends-received deduction.

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

Shareholders who are not U.S. persons for purposes of federal income taxation,
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Fund and distributions and redemption proceeds received from
the Fund.

HOW TO BUY SHARES OF THE FUND

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

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price, which is determined
by adding the net asset value per share plus a front-end sales charge, next
computed (1) after the shareholder's securities dealer receives the order which
is promptly transmitted to the Fund or (2) after receipt of an order by mail
from the shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The sales charge is
a variable percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places using standard
rounding criteria. A description of the method of calculating net asset value
per share is included under the caption "Valuation of Fund Shares."

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

TOTAL SALES CHARGE
SIZE OF TRANSACTION AT AS A PERCENTAGE OF OFFERING AS A PERCENTAGE OF DEALER CONCESSION AS A
OFFERING PRICE PRICE NET AMOUNT INVESTED PERCENTAGE OF OFFERING
PRICE*, ***

<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than 3.75% 3.90% 3.25%
$250,000
$250,000 but less than 2.75% 2.83% 2.50%
$500,000
$500,000 but less than 2.25% 2.30% 2.00%
$1,000,000
$1,000,000 or more none none (see below)**

</TABLE>

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

**The following commissions will be paid by Distributors, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of $1 million or more: 1.00% on sales of $1 million but less than $2 million,
plus 0.80% on sales of $2 million but less than $3 million, plus 0.50% on sales
of $3 million but less than $50 million, plus 0.25% on sales of $50 million but
less than $100 million, plus 0.15% on sales of $100 million or more. Dealer
concession breakpoints are reset every 12 months for purposes of additional
purchases. ***At the discretion of Distributors, all sales charges may at times
be allowed to the securities dealer. If 90% or more of the sales commission is
allowed, such securities dealer may be deemed to be an underwriter as that term
is defined in the Securities Act of 1933, as amended.

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

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

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

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

QUANTITY DISCOUNTS IN SALES CHARGES

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

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

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

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

AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in shares of the Fund, registered in the investor's
name, to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will be included in the
total shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information, see "Additional Information Regarding Purchases" in the SAI.

GROUP PURCHASES

PURCHASES AT NET ASSET VALUE

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

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 360 days, their shares of the Fund or another of
the Class I Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end sales charge must be
paid at the time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed and subsequently
repurchased, a new contingency period will begin. Shares redeemed in connection
with an exchange into another of the Franklin Templeton Funds (see "Exchange
Privilege") are not considered "redeemed" for this privilege. In order to
exercise this privilege, a written order for the purchase of shares of the Fund
must be received by the Fund or the Fund's Shareholder Services Agent within 360
days after the redemption. The 360 days, however, do not begin to run on
redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.

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

Shares of the Fund may be purchased at net asset value and without the
imposition of a contingent deferred sales charge by anyone who has taken a
distribution from an existing retirement plan already invested in the Franklin
Templeton Funds (including former participants of the Franklin Templeton Profit
Sharing 401(k) plan), to the extent of such distribution. In order to exercise
this privilege a written order for the purchase of shares of the Fund must be
received by Franklin Templeton Trust Company (the "Trust Company"), the Fund or
Investor Services, within 360 days after the plan distribution.

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

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Refer to the SAI for further information regarding net asset value purchases.

GENERAL

PURCHASING SHARES OF THE FUND IN CONNECTION WITH RETIREMENT PLANS INVOLVING
TAX-DEFERRED INVESTMENTS

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

OTHER PROGRAMS AND PRIVILEGES AVAILABLE TO FUND SHAREHOLDERS

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

SHARE CERTIFICATES

CONFIRMATIONS

AUTOMATIC INVESTMENT PLAN

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

SYSTEMATIC WITHDRAWAL PLAN

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

The maintenance of a Systematic Withdrawal Plan concurrently with purchases of
additional shares of the Fund would be disadvantageous because of the sales
charge on the additional purchases. Also, redemptions of shares may be subject
to a contingent deferred sales charge if the shares are redeemed within 12
months of the calendar month of the original purchase date. The shareholder
should ordinarily not make additional investments of less than $5,000 or three
times the annual withdrawals under the plan during the time such a plan is in
effect. The applicable contingent deferred sales charge is waived for share
redemptions of up to 1% monthly of an account's net asset value (12% annually,
6% semiannually, 3% quarterly). For example, if an account maintained an annual
balance of $1,000,000, only $120,000 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge; any amount over that $120,000 would
be assessed a 1% (or applicable) contingent deferred sales charge. A Systematic
Withdrawal Plan may be terminated on written notice by the shareholder or the
Fund, and it will terminate automatically if all shares are liquidated or
withdrawn from the account, or upon the Fund's receipt of notification of the
death or incapacity of the shareholder. Shareholders may change the amount (but
not below the specified minimum) and schedule of withdrawal payments, or suspend
one such payment by giving written notice to Investor Services at least seven
business days prior to the end of the month preceding a scheduled payment. Share
certificates may not be issued while a Systematic Withdrawal Plan is in effect.

INSTITUTIONAL ACCOUNTS

EXCHANGE PRIVILEGE

The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives or policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for shares of other Franklin Templeton Funds Class I shares which are
eligible for sale in the shareholder's state of residence and in conformity with
such fund's stated eligibility requirements and investment minimums. Investors
should review the prospectus of the fund they wish to exchange from and the fund
they wish to exchange into for all specific requirements or limitations on
exercising the exchange privilege, for example, minimum holding periods or
applicable sales charges. No exchanges between different classes of shares are
allowed and, therefore, shares of the Fund may not be exchanged for Class II
shares of other Franklin Templeton Funds. Shareholders may choose to redeem
shares of the Fund and purchase Class II shares of other Franklin Templeton
Funds but such purchase will be subject to that Fund's Class II front-end and
contingent deferred sales charges for the contingency period of 18 months.

Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(R) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753.
IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.

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

EXCHANGES THROUGH SECURITIES DEALERS

ADDITIONAL INFORMATION REGARDING EXCHANGES

Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account[case 1: accrued but unpaid
income dividends and capital gain distributions will be reinvested in the Fund
at the net asset value on the date of the exchange, and then the entire share
balance will be exchanged into the new fund in accordance with the procedures
set forth above.] [case 2: declared but unpaid income dividends and capital gain
distributions will be transferred to the fund being exchanged into and will be
invested at net asset value.] Because the exchange is considered a redemption
and purchase of shares, the shareholder may realize a gain or loss for federal
income tax purposes. Backup withholding and information reporting may also
apply. Information regarding the possible tax consequences of such an exchange
is included in the tax section in this Prospectus and in the SAI.

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

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

The Fund currently will not accept investments from Timing Accounts.

RETIREMENT ACCOUNTS

RESTRICTIONS ON EXCHANGES

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

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% [1/4 of 1% for the AGE Fund] of the Fund's net assets.
Accounts under common ownership or control, including accounts administered so
as to redeem or purchase shares based upon certain predetermined market
indicators, will be aggregated for purposes of the exchange limits.

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

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

HOW TO SELL SHARES OF THE FUND

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

REDEMPTIONS BY MAIL

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:

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

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

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

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

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

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

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

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

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

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

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

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

REDEMPTIONS BY TELEPHONE

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

REDEEMING SHARES THROUGH SECURITIES DEALERS

CONTINGENT DEFERRED SALES CHARGE

All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.

Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of a
SPECIFIC NUMBER of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

RETIREMENT PLAN ACCOUNTS

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

OTHER

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

TELEPHONE TRANSACTIONS

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

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

VERIFICATION PROCEDURES

RESTRICTED ACCOUNTS

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

GENERAL

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

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

VALUATION OF FUND SHARES

The net asset value per share of the Fund is calculated by additing the value of
the portfolio holdings (i.e. shares of the Portfolio in which the Fund invests)
and other assets, deducting the Fund's liabilities and dividing the result by
the number of shares of the Fund outstanding at the time.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND

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

From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:

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

Fund information may be accessed by entering Fund Code 195 followed by the #
sign. The system's automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.

HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)

<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.

</TABLE>

PERFORMANCE

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

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

Yield which is calculated according to a formula prescribed by the SEC (see the
SAI) is not indicative of the dividends or distributions which were or will be
paid to the Fund's shareholders. Dividends or distributions paid to shareholders
are reflected in the current distribution rate, which may be quoted to
shareholders. The current distribution rate is computed by dividing the total
amount of dividends per share paid by the Fund during the past 12 months by a
current maximum offering price. Under certain circumstances, such as when there
has been a change in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the dividends paid
during the period such policies were in effect, rather than using the dividends
during the past 12 months. The current distribution rate differs from the
current yield computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium income from
option writing and short-term capital gain, and is calculated over a different
period of time.

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

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

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

ORGANIZATION AND VOTING RIGHTS

The Fund was organized as a series of Franklin Strategic Series (the "Trust") a
Delaware business trust organized on January 25, 1991. The Trust is authorized
to issue an unlimited number of shares of beneficial interest, with a par value
of $.01 per share in various series. Each series, in effect, represents a
separate mutual fund with its own investment objective and policies. All shares
have one vote, and, when issued, are fully paid, non-assessable, and redeemable.
The Trust reserves the right to issue additional classes of shares for the Fund
or other series of the Trust, or to add additional series.

All shares of the Fund have equal voting, dividend and liquidation rights. The
Trust's shareholders will vote together to elect Trustees and on other matters
affecting the entire Trust, but will vote separately on matters affecting
separate series. The shares have non-cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of trustees can
elect 100% of the trustees if they choose to do so. The Fund does not intend to
hold annual meetings; it may, however, hold special shareholder meetings for
such purposes as changing fundamental policies or approving new management
agreements or for any other purpose requiring shareholder approval under the
1940 Act. As stated earlier, whenever the Fund is requested to vote on a
fundamental policy pertaining to the Portfolio, it will hold a special meeting
of Fund shareholders and will cast its vote in the same proportion as the
shareholders' votes received. A meeting may also be called by a majority of the
Board of Trustees or by shareholders holding at least ten percent of the shares
entitled to vote at the meeting. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees such as that provided in Section 16(c) of the 1940 Act.

REDEMPTIONS BY THE FUND

OTHER INFORMATION

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

ACCOUNT REGISTRATIONS

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

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

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

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

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS

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

PORTFOLIO OPERATIONS

The following persons are primarily responsible for the day to day portfolio
management of the Portfolio in which the Fund invests:

Robert E. Butman
President, Director and Chief Executive Officer
Templeton Quantitative Advisors, Inc.

Mr. Butman is a Chartered Financial Analyst and holds a Bachelor of Science in
Management Science from the University of Maryland and a Master of Business
Administration degree from The Wharton School at the University of Pennsylvania.
He has been with the Templeton organization since July 1990. He was president,
director and CEO of the DAIS Group, Inc. from February to August 1990 and
employed by Drexel Burnham Lambert from December 1984 to February 1990.

Hans L. Erickson
Portfolio Manager
Templeton Quantitative Advisors, Inc.

Mr. Erickson has been managing the Fund's portfolio since its inception. He
holds a Bachelor of Science in mathematics and economics from Lawrence
University and a Master of Science in engineering from Princeton University. Mr.
Erickson, a Chartered Financial Analyst, joined Templeton Quantitative Advisors,
Inc. (formerly the DAIS Group, Inc. and Structured Asset Management, Inc.) in
February 1990. He is a member of several industry-related associations. He was
employed by Drexel Burham Lambert from May 1989 through February 1990 and Morgan
Stanley from June 1988 through May 1989.

Seung H. Minn, CFA
Portfolio Manager
Templeton Quantitative Advisors, Inc.

Mr. Minn has been managing the Fund's portfolio since its inception. He holds a
bachelor of science in Engineering degree from Princeton University. Mr. Minn, a
chartered financial analyst, joined Templeton Quantitative Advisors, Inc.
(formerly the DAIS Group, Inc. and Structured Asset Management, Inc.) in May
1990. He is a member of the New York Society of Security Analysts. From August
1988 through April 1990 he was employed by Andersen Consulting.

<PAGE>

FRANKLIN
STRATEGIC SERIES 777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777

ADMINISTRATOR FRANKLIN MIDCAP
Franklin Advisers, Inc. GROWTH FUND
777 Mariners Island Blvd. Franklin Strategic Series
P.O. Box 7777
San Mateo, California 94403-7777 Prospectus/Application

PRINCIPAL UNDERWRITER
Franklin/Templeton Distributors, Inc. September 1, 1995
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777

CUSTODIAN
Bank of America NT & SA
555 California Street, 4th Floor
San Francisco, California 94104

SHAREHOLDER SERVICES AGENT Franklin/Templeton Investor Services, Inc.
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo, California 94403-7777

INDEPENDENT AUDITORS
Coopers & Lybrand, L.L.P.
333 Market Street
San Francisco, California 94105

LEGAL COUNSEL
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19103-7098

For an enlarged version of this prospectus please call 1-800/DIAL BEN.

Your Representative Is:

FRANKLIN INSTITUTIONAL MIDCAP
GROWTH FUND
FRANKLIN STRATEGIC SERIES
PROSPECTUS

SEPTEMBER 1, 1995

777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN

Franklin Institutional Growth Fund (the "Fund"), is a diversified
series of Franklin Strategic Series (the "Trust"), an open-end
management investment company . The Fund is designed for
institutional accounts, such as government authorities and
agencies, corporations, banks, savings and loan associations, and
trust companies for investment of their own capital and of monies
held in accounts for which they act in a fiduciary, advisory,
agency, custodial, or other similar capacity. Shares of the Fund
may not be purchased by individuals. Shares of the Fund may be
purchased at net asset value, with no sales charge, with a
minimum initial investment of $100,000, except for states,
counties, cities, and their instrumentalities, departments,
agencies and authorities, which may open an account in the Fund
with a minimum initial investment of $1,000.

The investment objective is to seek total return (capital growth
plus income) exceeding the total return of the aggregate U.S.
medium capitalization stocks, as measured by the Standard and
Poor's ("S&P") MidCap 400 Index* (the "Benchmark"). THE FUND,
UNLIKE MOST FUNDS WHICH INVEST DIRECTLY IN SECURITIES, SEEKS TO
ACHIEVE THIS OBJECTIVE BY INVESTING ALL OF ITS ASSETS IN SHARES
OF MIDCAP GROWTH PORTFOLIO, AN OPEN-END, DIVERSIFIED MANAGEMENT
INVESTMENT COMPANY (THE "PORTFOLIO") WHOSE INVESTMENT OBJECTIVES
ARE THE SAME AS THOSE OF THE FUND. The Portfolio in turn invests
primarily in a broadly diversified portfolio of medium
capitalization stocks. Neither the Fund nor the Portfolio are
sponsored by or affiliated with S&P.

SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.

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

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

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

This Prospectus is not an offering of the securities herein
described in any state in which the offering is unauthorized. No
sales representative, dealer or other person is authorized to
give any information or make any representation other than those
contained in this Prospectus or the SAI.
_______
* "Standard & Poor's MidCap 400 Index" and "S&P MidCap 400 Index"
are trademarks of S&P. Neither the Fund nor the Portfolio are
sponsored, endorsed, sold or promoted by S&P.

CONTENTS PAGE

Expense Table

Financial Highlights

About the Fund

Investment Objective and
Policies of the Fund

Administration and Management

Distributions to Shareholders

Taxation of the Fund and Its Shareholders

How to Buy Shares of the Fund

Valuation of Fund Shares

How to Sell Shares of the Fund

Exchange Privilege

Special Services

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Important Notice Regarding Taxpayer
IRS Certifications

Portfolio Operations
EXPENSE TABLE

The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund. These figures are restated based on the aggregate
operating expenses which would have been in effect if the Fund
had invested its assets in the Portfolio for the fiscal year
ended April 30, 1995, and include the estimated expenses of the
Portfolio.

SHAREHOLDER TRANSACTION EXPENSES

Exchange Fee (per transaction) $5.00*

ANNUALIZED OPERATING EXPENSES
(as a percentage of average net assets)

Management Fees of the Portfolio 0.50
Administration Fees of the Fund 0.15%
12b-1 Fees NONE

Other Expenses 0.33%

Total Operating Expenses 0.98%

*The fee will only be imposed on Timing Accounts as described
under "Exchange Privilege."

Investors should be aware that the above table is not intended to
reflect in precise detail the fees and expenses associated with a
shareholder's own investment in the Fund. Rather the table has
been provided only to assist investors in gaining a more complete
understanding of fees, charges and expenses. For a more detailed
discussion of these matters, investors should refer to the
appropriate sections of this Prospectus.

Example

As required by SEC regulations, the following example illustrates
the expenses that apply to a $1,000 investment in the Fund over
various time periods assuming (1) a 5% annual rate of return and
(2) redemption at the end of each time period. The Fund charges
no front-end sales charge or redemption fees.

1 YEAR 3 YEARS 5 YEARS 10 YEARS

$10 $31 $54 $120

THIS EXAMPLE IS BASED ON THE RESTATED ANNUAL OPERATING EXPENSES
SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The
operating expenses are borne by the Fund, and only indirectly by
shareholders as a result of their investment in the Fund. (See
"Administration and Management" for a description of the Fund's
and the Portfolio's expenses.) In addition, federal regulations
require the example to assume an annual return of 5%, but the
Fund's actual return may be more or less than 5%

The Board of Trustees approved the conversion of the Fund to a
master/feeder fund structure. The Board of Trustees considered
the aggregate fees and expenses to be paid by both the Fund and
the Portfolio by adopting the policy of investing all of the
Fund's assets in shares of the Portfolio, and such fees and
expenses that the Fund would pay if it invested directly in
common stocks. Because this arrangement enables various
institutional investors, including the Fund, to pool their
assets, which may be expected to result in the achievement of a
variety of operating economies, the board concluded that the
aggregate expenses of the Fund and the Portfolio were expected to
be lower than the expenses that would be incurred by the Fund if
it invested directly in common stocks, although there is no
guarantee or assurance that asset growth and lower expenses will
be recognized. Franklin Resources, Inc., the sole shareholder of
the Fund, approved the conversion of the master/feeder structure.
Further information regarding the Fund's and the Portfolio's fees
and expenses is included under "Administration and Management."

FINANCIAL HIGHLIGHTS

Set forth below is a table containing financial highlights for a share of the
Fund from the effective date of registration (August 17, 1993) through April 30,
1994 and for the fiscal year ended April 30, 1995. The information for each of
the periods indicated, has been audited by Coopers & Lybrand L.L.P., independent
auditors, whose audit report appears in the financial statements in the Fund's
Statement of Additional Information. See the discussion "Report to Shareholders"
under "General Information."

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------------------
NET
NET ASSET REALIZED & DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM TOTAL AT END TOTAL
APRIL 30 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS OF YEAR RETURN(**)
- -------- --------- ---------- ------------- ----------- ------------- -------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994* $10.00 $0.15 $0.014 $0.164 $(0.079) $(0.035) $(0.114) ...$10.05......1.62%
1995 10.05 0.21 0.769. . 0.979 (0.204) (0.115) (0.219) 10.81 10.06
</TABLE>
<TABLE>
<CAPTION>
RATIO/SUPPLEMENTAL DATA
- ------------------------------------------------------------------
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
YEAR AT END EXPENSES INCOME TO PORTFOLIO
ENDED OF YEAR TO AVERAGE AVERAGE TURNOVER
APRIL 30 (IN 000'S) NET ASSETS++ NET ASSETS RATE
- -------- ---------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
1994 $5,079 - 2.21%+ 70.53%
1995 5,591 - 2.12 163.54
</TABLE>

*For the period August 17, 1993 (effective date) to April 30, 1994

**Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum initial sales charge and assumes
reinvestment of dividends and capital gains, if any, at net asset value.

