FRANKLIN STRATEGIC SERIES, 485APOS, 1996-03-27

FRANKLIN STRATEGIC SERIES
485APOS, 1996-03-27

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As filed with the Securities and Exchange Commission on March 27,
1996

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. 19 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 22 (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 June 1, 1996 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.

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET

FORM N-1A

Part A: Information Required in the Prospectus
(Franklin MidCap Growth Fund - formerly Franklin Institutional
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 How Has the Fund
Performed?"; "How Does
the Fund Measure
Performance?"

4. General Description "What Is the Franklin
MidCap Growth Fund?";
"How Does the Fund Invest
Its Assets?"; "What Are
the Fund's Potential
Risks?"; "General
Information"

5. Management of the Fund "Who Manages the Fund?"

5A. Management's General
Discussion of Fund
Performance

6. Capital Stock and "What Distributions Might
Other Securities I Receive From the
Fund?"; "How Taxation
Affects You and the
Fund?"; "How Do I Get
More Information About My
Investment?"; "General
Information"

7. Purchase of Securities "How Do I Buy Shares?";
Being Offered "What Programs and
Privileges Are Available
to Me as a Shareholder?";
"What If My Investment
Outlook Changes? -
Exchange Privilege";
"Telephone Transactions";
"How Are Fund Shares
Valued?"

8. Redemption or "What If My Investment
Repurchase Outlook Changes? -
Exchange Privilege"; "How
Do I Sell Shares?";
"Telephone Transactions";
"How Do I Get More
Information About My
Investment?"; "General
Information"

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 MidCap Growth Fund - formerly Franklin Institutional
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 "General Information"
and History

13. Investment Objectives "How Does the Fund Invest
and Policies Its Assets?"; "Investment
Restrictions"

14. Management of the Fund "Officers and Trustees";
"Investment Advisory and
Other Services"

15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Advisory and
Securities Other Services"; "General
Information"

16. Investment Advisory "Investment Advisory and
and Other Services Other Services"

17. Brokerage Allocation "How Does the Fund
Purchase Securities for
Its Portfolio?"

18. Capital Stock and "How Do I Buy and Sell
Other Securities Shares?"; "How Are Fund
Shares Valued?"

19. Purchase, Redemption "How Do I Buy and Sell
and Pricing of Shares?"
Securities

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 MIDCAP
GROWTH FUND
FRANKLIN STRATEGIC SERIES

PROSPECTUS

JUNE 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 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
investment objective of the Fund is long-term capital growth. It seeks to
accomplish its objective by investing primarily in equity securities of medium
capitalization companies whose market capitalization falls within the
capitalization range of the S&P MidCap 400 Index*.

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

An SAI concerning the Fund, dated June 1, 1996, 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 you. It has been filed with the SEC
and is incorporated herein by reference. A copy is available without charge from
the Fund or from Distributors, at the address or telephone number shown above.

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.

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

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

* "S&P MidCap 400 Index" and "Standard & Poor's MidCap 400 Index" are trademarks
of Standard & Poor's Corporation ("S&P.") The Fund is not sponsored, endorsed,
sold or promoted by S&P.

CONTENTS PAGE

Expense Table

Financial Highlights - How Has the Fund Performed?

What is the Franklin MidCap Growth Fund?

How Does the Fund Invest Its Assets?

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

What Are the Fund's Potential Risks?

Who Manages the Fund?

What Distributions Might I Receive from the Fund?

How Taxation Affects You and the Fund

How Do I Buy Shares?

What Programs and Privileges Are Available to Me as a Shareholder?

What If My Investment Outlook Changes? - Exchange Privilege

How Do I Sell Shares?

Telephone Transactions

How Are Fund Shares Valued?

How Do I Get More Information About My Investment?

How Does the Fund Measure Performance?

General Information

Registering Your Account

Important Notice Regarding Taxpayer IRS Certifications

Useful Terms and Definitions

<PAGE>

EXPENSE TABLE

The purpose of this table is to assist you in understanding the various costs
and expenses that you will bear directly or indirectly in connection with an
investment in the Fund. These figures are based on the estimated operating
expenses of the Fund for the current fiscal year.

SHAREHOLDER TRANSACTION EXPENSES

Maximum Sales Charge Imposed on 4.50%
Purchases (as a percentage of offering
price)
Deferred Sales Charge None+
Exchange Fee (per transaction) $5.00*

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.65%
Rule 12b-1 Fees 0.35%**
Other Expenses:
Reports to Shareholders 0.10%
Registration & filing fees 0.10%
Other 0.18%
-----
Total Other Expenses 0.38%
Total Fund Operating Expenses 1.38%

+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 of such investments. See "How Do I Sell Shares? Contingent Deferred Sales
Charge." *$5.00 fee imposed only on Market Timers as described under "What If My
Investment Outlook Changes? - Exchange Privilege." All other exchanges are
processed without a fee. ** 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.

You should be aware that the above table is not intended to reflect in precise
detail the fees and expenses associated with an investment in the Fund. Rather,
the table has been provided only to assist you in gaining a more complete
understanding of fees, charges and expenses. For a more detailed discussion of
these matters, you 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.

ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
$58* $87 $117 $203
*Assumes that a contingent deferred sales charge will not apply.

THIS EXAMPLE IS BASED ON THE ESTIMATED ANNUAL OPERATING EXPENSES SHOWN ABOVE AND
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY
BE MORE OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund
and only indirectly by you as a result of your investment in the Fund. See "Who
Manages the Fund?" for a description of the Fund's expenses. 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 - HOW HAS THE FUND PERFORMED?

Set forth below is a table containing the financial highlights for a share of
the Fund from the effective date of registration (August 17, 1993) to October
31, 1995. The information for each of the 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 financial statements in the Trust's Annual
Report to Shareholders for the fiscal year ended April 30, 1995. The figures for
the six months ended October 31, 1995, are unaudited. See "Reports to
Shareholders" under "General Information" in this Prospectus.
<TABLE>
<CAPTION>

Per Share Operating Performance Ratios/Supplemental Data
----------------------------------- ----------------------------

Net Ratio
Realized & Distri- Distri- Net Net Ratio of of Net
Net Asset Net Unrealized Total butions butions Asset Assets Expenses Investment
Value at Invest- Gain From From Net From Total Value at End to Average Income to Portfolio
Year Beginning ment (Loss) on Investment Investment Capital Distri- at End Total of Year Net Average Turnover
Ended of Year Income Securities Operations Income Gains butions of Year Return*(in 000's) Assets*** Net Assets Rate

+For the period August 17, 1993 (effective date) to April 30, 1994.
++For the six months ended October 31, 1995. Unaudited.

*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end
sales charge or the deferred contingent sales charge, if applicable. The
total return for the Fund also assumes reinvestment of dividends and capital
gains, if any,
at net asset value.

**Annualized.

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

Ratio of expenses
to average net assets
1994+ 0.91%**
1995 0.98%
1995++ 0.93%**

WHAT IS THE FRANKLIN MIDCAP GROWTH FUND?

The Fund is a diversified series of the Trust, an open-end management investment
company commonly called a "mutual fund." The Trust was organized as a Delaware
business trust and registered with the SEC under the 1940 Act. Shares of the
Fund may be considered Class I shares, as described under "Useful Terms and
Definitions," for redemption, exchange and other purposes. The Fund reserves the
right to convert to a master/feeder structure at a future date. Please see
"General Information - Conversion to Master/Feeder Structure.

HOW DOES THE FUND INVEST ITS ASSETS?

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 medium capitalization growth companies that the Manager
believes to be positioned for rapid growth in revenues or earnings and assets,
characteristics which may provide for significant capital appreciation. In
general, medium market capitalization companies are those whose market
capitalization falls within the capitalization range of the S&P MidCap 400
Index, at the time of investment by the Fund. Market capitalization is defined
as the total market value of a company's outstanding stock. The securities of
medium capitalization companies are traded on the New York and American stock
exchanges and in the over-the-counter market. Investing in medium capitalization
stocks may involve greater risk than investing in large capitalization stocks,
since they can be subject to more abrupt or erratic movements. However, they
tend to involve less risk than stocks of small capitalization companies. There
is, of course, no assurance that the Fund's objective will be achieved.

Medium capitalization companies may offer greater potential for capital
appreciation since they may be overlooked by investors or undervalued in
relation to their earning power. Medium capitalization 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 earnings
growth and be financially sound. Selection of medium capitalization 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.

TYPES OF SECURITIES THE FUND MAY PURCHASE

Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities of medium capitalization growth companies.
Equity securities of such companies consist of:

common or preferred stock;

warrants for the purchase of common or preferred stock; and

debt securities convertible into or exchangeable for common or preferred
stock.

The Fund 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, securities
which it intends to purchase and to accommodate cash flows. Transactions in
options, futures and futures on options are generally considered "derivative
securities."

Consistent with its objective, the Fund attempts to be fully invested at all
times in equity securities and, under normal market conditions, its assets will
be invested primarily in a diversified portfolio of medium capitalization
stocks.

Although the Fund's assets will be invested primarily in equity securities of
medium capitalization companies, the Fund may invest up to 35% (measured at the
time of purchase) of its total assets in equity securities outside the range of
the definition of medium market capitalization which the Manager believes have
the potential for capital appreciation, or in corporate debt securities
consisting of bonds, notes and debentures if the Fund deems the investment to
present a favorable investment opportunity, consistent with the Fund's objective
of long-term capital growth. The Fund may seek capital appreciation by investing
in debt securities which the Manager believes have the potential for capital
appreciation as a result of improvement in the creditworthiness of the issuer.
The receipt of income form these 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 S&P or in
securities which are unrated if, in the Manager's opinion, the 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. A description of the ratings is included in
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.

WARRANT. 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.

CONVERTIBLE SECURITY. 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 or preferred stock into which the securities are
convertible through the conversion feature.

OPTIONS AND FINANCIAL FUTURES. The Fund 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 Fund 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 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.

A call option written by the Fund is covered if the Fund 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 bank) upon
conversion or exchange of other securities held in its portfolio. A call option
is also covered if the Fund 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 Fund in cash and high grade debt securities in a segregated
account with its custodian. A put option written by the Fund is covered if the
Fund 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 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 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 or
option 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("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 the 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.

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.

The Fund's option and futures investments may be limited by the requirements of
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 tax section of
the SAI.

The Fund's investments in options and futures contracts and certain security
transactions (including loans of portfolio securities) may reduce the portion of
the Fund'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.

SECURITIES INDUSTRY RELATED INVESTMENTS. To the extent it is 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 companies that are securities brokers, dealers,
underwriters or investment advisers. These 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 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.

OTHER POLICIES

LOANS OF PORTFOLIO SECURITIES. Up to 20% of the Fund's portfolio securities may
be loaned to qualified borrowers who deposit and maintain with the Fund 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 Fund will engage in security loan arrangements with the primary objective of
increasing the Fund's income through investment of the cash collateral in
short-term, interest-bearing obligations, but will do so only to the extent that
the Fund will not lose the tax treatment available to regulated investment
companies.

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 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
(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 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 net assets of the Fund.

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
Advisers 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 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.

REPURCHASE TRANSACTIONS. The Fund 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 Fund 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 Fund 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 Fund 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 Fund, with
the value marked to market daily to maintain 100% coverage. 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 will make payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of its custodian bank. The Fund 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 Fund's total assets would be invested in repurchase
agreement as well as other securities deemed to be illiquid.

PORTFOLIO TURNOVER. 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 increases 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.

The Fund may not invest in securities other than the types of securities listed
above and is subject to other specific investment restrictions as detailed under
"How Does the Fund Invest its Assets" and "Investment Restrictions" in the SAI.

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

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

In 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 S&P 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.

WHAT ARE THE FUND'S POTENTIAL RISKS?

Historically, the medium market capitalization stocks, which will constitute the
majority of the investments of the Fund, 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.

WHO MANAGES THE FUND?

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

Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of 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. Advisers acts as investment manager or administrator
to 36 U.S. registered investment companies (118 separate series) with aggregate
assets of over $80 billion.

The team responsible for the day-to-day management of the Fund's portfolio is:
Ed Jamieson, Cathy Bowman and Dan Prislin since January 2, 1996.

Edward B. Jamieson
Senior Vice President
of Advisers

Mr. Jamieson holds a Master's degree in accounting and finance from the
University of Chicago Graduate School of Business and a Bachelor of Arts
degree from Bucknell University. He has been with Advisers since 1987. Mr.
Jamieson is a member of several securities industry-related committees and
associations.

Catherine Roberts Bowman
Portfolio Manager
of Advisers

Ms. Bowman holds a Master of Management degree from the J.L. Kellogg Graduate
School of Management at Northwestern University. She received her Bachelor of
Arts degree from Princeton University. She has been with Advisers since 1990.

Dan Prislin
Portfolio Manager
of Advisers

Mr. Prislin holds a Master of Business Administration degree from University
of California in Berkeley and a Bachelor of Science degree from University of
California at Berkeley. Mr. Prislin joined Advisers in July 1994. Prior to
July 1994, he was a real estate salesperson with Blickman.

Pursuant to a management agreement, the Manager supervises and implements the
Fund's investment policies and provides certain administrative services and
facilities which are necessary to conduct the Fund's business. The Manager
performs similar services for other funds and there may be times when the
actions taken with respect to the Fund's portfolio will differ from those taken
by the Manager on behalf of other funds. Neither the Manager (including its
affiliates) nor its officers, directors or employees nor the officers and
trustees of the Trust are prohibited from investing in securities held by the
Fund or other funds which are managed or administered by the Manager to the
extent such transactions comply with the Fund's Code of Ethics. Please see
"Investment Advisory and Other Services" and "General Information" in the SAI
for further information on securities transactions and a summary of the Fund's
Code of Ethics.

The Fund is responsible for its own operating expenses including, but not
limited to, the Manager's fee; taxes, if any; custodian, legal and auditing
fees; fees and expenses of trustees. who are not members of, affiliated with, or
interested persons of the Manager; salaries of any personnel not affiliated with
the Manager; insurance premiums; trade association dues; expenses of obtaining
quotations for calculating the value of the Fund's net assets; and printing and
other expenses which are not expressly assumed by the Manager. Pursuant to the
management agreement, the Fund is obligated to pay the Manager a fee computed
and accrued daily and paid monthly at the annual rate of .65% of the average
daily 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 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 "How
Does the Fund Purchase Securities For Its Portfolio?" in the SAI.

Shareholder accounting and many of the clerical functions for the Fund are
performed by Investor Services, in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.

PRIOR SERVICES

Prior to January 2, 1996, Franklin Institutional Services Corporation (FISCO),
also a wholly owned subsidiary of Resources, served as the Fund's manager 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, Templeton Quantitative Advisors, Inc.
("TQA"), to implement some of the investment activities of the Fund. TQA's fees
were paid fully by FISCO. For the fiscal year ended April 30, 1995 and the
six-month period ended October 31 1995, management fees, before any advance
waiver, totaled 0.65% and 0.65% (annualized), respectively, of the average daily
net assets of the Fund. Total operating expenses, including management fees
before any advance waiver, totaled 0.98% and 0.93% (annualized) of the average
daily net assets of the Fund for the respective periods. Pursuant to an
agreement by Advisers to waive its fees, the Fund paid no management fees or any
of its operating expenses. This arrangement may be terminated by the Manager at
any time upon notice to the Board.

PLAN OF DISTRIBUTION

A plan of distribution has been approved and adopted for the Fund (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 reimburse to Distributors or others for
such distribution expenses is 0.25% per annum of its average daily net assets,
payable on a quarterly basis. The Fund is also permitted to pay Distributors up
to an additional 0.10% per annum of its average daily net assets for
reimbursement of distribution expenses, also payable quarterly. All expenses of
distribution in excess of 0.35% 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
Fund's Underwriter" in the SAI.

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?

You may receive two types of distributions from the Fund:

1. INCOME DIVIDENDS. The Fund receives income generally 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 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 without prior notice to or approval by
shareholders, the Fund's current policy is to declare income dividends
semiannually in June and December for shareholders of record on the first
business day preceding the 15th of the month, payable on or about the last
business day of that 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. Fund shares are quoted
ex-dividend on the first business day following the record date (generally the
15th day of the month or prior business day depending on 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, you must have acquired Fund shares prior
to the close of business on the record date. If you are considering purchasing
Fund shares shortly before the record date of a distribution, you 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 your investment, it may be taxable as
dividend income or capital gain.

DISTRIBUTION OPTIONS

You may choose to receive your distributions from the Fund in any of these ways:

1. PURCHASE ADDITIONAL SHARES OF THE FUND - You may purchase additional shares
of the Fund (without a sales charge or imposition of a contingent deferred sales
charge) by reinvesting capital gain distributions, or both dividend and capital
gain distributions. This is a convenient way to accumulate additional shares and
maintain or increase your earnings base.

2. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to purchase the same class of shares of another Franklin Templeton
Fund (without a sales charge or imposition of a contingent deferred sales
charge). Many shareholders find this a convenient way to diversify their
investments.

3. RECEIVE DISTRIBUTIONS IN CASH - You may choose to receive dividends, or both
dividend and capital gain distributions in cash. You may have the money sent
directly to you, to another person, or to a checking account. If you choose to
send the money to a checking account, please see "Electronic Fund Transfers"
under "What Programs and Privileges Are Available to Me as a Shareholder?"

TO SELECT ONE OF THESE OPTIONS, PLEASE COMPLETE SECTIONS 6 AND 7 OF THE
SHAREHOLDER APPLICATION INCLUDED WITH THIS PROSPECTUS OR TELL YOUR INVESTMENT
REPRESENTATIVE WHICH OPTION YOU PREFER. IF NO OPTION IS SELECTED, DIVIDEND AND
CAPITAL GAIN DISTRIBUTIONS WILL BE AUTOMATICALLY REINVESTED IN THE FUND. You may
change the distribution option selected at any time by notifying the Fund by
mail or by telephone. Please allow at least seven days prior to the record date
for the Fund to process the new option.

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 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 you have owned Fund shares and whether you receive them 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 you
until the following January, will be treated for tax purposes as if you received
them on December 31 of the calendar year in which they are declared.

Redemptions and exchanges of Fund shares are taxable events on which you 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 the shares. You
should consult your tax advisor concerning the tax rules applicable to the
redemption or exchange of Fund shares, more information about which is included
in the SAI.

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.

If you are a corporate shareholder, you 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 you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of their tax status for federal income tax purposes.

If you are not considered a U.S. person for purposes of federal income taxation
you should consult with your financial or tax advisor regarding the
applicability of U.S. withholding or other taxes to distributions you receive
from the Fund and the application of foreign tax laws to these distributions.
You should also consult your tax advisor with respect to the applicability of
any state and local intangible property or income taxes to your Fund shares and
distributions and redemption proceeds received from the Fund.

HOW DO I BUY SHARES?

You may buy shares to open a Fund account with as little as $100 and make
additional investments at any time with as little as $25. These minimums may be
waived when shares are purchased by retirement plans. To open your account,
contact your investment representative or complete and sign the enclosed
Shareholder Application and return it to the Fund with your check.

PURCHASE PRICE OF FUND SHARES

You may buy shares at the public offering price, unless you qualify to purchase
shares at a discount or without a sales charge as discussed below. The offering
price will be calculated to two decimal places using standard rounding criteria.

QUANTITY DISCOUNTS IN SALES CHARGES

The sales charge you pay when you buy shares may be reduced based upon the size
of your purchase, as shown in the table below.

TOTAL SALES CHARGE
AS A PERCENTAGE OF
AMOUNT ALLOWED TO
DEALER AS A
SIZE OF TRANSACTION NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE OFFERING PRICE INVESTED OFFERING PRICE*
Under $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 None***

*Financial institutions or their affiliated brokers may receive an agency
transaction fee in the percentages indicated. Distributors may at times reallow
the entire sales charge to the securities dealer. A securities dealer who
receives 90% or more of the sales commission may be deemed an underwriter under
the Securities Act of 1933, as amended.

**A contingent deferred sales charge of 1% may be imposed on certain redemptions
of all or a part of an investment of $1 million or more. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge."

***Please see "General - Other Payments to Securities Dealers" below for a
discussion of payments Distributors may make to securities dealers out of its
own resources.

RIGHTS OF ACCUMULATION. To determine if you may pay a reduced sales charge, you
may add the cost or current value, whichever is higher, of your Class I and
Class II shares in other Franklin Templeton Funds, as well as those of your
spouse, children under the age of 21 and grandchildren under the age of 21, to
the amount of your current purchase. To receive the reduction, you or your
investment representative must notify Distributors that your investment
qualifies for a discount.

LETTER OF INTENT. You may purchase shares at a reduced sales charge by
completing the Letter of Intent section of the Shareholder Application. A Letter
of Intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. You or your investment representative must inform us that the Letter is in
effect each time you purchase shares.

BY COMPLETING THE LETTER OF INTENT SECTION OF THE SHAREHOLDER APPLICATION, YOU
ACKNOWLEDGE AND AGREE TO THE FOLLOWING:

You authorize Distributors to reserve five percent (5%) of the amount of the
total intended purchase in Fund shares registered in your name.

You grant Distributors a security interest in these shares and appoint
Distributors as attorney-in-fact with full power of substitution to redeem
any or all of these reserved shares to pay any unpaid sales charge if you do
not fulfill the terms of the Letter.

We will include the reserved shares in the total shares you own as reflected
on your periodic statements.

You will receive dividend and capital gain distributions on the reserved
shares; we will pay or reinvest these distributions as you direct.

Although you may exchange your shares, you may not liquidate reserved shares
until you complete the Letter or pay the higher sales charge.

Our policy of reserving shares does not apply to certain benefit plans
described under "Purchases at Net Asset Value."

If you would like more information about the Letter of Intent privilege, please
see "How Do I Buy and Sell Shares? - Letter of Intent" in the SAI or call our
Shareholder Services Department.

GROUP PURCHASES. If you are a member of a qualified group, you may purchase Fund
shares at the reduced sales charge applicable to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase. For example, if group
members previously invested and still hold $80,000 of Fund shares and invest
$25,000, the sales charge will be 3.75%.

We define a qualified group as 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.

In addition, a qualified group must have more than 10 members, and be available
to arrange for meetings between our representatives and group members. It must
also agree to include sales and other materials related to the Franklin
Templeton Funds in publications and mailings to its members at reduced or no
cost to Distributors, and arrange for payroll deduction or other bulk
transmission of investments to the Fund.

If you select a payroll deduction plan, your investments will continue
automatically until you notify the Fund and your employer to discontinue further
investments. Due to the varying procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time the money reaches the Fund. We invest your purchase at the applicable
offering price per share determined on the day that the Fund receives both the
check and the payroll deduction data in required form.

PURCHASES AT NET ASSET VALUE

You may invest money from the following sources in shares of the Fund without
paying front-end or contingent deferred sales charges:

(i) a distribution that you have received from a Franklin Templeton Fund or a
real estate investment trust ("REIT") sponsored or advised by Franklin
Properties, Inc., if the distribution is returned within 365 days of its payment
date. You may reinvest Class II distributions in either Class I or Class II
shares, but Class I distributions may only be invested in Class I shares under
this privilege. For more information, see "Distribution Options" under "What
Distributions Might I Receive from the Fund?" or call Shareholder Services at
1-800/632-2301; or

(ii) a redemption from a mutual fund with investment objectives similar to those
of the Fund, if (a) your investment in that fund was subject to either a
front-end or contingent deferred sales charge at the time of purchase, (b) the
fund is not part of the Franklin Templeton Funds, and (c) your redemption
occurred within the past 60 days;

(iii) a distribution from an existing retirement plan already invested in the
Franklin Templeton Funds (including the Franklin Templeton Profit Sharing 401(k)
plan), up to the total amount of the distribution. The distribution must be
returned to the Fund within 365 days of the distribution date; or

(iv) a redemption from Templeton Institutional Funds, Inc., if you then reinvest
the redemption proceeds under an employee benefit plan qualified under Section
401 of the Code, in shares of the Fund.

You may also reinvest the proceeds from a redemption of any of the Franklin
Templeton Funds at net asset value. To do so, you must (a) have paid a sales
charge on the purchase or sale of the original shares, (b) reinvest the
redemption money in the same class of shares, and (c) request the reinvestment
of the money within 365 days of the redemption date. You may reinvest up to the
total amount of the redemption proceeds under this privilege. 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. While you will receive credit for any
contingent deferred sales charge paid on the shares redeemed, a new contingency
period will begin. Shares that were no longer subject to a contingent deferred
sales charge will be reinvested at net asset value and will not be subject to a
new contingent deferred sales charge. Shares exchanged into other Franklin
Templeton Funds are not considered "redeemed" for this privilege (see "What If
My Investment Outlook Changes? - Exchange Privilege").

If you immediately reinvested your redemption proceeds in a Franklin Bank
Certificate of Deposit ("CD") but you would like to reinvest them back into the
Franklin Templeton Funds as described above, you will have 365 days from the
date the CD (including any rollover) matures to do so.

If your securities dealer or another financial institution reinvests your money
in the Fund at net asset value for you, that person or institution may charge
you a fee for this service.

A redemption is a taxable transaction, but reinvestment without a sales charge
may affect the amount of gain or loss you recognize and the tax basis of the
shares reinvested. If you have a loss on the redemption, the loss may be
disallowed if you reinvest in the same fund within a 30-day period. If you would
like more information regarding the possible tax consequences of such a
reinvestment, please see the tax section of this Prospectus and the SAI.

Certain categories of investors also qualify to purchase shares of the Fund at
net asset value regardless of the source of the investment proceeds. If you or
your account is included in one of the categories below, none of the shares of
the Fund you purchase will be subject to front-end or contingent deferred sales
charges:

(i) companies exchanging shares or selling assets pursuant to a merger,
acquisition or exchange offer;

(ii) accounts managed by the Franklin Templeton Group;

(iii) certain unit investment trusts and unit holders of these trusts
reinvesting distributions from the trusts in the Fund;

(iv) registered securities dealers and their affiliates, for their
investment accounts only;

(v) current employees of securities dealers and their affiliates and their
family members, in accordance with the internal policies and procedures of the
employing securities dealer and affiliate;

(vi) broker-dealers who have entered into a supplemental agreement with
Distributors, on behalf of their clients who are participating in comprehensive
fee programs. These programs, sometimes known as wrap fee programs, are
sponsored by the broker-dealer and either advised by the broker-dealer or by
another registered investment advisor affiliated with that broker;

(vii) 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").
IF YOU ARE SUCH AN INVESTOR, PLEASE CONSULT YOUR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS.
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 the Manager on arbitrage rebate
calculations. If you are a securities dealer who has executed a dealer agreement
with Distributors and, through your services, an eligible governmental authority
invests in the Fund at net asset value, Distributors or one of its affiliates
may make a payment, out of its own resources, to you in an amount not to exceed
0.25% of the amount invested. Please contact the Franklin Templeton
Institutional Services Department for additional information;

(viii) officers, trustees, directors and full-time employees of the Franklin
Templeton Funds, or of the Franklin Templeton Group, and their family members.
Although you may pay sales charges on investments in accounts opened after your
association with us has ended, you may continue to invest in accounts opened
while you were with us without paying sales charges;

(ix) trust companies and bank trust departments that exercise exclusive
discretionary investment authority over funds held in a fiduciary, agency,
advisory, custodial or similar capacity and agree to invest at least $1 million
in Franklin Templeton Funds over a 13 month period. We will accept orders for
such accounts 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;

(x) group annuity separate accounts offered to retirement plans;

(xi) trustees or other fiduciaries purchasing securities for certain retirement
plans of organizations with collective retirement plan assets of $1 million or
more, without regard to where such assets are currently invested; or

(xii) Designated Retirement Plans. Non-Designated Retirement Plans may also
qualify to purchase shares of the Fund under this privilege if they meet the
requirements for Designated Retirement Plans and those described under "Group
Purchases," above.

IF YOU QUALIFY TO BUY SHARES AT NET ASSET VALUE AS DISCUSSED IN THIS SECTION,
PLEASE SPECIFY IN WRITING THE PRIVILEGE THAT APPLIES TO YOUR PURCHASE AND
INCLUDE THAT WRITTEN STATEMENT WITH YOUR PURCHASE ORDER. WE WILL NOT BE
RESPONSIBLE FOR PURCHASES THAT ARE NOT MADE AT NET ASSET VALUE IF THIS WRITTEN
STATEMENT IS NOT INCLUDED WITH YOUR ORDER.

If you would like more information, please see "How Do I Buy and Sell Shares?"
in the SAI.

HOW DO I BUY SHARES IN CONNECTION WITH TAX-DEFERRED RETIREMENT PLANS?

Your individual or employer-sponsored tax-deferred retirement plans may invest
in the Fund. You may use the Fund for an existing retirement plan, or, because
Trust Company can serve as custodian or trustee for retirement plans, you may
ask Trust Company to 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.

Brochures for Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution requirements.
Please note that you must use an application other than the one contained in
this Prospectus to establish a retirement plan account with Trust Company. To
obtain a retirement plan brochure or application, please call 1-800/DIAL BEN
(1-800/342-5236).

Please see "How Do I Sell Shares?" for information regarding redemptions from
retirement plan accounts. You must complete specific forms in order to receive
distributions from 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, if you
are a retirement plan investor, you should consider consulting your investment
representatives or advisors about investment decisions within your plans.

GENERAL

The Fund continuously offers its shares through securities dealers who have an
agreement with Distributors. The Fund and Distributors may refuse any order for
the purchase of shares.

Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.