+Annualized

++During the periods indicated, Franklin Advisers, Inc. and FISCO agreed to
waive in advance their management fees and made payment of other expenses
incurred by the Fund. Had such action not been taken, the
rates of operating expenses to average net assets would have been as follows:

<TABLE>
<CAPTION>
RATIO OF EXPENSES TO AVERAGE NET ASSETS
<S>....................<C>
1994...................0.91%*
1995...................0.98
</TABLE>

ABOUT THE TRUST

Franklin Institutional MidCap Growth Fund is a diversified series
of Franklin Strategic Series (the "Trust"), an open-end
management investment company, commonly called a "mutual fund,"
which has registered as such under the Investment Company Act of
1940 (the "1940 Act"). The Trust is a Delaware business trust
organized on January 25, 1991.

The Fund is available for purchase by states, counties, cities
and their agencies, instrumentalities, departments and
authorities; by institutional accounts, such as corporations,
banks, savings and loan associations, trust companies and other
institutions for investment of their own capital and of monies
held in accounts for which they act in a fiduciary, advisory,
agency, custodial, or other similar capacity. The Fund is not
available for purchase by individuals.

Shares of the Fund may be acquired at the current net asset value
(without sales charge). The minimum initial investment is
$100,000, except that states, counties, cities and their
instrumentalities, departments, agencies and authorities may open
an account in the Fund by investing $1,000 or more. There is no
minimum on subsequent investments. (See "How to Buy Shares of the
Fund.")

Franklin Advisers, Inc., (the "Administrator") serves as the
Fund's administrator, performing various administrative services
as discussed under "Administration and Management." Templeton
Quantitative Advisors, Inc., ("TQA" or "Manager") serves as the
investment manager for the Portfolio.

INVESTMENT OBJECTIVE AND POLICIES OF THE FUND

The investment objective is to seek total return (capital growth
plus income) exceeding the total return of the aggregate U.S.
medium capitalization stocks, as measured by the Standard and
Poor's MidCap 400 Index* (the "Benchmark"). The Fund pursues its
investment objective by investing all of its assets in the
Portfolio, which has the same investment objective, goal and
policies as the Fund and pursues its objective by investing
primarily in a broadly diversified portfolio of medium
capitalization stocks. The Portfolio invests in the common stocks
of companies selected by a structured quantitative investment
strategy. The Portfolio will not attempt to replicate the
Benchmark with its portfolio composition. Under normal market
conditions, the Portfolio will invest 50% to 100% of its assets
in the common stocks of companies represented in the Benchmark.
The Benchmark is a capitalization weighted index of 400 medium
capitalization companies chosen by S&P. The Portfolio's
investments will be distributed across the following industry
sectors represented in the Benchmark: industrial, utilities,
financial and transportation sectors. In addition, the Manager
will regularly determine which stocks in the Benchmark and
outside of the Benchmark should be included in the Portfolio's
portfolio for the purpose of seeking to outperform the Benchmark.
The Portfolio will invest at least 65% of its assets in common
stocks of medium capitalization companies, whether such companies
are included in the Benchmark or have the characteristics
described below. The Fund's objective is a fundamental policy of
the Fund and may not be changed without shareholder approval.

The Portfolio will implement a structured quantitative stock
selection strategy. The Portfolio is not limited to stocks in the
Benchmark as long as the total portfolio maintains similar
systematic characteristics of the Benchmark, such as
capitalization, beta and economic sector weightings. To avoid any
potential conflict of interest, the Portfolio will not purchase
securities of issuers with which it is affiliated. This includes,
but is not limited to, the common shares of Franklin Resources,
Inc. The latter policy does not apply to the Portfolio's short-
term investments.

*"Standard & Poor's MidCap 400 Index" and "S&P MidCap 400 Index"
are trademarks of Standard & Poor's Corporation. Neither the
Fund nor the Portfolio are sponsored, endorsed, sold or promoted
by S&P.

The Portfolio may invest up to 50% of its assets in stocks not
represented in the Benchmark, and in other securities and
derivative instruments. The securities outside of the Benchmark
will be primarily medium capitalization stocks, which TQA
believes have superior prospects for return relative to the
Benchmark. Medium capitalization companies in which the Portfolio
will invest have a market capitalization between $200 million and
$5 billion. Market capitalization is defined as the total market
value of a company's outstanding common stock. If the purchase of
a company's common stock is not appropriate in light of current
market factors or if sufficient shares of its common stock are
not available for purchase, the Portfolio may purchase such
company's outstanding convertible preferred stock. The Portfolio
may also purchase options on stocks and stock indices, and
futures and options on futures contracts on stock indices as a
hedge against changes resulting from market conditions in the
values of its securities or securities which it intends to
purchase and to accommodate cash flows. Consistent with its
objective, the Portfolio attempts to be fully invested at all
times in equity securities and, under normal market conditions,
its assets will be invested primarily in a broadly diversified
portfolio of medium capitalization stocks.

The Portfolio's portfolio will overweight, relative to the
Benchmark, stocks that are attractive on the basis of their
valuation and growth prospects. TQA has developed a proprietary
stock selection model that combines certain valuation and growth
factors to create a composite rank score. The growth factors
include, but are not limited to: earnings momentum, estimate
revision, earnings surprise, consensus growth estimates and
return on equity. Value characteristics deemed to be important
include, but are not limited to: dividend discount model expected
returns, price to earnings ratio, price to book ratio, price to
cash flow ratio and price to sales ratio. The proprietary stock
selection model dynamically weights these individual factors,
based on their relative attractiveness and stock selection
potential. TQA believes that a diversified portfolio of stocks
that are favorably ranked based on its proprietary stock
selection model is consistent with the objective of exceeding the
performance of the Benchmark.

TQA will diversify the portfolio of stocks by generally holding a
minimum of 50 stocks selected with assistance of quantitative
modeling that includes specific risk management technology. TQA
believes that this diversification will increase the likelihood
that the Portfolio will meet its objective. Although the majority
of the Portfolio's assets will be held in stocks with attractive
scores based upon the proprietary stock selection model used by
the Portfolio, the risk management technology will sometimes
require the holding of stocks that are less attractive but
comprise a substantial weight in the Benchmark. Although TQA does
not anticipate the number of stocks in the portfolio falling
below the 50 minimum, it is possible that from time to time it
may do so.

The Benchmark. The performance Benchmark is the S&P Midcap 400
Index, which consists of 400 domestic stocks chosen for market
size (the median capitalization of the companies comprising the
index as of November 30, 1992 was approximately $806 million),
liquidity and industry group representation. It is a market value
weighted index with each stock affecting the index in proportion
to its market value. The Benchmark is the property of Standard &
Poor's, which makes all the decisions with respect to its
composition.

On December 31, 199[3], the Benchmark consisted of [261 companies
listed on the New York Stock Exchange, 12 companies listed on the
American Stock Exchange and 127 NASDAQ companies]. The sector
weights in the Benchmark on that date were approximately as
follows: Industrials 66%; Utilities 15%; Financial 17%; and
Transportation 2%. These weights will change in accordance with
relative price movements of the individual stocks. The Portfolio
will attempt to maintain a sector weighting similar to the
Benchmark.]

The Benchmark is designed to capture growth companies, with less
of an emphasis on current income. As such, the Benchmark may
experience greater price volatility than broad market averages.
In addition, there is no guarantee that the Portfolio will
perform similarly to the Benchmark.

Rebalancing Considerations. The Portfolio is re-balanced
periodically based on new scores resulting from the proprietary
stock selection model in an attempt to weight the portfolio so as
to exceed the performance of the Benchmark. It is TQA's
reasonable expectation that there will be a close correlation
between the Portfolio's performance on a total return basis and
that of the Benchmark in both rising and falling markets. The
Portfolio is managed to outperform the Benchmark in both rising
and falling markets.

The Portfolio's ability to outperform the Benchmark may be
affected by, among other things, changes in the security markets,
daily execution price of stocks purchased or sold compared to the
closing price of the stocks comprising the Benchmark, the manner
in which the Benchmark is calculated, and the extent and timing
of purchases and redemption of Fund shares. Occasionally, stock
positions may not be sold from the Portfolio when to do so may
involve adverse tax consequences, excessive portfolio turnover or
other expenses, restrictions imposed by the SEC, or when it may
require the disposition of such position under circumstances
which do not reflect the typical market for such stocks. The
Portfolio's trading strategy is designed to minimize portfolio
turnover and transaction costs. The Portfolio attempts to do this
by buying or selling stock positions that are under- or
overvalued, which would improve performance relative to the
Benchmark, and by restricting Fund trades to only round-lot or
large block trades.

Investment Risk Considerations. Historically, the medium market
capitalization stocks, which will constitute the majority of the
investments of the Portfolio, have been more volatile in price
than the larger capitalization stocks. Among the reasons for
greater price volatility of these securities are the less certain
growth prospects of smaller firms, the lower degree of liquidity
in the market for such stocks, and the greater sensitivity of
small and medium size companies to changing economic conditions.
Besides exhibiting greater volatility, medium and small company
stocks may fluctuate independently of larger company stocks.
Medium and small company stocks may decline in price as large
company stocks rise or vice versa. Investors should therefore
expect that the value of the Fund's shares may be more volatile
than the shares of a fund that invests in larger capitalization
stocks. In addition, medium size companies in which the Fund
invests may have products and management which have not been
thoroughly tested by time or by the marketplace. These companies
may also be more dependent on a limited number of key personnel
and their financial resources may not be as substantial as those
of more established companies. Adversity which leads to a decline
in the value of such a security will have a negative impact on
the Fund's share price as well. Further information about the
Fund's structure is included under "Expense Table,"
"Administration and Management," and "General Information."

SPECIAL INFORMATION REGARDING THE FUND'S MASTER/FEEDER FUND
STRUCTURE

The investment objectives of both the Fund and the Portfolio are
fundamental and may not be changed without shareholder approval.
The investment policies described herein, include those followed
by the Portfolio in which the Fund invests. Information on
administration and expenses is included under "Administration and
Management;" see the SAI for information regarding the Fund's and
the Portfolio's investment restrictions.

An investment in the Fund may be subject to certain risks due to
the Fund's structure, such as the potential that upon redemption
by other future shareholders in the Portfolio, the Fund's
expenses may increase or economies of scale which have been
achieved as a result of the structure may be diminished.
Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could have
effective voting control over the operation of the Portfolio.
Further, in the event that the shareholders of the Fund do not
approve a proposed future change in the Fund's objective or
fundamental policies, which has been approved for the Portfolio,
the Fund may be forced to withdraw its investment from the
Portfolio and seek another investment company with the same
objective and policies. In addition, the Fund may withdraw its
investment in the Portfolio at any time, if the Board of Trustees
of the Trust considers that it is in the best interests of the
Fund to do so. Upon any such withdrawal, the Board of Trustees of
the Trust would consider what action to take, including the
investment of all of the assets of the Fund in another pooled
investment entity having the same investment objectives and
policies as the Fund, or hiring of an investment adviser to
manage the Fund's investments. Such circumstances may cause an
increase in Fund expenses. Further, the Fund's structure is a
relatively new format which often results in certain operational
and other complexities. However, the Franklin organization was
one of the first mutual fund complexes in the country to
implement such a structure and the trustees do not believe that
the additional complexities outweigh the benefits to be gained by
shareholders.

The Franklin Group of Funds(Registered Trademark) currently has
another fund, the Franklin MidCap Growth Fund, which may invest
in the Portfolio. This other fund, unlike the Fund, is available
to individuals and others and is sold with a sales charge. It is
possible that in the future other funds may be created which may
likewise invest in the Portfolio. If and when that happens, the
Fund or Administrator will forward any interested shareholder
additional information, including a prospectus and statement of
additional information, if requested, regarding such other
institutions through which they may make investments in the
Portfolio. Any such fund may be offered with or without a sales
charge thus, an investor in such fund may experience a different
return from an investor in another investment company which
invests exclusively in the Portfolio. Investors interested in
obtaining information on such funds may contact the departments
listed under "How to Get Information Regarding an Investment in
the Fund."

The Portfolio is a management investment company which was
organized as a Delaware business trust on February 26, 1993. The
Portfolio is authorized to issue an unlimited number of shares of
beneficial interest, with a par value of $.01 per share. All
shares have one vote and, when issued, are fully paid, non-
assessable, and redeemable. Currently, the Portfolio issues
shares in only two series; however, additional series may be
added in the future by the Board of Trustees, the assets and
liabilities of which will be separate and distinct from any other
series. The Portfolio is treated as a partnership for federal and
state income tax purposes. As a result, investors in the
Portfolio, such as the Fund, will be subject to federal and state
income tax on their distributive shares of the Portfolio's
income.

Whenever the Fund, as an investor in the Portfolio, is asked to
vote on a matter relating to the Portfolio, the Trust, on behalf
of the Fund, will hold a meeting of the Fund's shareholders and
will cast its votes in the same proportions as the Fund's
shareholders have voted.

OTHER INVESTMENT POLICIES OF THE PORTFOLIO (AND THE FUND)

the Portfolio and the Fund have adopted substantially similar
investment policies; however, the Portfolio follows such policies
through direct investments and the Fund follows such policies
indirectly through its investment in the Portfolio.

OTHER POLICIES

LOANS OF PORTFOLIO SECURITIES. Up to 20% of the Portfolio's
portfolio securities may be loaned to qualified borrowers who
deposit and maintain with the Portfolio cash collateral with a
value at least equal to the value of the securities loaned. As
with any extension of credit there are risks of delay in recovery
and loss of rights in the collateral should the borrower of the
securities fail financially. The Portfolio will engage in
security loan arrangements with the primary objective of
increasing the Portfolio's income through investment of the cash
collateral in short-term, interest-bearing obligations, but will
do so only to the extent that the Portfolio will not lose the tax
treatment available to regulated investment companies.

BORROWING. As a fundamental policy, the Portfolio does not borrow
money or mortgage or pledge any of the assets of the Portfolio,
except that the Portfolio may borrow from banks up to 10% of its
total asset value to meet redemption requests and for other
temporary or emergency purposes. While borrowings exceed 5% of
the Portfolio's total assets, the Portfolio will not make any
additional investments.

ILLIQUID INVESTMENTS. It is the Portfolio's policy that illiquid
securities (including illiquid equity securities, illiquid
securities with legal or contractual restriction on resale,
repurchase agreements of more than seven days duration, illiquid
real estate investment trusts, securities of issuers with less
than three years continuous operation and other securities which
are not readily marketable) may not constitute, at the time of
purchase or at any time, more than 10% of the value of its total
net assets. Subject to this limitation, the Trust's Board of
Trustees has authorized the Portfolio to invest in restricted
securities where such investment is consistent with the
Portfolio's investment objective and has authorized such
securities to be considered to be liquid to the extent TQA
determines on a daily basis that there is a liquid institutional
or other market for such securities. Notwithstanding TQA's
determination in this regard, the Trust's Board of Trustees will
remain responsible for such determinations and will consider
appropriate action, consistent with its objective and policies,
if a security should become illiquid subsequent to its purchase.
To the extent the Portfolio invests in restricted securities that
are deemed liquid, the general level of illiquidity in the
Portfolio may be increased if qualified institutional buyers
become uninterested in purchasing these securities or the market
for these securities contracts. See "Investment Objective and
Policies - Short-Term Investments" in the SAI.

Securities Industry Related Investments. To the extent it is
consistent with its investment objective and certain limitations
under the 1940 Act, the Portfolio may invest its assets in
securities issued by companies engaged in securities related
businesses, including such companies that are securities brokers,
dealers, underwriters or investment advisers. Such companies are
considered part of the financial services industry sector.

Under Section 12(d)(3) under the 1940 Act and Rule 12d3-1
thereunder, the Portfolio may not acquire a security or any
interest in a securities related business, to the extent such
acquisition would exceed certain limitations. The Portfolio does
not believe that these limitations will impede the attainment of
its investment objective.

Short-Term Investments. The Portfolio may invest its cash,
including cash resulting from purchases and sales of Portfolio
shares, temporarily in short-term debt instruments, including
high grade commercial paper, repurchase agreements and other
money market equivalents and the shares of money market funds
managed by Franklin Advisers, Inc., which invest primarily in
short-term debt securities. Such temporary investments will be
made with cash held to maintain liquidity or pending investment
and will be consistent with the Fund's overall policy of being
fully invested. In addition, for temporary defensive purposes in
the event of or when the adviser anticipates a general decline in
the market prices of stocks in which the Portfolio invests, the
Portfolio may invest an unlimited amount of its assets in short-
term debt instruments.

Options and Financial Futures. The Portfolio may write covered
put and call options and purchase put and call options which
trade on securities exchanges and in the over-the-counter market.
The Portfolio may purchase and sell futures and options on
futures with respect to securities indices and enter into futures
and options to "close-out" futures and options it may have
purchased or sold. The Portfolio will not enter into any futures
contract or related options (except for closing transactions) if,
immediately thereafter, the sum of the amount of its initial
deposits and premiums on open contracts and options would exceed
5% of the Portfolio's total assets (taken at current value). The
Portfolio will not engage in any stock options or stock index
options if the option premiums paid regarding its open option
positions exceed 5% of the value of the Portfolio's total assets.

A call option written by the Portfolio is "covered" if the
Portfolio owns the underlying security which is subject to the
call or has an absolute and immediate right to acquire that
security without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its
portfolio. A call option is also covered if the Portfolio holds a
call on the same security and in the same principal amount as the
call written where the exercise price of the call held (a) is
equal to or less than the exercise price of the call written or
(b) is greater than the exercise price of the call written if the
difference is maintained by the Portfolio in cash and high grade
debt securities in a segregated account with its custodian. A put
option written by the Portfolio is "covered" if the Portfolio
maintains cash and high grade debt securities with a value equal
to the exercise price in a segregated account with its custodian,
or else holds a put on the same security and in the same
principal amount as the put written where the exercise price of
the put held is equal to or greater than the exercise price of
the put written.

The Portfolio's option and futures investments involve certain
risks. Such risks include the risks that the effectiveness of an
options and futures strategy depends on the degree to which price
movements in the underlying index or securities correlate with
price movements in the relevant portion of the Portfolio's
portfolio. The Portfolio bears the risk that the prices of its
portfolio securities will not move in the same amount as the
option or future it has purchased, or that there may be a
negative correlation which would result in a loss on both such
securities and the option or future.

Positions in exchange traded options and futures may be closed
out only on an exchange which provides a secondary market. There
may not always be a liquid secondary market for a futures or
option contract at a time when the Portfolio seeks to "close out"
its position. If the Portfolio were unable to "close out" a
futures or option position, and if prices moved adversely, the
Portfolio would have to continue to make daily cash payments to
maintain its required margin, and if the Portfolio had
insufficient cash, it might have to sell portfolio securities at
a disadvantageous time. In addition, the Portfolio might be
required to deliver the stocks underlying futures or options
contracts it holds. Over-the-counter options ("OTC" options) may
not be closed out on an exchange and the Portfolio may be able to
realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with
the dealer that issued it. There can be no assurance that a
liquid secondary market will exist for any particular option or
futures contract at any specific time. Thus, it may not be
possible to close such an option or futures position. The
Portfolio will enter into an option or futures position only if
there appears to be a liquid secondary market for such option or
futures.

The Portfolio understands the current position of the staff of
the SEC to be that purchased OTC options are illiquid securities
and that the assets used to cover the sale of an OTC option are
considered illiquid. The Portfolio and TQA disagree with this
position. Nevertheless, pending a change in the staff's position,
the Portfolio will treat OTC options and "cover" assets as
subject to the Portfolio's limitation on illiquid securities.

In addition, adverse market movements could cause the Portfolio
to lose up to its full investment in a call option contract
and/or to experience substantial losses on an investment in a
futures contract. There is also the risk of loss by the Portfolio
of margin deposits in the event of bankruptcy of a broker with
whom the Portfolio has an open position in a futures contract or
option.