OTHER PAYMENTS TO SECURITIES DEALERS. Distributors will pay the following
commissions, out of its own resources, to securities dealers who initiate and
are responsible for purchases of $1 million or more: 1% 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. These breakpoints are reset every 12 months for purposes of
additional purchases.

Distributors or one of its affiliates may also pay up to 1% of the purchase
price to securities dealers who initiate and are responsible for purchases made
at net asset value by any of the entities described in paragraphs (ix), (xi) or
(xii) under "Purchases at Net Asset Value" above. These payments may not be made
to securities dealers or others in connection with the sale of Fund shares if
the payments might be used to offset administration or recordkeeping costs for
retirement plans or circumstances suggest that plan sponsors or administrators
might use or otherwise allow the use of Rule 12b-1 fees to offset such costs.
Please see "How Do I Buy and Sell Shares?" in the SAI for the breakpoints
applicable to these purchases.

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

For additional information about shares of the Fund, please see "How Do I Buy
and Sell Shares?" in the SAI. The SAI also includes a listing of the officers
and trustees of the Trust who are affiliated with Distributors. See "Officers
and Trustees."

WHAT PROGRAMS AND PRIVILEGES
ARE AVAILABLE TO ME AS A SHAREHOLDER?

CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION MAY NOT BE
AVAILABLE DIRECTLY FROM THE FUND IF YOUR 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 "REGISTERING YOUR
ACCOUNT" IN THIS PROSPECTUS).

SHARE CERTIFICATES

Shares from 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 you, can be 2% or more of the value of the lost,
stolen or destroyed certificate. A certificate will be issued if requested by
you or your securities dealer.

CONFIRMATIONS

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

AUTOMATIC INVESTMENT PLAN

The Automatic Investment Plan offers a convenient way to invest in the Fund.
Under the plan, you can arrange to have money transferred automatically from
your checking account to the Fund each month to buy additional shares. If you
are interested in this program, please refer to the Automatic Investment Plan
Application at the back of this Prospectus for the requirements of the program
or contact your investment representative. Of course, the market value of the
Fund's shares may fluctuate and a systematic investment plan such as this will
not assure a profit or protect against a loss. You may terminate the program at
any time by notifying Investor Services by mail or by phone.

SYSTEMATIC WITHDRAWAL PLAN

The Systematic Withdrawal Plan allows you to receive regular payments from your
account on a monthly, quarterly, semiannual or annual basis. To establish a
Systematic Withdrawal Plan, the value of your account must be at least $5,000
and the minimum payment amount for each withdrawal must be at least $50. Please
keep in mind that $50 is merely the minimum amount and is not a recommended
amount. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply.

If you would like to establish a Systematic Withdrawal Plan, please complete the
Systematic Withdrawal Plan section of the Shareholder Application included with
this Prospectus and indicate how you would like to receive your payments. You
may choose to receive your payments in any of the following ways:

1. PURCHASE SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
payments to purchase the same class of shares of another Franklin Templeton
Fund.

2. RECEIVE PAYMENTS IN CASH - You may choose to receive your payments in cash.
You may have the money sent directly to you, to another person, or to a checking
account. If you choose to have the money sent to a checking account, please see
"Electronic Fund Transfers" below.

There are no service charges for establishing or maintaining a Systematic
Withdrawal Plan. Once your plan is established, any distributions paid by the
Fund will be automatically reinvested in your account. Payments under the plan
will be made from the redemption of an equivalent amount of shares in your
account, generally on the first business day of the month in which a payment is
scheduled. You will generally receive your payments within three to five days
after the shares are redeemed.

Redeeming shares through a Systematic Withdrawal Plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Redemptions under a
Systematic Withdrawal Plan are considered a sale for federal income tax
purposes. Because the amount withdrawn under the plan may be more than your
actual yield or income, part of the payment may be a return of your investment.

While a Systematic Withdrawal Plan is in effect, shares must be held either in
plan balance or, where share certificates are outstanding, deposited with the
Fund. You should ordinarily not make additional investments in the Fund of less
than $5,000 or three times the amount of annual withdrawals under the plan
because of the sales charge on additional purchases. Shares redeemed under the
plan may also be subject to a contingent deferred sales charge. Please see
"Contingent Deferred Sales Charge" under "How Do I Sell Shares?"

You may terminate a Systematic Withdrawal Plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying Investor Services in
writing at least seven business days prior to the end of the month preceding a
scheduled payment. The Fund may also terminate a Systematic Withdrawal Plan by
notifying you in writing and will automatically terminate a Systematic
Withdrawal Plan if all shares in your account are withdrawn or if the Fund
receives notification of the shareholder's death or incapacity.

ELECTRONIC FUND TRANSFERS

You may choose to have distributions from the Fund or payments under a
Systematic Withdrawal Plan sent directly to a checking account. If the checking
account is maintained at a bank that is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds transfer. If
you choose this option, please allow at least fifteen days for initial
processing. Any payments made during that time will be sent to the address of
record on your account.

INSTITUTIONAL ACCOUNTS

There may be additional methods of buying, selling 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.

WHAT IF MY INVESTMENT OUTLOOK CHANGES? - 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 funds are
offered to the public with a sales charge. If your investment objective or
outlook for the securities markets changes, Fund shares may be exchanged for the
same class of shares of another Franklin Templeton Fund eligible for sale in
your state of residence and in conformity with that fund's stated eligibility
requirements and investment minimums.

No exchanges between different classes of shares will be allowed. You may choose
to sell your shares of the Fund and buy Class II shares of another Franklin
Templeton Fund but such purchase will be subject to that fund's Class II
front-end and contingent deferred sales charges. Although there are no exchanges
between different classes of shares, Class II shareholders of a Franklin
Templeton Fund may elect to direct their dividends and capital gain
distributions to the Fund at net asset value.

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 the
contingency period, a contingent deferred sales charge will be imposed.

Before making an exchange, you should review the prospectus of the fund you wish
to exchange from and the fund you wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
limitations on a fund's sale of its shares, minimum holding periods for
exchanges at net asset value, or applicable sales charges.

You may exchange shares in any of the following ways:

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.

BY TELEPHONE

You or your investment representative of record, if any, may exchange shares of
the Fund by calling Investor Services at 1-800/632-2301 or the automated
TeleFACTS(R) system (day or night) at 1-800/247-1753. IF YOU DO NOT WISH THIS
PRIVILEGE EXTENDED TO A PARTICULAR ACCOUNT, YOU SHOULD NOTIFY THE FUND OR
INVESTOR SERVICES.

The telephone exchange privilege allows you to effect exchanges from the Fund
into an identically registered account of the same class of shares in one of the
other available Franklin Templeton Funds. The telephone exchange privilege is
available only for uncertificated shares or those which have previously been
deposited in your account. The Fund and Investor Services will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Please see "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, you should follow the other exchange
procedures discussed in this section, including the procedures for processing
exchanges through securities dealers.

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 "By Telephone" above.
Such a dealer-ordered exchange will be effective only for uncertificated shares
on deposit in your 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 are made on the basis of the net asset value 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 original
investment in the Franklin Templeton Funds was made pursuant to the privilege
permitting purchases at net asset value, as discussed under "How Do I Buy
Shares?" Exchanges of 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, unless the shares were held in the Fund for at least six months
prior to executing the exchange.

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 your account has
shares subject to a contingent deferred sales charge, shares will be exchanged
into the new account on a "first-in, first-out" basis. See "How Do I Sell
Shares? - Contingent Deferred Sales Charge" for a discussion of investments
subject to a contingent deferred sales charge.

If you request the exchange of the total value of your 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, you 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 under "Additional Information Regarding Taxation" 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 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 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 exchange
shares directly. Certain restrictions may apply, however, to other types of
retirement plans. See "Restricted Accounts" under "Telephone Transactions."

MARKET TIMERS

Market Timers will be charged a $5.00 administrative service fee for each
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
Market Timers.

The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Market Timer, group or
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, (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 by Market Timers, 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 Market Timer, person, or group if, in the Manager's judgment, the
Fund would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
The purchase side of an exchange 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, as indicated in "How Do I Buy Shares?" reserve the
right to refuse any order for the purchase of shares.

HOW DO I SELL SHARES?

You may sell (redeem) your shares at any time and receive from the Fund the
value of the shares. You may sell shares in any of the following ways:

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. You will then receive from the Fund the
value of the 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 will receive
the price calculated on the following business day. The net asset value per
share 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. You are
requested to provide a telephone number where you may be reached during business
hours, or in the evening if preferred. Investor Services' ability to contact you
promptly when necessary will speed the processing of the redemption.

TO BE CONSIDERED IN PROPER FORM, SIGNATURES 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 owners 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;

(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.

Signatures 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
that are members of a national securities exchange or a clearing agency or that
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.

When 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 owners exactly as the account is
registered, with the signatures guaranteed as referenced above. You are advised,
for your 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
officers 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 trustees and (2)
a copy of the pertinent pages of the trust document listing the trustees or a
Certification for Trust if the trustees 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 applicable state
law since these accounts have varying requirements, depending upon the state of
residence.

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

BY TELEPHONE

If you complete the Franklin Templeton Telephone Redemption Authorization
Agreement (the "Agreement"), included with this Prospectus, you may redeem
shares of the Fund by telephone, subject to the Restricted Account exception
noted under "Telephone Transactions - Restricted Accounts". You may obtain
additional information about telephone redemptions 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. You, however, bear
the risk of loss in certain cases as described under "Telephone Transactions -
Verification Procedures."

If your account has a 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, you should follow the other
redemption procedures set forth in this Prospectus. Institutional accounts
(certain corporations, bank trust departments, qualified retirement plans and
government entities that qualify to purchase shares at net asset value pursuant
to the terms of this Prospectus) that 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
calling 1-800/321-8563.

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 you redeem
shares through a dealer, the redemption price will be the net asset value next
calculated after your dealer receives the order which is promptly transmitted to
the Fund, rather than on the day the Fund receives your written request in
proper form. The documents described under "By Mail" above, as well as a signed
letter of instruction, are required regardless of whether you redeem shares
directly or submit such shares to a securities dealer for repurchase. Your
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 your 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 your best interest to have the required
documentation completed and forwarded to the Fund as soon as possible. Your
dealer may charge a fee for handling the order. See "How Do I Buy and Sell
Shares?" in the SAI for more information on the redemption of shares.

CONTINGENT DEFERRED SALES CHARGE

In order to recover commissions paid to securities dealers, all or a portion of
investments of $1 million or more redeemed within the contingency period of 12
months of the calendar month of such investment 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 whether 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 on 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.
Shares subject to a contingent deferred sales charge will then be redeemed 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, as applicable, for: specified
net asset value purchases discussed under "How Do I Buy Shares? - Purchases at
Net Asset Value"; exchanges; any account fees; distributions from an individual
retirement plan account due to death or disability or upon periodic
distributions based on life expectancy; tax-free returns of excess contributions
from employee benefit plans; distributions from employee benefit plans,
including those due to termination or plan transfer; redemptions initiated by
the Fund due to an account falling below the minimum specified account size;
redemptions following the death of the shareholder or beneficial owner; and
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). 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% 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.

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

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.

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 you invested, depending on
fluctuations in the market value of securities owned by the Fund.

RETIREMENT PLAN ACCOUNTS

Retirement plan account liquidations require the completion of certain
additional forms to ensure compliance with IRS regulations. To liquidate a
retirement plan account, you or your 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 INFORMATION

Distribution or redemption checks sent to you 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 caused by your failure to cash such
checks.

"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.

For any information required about a proposed liquidation, you may call
Franklin's Shareholder Services Department. Securities dealers may call
Franklin's Dealer Services Department.

TELEPHONE TRANSACTIONS

By calling Investor Services at 1-800/632-2301, you or your investment
representative of record, if any, may be able to execute various telephone
transactions, including 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,
if you complete and file an Agreement as described under "How Do I Sell Shares?
- - By Telephone" you 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 you 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. You are,
of course, under no obligation to apply for or accept telephone transaction
privileges. In any instance where the Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither the Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.

RESTRICTED ACCOUNTS

Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any redemption, distribution or
dividend payment changes. 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.

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.

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 these situations, you may wish to contact your investment
representative for assistance or 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 your inability to execute a telephone transaction.

HOW ARE FUND SHARES VALUED?

The net asset value per share 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).

The net asset value per share of the Fund is determined by deducting the
aggregate gross value of all liabilities from the aggregate gross value of all
assets, and then dividing the difference by the number of shares outstanding.
Assets in the Fund's portfolio are valued as described under "How Are Fund
Shares Valued?" in the SAI.

HOW DO I GET MORE INFORMATION ABOUT MY INVESTMENT?

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

From a touch-tone phone, you may access TeleFACTS(R). By calling the TeleFACTS
system (day or night) at 1-800/247-1753, you may obtain account information,
current price and, if available, yield or other performance information specific
to the Fund or any Franklin Templeton Fund. In addition, you may process an
exchange, within the same class, into an identically registered Franklin account
and request duplicate confirmation or year-end statements and deposit slips.

The Fund code, which will be needed to access system information, is 196. The
system's automated operator will prompt you with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.

To assist you and securities dealers wishing to speak directly with a
representative, the following list of Franklin departments, telephone numbers
and hours of operation is provided.

HOURS OF OPERATION
(PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m.
(Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

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

HOW DOES THE FUND MEASURE PERFORMANCE?

Advertisements, sales literature and communications to you may contain several
measures of the Fund's performance, including current yield, various expressions
of total return and current distribution rate. They may also occasionally cite
statistics to reflect the Fund's 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 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.

Current yield for the Fund, which is calculated according to a formula
prescribed by the SEC (see "General Information" in 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 the Fund are
reflected in the current distribution rate which may be quoted to you. 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 performance may be in any future period.

GENERAL INFORMATION

REPORTS TO SHAREHOLDERS

The Fund's fiscal year ends April 30, 1995. Annual Reports containing audited
financial statements of the Fund, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. To reduce the volume of mail sent to each household, as
well as to reduce Fund expenses, Investor Services will attempt to identify
related shareholders within a household and send only one copy of the report.
Additional copies may be obtained, without charge, upon request to the Fund at
the telephone number or address set forth on the cover page of this Prospectus.

Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and under "General Information" in the SAI.

NAME CHANGE

The Fund changed its name from FISCO Midcap Growth Fund effective September 1,
1994 and from Franklin Institutional MidCap Growth Fund effective April [] 1996.

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 or classes. Each series 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.

The Trust does not intend to hold annual shareholder meetings. The Trust may,
however, hold a special shareholders' meeting of a series 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 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.

CONVERSION TO MASTER/FEEDER STRUCTURE

The Board reserves the right to convert the Fund to a master/feeder structure at
a future date. Currently, the Fund invests directly in a portfolio of
securities. Certain funds administered by the Manager participate as feeder
funds in master/feeder fund structures. Under a master/feeder structure, one or
more feeder funds, such as the Fund, invests its assets in a master fund which,
in turn, invests its assets directly in the securities. 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, you will be deemed to have consented to such conversion by your
purchase of Fund shares and no further shareholder approval will be sought or
needed. You 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 you or the Fund. The
investment objective 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.

REDEMPTIONS BY THE FUND

The Fund reserves the right to redeem your shares, at net asset value, if your
account has a value of less than $50 but only where the value of your account
has been reduced by the prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided you are given advance notice. For more information, see
"How Do I Buy and Sell Shares?" in the SAI.

REGISTERING YOUR ACCOUNT

An account registration should reflect your 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, you may transfer an account in the Fund carried in "street"
or "nominee" name by your 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 your
delivering securities dealer. To effect the transfer, you should instruct the
securities dealer to transfer the account to a receiving securities dealer and
sign any documents required by the securities dealers 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 your delivering securities dealer. Account transfers may be
effected electronically through the services of the NSCC.

The Fund may conclusively accept instructions from you or your nominee listed in
publicly available nominee lists, regardless of whether the account was
initially registered in the name of or by you, your nominee, or both. If a
securities dealer or other representative is of record on your account, you 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 Investor Services, 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. You may also
be subject to backup withholding if the IRS or a securities dealer notifies the
Fund that the number furnished by you is incorrect or that you are 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 you 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.

USEFUL TERMS AND DEFINITIONS

1940 ACT - Investment Company Act of 1940, as amended.

ADVISERS - Franklin Advisers, Inc., the Fund's investment manager.

BOARD - The Board of Trustees of the Trust.

CLASS I AND CLASS II - "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 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.

CODE - Internal Revenue Code of 1986, as amended.

DESIGNATED RETIREMENT PLANS - certain retirement plans, including
profit-sharing, pension, 401(k) and simplified employee pension plans, that: (i)
are sponsored by an employer with at least 200 employees; (ii) have aggregate
plan assets of at least $1 million; or (iii) agree to invest at least $1 million
in any of the Franklin Templeton Funds over a 13 month period. Distributors
determines the qualifications for Designated Retirement Plans.

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter.

EXCHANGE - New York Stock Exchange.

FRANKLIN FUNDS - the mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust.

FRANKLIN TEMPLETON FUNDS - the Franklin Funds and the Templeton Funds.

FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries.

INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc.

LETTER - Letter of Intent.

MANAGER - Franklin Advisers, Inc., the Fund's investment manager.

MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.

NET ASSET VALUE (NAV) - the value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding. When you buy, sell or exchange shares, we will use
the NAV per share next calculated after we receive your request in proper form.

NON-DESIGNATED RETIREMENT PLANS - employee benefit plans not included as
"Designated Retirement Plans" and not qualified under Section 401 of the Code.

OFFERING PRICE - The public offering price is equal to the net asset value per
share plus the 4.5% sales charge.

PROPER FORM (PURCHASES) - generally, the Fund must receive a completed
Shareholder Application accompanied by a negotiable check.

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information.

SEC - Securities and Exchange Commission.

SECURITIES DEALER - financial institutions which, either directly or through
affiliates, have an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.

TELEFACTS(R) - Franklin Templeton's automated customer servicing system.

TEMPLETON FUNDS - 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.

TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an
affiliate of Distributors and both are wholly-owned subsidiaries of Resources.

U.S. - United States.

FRANKLIN MIDCAP GROWTH FUND
FRANKLIN STRATEGIC SERIES
STATEMENT OF ADDITIONAL INFORMATION
JUNE 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-77771-800/DIAL BEN

CONTENTS PAGE

How Does the Fund Invest Its Assets?

What Are the Fund's Potential Risks?

Investment Restrictions

Officers and Trustees

Investment Advisory and Other Services

How Does the Fund Purchase Securities
For Its Portfolio?

How Do I Buy and Sell Shares?

How Are Fund Shares Valued?

Additional Information Regarding Taxation

The Fund's Underwriter

General Information

Financial Statements

Appendix

The Franklin MidCap Growth Fund (the "Fund") is a diversified, open-end
management investment company. investment objective of the Fund is long-term
capital growth. It seeks to accomplish its objective by investing primarily
in equity securities of medium capitalization companies whose market
capitalization falls within the capitalization range of the S&P MidCap 400
Index*.

A Prospectus for the Fund, dated June 1, 1996, as may be amended from time to
time, provides the basic information you should know before investing in the
Fund and may be obtained without charge from the Fund or the Fund's principal
underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"), at the
address or telephone number shown above.

THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU WITH ADDITIONAL INFORMATION
REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE READ IN
CONJUNCTION WITH THE FUND'S PROSPECTUS.

*Standard and Poor's MidCap 400 Index" and "S&P MidCap 400 Index" are
trademarks of Standard and Poor's Corporation ("S&P"). The Fund is not
sponsored, endorsed, sold or promoted by S&P.

HOW DOES THE FUND INVEST ITS ASSETS?

Call and Put Options on Securities. The Fund intends to write covered put and
call options and purchase put and call options which trade on securities
exchanges and in the over-the-counter market.

Writing Call and Put Options. Call options written by the Fund give the
holder the right to buy the underlying securities from the Fund at a stated
exercise price; put options written by the Fund give the holder the right to
sell the underlying security to the Fund at a stated exercise price. A call
option written by the Fund is "covered" if the Fund 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 Fund 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 Fund in cash and high grade debt securities
in a segregated account with its custodian. A put option written by the Fund
is "covered" if the Fund 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 premium paid by the
purchaser of an option will reflect, among other things, the relationship of
the exercise price to the market price and volatility of the underlying
security, the remaining term of the option, supply and demand and interest
rates.

The writer of an option may have no control over when the underlying
securities must be sold, in the case of a call option, or purchased, in the
case of a put option, since with regard to certain options, the writer may be
assigned an exercise notice at any time prior to the termination of the
obligation. Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course, may, in the case of a
covered call option, be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised,
the writer experiences a profit or loss from the sale of the underlying
security. If a put option is exercised, the writer must fulfill the
obligation to purchase the underlying security at the exercise price, which
will usually exceed the then-market value of the underlying security.

The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction". This is accomplished by buying an option of
the same series as the option previously written. The effect of the purchase
is that the writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction after being
notified of the exercise of an option. Likewise, an investor who is the
holder of an option may liquidate its position by effecting a "closing sale
transaction". This is accomplished by selling an option of the same series as
the option previously purchased. There is no guarantee that either a closing
purchase or a closing sale transaction can be effected.

Effecting a closing transaction in the case of a written call option will
permit the Fund to write another call option on the underlying security with
either a different exercise price or expiration date or both, or in the case
of a written put option will permit the Fund to write another put option to
the extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other Fund investments. If the Fund desires to sell a
particular security from its portfolio on which it has written a call option,
it will effect a closing transaction prior to or concurrent with the sale of
the security.

The Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Fund will realize a
loss from a closing transaction if the price of the transaction is more than
the premium received from writing the option or is less than the premium paid
to purchase the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation of the underlying security
owned by the Fund.

The writing of covered put options involves certain risk. For example, if the
market price of the underlying security rises or otherwise is above the
exercise price, the put option will expire worthless and the Fund's gain will
be limited to the premium received. If the market price of the underlying
security declines or otherwise is below the exercise price, the Fund may
elect to close the position or take delivery of the security at the exercise
price and the Fund's return will be the premium received from the put options
minus the amount by which the market price of the security is below the
exercise price.

Purchasing Call and Put Options. The Fund may purchase call options on
securities which it intends to purchase in order to limit the risk of a
substantial increase in the market price of such security. The Fund may also
purchase call options on securities held in its portfolio and on which it has
written call options. A call option gives the option holder the right to buy
the underlying securities from the option writer at a stated exercise price.
Prior to its expiration, a call option may be sold in a closing sale
transaction. Profit or loss from such a sale will depend on whether the
amount received is more or less than the premium paid for the call option
plus the related transaction costs.

The Fund intends to purchase put options on particular securities in order to
protect against a decline in the market value of the underlying security
below the exercise price less the premium paid for the option. A put option
gives the option holder the right to sell the underlying security at the
option exercise price at any time during the option period. The ability to
purchase put options will allow the Fund to protect the unrealized gain in an
appreciated security in its portfolio without actually selling the security.
In addition, the Fund will continue to receive interest or dividend income on
the security. The Fund may sell a put option which it has previously
purchased prior to the sale of the securities underlying such option. Such
sales will result in a net gain or loss depending on whether the amount
received on the sale is more or less than the premium and other transaction
costs paid for the put option that is sold. Such gain or loss may be wholly
or partially offset by a change in the value of the underlying security which
the Fund owns or has the right to acquire.

Over-the-Counter Options ("OTC" options). The Fund intends to write covered
put and call options and purchase put and call options which trade in the
over-the-counter market to the same extent that it will engage in exchange
traded options. Just as with exchange traded options, OTC call options give
the option holder the right to buy an underlying security from an option
writer at a stated exercise price; OTC put options give the holder the right
to sell an underlying security to an option writer at a stated exercise
price. However, OTC options differ from exchange traded options in certain
material respects.

OTC options are arranged directly with dealers and not, as is the case with
exchange traded options, with a clearing corporation. Thus, there is a risk
of non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information from market makers. However, OTC
options are available for a greater variety of securities and in a wider
range of expiration dates and exercise prices, than exchange traded options;
and the writer of an OTC option is paid the premium in advance by the dealer.

There can be no assurance that a continuous liquid secondary market will
exist for any particular option at any specific time. Consequently, 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. Similarly, when the Fund writes an OTC option, it generally
can close out that option prior to its expiration only by entering into a
closing purchase transaction with the dealer to which the Fund originally
wrote it.

Options on Stock Indices. The Fund may also purchase call options on stock
indices in order to hedge against the risk of market or industry-wide stock
price fluctuations. Call and put options on stock indices are similar to
options on securities except that, rather than the right to purchase or sell
stock at a specified price, options on a stock index give the holder the
right to receive, upon exercise of the option, an amount of cash if the
closing level of the underlying stock index is greater than (or less than, in
the case of puts) the exercise price of the option. This amount of cash is
equal to the difference between the closing price of the index and the
exercise price of the option expressed in dollars multiplied by a specified
number. Thus, unlike stock options, all settlements are in cash, and gain or
loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.

When the Fund writes an option on a stock index, the Fund will establish a
segregated account containing cash or high quality fixed-income securities
with its custodian in an amount at least equal to the market value of the
underlying stock index and will maintain the account while the option is open
or it will otherwise cover the transaction.

Futures Contracts. The Fund may enter into contracts for the purchase or sale
of futures contracts based upon financial indices ("financial futures").
Financial futures contracts are commodity contracts that obligate the long or
short holder to take or make delivery of a specified quantity of a financial
instrument, such as a security, or, as in the case of the Fund, the cash
value of a securities index during a specified future period at a specified
price. A "sale" of a futures contract means the acquisition of a contractual
obligation to deliver such cash value called for by the contract on a
specified date. A "purchase" of a futures contract means the acquisition of a
contractual obligation to take delivery of the cash value called for by the
contract at a specified date. Futures contracts have been designed by
exchanges which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC") and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the relevant
contract market.

At the same time a futures contract is purchased or sold, the Fund must
allocate cash or securities as a deposit payment ("initial deposit"). Daily
thereafter, the futures contract is valued and the payment of "variation
margin" may be required since each day the Fund would provide or receive cash
that reflects any decline or increase in the contract's value.

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, or the cash value of the index, in most cases the
contractual obligation is fulfilled before the date of the contract without
having to make or take delivery of the securities or cash. The offsetting of
a contractual obligation is accomplished by buying (or selling, as the case
may be) on a commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is effected through a
member of an exchange, cancels the obligation to make or take delivery of the
securities or cash. Since all transactions in the futures market are made,
offset or fulfilled through a clearinghouse associated with the exchange on
which the contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.

The Fund will not engage in transactions in futures contracts or related
options 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. The Fund will not enter into any stock index or financial futures
contract or related option if, immediately thereafter, more than one-third of
the Fund's net assets would be represented by futures contracts or related
options. In addition, the Fund may not purchase or sell futures contracts or
purchase or sell related options if, immediately thereafter, the sum of the
amount of margin deposits on its existing futures and related options
positions and premiums paid for related options would exceed 5% of the market
value of the Fund's total assets. In instances involving the purchase of
futures contracts or related call options, money market instruments equal to
the market value of the futures contract or related option will be deposited
in a segregated account with the custodian to collateralize such long
positions.

The purpose of the acquisition or sale of a futures contract is to attempt to
protect the Fund from fluctuations in price of portfolio securities without
actually buying or selling the underlying security.

To the extent the Fund enters into a futures contract, it will maintain with
its custodian, to the extent required by the Securities and Exchange
Commission ("SEC"), assets in a segregated account to cover its obligations
with respect to such contract which will consist of cash, cash equivalents or
high quality debt securities from its portfolio in an amount equal to the
difference between the fluctuating market value of such futures contract and
the aggregate value of the initial and variation margin payments made by the
Fund with respect to such futures contracts.

Stock Index Futures and Options on Stock Index Futures. The Fund may purchase
and sell stock index futures contracts and options on stock index futures
contracts.

Stock Index Futures. A stock index futures contract obligates the seller to
deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times the difference between the value of a specific stock
index at the close of the last trading day of the contract and the price at
which the agreement is made. No physical delivery of the underlying stocks in
the index is made.

The Fund may sell stock index futures contracts in anticipation of or during
a market decline to attempt to offset the decrease in market value of its
equity securities that might otherwise result. When the Fund is not fully
invested in stocks and anticipates a significant market advance, it may
purchase stock index futures in order to gain rapid market exposure that may
in part or entirely offset increases in the cost of common stocks that it
intends to purchase.

OPTIONS ON STOCK INDEX FUTURES. The Fund may purchase and sell call and put
options on stock index futures to hedge against risks of marketside price
movements. The need to hedge against such risks will depend on the extent of
diversification of the Fund's common stock portfolio and the sensitivity of
such investments to factors influencing the stock market as a whole.

Call and put options on stock index futures are similar to options on
securities except that, rather than the right to purchase or sell stock at a
specified price, options on a stock index futures give the holder the right
to receive cash. Upon exercise of the option, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on the futures
contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the
closing price of the futures contract on the expiration date.

Future Developments. The Fund may take advantage of opportunities in the area
of options and futures contracts and options on futures contracts and any
other derivative investments which are not presently contemplated for use by
the Fund or which are not currently available but which may be developed, to
the extent such opportunities are both consistent with the Fund's investment
objective and legally permissible for the Fund. Prior to investing in any
such investment vehicle, the Fund will supplement its prospectus, if
appropriate.

Short-term Investments. As stated in the Prospectus, the Fund may invest cash
temporarily in short-term debt instruments. The Fund may also invest its
short-term cash in shares of the Franklin Money Fund, a money fund managed by
the Fund's investment manager, Franklin Advisers, Inc., ("Advisers" or
"Manager.") Such temporary investments will only be made with cash held to
maintain liquidity or pending investment.