The Portfolio's option and futures investments may be limited by
the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company
and may reduce the portion of the Portfolio's dividends which is
eligible for the corporate dividends-received deduction. These
transactions are also subject to special tax rules that may
affect the amount, timing and character of certain distributions
to shareholders, more information about which is included in the
tax section of the SAI.

The Portfolio's investments in options and futures contracts and
certain security transactions (including loans of portfolio
securities) may reduce the portion of the Portfolio's dividends
which otherwise would be eligible for the corporate dividends-
received deduction. These transactions are also subject to
special tax rules that may affect the amount, timing and
character of distributions to shareholders. These investments and
transactions are discussed in the SAI.

Repurchase Transactions. The Portfolio may enter into repurchase
agreements with government securities dealers recognized by the
Federal Reserve Board or with member banks of the Federal Reserve
System. This is an agreement in which the seller of a security
agrees to repurchase the security at a mutually agreed upon time
and price. It may also be viewed as the loan of money by the
Portfolio to the seller. The resale price is normally in excess
of the purchase price, reflecting an agreed upon interest rate.
The interest rate is effective for the period of time in which
the Portfolio is invested in the agreement and is not related to
the coupon rate on the underlying security. The period of these
repurchase agreements will usually be short, from overnight to
one week, and at no time will the Portfolio invest in repurchase
agreements for more than one year. However, the securities which
are subject to repurchase agreements may have maturity dates in
excess of one year from the effective date of the repurchase
agreements. The transaction requires the initial
collateralization of the seller's obligation by securities with a
market value, including accrued interest, equal to at least 102%
of the dollar amount invested by the Portfolio, with the value
marked to market daily to maintain 100% coverage. A default by
the seller might cause the Portfolio to experience a loss or
delay in the liquidation of the collateral securing the
repurchase agreement. The Portfolio might also incur disposition
costs in liquidating the collateral. The Portfolio will make
payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of its custodian
bank. The Portfolio may not enter into a repurchase agreement
with more than seven days duration if, as a result, more than 10%
of the market value of the Portfolio's total assets would be
invested in repurchase agreement as well as other securities
deemed to be illiquid.

Portfolio Turnover. The Portfolio expects that its portfolio
turnover rate will generally not exceed 100%, but this rate
should not be construed as a limiting factor. High portfolio
turnover increases transaction costs which must be paid by the
Portfolio. High turnover may also result in the realization of
net capital gain, which is taxable when distributed to
shareholders.

The Portfolio may not invest in securities other than the types
of securities listed above and is subject to other specific
investment restrictions as detailed under "Additional Information
Regarding the Portfolio's Investment Objectives and Policies" in
the SAI.

HOW SHAREHOLDERS PARTICIPATE IN THE RESULTS OF THE FUND'S
ACTIVITIES

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

In addition to the factors which affect the value of individual
securities, as described in the preceding sections, a shareholder
may anticipate that the value of Fund shares will fluctuate with
movements in the broader equity and bond markets, as well. A
decline in the market, expressed for example by a drop in the Dow
Jones Industrials or the Standard & Poor's 500 average or any
other equity based index, may also be reflected in declines in
the Fund's share price. History reflects both decreases and
increases in the valuation of the market, and these may reoccur
unpredictably in the future.

ADMINISTRATION AND MANAGEMENT

The Board of Trustees has the primary responsibility for the
overall management of the Fund and for electing its officers who
are responsible for administering its day-to-day operations. The
officers and trustees of the Trust are also officers and trustees
of the Portfolio. For information concerning the officers and
trustees of the Trust and the Portfolio, see Trustees and
Officers in the SAI. The Board of Trustees, with all
disinterested trustees as well as the interested trustees voting
in favor, have adopted written procedures designed to deal with
potential conflicts of interest which may arise from the fact of
having the same persons serving on each trust's Board of
Trustees. The procedures call for an annual review of the Fund's
relationship with the Portfolio, and in the event a conflict is
deemed to exist, the board may take action, up to and including
the establishment of a new board of trustees. The Board of
Trustees has determined that there are no conflicts of interest
presented by this arrangement at the present time. A detailed
description of trustees and officers is included in the SAI (see
"Trustees and Officers" in that Statement).

Franklin Resources, Inc. ("Resources"), 777 Mariners Island
Blvd., San Mateo, California 94404, is a publicly owned holding
company, the principal shareholders of which are Charles B
Johnson and Rupert H. Johnson, Jr., who own approximately 20% and
16%, respectively, of its outstanding shares. On October 30,
1992, Resources, directly and through newly formed subsidiaries
which are affiliates of Advisers, acquired the assets of
Templeton, Galbraith & Hansberger, Ltd., an investment advisory
firm which manages the Templeton Family of Funds. The
Administrator is a direct subsidiary of Resources and TQA, an
affiliate of the Templeton complex, is an indirect wholly owned
subsidiary. Resources, through its various subsidiaries, manages
over $121 billion in assets worldwide for over 3.84 million
mutual fund shareholders, in addition to foundations and
endowments, employee benefit plans and individuals.

ADMINISTRATIVE SERVICES

The Fund's administrative, statistical, and other services are
performed by the Administrator, under an agreement dated
September 1, 199[5], in return for a monthly administration fee
at the annual rate of 0.15% of 1% of the Fund's average daily net
assets.

The Fund is responsible for its own operating expenses,
including, but not limited to the Administrator's fee; taxes, if
any; legal and auditing fees; fees and costs of its custodian,
transfer agent and shareholder services agent; the fees and
expenses of trustees who are not members of, affiliated with or
interested persons of the Administrator; salaries of any
personnel not affiliated with the Administrator; insurance
premiums, trade association dues, and expenses of obtaining
quotations for calculating the value of the Fund's net assets;
printing and other expenses relating to the Fund's operations;
filing fees; brokerage fees and commissions, if any; costs of
registering and maintaining registration of the Fund's shares
under federal and state securities laws; plus any extraordinary
and non-recurring expenses which are not expressly assumed by
Administrator.

The administration agreement specifies that the administration
fee will be reduced to the extent necessary to comply with the
most stringent limits prescribed by any state in which the Fund
shares are offered for sale. The most stringent current state
restriction limits the Fund's allowable aggregate operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) in any fiscal
year to 2 1/2% of the first $30 million of net assets of the
Fund, 2% of the next $70 million of net assets of the Fund and 1
1/2% of average net assets of the Fund in excess of $100 million.

MANAGEMENT OF THE PORTFOLIO

The Portfolio in which the Fund invests all of its assets, has a
management agreement with TQA, dated September 1, 199[5].
Pursuant to the management agreement, the Portfolio is obligated
to pay the Manager a fee computed at the close of business on the
last business day of each month equal to an annual rate of .50%.
The management agreement specifies that the Manager reimburse the
Portfolio for annual expenses of the Portfolio which exceed the
most stringent limits prescribed by any state in which MidCap
shares are offered for sale, as noted under "Administration and
management." In addition, the Manager has agreed in advance to
waive its management fees and to assume responsibility for
certain other expenses during the formation stages of the Fund.
This agreement may be canceled or modified at any time.

The management agreement is in effect until August 31 199[7].
Thereafter, it may continue in effect for successive annual
periods providing such continuance is specifically approved at
least annually by a vote of the Portfolio's Board of Trustees or
by a vote of the holders of a majority of the Portfolio's
outstanding voting securities, and in either event by a majority
of the Portfolio's Trustees who are not parties to the management
agreement or interested persons of any such party (other than as
Trustees of the Portfolio), cast in person at a meeting called
for that purpose. The management agreement may be terminated
without penalty at any time by the Portfolio or by the Manager on
thirty days' written notice and will automatically terminate in
the event of its assignment, as defined in the Investment Company
Act of 1940.

The Administrator and TQA may determine to assume responsibility,
if necessary, for the payment of certain operating expenses
relating to the operations of the Fund and the Portfolio, which
may have the effect of increasing the yield to the shareholders
of the Fund. In addition, the Administrator and TQA may determine
for an indefinite period of time to limit or not to impose their
fees with respect to the Fund in order to reduce the total
expenses of the Fund and the Portfolio, which commitment to pay
or limit expenses may be terminated by the Administrator and TQA
at any time.

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

The total operating expenses of the Fund, including expenses
attributable to the Fund's investment in the Portfolio (before
fee waiver and expense reduction) represented 0.98%. With fee
waiver and expense reductions, the Fund made no payments.

Shareholder accounting and many of the clerical functions for the
Fund and the Portfolio are performed by Franklin/Templeton
Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), 777 Mariners Island Blvd., San Mateo, CA 94404,
in its capacity as transfer agent and dividend-paying agent.
Investor Services is a wholly-owned subsidiary of Resources.

PRIOR SERVICES

Prior to September 1, 1995, the Fund invested its assets directly
in stocks. The investment activities of the Fund were provided by
Franklin Institutional Services Corporation (FISCO), also a
wholly owned subsidiary of Resources, under a management
agreement with the Fund which provided for payment of management
fees by the Fund up to a maximum of 0.65% annually of its average
daily net assets. FISCO employed its affiliate, TQA, to implement
some of the investment activities of the Fund. TQA's fees were
paid fully by FISCO. For the period ended April 30, 1995, the
Fund paid no management fees. See the "Expense Table" for further
information.

DISTRIBUTIONS TO SHAREHOLDERS

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

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

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

DISTRIBUTION DATE

Although subject to change by the Fund's Board of Trustees,
without prior notice to or approval by shareholders, the Fund's
current policy is to declare income dividends payable
semiannually in June and December for shareholders of record
generally on the first business day preceding the 15th of the
month, payable on or about the last business day of such months.
The amount of income dividend payments by the Fund is dependent
upon the amount of net income received by the Fund from its
investments, is not guaranteed and is subject to the discretion
of the Fund's Board of Trustees. Fund shares are quoted ex-
dividend on the first business day following the record date. THE
FUND DOES NOT PAY "INTEREST" OR GUARANTEE ANY FIXED RATE OF
RETURN ON AN INVESTMENT IN ITS SHARES.

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

DIVIDEND REINVESTMENT

Unless otherwise requested, income dividends and capital gain
distributions, if any, will be automatically reinvested in the
shareholder's account in the form of additional shares, valued at
the closing net asset value (without a sales charge) on the
dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset
value in the Fund or Class I shares of other Franklin Templeton
Funds. Shareholders have the right to change their election with
respect to the receipt of distributions by notifying the Fund,
but any such change will be effective only as to distributions
for which the record date is seven or more business days after
the Fund has been notified. See the SAI for more information.

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

DISTRIBUTIONS IN CASH

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

TAXATION OF THE FUND AND ITS SHAREHOLDERS

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

Each series of the Trust, including the Fund, is treated as a
separate entity for federal income tax purposes. The Fund intends
to qualify and elect to be treated as a regulated investment
company under Subchapter M of the Code. By distributing all of
its income and meeting certain other requirements relating to the
sources of its income and diversification of its assets, the Fund
will not be liable for federal income or excise taxes.

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

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

Pursuant to the Code, certain distributions which are declared in
October, November or December but which, for operational reasons,
may not be paid to the shareholder until the following January,
will be treated for tax purposes as if received by the
shareholder on December 31 of the calendar year in which they are
declared.

For the fiscal year ended April 30, 1995, 92.65% of the
net income dividends paid by the Fund qualified for the
corporate dividends-received deduction, subject to
certain holding period, hedging and debt financing
restrictions imposed under the Code on the corporation
claiming the deduction.

Corporate shareholders should note that dividends paid by the
Fund from sources other than the qualifying dividends it receives
will not qualify for the dividends-received deduction. For
example, any interest income and net short-term capital gain (in
excess of any net long-term capital loss or capital loss
carryover) included in investment company taxable income and
distributed by the Fund as a dividend will not qualify for the
dividends-received deduction.

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

Subject to permissible investment regulations, the Fund may be
used for the investment of surplus funds of municipalities,
including funds which are subject to the arbitrage rebate
requirements of Section 148 of the Code. The Fund does not meet
currently defined exceptions to the arbitrage rebate
requirements, and a portion or all of the earnings distributed by
the Fund may be required to be paid over to the U.S. Treasury as
rebatable arbitrage earnings in accordance with the provisions of
the Code. Section 115(1) of the Code provides in part that gross
income does not include income derived from the exercise of any
essential governmental function and accruing to a state,
territory or political subdivision thereof. To the extent that
investments in the Fund are made in connection with such
functions, states and political subdivisions of states will not
be subject to federal taxation on income or gain derived from an
investment in the Fund.

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

HOW TO BUY SHARES OF THE FUND

Shares of the Fund may be purchased by governmental authorities
and by institutions, such as banks, savings and loan
associations, trust companies, corporations, and other
institutional entities, from Franklin/Templeton Distributors,
Inc., an affiliate of the Administrator and the principal
underwriter of most of the investment companies in the Franklin
Group of Funds(Registered Trademark) and the Templeton Group.
Shares of the Fund may not be purchased by individuals. The
shares are offered at their net asset value on a continuous basis
by the Fund. As each payment is received, full and fractional
shares of the Fund will be purchased at the net asset value next
computed and proper entry will be made on the books of the Fund.
The minimum initial investment is $100,000, except for states,
counties, cities, and their instrumentalities, departments,
agencies and authorities which may open an account in the Fund
with a minimum initial investment of $1,000. There is no minimum
on subsequent investments. The Fund reserve the right to reject
any order for the purchase of shares or to waive the minimum
investment requirements. Investments may be made by any one of
the following ways:

1. BY WIRE OR OTHER MEANS OF ELECTRONIC TRANSMISSION WITH
PREAUTHORIZED PAYMENT TO A BANK ACCOUNT:

(a) First, call the Fund at 1-800/321-8563. If that line is
busy, call 415/570-3022, collect, to advise of the intention
to wire funds for investment. The call must be received
prior to 1:00 p.m. Pacific time for same day processing.
Orders received after 1:00 p.m. will be processed on the
following business day. The Fund will supply a wire control
number for the investment on the next day. It is necessary
to obtain a new wire control number every time money is
wired into an account in the Fund. Wire control numbers are
effective for one transaction only and may not be used more
than once. Wired money which is not properly identified with
a currently effective wire control number will be returned
to the bank from which it was wired and will not be credited
to the shareholder's account.

(b) On the next business day following the wire order, wire
funds to Bank of America, Palo Alto Main #117, Palo Alto,
CA, for credit to Franklin Institutional MidCap Growth Fund
A/C 14933-04779. Be sure to include the wire control number,
the shareholder's Franklin account number and account
registration. Wired funds received by the Bank and reported
by the Bank to the Fund by 1:00 p.m. Pacific time are
available for credit on that day. Later wires are credited
the following business day. In order to maximize efficient
Fund management, investors are urged to place and wire their
investments as early in the day as possible.

(c) If the purchase is not to an existing account, send a
completed Shareholder Account Application to Franklin
Institutional MidCap Growth Fund, at the address listed on
the cover of this Prospectus, for proper credit.

2. BY MAIL:

Shares of the Fund are offered at the net asset value per share,
next computed after receipt of an order by mail from the
shareholder directly in proper form.

(a) For an initial investment, include a completed
Shareholder Account Application contained in the back of
this Prospectus.

(b) Make the check, Federal Reserve draft or negotiable
bank draft payable to Franklin Institutional MidCap Growth
Fund. Instruments drawn on other investment companies will
not be accepted.

(c) Next, send the check, Federal Reserve draft or
negotiable bank draft to Franklin/Templeton Distributors,
Inc., at the address shown on the cover of this Prospectus.

3. THROUGH SECURITIES DEALERS:

Although the Fund's shares are sold without a sales charge, a
shareholder may invest in the Fund by purchasing shares through a
registered broker-dealer. The broker-dealer may choose to wire or
mail the monies accompanying an investment in the Fund. Broker-
dealers who process orders on behalf of their customers may
charge a reasonable fee for their services. Investments made
directly, without the assistance of a broker-dealer, are without
charge.

If investments are made through a broker-dealer who has executed
a dealer agreement with Distributors, Distributors may make a
payment, out of its own resources, to such broker-dealer in an
amount not to exceed .05% per annum of the average daily net
assets of the dealer's clients invested. Please contact
Franklin's Institutional Sales Department for additional
information.

RIGHTS OF ACCUMULATION

The cost or current value (whichever is higher) of the shares in
the Fund will be included in determining the sales charge
discount to which an investor may be entitled when purchasing
shares in one or more of the funds in the Franklin Group of
Funds(Registered Trademark) and the Templeton Group of Funds,
which are sold with a sales charge. Included for these
aggregation purposes are (a) the mutual funds in the Franklin
Group of Funds except Franklin Valuemark Funds and Franklin
Government Securities Trust (the "Franklin Funds"), (b) other
investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) the U.S. mutual funds in the Templeton Group of Funds
except Templeton Capital Accumulator Fund, Inc., Templeton
Variable Annuity Fund, and Templeton Variable Products Series
Fund (the "Templeton Funds"). (Franklin Funds and Templeton Funds
are collectively referred to as the "Franklin Templeton Funds.")

Purchases of Fund shares will also be included toward the
completion of a Letter of Intent with respect to any of the
Franklin Templeton Funds which are sold with a sales charge.

For additional information regarding these programs, please
contact Investor Services or Franklin's Institutional Sales
Department, by mail at 777 Mariners Island Blvd., P.O. Box 7777,
San Mateo, California 94403-7777, or by phone at 1-800/632-2000.

GENERAL

The Fund reserves the right to redeem, involuntarily, at the then
current net asset value, shares held in an account for a
shareholder in the Fund if the aggregate net asset value for the
shares held by any one shareholder falls below a certain minimum,
but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares. The Fund has
set a $20,000 minimum. Prior to effecting any such involuntary
redemption, the Fund shall notify the shareholder and allow it 30
days to make an additional investment in an amount which will
increase the aggregate value of its account in the Fund to at
least the minimum initial investment before the redemption is
processed.

VALUATION OF FUND SHARES

The offering price is the net asset value next computed following
receipt of the order by the Fund in proper form.

The net asset value per share of the Fund is determined as of the
scheduled closing of the Exchange (generally 1:00 p.m. Pacific
time) each day that the Exchange is open for trading.

The net asset value per share of the Fund is calculated by adding
the value of the portfolio holdings (i.e. shares of the Portfolio
in which the Fund invests) and other assets, deducting the Fund's
liabilities and dividing the result by the number of shares of
the Fund outstanding at the time.

HOW TO SELL SHARES OF THE FUND

1. BY TELEPHONE OR WIRE WITH PAYMENT TO A PREAUTHORIZED
BANK ACCOUNT:

A shareholder may redeem shares by telephone to the Fund at 1-
800/321-8563, or by wire to the Fund at the address listed on the
cover of this prospectus. Redemption instructions must include
the shareholder's name and account number and be wired or called
to the Fund. Redemption proceeds pursuant to a telephone request
will be mailed only to the registered address or be wired
directly to any commercial bank previously designated by the
shareholder in a Shareholder Account Application or Revision.
Redemption requests received prior to 1:00 p.m. Pacific time
will receive the price calculated on that day. Redemption
requests received after 1:00 p.m. Pacific time will receive the
price calculated on the next business day.

During periods of drastic economic or market changes, it is
possible that the telephone redemption privilege may be difficult
to implement. In this event, shareholders should follow the other
redemption procedures discussed in this section, including the
procedures regarding redemption by mail.

2. BY MAIL:

A shareholder may redeem shares by sending a letter requesting
redemption to the Fund, at the address shown on the cover of this
Prospectus.

Redemption proceeds will be mailed to the registered address, or
mailed or wired to a preauthorized bank account as requested.
Proceeds of redemption may also be sent to some other party or
account as requested; however, in such cases the signature(s) on
the redemption request must be guaranteed.