Securities Industry Related Investments. To the extent it is consistent with
its investment objective and certain limitations under the Investment Company
Act of 1940 ("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 to be part of the financial services
industry. Generally, under 12(d)(3) of the 1940 Act and Rule 12d3-1
thereunder, the Fund may not acquire a security or any interest in a
securities related business, to the extent such acquisition would result in
the Fund acquiring in excess of 5% of a class of an issuer's outstanding
equity securities or 10% of the outstanding principal amount of an issuer's
debt securities, or investing more than 5% of the value of the Fund's total
assets in securities of the issuer. In addition, any equity security of a
securities related business must be a marginable security under Federal
Reserve Board regulations and any debt security of a securities related
business must be investment grade as determined by the Board. The Fund does
not believe that these limitations will impede the attainment of its
investment objective.

OTHER INVESTMENT POLICIES OF THE FUND

Loans of Portfolio Securities. Consistent with procedures approved by the
Trust's Board of Trustees ("Board") 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 bank 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%. This 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 may engage 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.

Any voting rights the securities may have may pass to the borrower during the
term of the loan. Loans are typically subject to termination by the Fund in
the normal settlement time, currently five business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when
the loan is terminated. Where matters are submitted to the vote of the
security holders of a portfolio company and such matters would materially
affect the Fund, the Fund will either terminate the loan or it will have
provided other means to permit it to vote such securities.

Illiquid Securities. The Fund will not invest more than 10% of its net assets
in illiquid securities. Generally an "illiquid security" is any security that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the instrument.
Notwithstanding this limitation, the Board has authorized the Fund to invest
in certain restricted securities which are considered to be liquid to the
extent the Manager determines that there is a liquid institutional or other
market for such securities for example, restricted securities which may be
freely transferred among qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended, and for which a liquid
institutional market has developed, where such investment is consistent with
the Fund's investment objective. The Board will review any determination by
the Manager to treat a restricted security as a liquid security on an ongoing
basis, including the Manager's assessment of current trading activity and the
availability of reliable price information. In determining whether a
restricted security is properly considered a liquid security, the Manager and
the Board will take into account the following factors: (i) the frequency of
trades and quotes for the security; (ii) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers,
(iii) dealer undertakings to make a market in the security; and (iv) the
nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer). To the extent 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.

WHAT ARE THE FUND'S POTENTIAL RISKS?

OPTIONS, FUTURES AND OPTIONS ON FUTURES

The Fund's ability to hedge effectively all or a portion of its securities
through transactions in options on stock indices, stock index futures,
financial futures and related options depends on the degree to which price
movements in the underlying index or underlying securities correlate with
price movements in the relevant portion of the Fund's securities. Inasmuch as
such securities will not duplicate the components of any index or such
underlying securities, the correlation will not be perfect. Consequently, the
Fund bears the risk that the prices of the securities being hedged will not
move in the same amount as the hedging instrument. It is also possible that
there may be a negative correlation between the index or other securities
underlying the hedging instrument and the hedged securities which would
result in a loss on both such securities and the hedging instrument.
Accordingly, successful use by the Fund of options on stock indexes, stock
index futures, financial futures and related options will be subject to the
Manager's ability to predict correctly movements in the direction of the
securities markets generally or of a particular segment. This requires
different skills and techniques than predicting changes in the price of
individual stocks.

Positions in stock index options, stock index futures and related options may
be closed out only on an exchange which provides a secondary market. There
can be no assurance that a liquid secondary market will exist for any
particular stock index option or futures contract or related option at any
specific time. Thus, it may not be possible to close such an option or
futures position. The inability to close options or futures positions also
could have an adverse impact on the Fund's ability to effectively hedge its
securities. The Fund will enter into an option or futures position only if
there appears to be a liquid secondary market for such options or futures.

There can be no assurance that a continuous liquid secondary market will
exist for any particular OTC option at any specific time. Consequently, 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. Similarly, when the Fund writes an OTC option, it generally
can close out that option prior to its expiration only by entering into a
closing purchase transaction with the dealer to which the Fund originally
wrote it. If a covered call option writer cannot effect a closing
transaction, it cannot sell the underlying security until the option expires
or the option is exercised. Therefore, a covered call option writer of an OTC
option may not be able to sell an underlying security even though it might
otherwise be advantageous to do so. Likewise, a secured put writer of an OTC
option may be unable to sell the securities pledged to secure the put for
other investment purposes while it is obligated as a put writer. Similarly, a
purchaser of such put or call option might also find it difficult to
terminate its position on a timely basis in the absence of a secondary
market.

The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position
which any person may hold or control in a particular futures contract.
Trading limits are imposed on the maximum number contracts which any person
may trade on a particular trading day. An exchange may order the liquidation
of positions found to be in violation of these limits and it may impose other
sanctions or restrictions. The Fund does not believe that these trading and
positions limits will have an adverse impact on the Fund's strategies for
hedging its securities.

The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility
of distortion, a correct forecast of general interest rate trends by the
investment adviser may still not result in a successful transaction.

In addition, futures contracts entail risks. Although the Fund believes that
use of such contracts will be beneficial, if the investment adviser's
judgment about the general direction of interest rates is incorrect, the
Fund's overall performance would be poorer than if it had not entered into
any such contract. For example, if the Fund has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of bonds held in its portfolio and interest rates decrease instead, the
Fund will lose part or all of the benefit of the increased value of its bonds
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily
variation margin requirements. Such sales may be, but will not necessarily
be, at increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so.

The Fund's sale of futures contracts and purchase of put options on futures
contracts will be solely to protect its investments against declines in value
and, to the extent consistent therewith, to accommodate cash flows. The Fund
expects that in the normal course it will purchase securities upon
termination of long futures contracts and long call options on future
contracts, but under unusual market conditions it may terminate any of such
positions without a corresponding purchase of securities.

INVESTMENT RESTRICTIONS

The Fund has adopted the following restrictions as fundamental policies,
which means that they may not be changed without the approval of a majority
of the outstanding voting securities of the Fund. Under the 1940 Act a "vote
of a majority of the outstanding voting securities" of the Fund means the
affirmative vote of the lesser of (i) more than 50% of the outstanding shares
of the Fund or (ii) 67% or more of the shares of the Fund present at a
shareholder meeting if more than 50% of the outstanding shares of the Fund
are represented at the meeting in person or by proxy. The Fund MAY NOT:

1. Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefor) for temporary or emergency
purposes may be made from banks in any amount up to 10% of the total asset
value (including the amount borrowed) based on the lesser of cost or market,
less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the Fund's total assets, the
Fund will not make any additional investments.

2. Make loans, except (a) through the purchase of debt securities in
accordance with the investment objectives and policies of the Fund, (b) to
the extent the entry into a repurchase agreement is deemed to be a loan, or
(c) by the loan of its portfolio securities in accordance with the policies
described above.

3. Invest in any issuer for purposes of exercising control or management,
except that, to the extent this restriction is applicable, all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
policies as the Fund.

4. Buy any securities "on margin" or sell any securities "short", except
that it may use such short-term credits as are necessary for the clearance of
transactions.

5. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization; provided that
all or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
policies as the Fund.

6. Invest more than 25% of its assets in securities of any industry,
although for purposes of this limitation, U.S. government obligations are not
considered to be part of any industry, except that, to the extent this
restriction is applicable, all or substantially all of the assets of the Fund
may be invested in another registered investment company having the same
investment objective and policies as the Fund.

7. Act as underwriter of securities issued by other persons except insofar
as the Fund may technically be deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities;
except that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same investment
objective and policies as the Fund.

8. Purchase securities from or sell to the Fund's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Fund, one or more of the
Fund's officers, trustees, investment adviser or sub-adviser own beneficially
more than 1/2 of 1% of the securities of such issuer and all such officers
and trustees together own beneficially more than 5% of such securities.

9. Acquire, lease or hold real estate, provided that this limitation shall
not prohibit the purchase of securities secured by real estate or interests
therein.

10. Invest in commodities and commodity contracts (except that the Fund may
engage in financial futures, including stock index futures, and options on
stock index futures) or interests in oil, gas, or other mineral exploration
or development programs, or invest in excess of 5% of its total assets in
options unrelated to the Fund's transactions in futures, including puts,
calls, straddles, spreads, or any combination thereof.

In addition to these fundamental policies, it is the present policy of the
Fund (which may be changed without the approval of shareholders) not to
invest in real estate limited partnerships (investments in marketable
securities issued by real estate investment trusts are not subject to this
restriction). The Fund's restriction against investment in interests in oil,
gas, or other mineral leases, exploration or development does not include
publicly traded equity securities.

It is the present policy of the Fund (which may be changed without the
approval of the shareholders) not to pledge, mortgage or hypothecate the
Fund's assets as security for loans, nor to engage in joint or joint and
several trading accounts in securities, except that it may participate in
joint repurchase arrangements, or combine orders to purchase or sell with
orders from other persons to obtain lower brokerage commissions. To the
extent permitted by exemptions granted under the 1940 Act, the Fund may
invest in shares of one or more money market funds managed by Franklin
Advisers, Inc. or its affiliates. The Fund may not invest in excess of 5% of
its total assets, valued at the lower of cost or market, in warrants, nor
more than 2% of its total assets in warrants not listed on either the New
York or American Stock Exchange. It is also the policy of the Fund that it
may, consistent with its objective, invest a portion of its assets, as
permitted by the 1940 Act and the rules adopted thereunder, in securities or
other obligations issued by companies engaged in securities related
businesses, including such companies that are securities brokers, dealers,
underwriters or investment advisers.

If a percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in value of portfolio securities or the amount of net assets will not
be considered a violation of any of the foregoing restrictions.

OFFICERS AND TRUSTEES

The Board has the responsibility for overall management of the Trust,
including general supervision and review of the Trust's investment
activities. The trustees, in turn, elect the officers of the Trust who are
responsible for administering the day-to-day operations of the Trust. The
affiliations of the officers and trustees and their principal occupations for
the past five years are listed below. Trustees who are deemed to be
"interested persons" of the Trust, as defined in the 1940 Act, are indicated
by an asterisk (*).

POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS

Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111

Trustee

President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of
the investment companies in the Franklin Group of Funds.

Harris J. Ashton (63)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045

Trustee

President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 56 of the investment companies in the
Franklin Templeton Group of Funds.

*Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Trustee

Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; officer and/or director, as the
case may be, of other subsidiaries of Franklin Resources, Inc.; and officer
and/or director or trustee of 61 of the investment companies in the Franklin
Templeton Group of Funds.

S. Joseph Fortunato (63)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945

Trustee

Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General
Host Corporation; director, trustee or managing general partner, as the case
may be, of 58 of the investment companies in the Franklin Templeton Group of
Funds.

David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105

Trustee

Private Investor; Assistant Secretary/Treasurer and Director, Berkeley
Science Corporation (a venture capital company); and director, trustee or
managing general partner, as the case may be, of 30 of the investment
companies in the Franklin Group of Funds.

*Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404

Chairman of the Board and Trustee

President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general
partner, as the case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 57 of the investment companies in the Franklin
Templeton Group of Funds.

*Rupert H. Johnson, Jr.(55)
777 Mariners Island Blvd.
San Mateo, CA 94404

President and Trustee

Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer
and/or director, trustee or managing general partner, as the case may be, of
most other subsidiaries of Franklin Resources, Inc. and of 61 of the
investment companies in the Franklin Templeton Group of Funds.

Frank W. T. LaHaye (67)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014

Trustee

General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee or managing
general partner, as the case may be, of 26 of the investment companies in the
Franklin Group of Funds.

Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817

Trustee

Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation
(industrial technology); and director, trustee or managing general partner,
as the case may be, of 53 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions:
Chairman, Hambrecht and Quist Group; Director, H & Q Healthcare Investors;
and President, National Association of Securities Dealers, Inc.

Kenneth V. Domingues (63)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President - Financial Reporting and Accounting Standards

Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case
may be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment
companies in the Franklin Group of Funds.

Martin L. Flanagan (35)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Chief Financial Officer

Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; officer of most other subsidiaries of Franklin Resources,
Inc.; and officer, director and/or trustee of 61 of the investment companies
in the Franklin Templeton Group of Funds.

Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President and Secretary

Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Distributors, Inc.; Vice President,
Franklin Advisers, Inc. and officer of 61 of the investment companies in the
Franklin Templeton Group of Funds.

Charles E. Johnson (39)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091

Vice President

Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case
may be, of 40 of the investment companies in the Franklin Templeton Group of
Funds.

Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404

Treasurer and Principal Accounting Officer

Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.

Edward V. McVey (58)
777 Mariners Island Blvd.
San Mateo, CA 94404

Vice President

Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 32 of the investment companies in the
Franklin Group of Funds.

The preceding table indicates those officers and trustees who are also
affiliated persons of Distributors and the investment manager. Effective
February 1, 1996, trustees not affiliated with the investment manager
("nonaffiliated trustees") are paid fees of $2,400 per year (or $300 for each
of its eight regularly scheduled Board meetings) plus $300 per each meeting
attended. As indicated above, certain of the Trust's nonaffiliated trustees
also serve as directors, trustees or managing general partners of other
investment companies in the Franklin Group of Funds(R) and the Templeton Group
of Funds (the "Franklin Templeton Group of Funds") from which they may
receive fees for their services. The following table indicates the total fees
paid to nonaffiliated trustees by the Trust and by other funds in the
Franklin Templeton Group of Funds.

TOTAL FEES RECEIVED NUMBER OF BOARDS IN
FROM THE FRANKLIN THE FRANKLIN
TEMPLETON GROUP OF TEMPLETON GROUP OF
NAME FUNDS* FUNDS ON WHICH EACH
SERVES**
Frank H. Abbott, III $162,420 31
Harris J. Ashton 327,925 56
S. Joseph Fortunato 344,745 58
David Garbellano 146,100 30
Frank W.T. LaHaye 143,200 26
Gordon S. Macklin 321,525 53

* For the calendar year ended December 31, 1995.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of approximately 162
U.S. based funds or series.

Effective February 1, 1996, nonaffiliated trustees are reimbursed for
expenses incurred in connection with attending board meetings, paid pro rata
by each fund in the Franklin Templeton Group of Funds for which they serve as
director, trustee or managing general partner. For the fiscal year ended
April 30, 1995 and the six-month period ended October 31, 1995, no officer or
trustee received any compensation directly from the Trust. Certain officers
or trustees who are shareholders of Franklin Resources, Inc. ("Resources")
may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.

The officers and trustees do not currently own any shares of the Fund. Many
of the trustees own shares in various of the other funds in the Franklin
Templeton Group of Funds. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers and the father and uncle, respectively, of Charles E. Johnson.

From time to time, the number of Fund shares held in the "street name"
accounts of various securities dealers for the benefit of their clients or in
centralized securities depositories may exceed 5% of the total shares
outstanding. Currently, Resources is the sole shareholder of the Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

Advisers serves as the Fund's investment manager. Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company whose shares are
listed on the New York Stock Exchange (the "Exchange"). Resources owns
several other subsidiaries that are involved in investment management and
shareholder services.