TO BE CONSIDERED IN PROPER FORM, THE APPROPRIATE SIGNATURE(S)
MUST BE GUARANTEED IF THE REDEMPTION REQUEST INVOLVES ANY OF THE
FOLLOWING:

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

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

(3) the proceeds (in any amount) are to be sent to any address
other than the address of record, preauthorized bank account
or brokerage firm account; or
(4) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on
the transfer instructions, including, for example, when (a)
the current address of an account cannot be confirmed, (b)
the Fund has been notified of an adverse claim, (c) the
instructions received by the Fund are given by an agent, not
the actual registered owner, or (d) the authority of a
representative of a corporation, partnership, association,
or other entity has not been established to the satisfaction
of the Fund.

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

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

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

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

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

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

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

Shareholders should contact Investor Services if they have any
questions about a proposed redemption.

GENERAL INFORMATION ABOUT REDEMPTIONS

After requesting a liquidation, a shareholder will receive from
the Fund the value of the shares in the shareholder's account
based upon the net asset value per share next computed on the day
a request in proper form is received by the Fund. Payment for
redeemed shares will be sent within seven days after receipt of a
request in proper form, except that the Fund may delay the
mailing of the redemption check, or a portion thereof, until the
Fund's depository bank has made fully available for withdrawal
the check used to purchase the shares, which may take up to 15
days or more. Although the use of a certified or cashier's check
will generally reduce this delay, these checks will also be held
pending clearance. Shares purchased by federal funds wire are
available for immediate redemption. Arrangements may also be made
to have redemption proceeds wired to the shareholder's designated
bank account. The right of redemption may be suspended or the
date of payment postponed in accordance with the rules of the
SEC. Of course, the amount received on redemption may be more or
less than the amount paid for the shares, depending upon the
fluctuations in the market value of the securities owned by the
Fund. Redemptions also may be made in kind, under certain limited
conditions as discussed in the SAI.

Wiring of redemption proceeds is a special service made available
to shareholders whenever possible. The offer of this service,
however, does not bind the Fund to meet any redemption request by
wire or in less than the seven-day period prescribed by law.
Neither the Fund nor its agents shall be liable to any
shareholder or other person for a redemption payment which for
any reason may not be processed in the expedited manner described
in this section.

EXCHANGE PRIVILEGE

The Franklin Group of Funds(Registered Trademark) and the
Templeton Group consist of a number of investment companies with
varying investment objectives or policies. The shares of most of
these investment companies are offered to the public with a sales
charge. If a shareholder's investment objective or outlook for
the securities markets changes, the Fund shares may be exchanged
for shares of other mutual funds in the Franklin Group of Funds
or the Templeton Group (as defined under "How to Buy Shares of
the Fund") which are eligible for sale in the shareholder's state
of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.

Except as noted below, shares of the Fund may be exchanged at the
offering price of one of the other funds in the Franklin Group of
Funds or the Templeton Group. Such offering price includes the
applicable sales charge of the fund into which the shares are
being exchanged.

The prospectuses for all investment companies in the Franklin
Group of Funds or the Templeton Group which are normally sold
with a sales charge allow certain institutional investors to
acquire shares at net asset value (without a sales charge). These
institutional investors include government entities, employee
benefit plans, trust companies and bank trust departments.
Exchanges will be effected as follows:

(a) FROM ANOTHER FUND IN THE FRANKLIN/ TEMPLETON GROUP INTO THE
FUND. In order to avoid dilution of the Fund, such
transactions will be handled as a liquidation from the other
fund at its net asset value next computed on the day the
exchange request is received in proper form prior to the
time the valuation of shares for that fund is effected
(generally 3:00 p.m. Pacific time for money market funds and
1:00 p.m. Pacific time for non-money market funds), and a
purchase of the Fund's shares on the following business day
at the price computed on such following business day when
the funds for the purchase are available and the purchase
order is in all respects deemed to be in proper form.

(b) FROM THE FUND INTO ANOTHER FUND IN THE FRANKLIN/TEMPLETON
GROUP. The exchange will be effected at the respective net
asset values or offering prices of the funds involved next
computed on the day on which the request is received in
proper form prior to the time the shares of that series are
valued (3:00 p.m. Pacific for all money market funds and
1:00 p.m. Pacific time for all non-money market funds).
Requests received after 1:00 p.m. will be effective at the
prices next computed on the following business day.

Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

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

EXCHANGES BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF
ANY, MAY EXCHANGE SHARES OF THE FUND BY TELEPHONE BY CALLING AT
1-800/632-2301 OR THE AUTOMATED FRANKLIN TELEFACTS(REGISTERED
TRADEMARK) SYSTEM (DAY OR NIGHT) AT 1-800/247-1753. IF THE
SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A PARTICULAR
ACCOUNT, THE FUND OR SHOULD BE NOTIFIED.

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

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

EXCHANGES THROUGH SECURITIES DEALERS

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

ADDITIONAL INFORMATION REGARDING EXCHANGES

The registration on the account in which shares are to be
acquired, whether a new or existing account, must be identical to
the account from which the shares are being exchanged.

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

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

TIMING ACCOUNTS

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

RESTRICTIONS ON EXCHANGES

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

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

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

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

SPECIAL SERVICES

Each shareholder may establish multiple accounts as necessary to
satisfy requirements regarding commingling of funds or for
accounting convenience. Each such account is administered
separately.

Subaccounting and Special Services - Special processing has been
arranged with Investor Services for shareholders who wish to open
multiple accounts (a master account and subaccounts).
Shareholders wishing to utilize Investor Services's subaccounting
facilities will be required to enter into a separate agreement
with Investor Services. Charges for this service, if any, will be
determined on the basis of the level of services to be rendered
and will not increase costs to the Fund. Subaccounts may be
opened with the initial investment or at a later date. More
information on subaccounting services may be obtained by calling
1-800/632-2000.

Special arbitrage reporting services are available for state and
local entities that require rebate calculations for the proceeds
of their tax-exempt obligations pursuant to the Code. The Fund
assumes no responsibility for the accuracy of the services
provided. Certain fees may be imposed for these services. More
complete information may be obtained by calling the Fund or
Franklin's Institutional Services Department at 1-800/632-2000.

HOW TO GET INFORMATION
REGARDING AN INVESTMENT IN THE FUND

Any questions or communications regarding a shareholder's account
should be directed to Franklin's Institutional Sales Department,
777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777, or by telephone at 1-800/632-2000, Monday through
Friday, from 6:00 a.m. to 5:30 p.m. Pacific time.

From a touch-tone phone, shareholders may obtain current price,
yield or performance information specific to a fund in the
Franklin Group of Funds(Registered Trademark) by calling the
automated Franklin TeleFACTS system (day or night) at 1-800/247-
1753. Information about the Fund may be accessed by entering Fund
Code 196 followed by the # sign, when requested to do so by the
automated operator. This service is not available when calling
from a rotary-dial telephone. The TeleFACTs system is also
available for processing exchanges. See "Exchange Privilege."

PERFORMANCE

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

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

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

Yield which is calculated according to a formula prescribed by
the SEC (see the SAI) is not indicative of the dividends or
distributions which were or will be paid to the Fund's
shareholders. Dividends or distributions paid to shareholders are
reflected in the current distribution rate, which may be quoted
to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by the Fund
during the past 12 months by the current maximum offering price.
Under certain circumstances, such as when there has been a change
in the amount of dividend payout, or a fundamental change in
investment policies, it might be appropriate to annualize the
dividends paid during the period such policies were in effect,
rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield
computation because it may include distributions to shareholders
from sources other than dividends and interest, such as premium
income from option writing and short-term capital gain, and is
calculated over a different period of time.

In each case, performance figures are based upon past performance
and reflect all recurring charges against Fund income. The
investment results of the Fund, like all other investment
companies, will fluctuate over time; thus, performance figures
should not be considered to represent what an investment may earn
in the future or what the Fund's yield, distribution rate or
total return may be in any future period.

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

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

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

NAME CHANGE

The Fund changed its name from FISCO Midcap Growth Fund effective
September 1, 1994.

ORGANIZATION AND VOTING RIGHTS

The Trust was organized as a Delaware business trust on January
25, 1991. The Agreement and Declaration of Trust permits the
trustees to issue an unlimited number of full and fractional
shares of beneficial interest, with a par value of $.01 per share
in various series. Each series, in effect, represents a separate
mutual fund with its own investment objective and policies. All
shares have one vote, and, when issued, are fully paid, non-
assessable, and redeemable. The Trust reserves the right to issue
other series of the Trust.

Shares of each series of the Trust have equal voting, dividend
and liquidation rights and will vote separately as to issues
affecting that series or the Trust unless otherwise permitted by
the 1940 Act. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in any election of
trustees, can, if they choose to do so, elect all of the
trustees. The Trust does not intend to hold annual shareholders
meetings. The Trust may, however, hold a special shareholders
meeting for such purposes as changing fundamental investment
restrictions, approving a new management agreement or any other
matters which are required to be acted on by shareholders under
the 1940 Act. A meeting may also be called by the trustees at
their discretion or by shareholders holding at least ten percent
of the outstanding shares of any series of the Trust.
Shareholders will receive assistance in communicating with other
shareholders in connection with the election or removal of
trustees such as that provided in Section 16(c) of the 1940 Act.

GENERAL

Government Accounting Standards Board (GASB) Statement No. 3
pertaining to deposits with financial institutions provides in
paragraph 69 that investments in mutual funds should be
disclosed, but not categorized.

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

CONFIRMATIONS

Shares for an initial investment, as well as subsequent
investments, including the reinvestment of dividends, are
credited to an open share account (known as "plan balance") in
the name of an investor on the books of the Fund without the
issuance of a share certificate. Shareholders will receive
confirmation statements each time there is a transaction which
affects an account, including information on dividends reinvested
or paid. These statements will also show the total number of Fund
shares owned by a shareholder.

SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF
CERTIFICATES. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL
NOT BE ISSUED.

OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS

Certain of the programs and privileges described in this
Prospectus may not be available directly from the Fund to
shareholders whose shares are held, of record, by a financial
institution or in a "street name" account.

IMPORTANT NOTICE REGARDING TAXPAYER IRS CERTIFICATIONS

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

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

PORTFOLIO OPERATIONS

The following persons are primarily responsible for the day to
day portfolio management of the Portfolio in which the Fund
invests:

Robert E. Butman
President, Director and Chief Executive Officer
Templeton Quantitative Advisors, Inc.

Mr. Butman is a Chartered Financial Analyst and holds a Bachelor
of Science in Management Science from the University of Maryland
and a Master of Business Administration degree from The Wharton
School at the University of Pennsylvania. He has been with the
Templeton organization since July 1990. He was president,
director and CEO of the DAIS Group, Inc. from February to August
1990 and employed by Drexel Burnham Lambert from December 1984 to
February 1990.

Hans L. Erickson
Portfolio Manager
Templeton Quantitative Advisors, Inc.

Mr. Erickson has been managing the Fund's portfolio since its
inception. He holds a Bachelor of Science in mathematics and
economics from Lawrence University and a Master of Science in
engineering from Princeton University. Mr. Erickson, a Chartered
Financial Analyst, joined Templeton Quantitative Advisors, Inc.
(formerly the DAIS Group, Inc. and Structured Asset Management,
Inc.) in February 1990. He is a member of several industry-
related associations. He was employed by Drexel Burham Lambert
from May 1989 through February 1990 and Morgan Stanley from June
1988 through May 1989.

Seung H. Minn, CFA
Portfolio Manager
Templeton Quantitative Advisors, Inc.

Mr. Minn has been managing the Fund's portfolio since its
inception. He holds a bachelor of science in Engineering degree
from Princeton University. Mr. Minn, a chartered financial
analyst, joined Templeton Quantitative Advisors, Inc. (formerly
the DAIS Group, Inc. and Structured Asset Management, Inc.) in
May 1990. He is a member of the New York Society of Security
Analysts. From August 1988 through April 1990 he was employed by
Andersen Consulting.

FRANKLIN GLOBAL
UTILITIES FUND

FRANKLIN STRATEGIC SERIES

PROSPECTUS SEPTEMBER 1, 1995

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

Franklin Global Utilities Fund (the "Fund") is a non-diversified series of
Franklin Strategic Series (the "Trust"), an open-end management investment
company, with the investment objective of seeking to provide total return
without incurring undue risk. The Fund seeks to accomplish its objective by
investing primarily, that is, at least 65% of its total assets, in securities
issued by companies which are, in the opinion of management, primarily engaged
in the ownership or operation of facilities used to generate, transmit or
distribute electricity, telephone communications, cable and other pay television
services, radio-telephone communications, gas or water.

The Fund offers two classes to its investors: Franklin Global Utilities Fund -
Class I ("Class I") and Franklin Global Utilities Fund - Class II ("Class II").
Investors can choose between Class I shares, which generally bear a higher
front-end sales charge and lower ongoing Rule 12b-1 distribution fees ("Rule
12b-1 fees"), and Class II shares, which generally have a lower front-end sales
charge and higher ongoing Rule 12b-1 fees. Investors should consider the
differences between the two classes, including the impact of sales charges and
distribution fees, in choosing the more suitable class given their anticipated
investment amount and time horizon. See "How to Buy Shares of the Fund -
Differences Between Class I and Class II."

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

CONTENTS PAGE

Expense Table

Financial Highlights

About the Fund

Investment Objective and
Policies of the Fund

Management of the Fund

Distributions to Shareholders

Taxation of the Fund
and Its Shareholders

How to Buy Shares of the Fund

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

Other Programs and Privileges
Available to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

EXPENSE TABLE

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund (including fees set by contract) for the fiscal
year ended April 30, 1995

<S> <C> <C>
CLASS I CLASS II
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50% 1.00%*
Deferred Sales Charge NONE** NONE***
Exchange Fee NONE NONE

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.60% 0.60%
12b-1 Fees 0.23%+ 1.00%+
Other Expenses:
Reports to shareholders 0.08% 0.08%
Registration 0.09% 0.09%
Other expenses 0.12% 0.12%
----- -----
Total Other Expenses 0.29% 0.29%
-----
Total Fund Operating Expenses 1.12% 1.89%

*Although Class II has a lower front-end sales charge than Class I, over time
the higher Rule 12b-1 fee for Class II may cause shareholders to pay more for
Class II shares than for Class I shares. Given the maximum front-end sales
charge and the rate of Rule 12b-1 fees of each class, it is estimated that this
will take less than [six] years for shareholders who maintain total shares
valued at less than $100,000 in the Franklin Templeton Funds. Shareholders with
larger investments in the Franklin Templeton Funds will reach the crossover
point more quickly. (See "How to Buy Shares of the Fund - Purchase Price of Fund
Shares" for the definition of Franklin Templeton Funds and similar references.)

**Class I investments of $1 million or more are not subject to a front-end sales
charge; however, a contingent deferred sales charge of 1% is generally imposed
on certain redemptions within a "contingency period" of 12 months of the
calendar month following such investments. See "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."

***Class II shares redeemed within a "contingency period" of 18 months of the
calendar month following such investments are subject to a 1% contingent
deferred sales charge. See "How to Sell Shares of the Fund - Contingent Deferred
Sales Charge."

+Consistent with National Association of Securities Dealers, Inc.'s rules, it is
possible that the combination of front-end sales charges and Rule 12b-1 fees
could cause long-term shareholders to pay more than the economic equivalent of
the maximum front-end sales charges permitted under those same rules.

EXAMPLE

As required by SEC regulations, the following example illustrates the expenses,
including the maximum front-end sales charge and applicable contingent deferred
sales charges, that apply to a $1,000 investment in the Fund over various time
periods assuming (1) a 5% annual rate of return and (2) redemption at the end of
each time period.

<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS I $56* $79 $104 $175
CLASS II $39 $69 $111 $229

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

A shareholder would pay the following expenses on the same investment, assuming
no redemption.

<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
<S> <C> <C> <C> <C>
CLASS II $29 $69 $111 $229

THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES, INCLUDING FEES
SET BY CONTRACT, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating
expenses are borne by the Fund and only indirectly by shareholders as a result
of their investment in the Fund. In addition, federal securities regulations
require the example to assume an annual return of 5%, but the Fund's actual
return may be more or less than 5%.

</TABLE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

Set forth below is a table containing financial highlights for a share of the
Fund from the effective date of registration through April 30, 1993, and through
the two fiscal years in the period ended April 30, 1995. The information for
each of the periods ended April 30, 1995, has been audited by Coopers & Lybrand
L.L.P., independent auditors, whose audit report appears in the financial
statements in the in the Trust's Annual Report to Shareholders dated April 30,
1995. Information regarding Class II shares will be included in this table after
they have been offered to the public for a reasonable period of time. See the
discussion "Reports to Shareholders" under "General Information."

<TABLE>
<CAPTION>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
NET
NET ASSET REALIZED & DISTRIBUTIONS NET ASSET
YEAR VALUE AT NET UNREALIZED TOTAL FROM FROM NET DISTRIBUTIONS VALUE
ENDED BEGINNING INVESTMENT GAIN (LOSS) INVESTMENT INVESTMENT FROM TOTAL END TOTAL
APRIL 30 OF YEAR INCOME ON SECURITIES OPERATIONS INCOME CAPITAL GAINS DISTRIBUTIONS OF YEAR RETURN*
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993(1) $10.00 $0.22 $1.270 $1.490 $(0.130) $ -- $ -- $11.36 18.08%**
1994 11.36 0.30 1.280 1.580 (0.299) (0.042) (0.341) 12.60 14.04
1995 12.60 0.42 (0.067) 0.353 (0.365) (0.358) (0.723) 12.23 3.17
</TABLE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------
RATIO OF NET
NET ASSETS RATIO OF INVESTMENT
YEAR AT END EXPENSES INCOME TO PORTFOLIO
ENDED OF YEAR TO AVERAGE AVERAGE TURNOVER
APRIL 30 in 000's) NET ASSETS NET ASSETS RATE
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
1993(1) $ 14,227 -- % *** 3.89%** -- %
1994 124,188 0.84*** 2.95 16.28
1995 119,250 1.12 3.47 16.65
</TABLE>

(1) For the period July 2, 1992 (effective date) to April 30, 1993.

*Total return measures the change in value of an investment over the periods
indicated. It does not include the maximum 4.5% initial sales charge and assumes
reinvestment of dividends and capital gains at net asset value.

**Annualized

***During the period indicated, Franklin Advisers, Inc. agreed to waive in
advance a portion of its management fees and made payments of other expenses
incurred by the Fund. Had such action not been taken, the ratios of expenses to
average net assets would have been 1.51% (annualized) and 1.28%, respectively.

ABOUT THE FUND

The Fund is a non-diversified series of the Trust, a Delaware business trust
organized on January 25, 1991 and registered with the SEC as an open-end
management investment company, commonly called a "mutual fund" under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust issues
its shares of beneficial interest under separate series, each with its own
investment objective and policies and totally separate investment portfolios.
The Fund has two classes of shares of beneficial interest: Franklin Global
Utilities Fund - Class I and Franklin Global Utilities Fund - Class II. All Fund
shares outstanding before May 1, 1995, have been redesignated as Class I shares,
and will retain their previous rights and privileges, except for legally
required modifications to shareholder voting procedures, as discussed in
"General Information - Voting Rights."

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price. The current public
offering price of the Class I shares is equal to the net asset value (see
"Valuation of Fund Shares"), plus a variable sales charge not exceeding 4.50% of
the offering price depending upon the amount invested. The current public
offering price of the Class II shares is equal to the net asset value, plus a
sales charge of 1% of the amount invested. (See "How to Buy Shares of the
Fund.")

INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND

The Fund is managed by Franklin Advisers, Inc. (the "Manager" or "Advisers").
Because the Fund is non-diversified, it may have greater investments in a single
issuer than a diversified fund. Consequently, changes in the financial condition
of a single issuer may have a greater effect on the Fund's share value than such
changes would have on the performance of other mutual funds, particularly those
which invest in a broad range of issuers and industries.

The Fund seeks to provide total return, without incurring undue risk, by
investing at least 65% of its total assets in securities issued by companies
which are, in the opinion of the Manager, primarily engaged in the ownership or
operation of facilities used to generate, transmit or distribute electricity,
telephone communications, cable and other pay television services,
radio-telephone communications, gas or water. The Fund's total return consists
of both capital appreciation and current dividend and interest income. There is,
of course, no assurance that the Fund's objective will be achieved. The
objective is a fundamental policy of the Fund and may not be changed without
shareholder approval.

The Fund may use a variety of strategies to enhance income and to hedge against
market and currency risk, as described more fully under "Strategies Involving
Options, Forward and Futures Contracts" in the SAI.

The Fund invests in common stocks (including preferred or debt securities
convertible into common stocks), preferred stocks and debt securities. The
mixture of common stocks, debt securities and preferred stocks varies from time
to time based upon the Manager's assessment as to whether investments in each
category will contribute to meeting the Fund's investment objective. The Fund
may invest, without percentage limitation, in fixed-income securities having at
the time of purchase one of the four highest ratings of Moody's Investors
Service ("Moody's") (Aaa, Aa, A, Baa), Standard & Poor's Corporation ("S&P")
(AAA, AA, A, BBB), two nationally recognized statistical rating organizations or
in securities which are not rated by any nationally recognized statistical
rating organizations, provided that, in the opinion of the Fund's Manager, such
securities are comparable in quality to those within the four highest ratings.
These are considered to be "investment grade" securities, although bonds rated
Baa are regarded as having an adequate capacity to pay principal and interest
but with greater vulnerability to adverse economic conditions and some
speculative characteristics. The Fund's commercial paper investments at the time
of purchase will be rated "A-1" or "A-2" by S&P or "Prime-1" or "Prime-2" by
Moody's or, if not rated by any ratings service, will be of comparable quality
as determined by Advisers. The Fund may also invest up to 5% of its total assets
at the time of purchase in lower rated fixed-income securities and unrated
securities of comparable quality (sometimes referred to as "junk bonds" in the
popular media). Such investments will be rated no lower than Caa by Moody's or
CCC by S&P. (See the SAI for a more complete discussion regarding these
investments.) In the event the rating on an issue held in the Fund's portfolio
is changed by the rating service, such event will be considered by the Fund in
its evaluation of the overall investment merits of that security but will not
necessarily result in an automatic sale of the security. A discussion of ratings
is contained in the Appendix to the SAI.

The Fund may invest in the securities of foreign issuers in the form of
sponsored or unsponsored American Depositary Receipts (ADRs) or other securities
convertible into securities of foreign issuers. ADRs are receipts typically
issued by an American bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. These securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. Generally, ADRs, which are issued in registered form, are
designed for use in the United States ("U.S.") securities markets. The issuers
of unsponsored ADRs are not obligated to disclose material information in the
U.S. and, therefore, there may be less information available to the investing
public than with sponsored ADRs. Advisers will attempt to independently
accumulate and evaluate information with respect to the issuers of the
underlying securities of sponsored and unsponsored ADRs to attempt to limit the
Fund's exposure to the market risk associated with such investments. For
purposes of the Fund's investment policies, investments in ADRs will be deemed
to be investments in the equity securities of the foreign issuers into which
they may be converted.

A change in prevailing interest rates is likely to affect the Fund's net asset
value because prices of debt, as well as equity securities of utility companies,
tend to increase when interest rates decline and decrease when interest rates
rise.

Under normal circumstances, the Fund will invest at least 65% of its total
assets in issuers domiciled in at least three countries, one of which may be the
U.S., although the Manager expects the Fund's portfolio to be more
geographically diversified. Under normal conditions, it is anticipated that the
percentage of assets invested in U.S. securities will be higher than that
invested in securities of any other single country. It is possible that at times
the Fund may have 65% or more of its total assets invested in foreign
securities. The Fund at all times, except during temporary defensive periods,
will maintain at least 65% of its total assets invested in securities issued by
companies in the utilities industries. The Fund reserves the right to hold, as a
temporary defensive measure or as a reserve for redemptions, short-term U.S.
government securities, high quality money market securities, including
repurchase agreements, or cash in such proportions as, in the opinion of the
Manager, prevailing market or economic conditions warrant.

The operating expense ratio of the Fund can be expected to be higher than that
of an investment company investing exclusively in U.S. securities because the
expenses of the Fund, such as custodial and brokerage costs, are higher.

The Fund is permitted to invest up to 35% of its assets in securities of issuers
that are outside the utility industries. Such investments will consist of common
stocks, debt securities or preferred stocks and will be selected to meet the
Fund's investment objective of providing total return without incurring undue
risk. These securities may be issued by either U.S. or non-U.S. companies,
governments, or governmental instrumentalities. Some of these issuers may be in
industries related to utility industries and, therefore, may be subject to
similar risks. Securities that are issued by foreign companies or are
denominated in foreign currencies are subject to the risks outlined below. See
"Special Considerations and Risk Factors."

Securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities ("U.S. Government Securities"), including U.S. Treasury bills,
notes and bonds as well as certain agency securities and mortgage-backed
securities issued or guaranteed by the Government National Mortgage Association
(GNMA), may be backed by the "full faith and credit" of the U.S. government. Any
such guarantee will extend to the payment of interest and principal due on the
securities and will not provide any protection from fluctuations in either the
securities' yield or value or to the yield or value of the Fund's shares. Other
securities issued by the U.S. government agencies or instrumentalities are not
necessarily backed by the "full faith and credit" of the U.S. government, such
as certain securities issued by the Federal National Mortgage Association
(FNMA), the Federal Home Loan Mortgage Corporation, the Student Loan Marketing
Association and the Farm Credit Bank.

The Fund may invest in securities issued or guaranteed by foreign governments.
Such securities are typically denominated in foreign currencies and are subject
to the currency fluctuation and other risks of foreign securities investments
outlined below. See "Special Considerations and Risk Factors." The foreign
government securities in which the Fund intends to invest generally will consist
of obligations issued by national, state or local governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, including international organizations
designed or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related
government agencies. Examples include the International Bank of Reconstruction
and Development (the World Bank), the European Investment Bank, the Asian
Development Bank and the Inter-American Development Bank.

Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units. An example of a multinational currency unit is the European
Currency Unit. A European Currency Unit represents specified amounts of the
currencies of certain of the 12 member states of the European Economic
Community. Debt securities of quasi-governmental agencies are issued by entities
owned by either a national or local government or are obligations of a political
unit that is not backed by the national government's full faith and credit and
general taxing powers. Foreign government securities also include
mortgage-related securities issued or guaranteed by national or local
governmental instrumentalities, including quasi-governmental agencies.

UTILITY INDUSTRIES

Under normal circumstances, the Fund will invest at least 65% of its total
assets in common stocks (including preferred or debt securities convertible into
common stocks), debt securities and preferred stocks of companies in the utility
industries, which may be domestic and/or foreign. To meet its objective, the
Fund may invest in domestic utility companies that pay higher than average
dividends, but have a lesser potential for capital appreciation. There can be no
assurance that the positive relative returns on utility securities that has
historically been the case will continue to occur in the future. The Manager
believes that the average dividend yields of common stocks issued by foreign
utility companies have also historically exceeded those of foreign industrial
companies' common stocks. To meet its objective of total return, without
incurring undue risk, the Fund may invest in foreign utility companies which pay
lower than average dividends, but have a greater potential for capital
appreciation.

The utility companies in which the Fund invests include companies primarily
engaged in the ownership or operation of facilities used to provide electricity,
telephone communications, cable and other pay television services,
radio-telephone communications, gas or water. "Primarily engaged," for this
purpose, means that (1) more than 50% of the company's assets are devoted to the
ownership or operation of one or more facilities as described above or (2) more
than 50% of the company's operating revenues are derived from the business or
combination of businesses described above. See "The Fund's Investment Objective
and Restrictions" in the SAI.

SOME OF THE FUND'S OTHER INVESTMENT POLICIES

WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS. The Fund may purchase debt
obligations on a "when-issued" or "delayed delivery" basis. Such securities are
subject to market fluctuation prior to delivery to the Fund and generally do not
earn interest until their scheduled delivery date. Therefore, the value or
yields at delivery may be more or less than the purchase price or the yields
available when the transaction was entered into. When the Fund is the buyer in
such a transaction, it will maintain, in a segregated account with its
custodian, cash or high-grade marketable securities having an aggregate value
equal to the amount of such purchase commitments until payment is made. To the
extent the Fund engages in when-issued and delayed delivery transactions, it
will do so only for the purpose of acquiring portfolio securities consistent
with its investment objectives and policies, and not for the purpose of
investment leverage. (See the Fund's SAI for a more complete discussion
regarding when-issued and delayed delivery transactions.)

STANDBY COMMITMENT AGREEMENTS. The Fund may from time to time enter into standby
commitment agreements. Such agreements commit the Fund, for a stated period of
time, to purchase a stated amount of a fixed-income security which may be issued
and sold to the Fund at the option of the issuer. The price and coupon of the
security is fixed at the time of the commitment. At the time of entering into
the agreement, the Fund is paid a commitment fee, regardless of whether the
security is ultimately issued, which is typically approximately 0.5% of the
aggregate purchase price of the security which the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price which
is considered advantageous to the Fund. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will limit its
investment in such commitments so that the aggregate purchase price of the
securities subject to such commitments, together with the value of portfolio
securities subject to legal restrictions on resale, will not exceed 15% of its
assets, taken at the time of acquisition of such commitment or security. The
Fund will at all times maintain a segregated account with its custodian bank of
cash, cash equivalents, U.S. Government Securities or other high grade liquid
debt securities denominated in U.S. dollars or non- U.S. currencies in an
aggregate amount equal to the purchase price of the securities underlying the
commitment.

There can be no assurance that the securities subject to a standby commitment
will be issued, and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund may bear the
risk of a decline in the value of such security and may not benefit from an
appreciation in the value of the security during the commitment period.

The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment fee.
In the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.

LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
of Trustees and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed one-third of the value of the
Fund's total assets at the time of the most recent loan. The borrower must
deposit with the Fund's custodian collateral with an initial market value of at
least 102% of the initial market value of the securities loaned, including any
accrued interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. Such
collateral shall consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. The Fund engages in
security loan arrangements with the primary objective of increasing the Fund's
income either through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the securities fail financially.

BORROWING. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of the assets of the Fund, except that the Fund may enter into
reverse repurchase agreements or borrow money from banks in an amount up to 33%
of its total asset value (computed at the time the loan is made) for temporary
or emergency purposes. While borrowings exceed 5% of the Fund's total assets,
the Fund will not make any additional investments.

ILLIQUID INVESTMENTS. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase, more than 15% of the
value of the total net assets of the Fund. Subject to this limitation, the
Fund's Board of Trustees has authorized the Fund to invest in restricted
securities where such investment is consistent with the Fund's investment
objective and has authorized such securities to be considered to be liquid to
the extent the Manager determines on a daily basis that there is a liquid
institutional or other market for such securities. Notwithstanding the Manager's
determination in this regard, the Fund's Board of Trustees will remain
responsible for such determinations and will consider appropriate action,
consistent with the Fund's objective and policies, if a security should become
illiquid subsequent to its purchase. To the extent the Fund invests in
restricted securities that are deemed liquid, the general level of illiquidity
in the Fund may be increased if qualified institutional buyers become
uninterested in purchasing these securities or the market for these securities
contracts. See "The Fund's Investment Objective and Restrictions - Short-Term
Investments" in the SAI.

Notwithstanding the above policy and the federal securities laws, which permit
investments in illiquid securities up to 15% of the Fund's portfolio, the Fund
is aware that the securities laws in various states impose more restrictive
limits upon such investments. To comply with applicable state restrictions, the
Fund will limit its investments in illiquid securities, including securities of
unseasoned issuers, equity securities deemed not readily marketable and
securities subject to legal or contractual restrictions to 10% of the Fund's
Portfolio.

SHORT-TERM INVESTMENTS. The Fund may invest its cash, including cash resulting
from purchases and sales of Fund shares, temporarily in short-term debt
instruments, including high grade commercial paper, repurchase agreements and
other money market equivalents and, pursuant to an exemption from the
requirements of the 1940 Act, the shares of affiliated money market funds, which
invest primarily in short-term debt securities. To the extent the Fund invests
in affiliated money market funds, such as the Franklin Money Fund, the Manager
has agreed to waive its management fee on any portion of the Fund's assets
invested in such affiliated fund. Temporary investments will only be made with
cash held to maintain liquidity or pending investment. In addition, for
temporary defensive purposes in the event of, or when the Adviser anticipates, a
general decline in the market prices of stocks in which the Fund invests, the
Fund may invest an unlimited amount of its assets in short-term debt
instruments.

The Fund may also enter into reverse repurchase agreements. Such agreements
involve the sale of securities held by the Fund pursuant to an agreement to
repurchase the securities on an agreed upon price, date and interest payment.
When effecting reverse repurchase transactions, cash or high grade liquid debt
securities of a dollar amount equal in value to the Fund's obligation under the
agreement, including accrued interest, will be maintained in a segregated
account with the Fund's custodian bank, and the securities subject to the
reverse repurchase agreement will be marked to market each day. Although reverse
repurchase agreements are borrowings under Section 2(a)(23) of the 1940 Act, the
Fund does not treat these arrangements as borrowings under investment
restriction 2 (set forth in the SAI) so long as the segregated account is
properly maintained.

The Fund expects that its portfolio turnover rate will generally not exceed
100%, but this rate should not be construed as a limiting factor. High portfolio
turnover may increase transaction costs which must be paid by the Fund. High
turnover may also result in the realization of net capital gain, which is
taxable when distributed to shareholders.

SPECIAL CONSIDERATIONS AND RISK FACTORS

Each prospective investor should take into account his/her investment objectives
as well as his/her other investments when considering the purchase of shares of
the Fund.

The Fund is designed for long-term investors and not as a trading vehicle, and
is not intended to present a complete investment program.

Investment in the Fund's shares requires consideration of certain factors that
are not normally involved in investment solely in U.S. securities. Among other
things, the financial and economic policies of a foreign country may not be as
stable as in the U.S. Furthermore, foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to U.S. corporate issuers. There may also be less government
supervision and regulation of foreign securities exchanges, brokers and issuers.
Some foreign securities markets have substantially less volume than the New York
Stock Exchange (the "Exchange") and some foreign government securities may be
less liquid and more volatile than U.S. government securities. Transaction costs
on foreign securities exchanges may be higher than in the U.S. and foreign
securities settlements may, in some instances, be subject to delays and related
administrative uncertainties. Furthermore, foreign securities may be subject to
withholding taxes, thus reducing net investment income available for
distribution to shareholders.

Utility companies in the U.S. and in foreign countries are generally subject to
substantial regulations. Such regulations are intended to ensure appropriate
standards of service and adequate ability to meet public demand. The nature of
regulations of utility industries is evolving both in the U.S. and in foreign
countries. Although certain companies may develop more profitable opportunities,
others may be forced to defend their core businesses and may be less profitable.
Electric utility companies have historically been subject to the risks
associated with increases in fuel and other operating costs, high interest costs
on borrowings, costs associated with compliance with environmental, nuclear
facility and other safety regulations and changes in the regulatory climate.
Increased scrutiny of electric utilities might result in higher costs and higher
capital expenditures, with the risk that regulators may disallow inclusion of
these costs in rate authorizations. Increasing competition due to past
regulatory changes in the telephone communications industry continues and,
whereas certain companies have benefited, many companies may be adversely
affected in the future. The cable television industry is regulated in most
countries and, although such companies typically have a local monopoly, emerging
technologies and pro-competitive legislation are combining to threaten these
monopolies and could change future outlook. The radio-telecommunications
industry is in its early developmental stages, and is predominantly
characterized by emerging, rapidly growing companies. Gas transmission and
distribution companies continue to undergo significant changes as well. Many
companies have diversified into oil and gas exploration and development, making
returns more sensitive to energy prices. The water supply industry is highly
fragmented due to local ownership. Generally, such companies are more mature and
expect little or no per capita volume growth. There is no assurance that
favorable developments will occur in the utility industries generally or that
investment opportunities will continue to undergo significant changes or growth.
See "The Fund's Investment Objective and Restrictions - Utility Industries
Description and Risk Factors" in the SAI.

The operating expense ratio of the Fund can be expected to be higher than that
of an investment company investing exclusively in U.S. securities because of the
additional expenses of the Fund attributable to its foreign investment activity,
such as custodial costs, valuation costs and communication costs, although the
Fund's expenses are expected to be similar to expenses of other investment
companies investing in a mix of U.S.
securities and securities of one or more foreign countries.

The Fund is a non-diversified Fund under the federal securities laws. As a
non-diversified Fund, there is no restriction under the 1940 Act on the
percentage of assets that may be invested at any time in the securities of any
one issuer. However, the Fund intends to comply with the intends to comply with
the diversification and other requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), applicable to "regulated investment companies" so that
it will not be subject to U.S. federal income tax on income and capital gains.
Accordingly, the Fund will not purchase securities if, as a result, more than
25% of its total assets would be invested in the securities of a single issuer
or, with respect to 50% of its total assets, more than 5% of such assets would
be invested in the securities of a single issuer. Because the Fund is
non-diversified and concentrates its investments in a limited group of related
industries, the value of the Fund's shares may fluctuate more widely, and the
Fund may present greater risk than other investments.

HOW SHAREHOLDERS PARTICIPATE IN
THE RESULTS OF THE FUND'S ACTIVITIES

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

MANAGEMENT OF THE FUND

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

The Board has carefully reviewed the multiclass structure to ensure that no
material conflict exists between the two classes of shares. Although the Board
does not expect to encounter material conflicts in the future, the Board will
continue to monitor the Fund and will take appropriate action to resolve such
conflicts if any should later arise.

In developing the multiclass structure the Fund has retained the authority to
establish additional classes of shares. It is the Fund's present intention to
offer only two classes of shares, but new classes may be offered in the future.

Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B. Johnson and Rupert
H. Johnson, Jr., who own approximately 20% and 16%, respectively, of Resources'
outstanding shares. Resources is engaged in various aspects of the financial
services industry through its subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 34 U.S. registered
investment companies (113 separate series) with aggregate assets of over $74
billion.

During the fiscal year ended April 30, 1995, expenses borne by the Fund,
including fees paid to Advisers and to Investor Services, totaled 1.12% of the
average net assets of the Fund.

PLAN OF DISTRIBUTION

A separate Plan of Distribution has been approved and adopted for each class
("Class I Plan" and "Class II Plan", respectively, or "Plans") pursuant to Rule
12b-1 under the 1940 Act. The Rule 12b-1 fees charged to each class will be
based solely on the distribution and servicing fees attributable to that
particular class. Any portion of fees remaining from either Plan after
distribution to securities dealers of up to the maximum amount permitted under
each Plan may be used by the class to reimburse Distributors for routine ongoing
promotion and distribution expenses incurred with respect to such class. Such
expenses may include, but are not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other distribution-related
expenses, including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any distribution or
service fees paid to securities dealers or their firms or others who have
executed a servicing agreement with the Fund, Distributors or its affiliates.

The maximum amount which the Fund may pay to Distributors or others under the
Class I Plan for such distribution expenses is 0.25% per annum of Class I's
average daily net assets, payable on a quarterly basis. All expenses of
distribution and marketing in excess of 0.25% per annum will be borne by
Distributors, or others who have incurred them, without reimbursement from the
Fund.