Pursuant to the management agreement, the Manager provides investment
research and portfolio management services, including the selection of
securities for the Fund to purchase, hold or sell and the selection of
brokers through whom the Fund's portfolio transactions are executed. The
Manager's activities are subject to the review and supervision of the Board
to whom the Manager renders periodic reports of the Fund's investment
activities. Under the terms of the management agreement, the Manager provides
office space and office furnishings, facilities and equipment required for
managing the business affairs of the Fund; maintains all internal
bookkeeping, clerical, secretarial and administrative personnel and services;
and provides certain telephone and other mechanical services. The Manager is
covered by fidelity insurance on its officers, directors and employees for
the protection of the Fund. Please see the Statement of Operations in the
financial statements included in the Trust's Annual Report to Shareholders
for the fiscal year ended April 30, 1995 and the Semi-Annual Report for the
six-months ended October 31, 1995.

The Manager also provides management services to numerous other investment
companies or funds pursuant to management agreements with each fund. The
Manager may give advice and take action with respect to any of the other
funds it manages, or for its own account, which may differ from action taken
by the Manager on behalf of the Fund. Similarly, with respect to the Fund,
the Manager is not obligated to recommend, purchase or sell, or to refrain
from recommending, purchasing or selling any security that the Manager and
access persons, as defined by the 1940 Act, may purchase or sell for its or
their own account or for the accounts of any other fund. Furthermore, the
Manager is not obligated to refrain from investing in securities held by the
Fund or other funds which it manages or administers. Of course, any
transactions for the accounts of the Manager and other access persons will be
made in compliance with the Fund's Code of Ethics.

Pursuant to the management agreement, the Fund 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 0.65% of the Fund's average daily net
assets.

The management agreement specifies that the management fee will be reduced to
the extent necessary to comply with the most stringent limits on the expenses
which may be borne by the Fund as prescribed by any state in which the Fund's
shares are offered for sale. The most stringent current limit requires the
Manager to reduce or eliminate its fee to the extent that aggregate operating
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) would otherwise exceed in
any fiscal year 2.5% of the first $30 million of average net assets of the
Fund, 2.0% of the next $70 million of average net assets of the Fund and 1.5%
of average net assets of the Fund in excess of $100 million. Expense
reductions have not been necessary based on state requirements.

The management agreement is in effect until December 31, 1997. Thereafter, it
may continue in effect for successive annual periods providing such
continuance is specifically approved at least annually by a vote of the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Trust's trustees
who are not parties to the management agreement or interested persons of any
such party (other than as trustees of the Trust), cast in person at a meeting
called for that purpose. The management agreement may be terminated without
penalty at any time by the Board or by a vote of the holders of a majority of
the Fund's outstanding voting securities, or by the Manager on 60 days'
written notice and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.

Franklin/Templeton Investor Services, Inc. ("Investor Services"), a
wholly-owned subsidiary of Resources, is the shareholder servicing agent for
the Fund and acts as the Fund's transfer agent and dividend-paying agent.
Investor Services is compensated on the basis of a fixed fee per account.

Bank of New York, Mutual Funds Division, 90 Washington Street, New York, New
York, 10286, acts as custodian of the securities and other assets of the
Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in
connection with the purchase of Fund shares. Citibank Delaware, One Penn's
Way, New Castle, Delaware 19720, acts as custodian in connection with
transfer services through bank automated clearing houses. The custodians do
not participate in decisions relating to the purchase and sale of portfolio
securities.

Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Fund's independent auditors. During the fiscal year ended April 30,
1995 their auditing services consisted of rendering an opinion on the
financial statements of the Trust included in the Trust's Annual Report to
Shareholders for the fiscal year ended April 30, 1995.

PRIOR SERVICES

Prior to January 2, 1996, Franklin Institutional Services Corporation
(FISCO), also a wholly owned subsidiary of Resources, serve as the Fund's
manager under a management agreement with the Fund which provided for payment
of management fees by the Fund of 0.65% annually of its average daily net
assets. FISCO employed its affiliate, Templeton Quantitative Advisors, Inc.
("TQA"), to implement some of the investment activities of the Fund. TQA's
fees were paid fully by FISCO. FISCO agreed in advance to waive all its
management fees. For the fiscal year ended April 30, 1994 and 1995, and the
six-month period ended October 31 1995, management fees, before any advance
waiver, totaled $22,209 and $33,417, and $20,539, respectively, of the
average daily net assets of the Fund. After the advance waiver by FISCO, the
Fund paid no management fees during the respective periods.

HOW DOES THE FUND PURCHASE SECURITIES FOR ITS PORTFOLIO?

Under the current management agreement, the selection of brokers and dealers
to execute transactions in the Fund's portfolio is made by the Manager in
accordance with criteria set forth in the management agreement and any
directions which the Board may give.

When placing a portfolio transaction, the Manager attempts to obtain the best
net price and execution of the transaction. On portfolio transactions done on
a securities exchange, the amount of commission paid by the Fund is
negotiated between the Manager and the broker executing the transaction. The
Manager seeks to obtain the lowest commission rate available from brokers
that are felt to be capable of efficient execution of the transactions. The
determination and evaluation of the reasonableness of the brokerage
commissions paid in connection with portfolio transactions are based to a
large degree on the professional opinions of the persons responsible for the
placement and review of such transactions. These opinions are formed on the
basis of, among other things, the experience of these individuals in the
securities industry and information available to them concerning the level of
commissions being paid by other institutional investors of comparable size.
The Manager will ordinarily place orders for the purchase and sale of
over-the-counter securities on a principal rather than agency basis with a
principal market maker unless, in the opinion of the Manager, a better price
and execution can otherwise be obtained. Purchases of portfolio securities
from underwriters will include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers will include a spread between
the bid and ask price. The Fund seeks to obtain prompt execution of orders at
the most favorable net price.

The amount of commission is not the only relevant factor to be considered in
the selection of a broker to execute a trade. If it is felt to be in the
Fund's best interest, the Manager may place portfolio transactions with
brokers who provide the types of services described below, even if it means
the Fund will pay a higher commission than if no weight were given to the
broker's furnishing of these services. This will be done only if, in the
opinion of the Manager, the amount of any additional commission is reasonable
in relation to the value of the services. Higher commissions will be paid
only when the brokerage and research services received are bona fide and
produce a direct benefit to the Fund or assist the Manager in carrying out
its responsibilities to the Fund, or when it is otherwise in the best
interest of the Fund to do so, whether or not such services may also be
useful to the Manager in advising other clients.

When it is felt that several brokers are equally able to provide the best net
price and execution, the Manager may decide to execute transactions through
brokers who provide quotations and other services to the Fund, specifically
including the quotations necessary to determine the value of the Fund's net
assets, in such amount of total brokerage as may reasonably be required in
light of such services, and through brokers who supply research, statistical
and other data to the Fund and Manager in such amount of total brokerage as
may reasonably be required. The Fund seeks to obtain prompt execution of
orders at the most favorable net price. Transactions may be directed to
dealers in return for research and statistical information, as well as for
special services rendered by such dealers in the execution of orders.

It is not possible to place a dollar value on the special executions or on
the research services received by the Manager from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits the Manager to supplement its
own research and analysis activities and to receive the views and information
of individuals and research staff of other securities firms. As long as it is
lawful and appropriate to do so, the Manager and its affiliates may use this
research and data in their investment advisory capacities with other clients.
Provided that the Fund's officers are satisfied that the best execution is
obtained, the sale of Fund shares may also be considered as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.

Because Distributors is a member of the National Association of Securities
Dealers, it is sometimes entitled to obtain certain fees when the Fund
tenders portfolio securities pursuant to a tender-offer solicitation. As a
means of recapturing brokerage for the benefit of the Fund, any portfolio
securities tendered by the Fund will be tendered through Distributors if it
is legally permissible to do so. In turn, the next management fee payable to
Advisers under the management agreement will be reduced by the amount of any
fees received by Distributors in cash, less any costs and expenses incurred
in connection therewith.

If purchases or sales of securities of the Fund and one or more other
investment companies or clients supervised by the Manager are considered at
or about the same time, transactions in such securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the Manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. It is
recognized that in some cases this procedure could possibly have a
detrimental effect on the price or volume of the security so far as the Fund
is concerned. In other cases it is possible that the ability to participate
in volume transactions and to negotiate lower brokerage commissions will be
beneficial to the Fund.

For the fiscal years ended April 30, 1994 and 1995 and the six-month period
ended October 31, 1995, the Fund's brokerage commissions totaled $11,824,
$13,736 and $[].

As of October 31, 1995, the Fund did not own securities of its regular
broker-dealers.

HOW DO I BUY AND SELL SHARES?

All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Fund must be denominated in U.S. dollars. The Fund
reserves the right, in its sole discretion, to either (a) reject any order
for the purchase or sale of shares denominated in any other currency or (b)
honor the transaction or make adjustments to your account for the transaction
as of a date and with a foreign currency exchange factor determined by the
drawee bank.

In connection with exchanges, it should be noted that since the proceeds from
the sale of shares of an investment company are generally not available until
the fifth business day following the redemption, the funds into which you are
seeking to exchange reserve the right to delay issuing shares pursuant to an
exchange until said fifth business day. The redemption of shares of the Fund
to complete an exchange will be effected at the close of business on the day
the request for exchange is received in proper form at the net asset value
then effective. Please see "What If My Investment Outlook Changes? - Exchange
Privilege" in the Prospectus.

If, in connection with the purchase of Fund shares, you submit a check or a
draft that is returned unpaid to the Fund, the Fund may impose a $10 charge
against your account for each returned item.

Dividend checks returned to the Fund marked "unable to forward" by the postal
service will be deemed to be a request to change your dividend option to
reinvest all distributions and the proceeds will be reinvested in additional
shares at net asset value until new instructions are received.

The Fund may deduct from your account the costs of its efforts to locate you
if mail is returned as undeliverable or the Fund is otherwise unable to
locate you or verify your current mailing address. These costs may include a
percentage of the account when a search company charges a percentage fee in
exchange for its location services.

Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate
in the discretionary trusts. Pursuant to agreements, a portion of such
service fees may be paid to Distributors or one of its affiliates to help
defray expenses of maintaining a service office in Taiwan, including expenses
related to local literature fulfillment and communication facilities.

Shares of the Fund may be offered to investors in Taiwan through securities
firms known locally as Securities Investment Consulting Enterprises. In
conformity with local business practices in Taiwan, shares of the Fund will
be offered with the following schedule of sales charges:

SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE
Up to $100,000 3%
$100,000 to $1,000,000 2%
Over $1,000,000 1%

PURCHASES AND REDEMPTIONS THROUGH SECURITIES DEALERS

Orders for the purchase of shares of the Fund received in proper form prior
to the scheduled close of the Exchange (generally 1:00 p.m. Pacific time) any
business day that the Exchange is open for trading and promptly transmitted
to the Fund will be based upon the public offering price determined that day.
Purchase orders received by securities dealers or other financial
institutions after the scheduled close of the Exchange will be effected at
the Fund's public offering price on the day it is next calculated. The use of
the term "securities dealer" herein shall include other financial
institutions which, either directly or through affiliates, have an agreement
with Distributors to handle customer orders and accounts with the Fund. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity.

Orders for the redemption of shares are effected at net asset
value subject to the same conditions concerning time of receipt in proper
form. It is the securities dealer's responsibility to transmit the order in a
timely fashion and any loss to you resulting from the failure to do so must
be settled between you and the securities dealer.

OTHER PAYMENTS TO SECURITIES DEALERS

As discussed in the Prospectus under "How Do I Buy Shares? - General," either
Distributors or one of its affiliates may make payments, out of its own
resources, to securities dealers who initiate and are responsible for
purchases made at net asset value by certain trust companies and trust
departments of banks, certain designated retirement plans (excluding IRA and
IRA Rollovers), certain non-designated plans, and certain retirement plans of
organizations with collective retirement plan assets of $1 million or more,
as described below. Distributors may make these payments in the form of
contingent advance payments, which may be recovered from the securities
dealer or set off against other payments due to the securities dealer in the
event shares are redeemed within 12 months of the calendar month of purchase.
Other conditions may apply. All terms and conditions may be imposed by an
agreement between Distributors, or one of its affiliates, and the securities
dealer.

Either Distributors or one of its affiliates may pay the following amounts,
out of its own resources, 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): 1% 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. These payment breakpoints are reset every 12 months
for purposes of additional purchases. With respect to purchases made at net
asset value by certain trust companies and trust departments of banks and
certain retirement plans of organizations with collective retirement plan
assets of $1 million or more, either Distributors or one of its affiliates,
out of its own resources, may pay up to 1% of the amount invested.

LETTER OF INTENT

You may qualify for a reduced sales charge on the purchase of shares of the
Fund, as described in the Prospectus. At any time within 90 days after the
first investment which you want to qualify for a reduced sales charge, you
may file with the Fund a signed Shareholder Application with the Letter of
Intent (the "Letter") section completed. After the Letter is filed, each
additional investment will be entitled to the sales charge applicable to the
level of investment indicated on the Letter. Sales charge reductions based
upon purchases in more than one of the Franklin Templeton Funds will be
effective only after notification to Distributors that the investment
qualifies for a discount. Your holdings in the Franklin Templeton Funds,
including Class II shares, acquired more than 90 days before the Letter is
filed, will be counted towards completion of the Letter but will not be
entitled to a retroactive downward adjustment in the sales charge. Any
redemptions you make, unless by a designated retirement plan, during the
13-month period will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter have been completed.
If the Letter is not completed within the 13-month period, there will be an
upward adjustment of the sales charge, depending upon the amount actually
purchased (less redemptions) during the period. The upward adjustment does
not apply to designated retirement plans. If you execute a Letter prior to a
change in the sales charge structure for the Fund, you will be entitled to
complete the Letter at the lower of the new sales charge structure or the
sales charge structure in effect at the time the Letter was filed.

As mentioned in the Prospectus, five percent (5%) of the amount of the total
intended purchase will be reserved in shares of the Fund registered in your
name. This policy of reserving shares does not apply to a designated
retirement plan. If the total purchases, less redemptions, equal the amount
specified under the Letter, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the total
purchases, less redemptions, exceed the amount specified under the Letter and
is an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made pursuant to the Letter (to reflect
such further quantity discount) on purchases made within 90 days before and
on those made after filing the Letter. The resulting difference in offering
price will be applied to the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases. If the total purchases, less redemptions, are less than the amount
specified under the Letter, you will remit to Distributors an amount equal to
the difference in the dollar amount of sales charge actually paid and the
amount of sales charge that would have applied to the aggregate purchases if
the total of such purchases had been made at a single time. Upon such
remittance, the reserved shares held for your account will be deposited to an
account in your name or delivered to you or as you direct. If within 20 days
after written request the difference in sales charge is not paid, the
redemption of an appropriate number of reserved shares to realize the
difference will be made. In the event of a total redemption of the account
prior to fulfillment of the Letter, the additional sales charge due will be
deducted from the proceeds of the redemption, and the balance will be
forwarded to you.