Under the Class II Plan, the maximum amount which the Fund is permitted to pay
to Distributors or others for distribution expenses and related expenses is
0.75% per annum of Class II's daily net assets, payable quarterly. All expenses
of distribution, marketing and related services over that amount will be borne
by Distributors or others who have incurred them, without reimbursement by the
Fund. In addition, the Class II Plan provides for an additional payment by the
Fund of up to 0.25% per annum of Class II's average daily net assets as a
servicing fee, payable quarterly. This fee will be used to pay securities
dealers or others for, among other things, assisting in establishing and
maintaining customer accounts and records; assisting with purchase and
redemption requests; receiving and answering correspondence; monitoring dividend
payments from the Fund on behalf of customers, or similar activities related to
furnishing personal services and/or maintaining shareholder accounts.

During the first year following the purchase of Class II shares, Distributors
will retain 0.[ ]% per annum of Class II's average daily net assets to partially
recoup fees Distributors pays to securities dealers. Distributors, or its
affiliates, may pay, from its own resources, a commission of up to 1% of the
amount invested to securities dealers who initiate and are responsible for
purchases of Class II shares.

Both Plans also cover any payments to or by the Fund, Advisers, Distributors, or
other parties on behalf of the Fund, Advisers or Distributors, to the extent
such payments are deemed to be for the financing of any activity primarily
intended to result in the sale of shares issued by the Fund within the context
of Rule 12b-1. The payments under the Plans are included in the maximum
operating expenses which may be borne by each class of the Fund.

DISTRIBUTIONS TO SHAREHOLDERS

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

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

DISTRIBUTIONS TO EACH CLASS OF SHARES

According to the requirements of the Code, dividends and capital gains will be
calculated and distributed in the same manner for Class I and Class II shares.
The per share amount of any income dividends will generally differ only to the
extent that each class is subject to different Rule 12b-1 fees.

DISTRIBUTION DATE

Although subject to change by the Board, without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends payable
semiannually in June and December for shareholders of record generally on the
first business day preceding the 15th of the month, payable on or about the last
business day of such months. The amount of income dividend payments by the Fund
is dependent upon the amount of net income received by the Fund from its
portfolio holdings, is not guaranteed, and is subject to the discretion of the
Board of Trustees. Fund shares are quoted ex-dividend on the first business day
following the record date. The Fund does not pay "interest" or guarantee any
fixed rate of return on an investment in its shares.

DIVIDEND REINVESTMENT

Unless requested otherwise, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder's account in the form
of additional shares, valued at the closing net asset value (without sales
charge) on the dividend reinvestment date. Shareholders have the right to change
their election with respect to the receipt of distributions by notifying the
Fund, but any such change will be effective only as to distributions for which
the record date is seven or more business days after the Fund has been notified.
See the SAI for more information.

DISTRIBUTIONS IN CASH

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

TAXATION OF THE FUND AND ITS SHAREHOLDERS

The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended ("the Code"),
qualified as such, and intends to continue to so qualify. By distributing all of
its net investment income, net foreign currency gains recharacterized as
ordinary income and net realized short-term and long-term capital gain and by
meeting certain other requirements relating to the sources of its income and
diversification of its assets, the Fund will not be liable for federal income or
excise taxes.

Pursuant to the Code, certain distributions which are declared in October,
November or December, but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as if
received by the shareholder on December 31 of the calendar year in which they
are declared.

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

For corporate shareholders, 70.15% of the income dividends paid by the Fund for
the fiscal year ended April 30, 1995, qualified for the corporate
dividends-received deduction, subject to certain holding period and debt
financing restrictions imposed under the Code on the corporation claiming the
deduction. These restrictions are discussed in the SAI.

The Fund may be subject to foreign withholding taxes on income from certain of
its foreign securities. If more than 50% of the total assets of the Fund at the
end of its fiscal year are invested in securities of foreign corporations, the
Fund may elect to pass-through to its shareholders the pro rata share of foreign
taxes paid by the Fund. If this election is made, shareholders will be (i)
required to include in their gross income their pro rata share of foreign source
income (including any foreign taxes paid by the fund), and (ii) entitled either
to deduct their share of such foreign taxes in computing their taxable income or
to claim a credit for such taxes against their U.S. income tax, subject to
certain limitations under the Code. Shareholders will be informed by the Fund at
the end of each calendar year regarding the availability of any credits and the
amount of foreign source income (including any foreign taxes paid by the Fund)
to be included on their income tax returns.

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

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

HOW TO BUY SHARES OF THE FUND

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

DIFFERENCES BETWEEN CLASS I AND CLASS II. The difference between Class I and
Class II shares lies primarily in their front-end and contingent deferred sales
charges and Rule 12b-1 fees as described below.

CLASS I. All Fund shares outstanding before the implementation of the multiclass
structure have been redesignated as Class I shares, and will retain their
previous rights, and privileges. Voting rights of each class will be the same on
matters affecting the Fund as a whole, but each will vote separately on matters
affecting its class. Class I shares are generally subject to a variable sales
charge upon purchase and not subject to any sales charge upon redemption. Class
I shares are subject to Rule 12b-1 fees of up to an annual maximum of 0.25% of
average daily net assets of such shares. With this multiclass structure, Class I
shares have higher front-end sales charges than Class II shares and
comparatively lower Rule 12b-1 fees. Class I shares may be purchased at a
reduced front-end sales charges or at net asset value if certain conditions are
met. In most circumstances, contingent deferred sales charges will not be
assessed against redemptions of Class I shares. See "Management of the Fund,"
and "How to Sell Shares of the Fund" for more information.

CLASS II. The current public offering price of Class II shares is equal to the
net asset value, plus a front-end sales charge of 1% of the amount invested.
Class II shares are also subject to a contingent deferred sales charge of 1% if
shares are redeemed within 18 months of the calendar month following purchase.
In addition, Class II shares are subject to Rule 12b-1 fees of up to a maximum
of 0.75% per annum of average daily net assets of such shares, 0.25% of which
will be retained by Distributors during the first year of investment. Class II
shares have lower front-end sales charges than Class I shares and comparatively
higher Rule 12b-1 fees. See "Contingent Deferred Sales Charge" under "How to
Sell Shares of the Fund".

Purchases of Class II shares are limited to purchases below $1 million. Any
purchases of $1 million or more will automatically be invested in Class I
shares, since that is more beneficial to investors. Such purchases, however, may
be subject to a contingent deferred sales charge. Investors may exceed $1
million in Class II shares by cumulative purchases over a period of time.
Investors who intend to make investments exceeding $1 million, however, should
consider purchasing Class I shares through a Letter of Intent instead of
purchasing Class II shares.

DECIDING WHICH CLASS TO PURCHASE. Investors should carefully evaluate their
anticipated investment amount and time horizon prior to determining which class
of shares to purchase. Generally, an investor who expects to invest less than
$100,000 in the Franklin Templeton Funds and who expects to make substantial
redemptions within approximately six years or less of investment should consider
purchasing Class II shares. However, the higher annual Rule 12b-1 fees on the
Class II shares will result in slightly higher operating expenses and lower
income dividends for Class II shares, which will accumulate over time to
outweigh the difference in initial sales charges. For this reason, Class I
shares may be more attractive to long-term investors even if no sales charge
reductions are available to them.

Investors who qualify to purchase Class I shares at reduced sales charges
definitely should consider purchasing Class I shares, especially if they intend
to hold their shares approximately six years or more. Investors who qualify to
purchase Class I shares at reduced sales charges but who intend to hold their
shares less than approximately six years should evaluate whether it is more
economical to purchase Class I shares through a Letter of Intent or under Rights
of Accumulation or other means, rather than purchasing Class II shares.
INVESTORS INVESTING $1 MILLION OR MORE IN A SINGLE PAYMENT AND OTHER INVESTORS
WHO QUALIFY TO PURCHASE CLASS I SHARES AT NET ASSET VALUE WILL BE PRECLUDED FROM
PURCHASING CLASS II SHARES.

Each class represents the same interest in the investment portfolio of the Fund
and has the same rights, except that each class has a different sales charge,
bears the separate expenses of its Rule 12b-1 distribution plan, and has
exclusive voting rights with respect to such plan. The two classes also have
separate exchange privileges.

PURCHASE PRICE OF FUND SHARES

Shares of both classes of the Fund are offered at their respective public
offering prices, which are determined by adding the net asset value per share
plus a front-end sales charge, next computed (1) after the shareholder's
securities dealer receives the order which is promptly transmitted to the Fund,
or (2) after receipt of an order by mail from the shareholder directly in proper
form (which generally means a completed Shareholder Application accompanied by a
negotiable check).

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

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

<TABLE>
<CAPTION>
TOTAL SALES CHARGE
DEALER
CONCESSION
AS A PERCENTAGE AS A PERCENTAGE AS A PERCENTAGE OF
OF OFFERING PRICE OF NET AMOUNT OFFERING PRICE*,***
INVESTED
SIZE OF TRANSACTION
AT OFFERING PRICE
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000
3.75% 3.90% 3.25%
$250,000 but less than $500,000
2.75% 2.83% 2.50%
$500,000 but less than $1,000,000
2.25% 2.30% 2.00%
$1,000,000 or more none none (see below)**

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

No front-end sales charge applies on investments of $1 million or more, but a
contingent deferred sales charge of 1% is imposed on certain redemptions of all
or a portion of an investment of $1 million or more within 12 months of the
calendar month following such investment ("contingency period"). See "How to
Sell Shares of the Fund - Contingent Deferred Sales Charge."

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

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

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

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

QUANTITY DISCOUNTS IN SALES CHARGES - CLASS I SHARES ONLY

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

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

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

AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in Class I shares registered in the investor's name,
to assure that the full applicable sales charge will be paid if the intended
purchase is not completed. The reserved shares will be included in the total
shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed or the higher sales charge paid. For more
information see "Additional Information Regarding Purchases" in the SAI.

GROUP PURCHASES OF CLASS I SHARES

An individual who is a member of a qualified group may also purchase Class I
shares of the Fund at the reduced sales charge applicable to the group as a
whole. The sales charge is based upon the aggregate dollar value of shares
previously purchased and still owned by members of the group, plus the amount of
the current purchase. For example, if members of the group had previously
invested and still held $80,000 of Fund shares and now were investing $25,000,
the sales charge would be 3.75%. Information concerning the current sales charge
applicable to a group may be obtained by contacting Distributors.

PURCHASES AT NET ASSET VALUE

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

For either Class I or Class II, the same class of shares of the Fund may be
purchased at net asset value by persons who have redeemed, within the previous
360 days, their shares of the Fund or another of the Franklin Templeton Funds
which were purchased with a front-end sales charge or assessed a contingent
deferred sales charge on redemption. If a different class of shares is
purchased, the full front-end sales charge must be paid at the time of purchase
of the new shares. An investor may reinvest an amount not exceeding the
redemption proceeds. While credit will be given for any contingent deferred
sales charge paid on the shares redeemed and subsequently repurchased, a new
contingency period will begin. Matured shares will be reinvested at net asset
value and will not be subject to a new contingent deferred sales charge. Shares
of the Fund redeemed in connection with an exchange into another fund (see
"Exchange Privilege") are not considered "redeemed" for this privilege. In order
to exercise this privilege, a written order for the purchase of shares of the
Fund must be received by the Fund or the Fund's Shareholder Services Agent
within 360 days after the redemption. The 360 days, however, do not begin to run
on redemption proceeds placed immediately after redemption in a Franklin Bank
Certificate of Deposit ("CD") until the CD (including any rollover) matures.
Reinvestment at net asset value may also be handled by a securities dealer or
other financial institution, who may charge the shareholder a fee for this
service. The redemption is a taxable transaction but reinvestment without a
sales charge may affect the amount of gain or loss recognized and the tax basis
of the shares reinvested. If there has been a loss on the redemption, the loss
may be disallowed if a reinvestment in the same fund is made within a 30-day
period. Information regarding the possible tax consequences of such a
reinvestment is included in the tax section of this Prospectus and the SAI.

For either Class I or Class II, the same class of shares of the Fund or of
another of the Franklin Templeton Funds may be purchased at net asset value and
without a contingent deferred sales charge by persons who have received
dividends and capital gains distributions in cash from investments in that class
of shares of the Fund within 360 days of the payment date of such distribution.
To exercise this privilege, a written request to reinvest the distribution must
accompany the purchase order. Additional information may be obtained from
Shareholder Services at 1-800/632-2301. See "Distributions in Cash" under
"Distributions to Shareholders."

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

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

Class I shares may be purchased at net asset value and without the imposition of
a contingent deferred sales charge by anyone who has taken a distribution from
an existing retirement plan already invested in the Franklin Templeton Funds
(including former participants of the Franklin Templeton Profit Sharing 401(k)
plan, to the extent of such distribution. In order to exercise this privilege a
written order for the purchase of shares of the Fund must be received by
Franklin Templeton Trust Company (the "Trust Company"), the Fund or Investor
Services, within 360 days after the plan distribution.

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

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Class I shares may also be purchased at net asset value and without the
imposition of a contingent deferred sales charge by certain designated
retirement plans, including profit sharing, pension, 401(k) and simplified
employee pension plans ("designated plans"), subject to minimum requirements
with respect to number of employees or amount of purchase, which may be
established by Distributors. Currently those criteria require that the employer
establishing the plan have 200 or more employees or that the amount invested or
to be invested during the subsequent 13-month period in the Fund or in any of
the Franklin Templeton Investments totals at least $1,000,000. Employee benefit
plans not designated above or qualified under Section 401 of the Code
("non-designated plans") may be afforded the same privilege if they meet the
above requirements as well as the uniform criteria for qualified groups
previously described under "Group Purchases" which enable Distributors to
realize economies of scale in its sales efforts and sales related expenses.

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

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

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

PURCHASING CLASS I AND CLASS II SHARES

When placing purchase orders, investors should clearly indicate which class of
shares they intend to purchase. A purchase order that fails to specify a class
will automatically be invested in Class I shares. Purchases of $1 million or
more in a single payment will be invested in Class I shares. There are no
conversion features attached to either class of shares.

Investors who qualify to purchase Class I shares at net asset value should
purchase Class I rather than Class II shares. See the section "Purchases at Net
Asset Value" and "Description of Special Net Asset Value Purchases" above for a
discussion of when shares may be purchased at net asset value.

GENERAL

PURCHASING SHARES OF THE FUND
IN CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS

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

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

OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS

SHARE CERTIFICATES

CONFIRMATIONS

AUTOMATIC INVESTMENT PLAN

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

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

SYSTEMATIC WITHDRAWAL PLAN

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

With respect to Class I shares, the contingent deferred sales charge is waived
for redemptions through a Systematic Withdrawal Plan set up prior to February 1,
1995. With respect to Systematic Withdrawal Plans set up on or after February 1,
1995, however, the applicable contingent deferred sales charge is waived for
Class I and Class II share redemptions of up to 1% monthly of an account's net
asset value (12% annually, 6% semiannually, 3% quarterly). For example, if a
Class I account maintained an annual balance of $1,000,000, only $120,000 could
be withdrawn through a once-yearly Systematic Withdrawal Plan free of charge;
any amount over that $120,000 would be assessed a 1% (or applicable) contingent
deferred sales charge. Likewise, if a Class II account maintained an annual
balance of $10,000, only $1,200 could be withdrawn through a once-yearly
Systematic Withdrawal Plan free of charge.

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

INSTITUTIONAL ACCOUNTS

EXCHANGE PRIVILEGE

The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives or policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder's investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for the same class of shares of other Franklin Templeton Funds which
are eligible for sale in the shareholder's state of residence and in conformity
with such fund's stated eligibility requirements and investment minimums. Some
funds, however, may not offer Class II shares. Class I shares may be exchanged
for Class I shares of any Franklin Templeton Funds. Class II shares may be
exchanged for Class II shares of any Franklin Templeton Funds. No exchanges
between different classes of shares will be allowed. A contingent deferred sales
charge will not be imposed on exchanges. If, however, the exchanged shares were
subject to a contingent deferred sales charge in the original fund purchased and
shares are subsequently redeemed within 12 months (Class I shares) or 18 months
(Class II shares) of the calendar month following the original purchase date, a
contingent deferred sales charge will be imposed. Investors should review the
prospectus of the fund they wish to exchange from and the fund they wish to
exchange into for all specific requirements or limitations on exercising the
exchange privilege, for example, minimum holding periods or applicable sales
charges.

Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

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

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

EXCHANGES THROUGH SECURITIES DEALERS

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

ADDITIONAL INFORMATION REGARDING EXCHANGES

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

Exchanges are made on the basis of the net asset values of the funds involved,
except as set forth below. Exchanges of shares of the Fund which were purchased
without a sales charge will be charged a sales charge in accordance with the
terms of the prospectus of the fund being purchased, unless the investment on
which no sales charge was paid was transferred in from a fund on which the
investor paid a sales charge. Exchanges of shares of the Fund which were
purchased with a lower sales charge to a fund which has a higher sales charge
will be charged the difference, unless the shares were held in the Fund for at
least six months prior to executing the exchange. When an investor requests the
exchange of the total value of the Fund account, declared but unpaid income
dividends and capital gain distributions will be transferred to the fund being
exchanged into and will be invested at net asset value. Because the exchange is
considered a redemption and purchase of shares, the shareholder may realize a
gain or loss for federal income tax purposes. Backup withholding and information
reporting may also apply. Information regarding the possible tax consequences of
such an exchange is included in the tax section in this Prospectus and in the
SAI.

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

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

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

EXCHANGES OF CLASS I SHARES

The contingency period of Class I shares will be tolled (or stopped) for the
period such shares are exchanged into and held in a Franklin or Templeton Class
I money market fund. If a Class I account has shares subject to a contingent
deferred sales charge, Class I shares will be exchanged into the new account on
a "first-in, first-out" basis. See also "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."

EXCHANGES OF CLASS II SHARES

When an account is composed of Class II shares subject to the contingent
deferred sales charge, and Class II shares that are not, the shares will be
transferred proportionately into the new fund. Shares received from reinvestment
of dividends and capital gains are referred to as "free shares," shares which
were originally subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called "matured shares,"
and shares still subject to the contingent deferred sales charge are referred to
as "CDSC liable shares." CDSC liable shares held for different periods of time
are considered different types of CDSC liable shares. For instance, if a
shareholder has $1,000 in free shares, $2,000 in matured shares, and $3,000 in
CDSC liable shares, and the shareholder exchanges $3,000 into a new fund, $500
will be exchanged from free shares, $1,000 from matured shares, and $1,500 from
CDSC liable shares. Similarly, if CDSC liable shares have been purchased at
different periods, a proportionate amount will be taken from shares held for
each period. If, for example, a shareholder holds $1,000 in shares bought 3
months ago, $1,000 bought 6 months ago, and $1,000 bought 9 months ago, and the
shareholder exchanges $1,500 into the new fund, $500 from each of these shares
will be deemed exchanged into the new fund.

The only money market fund exchange option available to Class II shareholders is
the Franklin Templeton Money Fund II ("Money Fund II"), a series of the Franklin
Templeton Money Fund Trust. No drafts (checks) may be written on Money Fund II
accounts, nor may shareholders purchase shares of Money Fund II directly. Class
II shares exchanged for shares of Money Fund II will continue to age and a
contingent deferred sales charge will be assessed if CDSC liable shares are
redeemed. No other money market funds are available for Class II shareholders
for exchange purposes. Class I shares may be exchanged for shares of any of the
money market funds in the Franklin Templeton Funds except Money Fund II. Draft
writing privileges and direct purchases are allowed on these other money market
funds as described in their respective prospectuses.

To the extent shares are exchanged proportionately, as opposed to another
method, such as first-in first-out, or free-shares followed by CDSC liable
shares, the exchanged shares may, in some instances, be CDSC liable even though
a redemption of such shares, as discussed elsewhere herein, may no longer be
subject to a CDSC. The proportional method is believed by management to more
closely meet and reflect the expectations of Class II shareholders in the event
shares are redeemed during the contingency period. For federal income tax
purposes, the cost basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen by the Fund.

TRANSFERS

Transfers between identically registered accounts in the same fund and class are
treated as non-monetary and non-taxable events, and are not subject to a
contingent deferred sales charge. The transferred shares will continue to age
from the date of original purchase. Shares of each class will be transferred on
the same basis as described above for exchanges.

CONVERSION RIGHTS

It is not presently anticipated that Class II shares will be convertible to
Class I shares. A shareholder may, however, sell his Class II shares and use the
proceeds to purchase Class I shares, subject to all applicable sales charges.

RETIREMENT ACCOUNTS

The Fund currently will not accept investments from Timing Accounts.

HOW TO SELL SHARES OF THE FUND

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

REDEMPTIONS BY MAIL

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

TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED IF THE
REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:

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

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

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

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

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

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

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

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

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

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

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

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

REDEMPTIONS BY TELEPHONE

Shareholders who complete the Franklin/Templeton Telephone Redemption
Authorization Agreement (the "Agreement"), included with this Prospectus, may
redeem shares of the Fund by telephone, subject to the Restricted Account
exception noted under "Telephone Transactions - Restricted Accounts."
INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE FUND OR INVESTOR SERVICES AT
THE ADDRESS SHOWN ON THE COVER OR BY CALLING 1-800/632-2301. THE FUND AND
INVESTOR SERVICES WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
GIVEN BY TELEPHONE ARE GENUINE. SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN
CERTAIN CASES AS DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."

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

REDEEMING SHARES THROUGH SECURITIES DEALERS

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers, Class I investments
of $1 million or more and any Class II investments redeemed within the
contingency period of 12 months (Class I) or 18 months (Class II) of the
calendar month following their purchase will be assessed a contingent deferred
sales charge, unless one of the exceptions described below applies. The charge
is 1% of the lesser of the value of the shares redeemed (exclusive of reinvested
dividends and capital gain distributions) or the net asset value at the time of
purchase of such shares, and is retained by Distributors. The contingent
deferred sales charge is waived in certain instances.

In determining if a contingent deferred sales charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) A calculated number of shares representing amounts
attributable to capital appreciation of those shares held less than the
contingency period (12 months in the case of Class I shares and 18 months in the
case of Class II shares); (ii) shares purchased with reinvested dividends and
capital gain distributions; and (iii) other shares held longer than the
contingency period; and followed by any shares held less than the contingency
period, on a "first in, first out" basis. For tax purposes, a contingent
deferred sales charge is treated as either a reduction in redemption proceeds or
an adjustment to the cost basis of the shares redeemed.

The contingent deferred sales charge on each class of shares is waived, as
applicable, for: exchanges; any account fees; distributions to participants or
their beneficiaries in Trust Company individual retirement plan accounts due to
death, disability or attainment of age 59 1/2; tax-free returns of excess
contributions from employee benefit plans; distributions from employee benefit
plans, including those due to termination or plan transfer; redemptions through
a Systematic Withdrawal Plan set up for shares prior to February 1, 1995, and
for Systematic Withdrawal Plans set up thereafter, redemptions of up to 1%
monthly of an account's net asset value (3% quarterly, 6% semiannually or 12%
annually); redemptions initiated by the Fund due to a shareholder's account
falling below the minimum specified account size; and redemptions following the
death of the shareholder or the beneficial owner.

All investments made during a calendar month, regardless of when during the
month the investment occurred, will age one month on the last day of that month
and each subsequent month.

Requests for redemptions for a SPECIFIED DOLLAR amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge, while requests for redemption of a
SPECIFIC NUMBER of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.

ADDITIONAL INFORMATION REGARDING REDEMPTIONS

RETIREMENT PLAN ACCOUNTS

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

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

OTHER

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

TELEPHONE TRANSACTIONS

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

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

VERIFICATION PROCEDURES

RESTRICTED ACCOUNTS

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

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

GENERAL

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

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

VALUATION OF FUND SHARES

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

The net asset value per share for each class of the Fund is determined in the
following manner: The aggregate of all liabilities, is deducted from the
aggregate gross value of all assets, and the difference is divided by the number
of shares of the respective class of the Fund outstanding at the time.

Portfolio securities which are traded both in the over-the-counter market and on
a stock exchange are valued according to the broadest and most representative
market as determined by the Manager. Portfolio securities underlying actively
traded call options are valued at their market price as determined above. The
current market value of any option held by the Fund is its last sales price on
the relevant exchange prior to the time when assets are valued. Lacking any
sales that day or if the last sale price is outside the bid and ask prices, the
options are valued within the range of the current closing bid and ask prices if
such valuation is believed to fairly reflect the contract's market value. Other
securities for which market quotations are readily available are valued at the
current market price, which may be obtained from a pricing service, based on a
variety of factors, including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board of Trustees. With the approval of
trustees, the Fund may utilize a pricing service, bank or securities dealer to
perform any of the above described functions.

HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND

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

From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:

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

Franklin Class I and Class II share codes for the Fund, which will be needed to
access system information are 197 and 297, respectively. The system's automated
operator will prompt the caller with easy to follow step-by-step instructions
from the main menu. Other features may be added in the future.

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

<TABLE>
<CAPTION>
HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- --------------- ------------- -----------------------
<S> <C> <C>
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 6:00 a.m. to 5:00 p.m.
</TABLE>
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.

PERFORMANCE

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

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

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

Yield for each class, which is calculated according to a formula prescribed by
the SEC (see the SAI), is not indicative of the dividends or distributions which
were or will be paid to the Fund's shareholders. Dividends or distributions paid
to shareholders of a class are reflected in the current distribution rate, which
may be quoted to shareholders. The current distribution rate is computed by
dividing the total amount of dividends per share paid by a class during the past
12 months by a current maximum offering price for that class of shares. Under
certain circumstances, such as when there has been a change in the amount of
dividend payout, or a fundamental change in investment policies, it might be
appropriate to annualize the dividends paid during the period such policies were
in effect, rather than using the dividends during the past 12 months. The
current distribution rate differs from the current yield computation because it
may include distributions to shareholders from sources other than dividends and
interest, such as premium income from option writing and short-term capital
gain, and is calculated over a different period of time.

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

Because Class II shares were not offered prior to May 1, 1995, no performance
data is available for these shares. After a sufficient period of time has
passed, Class II performance data will be available.

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

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

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

ORGANIZATION AND VOTING RIGHTS

Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series, or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are noncumulative, so that in any election of trustees,
the holders of more than 50% of the shares voting can elect all of the trustees,
if they choose to do so, and in such event the holders of the remaining shares
voting will not be able to elect any person or persons to the Board of Trustees.
The Trust does not intend to hold annual shareholders meetings. The Trust may
however, hold a special shareholders meeting of a series for such purposes as
changing fundamental investment restrictions for the series, approving a new
management agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. A meeting may also be called by the trustees in
their discretion or by shareholders holding at least ten percent of the
outstanding shares of the Trust. Shareholders will receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees such as that provided in Section 16(c) of the 1940 Act.

The Fund does not intend to hold annual shareholders meetings. The Fund may,
however, hold a special meeting for such purposes as changing fundamental
investment restrictions, approving a new management agreement or any other
matters which are required to be acted on by shareholders under the 1940 Act. A
meeting may also be called by a majority of the Board of Trustees or by
shareholders holding at least ten percent of the shares entitled to vote at the
meeting. Shareholders may receive assistance in communicating with other
shareholders in connection with the election or removal of trustees such as that
provided in Section 16(c) of the 1940 Act.

REDEMPTIONS BY THE FUND

OTHER INFORMATION

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

ACCOUNT REGISTRATIONS

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

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

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

IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS

PORTFOLIO OPERATIONS

The following persons are primarily responsible for the day-to-day management of
the Fund's portfolio: Sally Edwards Haff and Gregory Johnson since the Fund's
inception in 1992 and Ian Link since 1994.

SallyEdwards Haff, Portfolio Manager - Ms. Haff holds a B.A. degree in economics
from the University of California at Santa Barbara and joined Advisers in 1986.
She is a Chartered Financial Analyst and a member of industry-related
associations.

Greg Johnson, Vice President of Advisers and Portfolio Manager - Mr. Johnson has
a B.S. degree in accounting and business administration from Washington and Lee
University and holds a certificate as a Certified Public Accountant. He joined
Advisers in 1986.

Ian Link, Portfolio Manager - Mr. Link has a Bachelor of Arts degree in
economics from the University of California at Davis and recently became a
Chartered Financial Analyst. Mr. Link joined Advisers in 1989. He is a member of
several securities industry-related committees and associations.

FRANKLIN

SMALL CAP
GROWTH FUND

FRANKLIN STRATEGIC SERIES

PROSPECTUS SEPTEMBER 1, 1995

777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/DIAL BEN

Franklin Small Cap Growth Fund (the "Fund") is a diversified series of Franklin
Strategic Series (the "Trust"), an open-end management investment company. The
Fund's investment objective is long-term capital growth. It seeks to accomplish
its objective by investing primarily in equity securities of companies which
have a market capitalization of less than $1 billion at the time of the Fund's
investment and by attempting to keep at least a third of its assets invested in
companies with market capitalization of $550 million or less.

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

CONTENTS PAGE

Expense Table

Financial Highlights

About the Fund

Investment Objective and
Policies of the Fund

Management of the Fund

Distributions to Shareholders

Taxation of the Fund
and Its Shareholders

How to Buy Shares of the Fund

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

Other Programs and Privileges
Available to Fund Shareholders

Exchange Privilege

How to Sell Shares of the Fund

Telephone Transactions

Valuation of Fund Shares

How to Get Information Regarding
an Investment in the Fund

Performance

General Information

Account Registrations

Important Notice Regarding
Taxpayer IRS Certifications

Portfolio Operations

EXPENSE TABLE

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund (before expense reductions or fee waivers) for
the fiscal year ended April 30, 1995.

SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>

Maximum Sales Charge Imposed on Purchases
<S> <C> <C>
(as a percentage of offering price) 4.50%
Deferred Sales Charge NONE*
Exchange Fee (per transaction) NONE

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)

Management Fees 0.63%**
12b-1 Fees 0.20%***
Other Expenses:
Shareholder Servicing costs 0.10%
--------------------------- -----
Reports to shareholders 0.11%
Other expenses 0.12%
Total Other Expenses 0.33%
Total Fund Operating Expenses 1.16%**
</TABLE>

*Investments of $1 million or more are not subject to front-end sales charge;
however, a contingent deferred sales charge of 1% is generally imposed on
certain redemptions within a "contingency period" of 12 months of the calendar
month following such investments. See "How to Sell Shares of the Fund -
Contingent Deferred Sales Charge."

**Represents the amount that would have been payable to the investment manager,
absent a fee reduction by the investment manager. The investment manager
however, agreed in advance to limit its management fees. With this reduction,
management fees represented 0.16% and total operating expenses represented 0.69%
of the average net assets of the Fund were paid. This arrangement may be
terminated by the investment manager at any time.

EXAMPLE

ONE YEAR THREE YEARS FIVE YEARS TEN YEARS

$56* $80 $106 $180

*For the purpose of this example, it is assumed that the 1% contingent deferred
sales charge will not apply.

THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES (BEFORE FEE
WAIVERS), SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN THOSE SHOWN. The operating
expenses are borne by the Fund and only indirectly by shareholders as a result
of their investment in the Fund. In addition, federal securities regulations
require the example to assume an annual return of 5%, but the Fund's actual
return may be more or less than 5%.

FINANCIAL HIGHLIGHTS

Set forth below is a table containing the financial highlights for a share of
the Fund from February 14, 1992 (the effective date of the registration
statement for the Fund) through April 30, 1992, and for each of the three fiscal
years in the period ended April 30, 1995. The information has been audited by
Coopers & Lybrand L.L.P., independent auditors, whose audit report appears in
the financial statements in the Fund's Annual Report to Shareholders dated April
30, 1995. See the discussion "Reports to Shareholders" under "General
Information."

Per Share Operating Performance Ratios/Supplemental Data

Net Net Total Distri Net Net Ratio of Ratio of
Asset Realized& From butions Distri Asset Assets Expenses Net
Year Value at Net Unrealized Invest From Net butions Value at End to Investment
Ended Begin Invest Gain ment Invest From Total at of Year Average Income to Portfolio
April ning ment (Loss) on Opera ment Capital Distribu End of Total (in Net Average Turnover
30 of Year Income Securities tions Income Gains tions Year Return* 000's) Assets*** Net Assets Rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19921 $10.00 $0.04 $(0.460) $(0.420)$ .- $ .- $ .- $9.58 (19.96)%** $ 1,268 .-% 2.45%** 2.41%
1993 9.58 0.07 0.657 0.727 (0.087) .- .- 10.22 7.66 6,026 .- 0.84 63.15
1994 10.22 0.03 2.944 2.974 (0.043) (0.401) (0.444) 12.75 29.26 23,915 0.30 0.24 89.60
1995 12.75 0.03 3.138 3.168 (0.021) (0.997) (1.018) 14.90 27.05 63,010 0.69 0.25 104.84
</TABLE>

1For the period February 14, 1992 (effective date) to April 30, 1992.

**Annualized

***During the periods indicated, Franklin Advisers, Inc. The investment manager
agreed in advance to limit its management fees and make payments of other
expenses of the Fund. Had such action not been taken, the ratios of expenses to
average net assets would have been as follows:

Ratio of expenses to average net assets

19921 1.74%**
1993 1.95
1994 1.58
1995 1.16

ABOUT THE FUND

The Fund is a diversified, open-end management investment company commonly
called a "mutual fund." The Fund was organized in 1991 as a Delaware business
trust and registered with the SEC under the Investment Company Act of 1940, as
amended (the "1940 Act").

Shares of the Fund may be purchased (minimum investment of $100 initially and
$25 thereafter) at the current public offering price which is equal to the
Fund's net asset value (see "Valuation of Fund Shares") plus a sales charge not
exceeding 4.50% of the offering price. (See "How to Buy Shares of the Fund.")

INVESTMENT OBJECTIVE
AND POLICIES OF THE FUND

The Fund's investment objective is long-term capital growth. The objective is a
fundamental policy of the Fund and may not be changed without shareholder
approval. The Fund seeks to accomplish its objective by investing primarily in
equity securities of small capitalization growth companies. Small capitalization
growth companies typically are companies with relatively small market
capitalizations which the Fund's investment adviser believes to be positioned
for rapid growth in revenues or earnings and assets, characteristics which may
provide for significant capital appreciation. Small companies often pay no
dividends and current income is not a factor in the selection of stocks. In
general, companies in which the Fund will invest have a market capitalization of
less than $1 billion at the time of the Fund's investment. Market capitalization
is defined as the total market value of a company's outstanding common stock.
The securities of small capitalization companies are traded on the New York and
American stock exchanges and in the over-the-counter market. There is, of
course, no assurance that the Fund's objective will be achieved.

Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities of small capitalization growth companies. Equity
securities of such companies consist of common stock, preferred stock, warrants
for the purchase of common stock and debt securities convertible into or
exchangeable for common or preferred stock. A warrant is a security that gives
the holder the right, but not the obligation, to subscribe for newly created
securities of the issuer or a related company at a fixed price either at a
certain date or during a set period. A convertible security is a security that
may be converted either at a stated price or rate within a specified period of
time into a specified number of shares of common or preferred stock. By
investing in convertible securities, the Fund seeks to participate in the
capital appreciation of the common stock into which the securities are
convertible through the conversion feature.

Although the Fund's assets will be invested primarily in equity securities of
small companies, the Fund may invest up to 35% (measured at the time of
purchase) of its total assets in consistingequity securities of larger
capitalization companies which the Fund's investment manager believes have
strong growth potential, or in relatively well-known, larger companies in mature
industries which the investment manager believes have the 'potential for capital
appreciation. The Fund may seek capital appreciation by investing in such debt
securities which the Fund's investment manager believes have the potential for
capital appreciation as a result of improvement in the creditworthiness of the
issuer. The receipt of income from such debt securities is incidental to the
Fund's investment objective of capital growth. The Fund will invest in debt
securities rated B or above by Moody's Investors Service ("Moody's") or Standard
& Poor's Corporation ("S&P"), or in securities which are unrated if, in the
investment manager's opinion, such securities are comparable to securities rated
B or above by Moody's or S&P. The Fund will not invest more than 5% of its
assets in debt securities rated lower than BBB or Baa. Securities rated B are
regarded, on balance, as predominantly speculative with respect to the capacity
to pay interest and repay principal in accordance with the terms of the
obligation. For a description of ratings, please refer to the "Appendix" in the
SAI.

The Fund may also invest in short-term money market instruments for liquidity
purposes to meet redemption requirements. Short-term investments that the Fund
may hold include U.S. government securities, certificates of deposit, high grade
commercial paper and repurchase agreements.

The Fund has been designed to provide investors with potentially greater
long-term rewards by investing in securities of small companies which may offer
greater potential for capital appreciation since they are often overlooked by
investors or undervalued in relation to their earnings power. Small companies
generally are not as well known to the investing public and have less of an
investor following than larger companies, and therefore may provide greater
opportunities for long-term capital growth as a result of relative
inefficiencies in the marketplace. Such companies may be undervalued because
they are part of an industry that is out of favor with investors, although the
individual companies may have high rates of earning growth and be financially
sound. Selection of small company equity securities for the Fund will be based
on characteristics such as the financial strength of the company, the expertise
of management, the growth potential of the company within its industry and the
growth potential of the industry itself.

SPECIAL RISK CONSIDERATIONS. The Fund may invest in relatively new or unseasoned
companies which are in their early stages of development, or small companies
positioned in new and emerging industries where the opportunity for rapid growth
is expected to be above average. Securities of unseasoned companies present
greater risks than securities of larger, more established companies. The Fund
may not invest more than 10% of its net assets in securities of issuers with
less than three years continuous operation. The companies in which the Fund may
invest may have relatively small revenues, limited product lines, and may have a
small share of the market for their products or services. Small companies may
lack depth of management, they may be unable to internally generate funds
necessary for growth or potential development or to generate such funds through
external financing or favorable terms, or they may be developing or marketing
new products or services for which markets are not yet established and may never
become established. Due to these and other factors, small companies may suffer
significant losses as well as realize substantial growth, and investments in
such companies tend to be volatile and are therefore speculative.

Historically, the small capitalization stocks have been more volatile in price
than the larger capitalization stocks. Among the reasons for the greater price
volatility of these securities are the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for such stocks, and the
greater sensitivity of small companies to changing economic conditions. Besides
exhibiting greater volatility, small company stocks may, to a degree, fluctuate
independently of larger company stocks. Small company stocks may decline in
price as large company stocks rise, or rise in price as large company stocks
decline. Investors should therefore expect that the value of the Fund's shares
may be more volatile than the shares of a fund that invests in larger
capitalization stocks.

The Fund should not be considered suitable for investors who are unable or
unwilling to assume the risks of loss inherent in such a program, nor should
investment in the Fund be considered a balanced or complete investment program.

LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
of Trustees and subject to the following conditions, the Fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors, provided that such loans do not exceed 20% of the value of the Fund's
total assets at the time of the most recent loan. The borrower must deposit with
the Fund's custodian collateral with an initial market value of at least 102% of
the initial market value of the securities loaned, including any accrued
interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain collateral coverage of at least 100%. Such
collateral shall consist of cash, securities issued by the U.S. Government, its
agencies or instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. The Fund engages in
security loan arrangements with the primary objective of increasing the Fund's
income either through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the borrower. Under the
securities loan agreement, the Fund continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.