If a Letter is executed on behalf of a designated retirement plan, the level
and any reduction in sales charge for these plans will be based on actual
plan participation and the projected investments in the Franklin Templeton
Funds under the Letter. These plans are not subject to the requirement to
reserve 5% of the total intended purchase, or to any penalty as a result of
the early termination of a plan, nor are these plans entitled to receive
retroactive adjustments in price for investments made before executing the
Letter.

REDEMPTIONS IN KIND

The Fund has committed itself to pay in cash (by check) all requests for
redemption by any shareholder of record, limited in amount, however, during
any 90-day period to the lesser of $250,000 or 1% of the value of the Fund's
net assets at the beginning of the 90-day period. This commitment is
irrevocable without the prior approval of the Securities and Exchange
Commission ("SEC"). In the case of redemption requests in excess of these
amounts, the trustees reserve the right to make payments in whole or in part
in securities or other assets of the Fund, in case of an emergency, or if the
payment of such a redemption in cash would be detrimental to the existing
shareholders of the Fund. In such circumstances, the securities distributed
would be valued at the price used to compute the Fund's net assets and you
may incur brokerage fees in converting the securities to cash. The Fund does
not intend to redeem illiquid securities in kind. Should it happen, however,
you may not be able to recover your investment in a timely manner.

REDEMPTIONS BY THE FUND

Due to the relatively high cost of handling small investments, the Fund
reserves the right to involuntarily redeem your shares at net asset value if
your account has a value of less than one-half of your initial required
minimum investment, but only where the value of your account has been reduced
by the prior voluntary redemption of shares. Until further notice, it is the
present policy of the Fund not to exercise this right if your account has a
value of $50 or more. In any event, before the Fund redeems your shares and
sends you the proceeds, it will notify you that the value of the shares in
your account is less than the minimum amount and allow you 30 days to make an
additional investment in an amount which will increase the value of your
account to at least $100.

REINVESTMENT DATE

Shares acquired through the reinvestment of dividends will be purchased at
the net asset value determined on the business day following the dividend
record date (sometimes known as the "ex-dividend date"). The processing date
for the reinvestment of dividends may vary from month to month and does not
affect the amount or value of the shares acquired.

REPORTS TO SHAREHOLDERS

The Fund sends annual and semiannual reports regarding its performance and
portfolio holdings to shareholders. If you would like to receive an interim
quarterly report, you may phone Fund Information at 1-800/DIAL BEN.

SPECIAL SERVICES

The Franklin Templeton Institutional Services Department provides specialized
services, including recordkeeping, for institutional investors of the Fund.
The cost of these services is not borne by the Fund.

Investor Services may pay certain financial institutions that maintain
omnibus accounts with the Fund on behalf of numerous beneficial owners for
recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the Fund may reimburse Investor
Services an amount not to exceed the per account fee which the Fund normally
pays Investor Services. These financial institutions may also charge a fee
for their services directly to their clients.

HOW ARE FUND SHARES VALUED?

As noted in the Prospectus, the Fund calculates net asset value as of the
scheduled close of the Exchange (generally 1:00 p.m. Pacific time) each day
that the Exchange is open for trading. As of the date of this SAI, the Fund
is informed that the Exchange observes the following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

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 are valued within the range of the most
recent quoted bid and ask prices. Portfolio securities which are traded both
in the over-the-counter market and on a stock exchange are valued according
to the broadest and most representative market as determined by the Manager.

Portfolio securities underlying actively traded call options are valued at
their market price as determined above. The current market value of any
option held by the 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.

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

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. With the approval of
trustees, the Fund may utilize a pricing service, bank or securities dealer
to perform any of the above described functions.

ADDITIONAL INFORMATION REGARDING TAXATION

As stated in the Prospectus, 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"). The trustees reserve the right not to
maintain the qualification of the Fund as a regulated investment company if
they determine such course of action to be beneficial to shareholders. In
such case, the Fund will be subject to federal and possibly state corporate
taxes on its taxable income and gains and distributions to shareholders will
be taxable to the extent of the Fund's available earnings and profits.

ADDITIONAL INFORMATION REGARDING TAXATION

As stated in the Prospectus, 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"). The trustees reserve the right
not to maintain the qualification of the Fund as a regulated investment
company if they determine such course of action to be beneficial to the
shareholders. In such case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be ordinary dividend income to the extent of the Fund's
available earnings and profits.

Subject to the limitations discussed below, all or a portion of the income
distributions paid by the Fund may be treated by corporate shareholders as
qualifying dividends for purposes of the dividends-received deduction under
federal income tax law. If the aggregate qualifying dividends received by the
Fund (generally, dividends from U.S. domestic corporations, the stock in
which is not debt-financed by the Fund and is held for at least a minimum
holding period) is less than 100% of its distributable income, then the
amount of the Fund's dividends paid to corporate shareholders which may be
designated as eligible for such deduction will not exceed the aggregate
qualifying dividends received by the Fund for the taxable year. The amount or
percentage of income qualifying for the corporate dividends-received
deduction will be declared by the Fund annually in a notice to shareholders
mailed shortly after the end of the Fund's fiscal year.

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.

Corporate shareholders should also note that availability of the corporate
dividends-received deduction is subject to certain restrictions. For example,
the deduction is eliminated unless the Fund shares have been held (or deemed
held) for at least 46 days in a substantially unhedged manner. The
dividends-received deduction may also be reduced to the extent interest paid
or accrued by a corporate shareholder is directly attributable to its
investment in Fund shares. The entire dividend, including the portion which
is treated as a deduction, is includable in the tax base on which the
alternative minimum tax is computed and may also result in a reduction in the
shareholder's tax basis in its Fund shares, under certain circumstances, if
the shares have been held for less than two years. Corporate shareholders
whose investment in the Fund is "debt financed" for these tax purposes should
consult with their tax advisors concerning the availability of the
dividends-received deduction.

The Code requires all funds to distribute at least 98% of their taxable
ordinary income earned during the calendar year and at least 98% of their
capital gain net income earned during the 12 month period ending October 31
of each year (in addition to amounts from the prior year that were neither
distributed nor taxed to the fund) to shareholders by December 31 of each
year in order to avoid the imposition of a federal excise tax. Under these
rules, certain distributions which are declared in October, November or
December, but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax purposes as
if paid by the Fund and received by the shareholder on December 31 of the
calendar year in which they are declared. The Fund intends as a matter of
policy to declare such dividends, if any, in December and to pay these
dividends in December or January to avoid the imposition of this tax, but
does not guarantee that its distributions will be sufficient to avoid any or
all federal excise taxes.

Redemptions and exchanges of Fund shares are taxable transactions for federal
and state income tax purposes. For most shareholders, gain or loss will be
recognized in an amount equal to the difference between the shareholder's
basis in the shares and the amount received, subject to the rules described
below. If such shares are a capital asset in the hands of the shareholder,
gain or loss will be capital gain or loss and will be long-term for federal
income tax purposes if the shares have been held for more than one year.

All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax
basis of the shares purchased.

Any loss realized upon the redemption of shares within six months from the
date of their purchase will be treated as a long-term capital loss to the
extent of amounts treated as distributions of net long-term capital gain
during such six-month period.

The Fund's investment in options and futures contracts, including
transactions involving actual or deemed short sales are subject to many
complex and special tax rules. For example, OTC options on debt securities
and equity options, including options on stock and on narrow-based stock
indexes, will be subject to tax under Section 1234 of the Code, generally
producing a long-term or short-term capital gain or loss upon exercise,
lapse, or closing out of the option or sale of the underlying stock or
security. By contrast, the Fund's treatment of certain other options and
futures entered into by the Fund is generally governed by Section 1256 of the
Code. These "Section 1256" positions generally include listed options on debt
securities, options on broad-based stock indexes, options on securities
indexes, options on futures contracts, regulated futures contacts and certain
foreign currency contacts and options thereon.

Absent a tax election to the contrary, each such Section 1256 position held
by the Fund will be marked-to-market (i.e., treated as if it were sold for
fair market value) on the last business day of the Fund's fiscal year, and
all gain or loss associated with fiscal year transactions and mark-to-market
positions at fiscal year end (except certain foreign currency gain or loss
covered by Section 988 of the Code, if any) will generally be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. The
effect of Section 1256 mark-to-market rules may be to accelerate income or to
convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses into long-term capital
losses within the Fund. The acceleration of income on Section 1256 positions
may require the Fund to accrue taxable income without the corresponding
receipt of cash. In order to generate cash to satisfy the distribution
requirements of the Code, 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 its shares. In these ways, any
or all of these rules may affect the amount, character and timing of income
distributed to shareholders by the Fund and, in turn, to the Fund.

When the Fund holds an option or contract which substantially diminishes its
risk of loss with respect to another position of the Fund (as might occur in
some hedging transactions), this combination of positions could be treated as
a "straddle" for tax purposes, resulting in possible deferral of losses,
adjustments in the holding periods of the Fund's portfolio securities and
conversion of short-term capital losses into long-term capital losses.
Certain tax elections exist for mixed straddles (i.e., straddles comprised of
at least one Section 1256 position and at least one non-Section 1256
position) which may reduce or eliminate the operation of these straddle
rules.

As a regulated investment company, the Fund is also subject to the
requirement that less than 30% of its gross income ("short-short income") be
derived from the sale or other disposition of securities and certain other
investments held for less than three months. This requirement may limit the
Fund's ability to engage in options and futures transactions. The Fund will
monitor transactions in such contracts and may make certain other tax
elections in order to mitigate the effect of the above rules and to prevent
disqualification of the Fund as a regulated investment company under
Subchapter M of the Code.

THE FUND'S UNDERWRITER

Pursuant to an underwriting agreement in effect until May xx, 1997,
Distributors acts as principal underwriter in a continuous public offering
for shares of the Fund. The underwriting agreement will continue in effect
for successive annual periods provided that its continuance is specifically
approved at least annually by a vote of the Board or by a vote of the holders
of a majority of the Fund's outstanding voting securities, and in either
event by a majority vote of the Trust's trustees who are not parties to the
underwriting agreement or interested persons of any such party (other than as
trustees of the Fund), cast in person at a meeting called for that purpose.
The underwriting agreement terminates automatically in the event of its
assignment and may be terminated by either party on 90 days' written notice.

Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The Fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.

DISTRIBUTION PLAN

The Fund has adopted a distribution plan pursuant to Rule 12b-1 under the
1940 Act (the "Plan") whereby the Fund may pay up to a maximum of 0.25% per
annum of its average daily net assets, payable quarterly, for expenses
incurred in the promotion and distribution of its shares. In addition, the
Fund is permitted to pay Distributors up to an additional 0.10% per annum of
its average daily net assets for reimbursement of such distribution expenses.

Pursuant to the Plan, Distributors or others will be entitled to be
reimbursed each quarter (up to the maximum stated above) for actual expenses
incurred in the distribution and promotion of the Fund's shares, including,
but not limited to, the printing of prospectuses and reports used for sales
purposes, expenses of preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related expenses, including
a prorated portion of Distributors' overhead expenses attributable to the
distribution of 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.

In addition to the payments to which Distributors or others are entitled
under the Plan, the Plan also provides that to the extent the Fund, the
Manager or Distributors or other parties on behalf of the Fund, the Manager
or Distributors, make payments that are deemed to be payments for the
financing of any activity primarily intended to result in the sale of shares
of the Fund within the context of Rule 12b-1 under the 1940 Act, then such
payments shall be deemed to have been made pursuant to the Plan.

In no event shall the aggregate asset-based sales charges which include
payments made under the Plan, plus any other payments deemed to be made
pursuant to the Plan, exceed the amount permitted to be paid pursuant to the
Rules of Fair Practice of the National Association of Securities Dealers,
Inc., Article III, Section 26(d)4.

The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1.

To the extent fees are for distribution or marketing functions, as
distinguished from administrative servicing or agency transactions, certain
banks will not be entitled to participate in the Plan as a result of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. Such banking institutions, however, are
permitted to receive fees under the Plan for administrative servicing or for
agency transactions. If you are a customer of a bank that is prohibited from
providing such services, you would be permitted to remain a shareholder of
the Fund, and alternate means for continuing the servicing would be sought.
In such an event, changes in the services provided might occur and you might
no longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.

The Plan has been approved in accordance with the provisions of Rule 12b-1.
The Plan is effective through March 11, 1997 and renewable annually by a vote
of the Board, including a majority vote of the trustees who are
non-interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan, cast in person at a meeting
called for that purpose. It is also required that the selection and
nomination of such trustees be done by the non-interested trustees. The Plan
and any related agreement may be terminated at any time, without penalty, by
vote of a majority of the non-interested trustees on not more than 60 days'
written notice, by Distributors on not more than 60 days' written notice, by
any act that constitutes an assignment of the management agreement with the
Manager, or by vote of a majority of the Fund's outstanding shares.
Distributors or any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written notice.

The Plan and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a
majority of the Fund's outstanding shares, and all material amendments to the
Plan or any related agreements shall be approved by a vote of the non-
interested trustees, cast in person at a meeting called for the purpose of
voting on any such amendment.

Distributors is required to report in writing to the Board at least quarterly
on the amounts and purpose of any payment made under the Plan and any related
agreements, as well as to furnish the Board with such other information as
may reasonably be requested in order to enable the Board to make an informed
determination of whether the Plan should be continued.

GENERAL INFORMATION

PERFORMANCE

As noted in the Prospectus, the Fund may from time to time quote various
performance figures to illustrate the Fund's past performance and may
occasionally cite statistics to reflect its volatility or risk. Performance
quotations by investment companies are subject to rules adopted by the SEC.
These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by
the Fund be accompanied by certain standardized performance information
computed as required by the SEC. Current yield and average annual compounded
total return quotations used by the Fund are based on the standardized
methods of computing performance mandated by the SEC. An explanation of those
and other methods used by the Fund to compute or express performance follows.

TOTAL RETURN

The average annual total return is determined by finding the average annual
compounded rates of return over one-, five- and ten-year periods, or
fractional portion thereof, that would equate an initial hypothetical $1,000
investment to its ending redeemable value. The calculation assumes the
maximum front-end sales charge is deducted from the initial $1,000 purchase
order, and income dividends and capital gains are reinvested at net asset
value. The quotation assumes the account was completely redeemed at the end
of each one-, five- and ten-year period and the deduction of all applicable
charges and fees. If a change is made on the sales charge structure,
historical performance information will be restated to reflect the maximum
front-end sales charge currently in effect.

In considering the quotations of total return by the Fund, you should
remember that the maximum front-end sales charge reflected in each quotation
is a one time fee (charged on all direct purchases), which will have its
greatest impact during the early stages of your investment in the Fund. This
charge will affect actual performance less the longer you retain your
investment in the Fund. The Fund's average annual compounded rate of return
for the one-year period ending on October 31, 1995 was 21.09% and since
inception on August 31, 1993, the rate of return was 11.45%.