BORROWING. As a fundamental policy, the Fund does not borrow money or mortgage
or pledge any of its assets, except that the Fund may enter into reverse
repurchase agreements or borrow from banks up to 10% of its total asset value to
meet redemption requests and for other temporary or emergency purposes. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments.

ILLIQUID INVESTMENTS. It is the policy of the Fund that illiquid securities
(securities that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which the Fund has valued the
securities) may not constitute, at the time of purchase, more than 10% of the
value of the total net assets of the Fund. The Board of Trustees has authorized
the Fund to invest in restricted securities (securities not registered with the
SEC, which might otherwise be considered illiquid) where such investment is
consistent with the Fund's investment objective and has authorized such
securities to be considered liquid (and thus not subject to the foregoing 10%
limitation), to the extent the investment manager determines on a daily basis
that there is a liquid institutional or other market for such securities.
Notwithstanding the investment manager's determination in this regard, the Board
of Trustees will remain responsible for such determinations and will consider
appropriate action, consistent with the Fund's objective and policies, if a
security should become illiquid subsequent to its purchase. In this regard, if
qualified institutional buyers are no longer interested in purchasing restricted
securities previously designated as liquid or if the market for these securities
contracts, these securities will be redesignated as illiquid and subject to the
10% limitation. See "The Fund's Investment Objective and Restrictions - Illiquid
Securities" in the SAI.

SECURITIES INDUSTRY RELATED INVESTMENTS. To the extent it is consistent with the
Fund's investment objective and certain limitations under the 1940 Act, the Fund
may invest its assets in securities issued by companies engaged in securities
related businesses, including such companies that are securities brokers,
dealers, underwriters or investment advisers. Such companies are considered part
of the financial services industry sector.

Pursuant to Section 12(d)(3) under the 1940 Act, the Fund may not acquire a
security or any interest in a securities related business, to the extent such
acquisition would exceed certain limitations. The Fund does not believe that
these limitations will impede the attainment of its investment objective.

SHORT-TERM INVESTMENTS. The Fund may invest its cash, including cash resulting
from purchases and sales of Fund shares, temporarily in short-term debt
instruments, including high grade commercial paper, repurchase agreements and
other money market equivalents and the shares of money market funds managed by
the Fund's investment manager which invest primarily in short-term debt
securities. Such temporary investments will only be made with cash held to
maintain liquidity or pending investment. In addition, for temporary defensive
purposes, in the event of, or when the investment manager anticipates, a general
decline in the market prices of stocks in which the Fund invests, the Fund may
invest an unlimited amount of its assets in short-term debt instruments.

OPTIONS AND FINANCIAL FUTURES. The Fund may write covered put and call options
and purchase put and call options, on securities and indices, which trade on
securities exchanges and in the over-the-counter market. The Fund may purchase
and sell futures and options on futures with respect to securities, indices and
currencies. Additionally, the Fund may sell futures and options to "close out"
futures and options it may have purchased and it may purchase futures and
options to "close out" futures and options it may have sold. The Fund will not
enter into any futures contract or related options (except for closing
transactions) if, immediately thereafter, the sum of the amount of its initial
deposits and premiums on open contracts and options would exceed 5% of the
Fund's total assets (taken at current value). The Fund will not engage in any
stock options or stock index options if the option premiums paid regarding its
open option positions exceed 5% of the value of the Fund's total assets.

The Fund's option and futures investments involve certain risks. Such risks
include the risk that the effectiveness of an options and futures strategy
depends on the degree to which price movements in the underlying index or
securities correlate with price movements in the relevant portion of the Fund's
portfolio. The Fund bears the risk that the prices of its portfolio securities
will not move in the same amount as the option or future it has purchased, or
that there may be a negative correlation which would result in a loss on both
such securities and the option or future.

The Fund's option and futures investments may be limited by the requirements of
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company and may reduce the portion of the Fund's
dividends which is eligible for the corporate dividends-received deduction.
These transactions are also subject to special tax rules that may affect the
amount, timing and character of certain distributions to shareholders, more
information about which is included in the section entitled "Additional
Information Regarding Taxation" in the SAI.

Over-the-counter ("OTC") options may not be closed out on an exchange and the
Fund may be able to realize the value of an OTC option it has purchased only by
exercising it or entering into a closing sale transaction with the dealer that
issued it. There can be no assurance that a liquid secondary market will exist
for any particular option or futures contract at any specific time. Thus, it may
not be possible to close such an option or futures position. The Fund will enter
into an option or futures position only if there appears to be a liquid
secondary market for such option or futures.

The Fund understands the current position of the staff of the SEC to be that
purchased OTC options are illiquid securities and that the assets used to cover
the sale of an OTC option are considered illiquid. The Fund and its investment
manager disagree with this position. Nevertheless, pending a change in the
staff's position, the Fund will treat OTC options and "cover" assets as subject
to the Fund's limitation on illiquid securities. (See "Investment Objective and
Policies of the Fund - Illiquid Investments" in this Prospectus.)

In addition, adverse market movements could cause the Fund to lose up to its
full investment in a call option contract and/or to experience substantial
losses on an investment in a futures contract. There is also the risk of loss by
the Fund of margin deposits in the event of bankruptcy of a broker with whom the
Fund has an open position in a futures contract or option. (See "The Fund's
Investment Objective and Restrictions - Transactions in Options, Futures and
Options on Financial Futures" in the SAI for a fuller discussion of the Fund's
investments in options and futures, including the risks associated with such
activity.)

WARRANTS AND RIGHTS. The Fund may invest up to 5% of its total assets in
warrants or rights (other than those acquired in units or attached to other
securities) which entitle the holder to buy equity securities at a specific
price during or at the end of a specific period of time. The Fund will not
invest more than 2% of its total assets in warrants or rights which are not
listed on the New York or American stock exchanges.

The Fund may also enter into reverse repurchase agreements. Such agreements
involve the sale of securities held by the Fund pursuant to an agreement to
repurchase the securities at an agreed-upon price, date and interest payment.
When effecting reverse repurchase transactions, cash or high grade liquid debt
securities of a dollar amount equal in value to the Fund's obligation under the
agreement, including accrued interest, will be maintained in a segregated
account with the Fund's custodian bank, and the securities subject to the
reverse repurchase agreement will be marked to market each day. Although reverse
repurchase agreements are borrowings under Section 2(a)(23) of the 1940 Act, the
Fund does not treat these arrangements as borrowings under investment
restriction 3 (set forth in the SAI) so long as the segregated account is
properly maintained.

FOREIGN SECURITIES. The Fund may invest up to 10% of its net assets in foreign
securities, provided such investments are consistent with the Fund's investment
objective and policies. The Fund may purchase foreign securities which are
traded in the U.S. or purchase American Depositary Receipts ("ADRs"), which are
certificates issued by U.S. banks representing the right to receive securities
of a foreign issuer deposited with that bank or a correspondent bank. The Fund's
investment in ADRs may be sponsored or unsponsored. The Fund may also purchase
the securities of foreign issuers directly in foreign markets. Further
information about the Fund's investment in foreign securities is included in the
SAI.

Investments in foreign securities where delivery takes place outside the United
States will involve risks that are different from investments in U.S.
securities. These risks may include future unfavorable political and economic
developments, possible withholding taxes, seizure of foreign deposits, currency
controls, higher transactional costs due to a lack of negotiated commissions, or
other governmental restrictions which might affect the amount and types of
foreign investments made or the payment of principal or interest on securities
the Fund holds. In addition, there may be less information available about these
securities and it may be more difficult to obtain or enforce a court judgment in
the event of a lawsuit. Fluctuations in currency convertibility or exchange
rates could result in investment losses for the Fund. Investment in foreign
securities may also subject the Fund to losses due to nationalization,
expropriation or differing accounting practices and treatments.

Investments may be in securities of foreign issuers, whether located in
developed or undeveloped countries, but investments will not be made in any
securities issued without stock certificates or comparable stock documents.
Securities which are acquired by the Fund outside the United States and which
are publicly traded in the United States or on a foreign securities exchange or
in a foreign securities market are not considered by the Fund to be an illiquid
asset so long as the Fund acquires and holds the security with the intention of
reselling the security in the foreign trading market, the Fund reasonably
believes it can readily dispose of the security for cash in the U.S. or foreign
market and current market quotations are readily available.

GENERAL. The Fund will invest at least 65% of its total assets in equity
securities of companies which have a market capitalization of less than $1
billion at the time of the Fund's investment. In addition, the Fund seeks to
invest at least one-third of its assets in companies with a market
capitalization of $550 million or less; however, there is no assurance that it
will always be able to find suitable companies to include in this one-third
portion. The investment manager will monitor the availability of securities
suitable for investment by the Fund and recommend appropriate action to the
Board of Trustees if it appears that the goal of investing one-third of the
Fund's assets in companies with market capitalization of $550 million or less
may not be attainable under the Fund's current objective and policies. The Board
of Trustees will review the availability of suitable investments quarterly,
including the investment manager's assessment of the availability of suitable
investments. The investment manager will also present to the Board the
investment manager's views and recommendations regarding the Fund's ability to
meet this goal in the future. If the Board of Trustees should determine, based
upon one or more quarterly periods, that under the circumstances it is not
likely that sufficient suitable investments will be available to permit the Fund
to meet its goal of investing one-third of its assets in companies with market
capitalization of $550 million or less, it may determine to take appropriate
remedial action. Any such changes will be consistent with the requirements of
the 1940 Act and the rules adopted thereunder.

The investment policies of the Fund, except as otherwise specifically indicated
herein or in the SAI, are not fundamental policies of the Fund and may be
changed without the approval of a majority of the Fund's outstanding shares.

HOW SHAREHOLDERS PARTICIPATE
IN THE RESULTS OF THE FUND'S ACTIVITIES

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

MANAGEMENT OF THE FUND

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

During the fiscal year ended April 30, 1995, management fees totaling 0.16% of
the average monthly net assets of the fund were paid to Advisers, after fee
waiver.

During the fiscal year ended April 30, 1995, expenses borne by the Fund,
including fees paid to Advisers, after waiver, and to Investor Services, totaled
0.69% of the average .monthly net assets of the Fund.

PLAN OF DISTRIBUTION

The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act . Under the Plan, the Fund may reimburse Distributors or
others for all expenses incurred by Distributors or others in the promotion and
distribution of the Fund's shares. ' Such expenses may include, but are not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors" overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates. The maximum amount which the Fund may
pay to Distributors or others for such distribution expenses is 0.25% per annum
of the average daily net assets of the Fund, payable on a quarterly basis. All
expenses of distribution and marketing in excess of 0.25% per annum will be
borne by Distributors, or others who have incurred them, without reimbursement
from the Fund. The Plan also covers any payments to or by the Fund, Advisers,
Distributors, or other parties on behalf of the Fund, Advisers or Distributors,
to the extent such payments are deemed to be for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included in the maximum
operating expenses which may be borne by the Fund. For more information, please
see the SAI.

DISTRIBUTIONS TO SHAREHOLDERS

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

DISTRIBUTION DATE

Although subject to change by the Board of Trustees, without prior notice to or
approval by shareholders, the Fund's current policy is to declare income
dividends payable semiannually in June and December for shareholders of record
generally on the first business day preceding the 15th of the month, payable on
or about the last business day of such months. The amount of income dividend
payments by the Fund is dependent upon the amount of net income received by the
Fund from its portfolio holdings, is not guaranteed and is subject to the
discretion of the Board of Trustees. Fund shares are quoted ex-dividend on the
first business day following the record date. THE FUND DOES NOT PAY "INTEREST"
OR GUARANTEE ANY FIXED RATE OF RETURN ON AN INVESTMENT IN ITS SHARES.

DIVIDEND REINVESTMENT

Unless otherwise requested, income dividends and capital gain distributions, if
any, will be automatically reinvested in the shareholder"s account in the form
of additional shares, valued at the closing net asset value (without a sales
charge) on the dividend reinvestment date. Dividend and capital gain
distributions are only eligible for reinvestment at net asset value in the Fund
or Class I shares of other Franklin Templeton Funds. Shareholders have the right
to change their election with respect to the receipt of distributions by
notifying the Fund, but any such change will be effective only as to
distributions for which the record date is seven or more business days after the
Fund has been notified. See the SAI for more information.

course, any shares so acquired remain at market risk.

DISTRIBUTIONS IN CASH

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

TAXATION OF THE FUND AND ITS SHAREHOLDERS

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

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

For corporate shareholders, 83.34% of the income dividends paid by the Fund for
the fiscal year ended April 30, 1995 qualified for the corporate
dividends-received deduction, subject to certain holding period and debt
financing restrictions imposed under the Code on the corporation claiming the
deduction. These restrictions are discussed in the SAI.

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

HOW TO BUY SHARES OF THE FUND

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

PURCHASE PRICE OF FUND SHARES

Shares of the Fund are offered at the public offering price, which is determined
by adding the net asset value per share plus a sales charge, next computed (1)
after the shareholder's securities dealer receives the order which is promptly
transmitted to the Fund, or (2) after receipt of an order by mail from the
shareholder directly in proper form (which generally means a completed
Shareholder Application accompanied by a negotiable check). The sales charge is
a variable percentage of the offering price depending upon the amount of the
sale. The offering price will be calculated to two decimal places using standard
rounding criteria. A description of the method of calculating net asset value
per share is included under the caption "Valuation of Fund Shares."

Set forth below is a table of total front-end sales charges or underwriting
commissions and dealer concessions:

TOTAL SALES CHARGE

DEALER
CONCESSION

AS A PERCENTAGE AS A PERCENTAGE AS A PERCENTAGE OF
OF OFFERING PRICE OF NET AMOUNT OFFERING PRICE

INVESTED

SIZE OF TRANSACTION
AT OFFERING PRICE

<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 but less than $250,000 3.75% 3.90% 3.25%
$250,000 but less than $500,000 2.75% 2.83% 2.50%
$500,000 but less than $1,000,000 2.25% 2.30% 2.00%
$1,000,000 through $2,500,000 none none (see below)**
</TABLE>

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

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

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

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

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

QUANTITY DISCOUNTS IN SALES CHARGES

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

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

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

AN INVESTOR (EXCEPT FOR CERTAIN EMPLOYEE BENEFIT PLANS WHICH ARE LISTED UNDER
"DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES") ACKNOWLEDGES AND AGREES TO
THE FOLLOWING PROVISIONS BY COMPLETING THE LETTER OF INTENT SECTION OF THE
SHAREHOLDER APPLICATION: Five percent (5%) of the amount of the total intended
purchase will be reserved in shares of the Fund, registered in the investor's
name, to assure that the full applicable sales charge will be paid if the
intended purchase is not completed. The reserved shares will be included in the
total shares owned as reflected on periodic statements; income and capital gain
distributions on the reserved shares will be paid as directed by the investor.
The reserved shares will not be available for disposal by the investor until the
Letter of Intent has been completed, or the higher sales charge paid.

For more information, see "Additional Information Regarding Purchases" in the
SAI.

GROUP PURCHASES

PURCHASES AT NET ASSET VALUE

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

Shares of the Fund may be purchased at net asset value by persons who have
redeemed, within the previous 360 days, their shares of the Fund or another of
the Class I Franklin Templeton Funds which were purchased with a front-end sales
charge or assessed a contingent deferred sales charge on redemption. If a
different class of shares is purchased, the full front-end sales charge must be
paid at the time of purchase of the new shares. An investor may reinvest an
amount not exceeding the redemption proceeds. While credit will be given for any
contingent deferred sales charge paid on the shares redeemed and subsequently
repurchased, a new contingency period will begin. Shares of the Fund redeemed in
connection with an exchange into another Class I shares of the Franklin
Templeton Funds (see "Exchange Privilege") are not considered "redeemed" for
this privilege. In order to exercise this privilege, a written order for the
purchase of shares of the Fund must be received by the Fund or the Fund"s
Shareholder Services Agent within 360 days after the redemption. The 12360 days,
however, do not begin to run on redemption proceeds placed immediately after
redemption in a Franklin Bank Certificate of Deposit ("CD") until the CD
(including any rollover) matures. Reinvestment at net asset value may also be
handled by a securities dealer or other financial institution, who may charge
the shareholder a fee for this service. The redemption is a taxable transaction
but reinvestment without a sales charge may affect the amount of gain or loss
recognized and the tax basis of the shares reinvested. If there has been a loss
on the redemption, the loss may be disallowed if a reinvestment in the same fund
is made within a 30-day period. Information regarding the possible tax
consequences of such a reinvestment is included in the tax section of this
Prospectus and the SAI.

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

Shares of the Fund may be purchased at net asset value

and without the imposition of a contingent deferred sales charge by anyone who
has taken a distribution from an existing retirement plan already invested in
the Franklin Templeton Funds (including former participants of the Franklin
Templeton Profit Sharing 401(k) plan), to the extent of such distribution. In
order to exercise this privilege a written order for the purchase of shares of
the Fund must be received by Franklin Templeton Trust Company (the "Trust
Company"), the Fund or Investor Services, within 360 days after the plan
distribution.

DESCRIPTION OF SPECIAL NET ASSET VALUE PURCHASES

Refer to the SAI for further information regarding net asset value purchases.

GENERAL

PURCHASING SHARES OF THE FUND
IN CONNECTION WITH RETIREMENT PLANS
INVOLVING TAX-DEFERRED INVESTMENTS

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

(section)

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

OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS

SHARE CERTIFICATES

CONFIRMATIONS

AUTOMATIC INVESTMENT PLAN

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

SYSTEMATIC WITHDRAWAL PLAN

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

INSTITUTIONAL ACCOUNTS

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

EXCHANGE PRIVILEGE

The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives or policies. The shares of most of these mutual funds are
offered to the public with a sales charge. If a shareholder"s investment
objective or outlook for the securities markets changes, the Fund shares may be
exchanged for shares of other Franklin Templeton Funds Class I shares which are
eligible for sale in the shareholder"s state of residence and in conformity with
such fund"s stated eligibility requirements and investment minimums. Investors
should review the prospectus of the fund they wish to exchange from and the fund
they wish to exchange into for all specific requirements or limitations on
exercising the exchange privilege, for example, minimum holding periods or
applicable sales charges. No exchanges between different classes of shares are
allowed and, therefore, shares of the Fund may not be exchanged for Class II
shares of other Franklin Templeton Funds. Shareholders may choose to redeem
shares of the Fund and purchase Class II shares of other Franklin Templeton
Funds but such purchase will be subject to that Fund's Class II front-end and
contingent deferred sales charges for the contingency period of 18 months.

Exchanges may be made in any of the following ways:

EXCHANGES BY MAIL

EXCHANGES BY TELEPHONE

SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF ANY, MAY EXCHANGE
SHARES OF THE FUND BY TELEPHONE BY CALLING INVESTOR SERVICES AT 1-800/632-2301
OR THE AUTOMATED FRANKLIN TELEFACTS(REGISTERED TRADEMARK) SYSTEM (DAY OR NIGHT)
AT 1-800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE EXTENDED TO A
PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES SHOULD BE NOTIFIED.

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

EXCHANGES THROUGH SECURITIES DEALERS

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

ADDITIONAL INFORMATION REGARDING EXCHANGES

The contingency period will be tolled (or stopped) for the period such shares
are exchanged into and held in a Franklin or Templeton money market fund. If the
account has shares subject to a contingent deferred sales charge, the shares
will be exchanged into the new account on a "first-in, first-out" basis. See
also "How to Sell Shares of the Fund - Contingent Deferred Sales Charge."

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

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

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

TIMING ACCOUNTS

The Fund currently will not accept investments from Timing Accounts.

RETIREMENT ACCOUNTS

HOW TO SELL SHARES OF THE FUND

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

REDEMPTIONS BY MAIL

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