These figures were calculated according to the SEC formula:

P(1+T)n = ERV

where:

P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one-, five- or ten-year periods at the end of the one-,
five- or ten-year periods (or fractional portion thereof)

As discussed in the Prospectus, the Fund may quote total rates of return in
addition to its average annual total return. These quotations are computed in
the same manner as the Fund's average annual compounded rate, except they
will be based on the Fund's actual return for a specified period rather than
on its average return over one-, five- and ten-year periods, or fractional
portion thereof. The Fund's total rate of return for the one-year period
ending on October 31, 1995 was 21.09% and since inception on August 31, 1993,
the rate of return was 26.53%.

CURRENT YIELD

Current yield reflects the income per share earned by the Fund's portfolio
investments and is determined by dividing the net investment income per share
earned during a 30-day base period by the maximum offering price per share on
the last day of the period and annualizing the result. Expenses accrued for
the period include any fees charged to all shareholders during the base
period. The Fund's yield for the 30-day period ended on October 31, 1995 was
1.50%.

This figure was obtained using the following SEC formula:

Yield = 2 [(a-b + 1)6 - 1]
cd

where:

a = dividends and interest earned during the period

b = expenses accrued for the period (net of reimbursements)

c = the average daily number of shares outstanding during the period that
were entitled to receive dividends

d = the maximum offering price per share on the last day of the period

CURRENT DISTRIBUTION RATE

Current yield which is calculated according to a formula prescribed by the
SEC is not indicative of the amounts which were or will be paid to
shareholders of the Fund. Amounts paid to shareholders are reflected in the
quoted current distribution rate. The current distribution rate is computed
by dividing the total amount of dividends per share paid by 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 over the period such policies
were in effect, rather than using the dividends during the past 12 months.
The current distribution rate differs from the current yield computation
because it may include distributions to shareholders from sources other than
dividends and interest, such as premium income from option writing and
short-term capital gains and is calculated over a different period of time.

VOLATILITY

Occasionally statistics may be used to specify Fund volatility or risk.
Measures of volatility or risk are generally used to compare Fund net asset
value or performance relative to a market index. One measure of volatility is
beta. Beta is the volatility of a fund relative to the total market, as
represented by an index considered representative of the types of securities
in which the fund invests. A beta of more than 1.00 indicates volatility
greater than the market and a beta of less than 1.00 indicates volatility
less than the market. Another measure of volatility or risk is standard
deviation. Standard deviation is used to measure variability of net asset
value or total return around an average over a specified period of time. The
idea is that greater volatility means greater risk undertaken in achieving
performance.

COMPARISONS AND ADVERTISEMENTS

To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements and other materials regarding the
Fund may discuss various measures of Fund performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. The following publications, indices, and averages are examples of
materials that may be used:

a) Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks (Dow Jones Transportation Average). Comparisons
of performance assume reinvestment of dividends.

b) Standard & Poor's 500 Composite Stock Price Index- or its component
indices - an unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities stocks, and 20 transportation stocks. Comparisons of
performance assume reinvestment of dividends.

c) The New York Stock Exchange composite or component indices - unmanaged
indices of all industrial, utilities, transportation, and finance stocks
listed on the New York Stock Exchange.

d) Wilshire 5000 Equity Index- - represents the return on the market value of
all common equity securities for which daily pricing is available.
Comparisons of performance assume reinvestment of dividends.

e) The Wilshire 4500 Equity Index - a market value-weighted index of all U.S.
common equity securities with readily available price data (excluding the S&P
500 securities which together with the 4500 comprise the Wilshire 5000). It
is a Total Return index with dividends reinvested.

f) The Wilshire Mid Cap 750 - overlaps both the top 750 and next 1750 of the
Wilshire 2500 universe (the top 2500 companies and 99% of the market
capitalization of the Wilshire 5000). Wilshire includes companies that have
market capitalizations ranging from $300 million to $1.3 billion. The
portfolio contains from 125 - 500 securities.

g) The Russell Midcap Index - is composed of medium and medium/small
companies with capitalizations of $350 million to $3.25 billion. The 800
companies are taken from the Russell 3000 Index. Russell has generated
monthly returns back to 1979. Russell reconstitutes the index every June 30,
based on May 31 market capitalizations. Weights are based on market
capitalization, adjusted for corporate cross-ownership and large private
holdings. The index is reconstituted annually since 1989.

h) Russell 2000 Small Stock Index- - a broadly diversified index consisting
of approximately 2000 small capitalization common stocks.

i) Russell 2500 Index - index is composed of the bottom 500 securities in the
Russell 1000 Index and all stocks in the Russell 2000 Index. The largest
company in the Russell 2500 Index has a market capitalization of
approximately $1.3 billion. consisting of the largest 2500 stocks based on
market capitalization.

j) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure of total return and average current yield for
the mutual fund industry. It ranks individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.

k) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.

l) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.

m) Valueline Index- - an unmanaged index which follows the stock of
approximately 1700 companies.

n) Consumer Price Index- (or Cost of Living Index-), published by the U.S.
Bureau of Labor Statistics - a statistical measure of change, over time, in
the price of goods and services in major expenditure groups.

o) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Bloomberg L.P.,
Merrill Lynch, Pierce, Fenner & Smith, and Lehman Brothers.

p) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune and Money magazines - provide
performance statistics over specified time periods.

Total Return Performance - The example below may be used to illustrate the
Fund's performance, when compared to the total return of the Wilshire 5000
Index, Standard and Poor's 500 Index and the Standard and Poor's Midcap
Index:

Annual Performance from 1988 through 1994

S&P S&P Wilshire
500 $T MidCap $T 5000 $T

1988 16.61 20.89 17.94
1989 31.69 35.52 29.17
1990 -3.10 -5.13 -6.18
1991 30.47 50.10 34.28
1992 7.62 11.9 18.97
1993 10.08 13.95 11.28
1994 1.32 -3.58 -0.06

From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment
in the Fund. Such advertisements or information may include symbols,
headlines, or other material which highlight or summarize the information
discussed in more detail in the communication.

In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages
is not identical to the Fund's portfolio, that the averages are generally
unmanaged, and that the items included in the calculations of such averages
may not be identical to the formula used by the Fund to calculate its
figures. In addition there can be no assurance that the Fund will continue
this performance as compared to such other averages.

OTHER FEATURES AND BENEFITS

The Fund may help investors achieve various investment goals such as
accumulating money for retirement, saving for a down payment on a home,
college costs and/or other long-term goals. The Franklin College Costs
Planner may assist an investor in determining how much money must be invested
on a monthly basis in order to have a projected amount available in the
future to Fund a child's college education. (Projected college costs
estimates are based upon current costs published by the College Board.) The
Franklin Retirement Planning Guide leads an investor through the steps to
start a retirement savings program. Of course, an investment in the Fund
cannot guarantee that such goals will be met.

OTHER FEATURES AND BENEFITS

The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs
and/or other long-term goals. The Franklin College Costs Planner may assist
you in determining how much money must be invested on a monthly basis in
order to have a projected amount available in the future to fund a child's
college education. (Projected college cost estimates are based upon current
costs published by the College Board.) The Franklin Retirement Planning Guide
leads you through the steps to start a retirement savings program. Of course,
an investment in the Fund cannot guarantee that such goals will be met.

MISCELLANEOUS INFORMATION

The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years
and now services more than 2.5 million shareholder accounts. In 1992,
Franklin, a leader in managing fixed-income mutual funds and an innovator in
creating domestic equity funds, joined forces with Templeton Worldwide, Inc.,
a pioneer in international investing. Together, the Franklin Templeton Group
has over $135 billion in assets under management for more than 3.9 million
U.S. based mutual fund shareholder and other accounts. The Franklin Group of
Funds and the Templeton Group of Funds offer to the public 115 U.S. based
mutual funds. The Fund may identify itself by its NASDAQ symbol or CUSIP
number.

The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past seven years.

The organization expenses attributable to the Fund may be amortized on a
straight line basis over a period of five years from effective date of the
registration statement covering its shares. New investors purchasing shares
of the Fund after the effective date of its registration statement under the
Securities Act of 1933 will therefore bear such expenses during the
amortization period only as such charges are accrued daily against investment
income.

FINANCIAL STATEMENTS

The audited financial statements contained in the Annual Report to
Shareholders of the Trust for the fiscal year ended April 30, 1995, including
the auditors' report, and the Semi-Annual Report to Shareholders of the Trust
for the six-month period ended October 31, 1995, are incorporated herein by
reference.

APPENDIX

DESCRIPTION OF CORPORATE BOND RATINGS

Moody's

Aaa - Bonds 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 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, 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.

A - Bonds rated A possess many favorable investment attributes and are
considered 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 rated Baa are considered medium grade obligations. 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 rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of
interest and principal payments is 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 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 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 rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

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

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier
1 indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

S&P

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, differ from AAA issues only in small degree.

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

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

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

C - Bonds rated C are typically subordinated debt to senior debt that is
assigned an actual or implied CCC- rating. The C rating may also reflect the
filing of a bankruptcy petition under circumstances where debt service
payments are continuing. The C1 rating is reserved for income bonds on which
no interest is being paid.

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

FRANKLIN STRATEGIC SERIES

File Nos. 33-39088
811-6243

FORM N-1A

PART C
Other Information

Item 24 Financial Statements and Exhibits

i) Unaudited Financial Statements for the six-month period
ended October 31, 1995 incorporated herein by reference to
the Registrant's Semi-Annual Report to Shareholders as filed
with the SEC on Form Type N-30D on January 3, 1996.

(1) Statement of Investments in Securities and Net Assets -
October 31, 1995 (unaudited).

(2) Statement of Assets and Liabilities - October 31, 1995
(unaudited).

(3) Statement of Operations - for the six months ended
October 31, 1995 (unaudited).

(4) Statements of Changes in Net Assets - for the six
months ended October 31, 1995 (unaudited) and the year
ended April 30, 1995.

(5) Notes to Financial Statements.

ii) Financial statements for the fiscal year ended April 30,
1995 incorporated herein by reference to the Registrant's
Annual Report to Shareholders as filed with the SEC on Form
Type N-30D on June 30, 1995.

(1) Report of Independent Auditors.

(2) Statement of Investments in Securities and Net Assets -
April 30, 1995.

(3) Statement of Assets and Liabilities - April 30, 1995.

(4) Statement of Operations - for the year ended April 30,
1995.

(5) Statements of Changes in Net Assets - for the years
ended April 30, 1995 and April 30, 1994.

(6) Notes to Financial Statements.

b) Exhibits:

The following exhibits are incorporated by reference to the
filings noted, with the exception of exhibits 5(vii), 11(i) and
15(v) which are attached herewith.

(1) copies of the charter as now in effect;

(i) Agreement and Declaration of Trust of Franklin
California 250 Growth Index Fund as of January 22,
1991:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(ii) Certificate of Trust of Franklin California 250 Growth
Index Fund dated January 22, 1991:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iii)Certificate of Amendment to the Certificate of
Trust of Franklin California 250 Growth Index Fund
dated November 19, 1991:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iv) Certificate of Amendment to the Certificate of Trust of
Franklin Strategic Series dated May 14, 1992:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(2) copies of the existing By-Laws or instruments corresponding
thereto;

(i) Amended and Restated By-Laws of Franklin California 250
Growth Index Fund as of April 25, 1991:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(ii) Amendment to By-Laws dated October 27, 1994:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(3) copies of any voting trust agreement with respect to more
than five percent of any class of equity securities of the
Registrant;

Not Applicable

(4) specimens or copies of each security issued by the
Registrant, including copies of all constituent instruments,
defining the rights of the holders of such securities, and
copies of each security being registered;

Not Applicable

(5) copies of all investment advisory contracts relating to the
management of the assets of the Registrant;

(i) Management Agreement between the Registrant on behalf
of Franklin Small Cap Growth Fund, Franklin Global
Health Care Fund, Franklin Global Utilities Fund and
Franklin Advisers, Inc., dated February 24, 1992:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(ii) Administration Agreement between the Registrant on
behalf of Franklin MidCap Growth Fund and Franklin
Advisers, Inc., dated April 12, 1993:
Registrant: Franklin Strategic Series
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iii)Management Agreement between the Registrant on behalf
of Franklin Strategic Income Fund and Franklin
Advisers, Inc., effective May 24, 1994:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iv) Subadvisory Agreement between Franklin Advisers, Inc.,
and Templeton Investment Counsel, Inc., providing for
services to Franklin Strategic Income Fund dated May
24, 1994:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995
(v) Amended and Restated Management Agreement between
Franklin Advisers, Inc., and the Registrant on behalf
of Franklin California Growth Fund effective July 12,
1993:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(vi) Management Agreement between Registrant on behalf of
Franklin Blue Chip Fund and Franklin Advisers, Inc.,
effective February 13, 1996.
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 14, 1996

(vii)Management Agreement between The Registrant, on behalf
of Franklin Institutional MidCap Growth Fund, and
Franklin Advisers, Inc., dated January 1, 1996.

(6) copies of each underwriting or distribution contract between
the Registrant and a principal underwriter, and specimens or
copies of all agreements between principal underwriters and
dealers;

(i) Amended and Restated Distribution Agreement between the
Registrant on behalf of all Series except Franklin
Strategic Income Series and Franklin/Templeton
Distributors, Inc. dated April 23, 1995:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(ii) Amended and Restated Distribution Agreement between the
Registrant on behalf of Franklin Strategic Income
Series and Franklin/Templeton Distributors, Inc., dated
March 29, 1995:
Filing: Post-Effective Amendment No. 14 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iii)Form of Dealer Agreement between Franklin/Templeton
Distributors, Inc. and Dealers
Filing: Post-Effective Amendment No. 16 to
Registration Statement on Form N-1A
File No. 33-39088
Filing Date: September 12, 1995

(7) copies of all bonus, profit sharing, pension or other
similar contracts or arrangements wholly or partly for the
benefit of Trustees or officers of the Registrant in their
capacity as such; any such plan that is not set forth in a
formal document, furnish a reasonably detailed description
thereof;

Not Applicable

(8) copies of all custodian agreements and depository contracts
under Section 17(f) of the Investment Company Act of 1940
(the "1940 Act"), with respect to securities and similar
investments of the Registrant, including the schedule of
remuneration;

(i) Custodian Agreement between Registrant and Bank of
America NT&SA dated May 24, 1994
Filing: Post-Effective Amendment No. 14 to Registration
Statement on form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(ii) Custodian Agreements between Registrant and Citibank
Delaware
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master Agreement
3. Short Form Bank Agreement - Deposits and
Disbursements of Funds
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 55 to
Registration Statement on Form N-1A
File No. 2-12647
Filing Date: March 1, 1996

(iii)Master Custody Agreement between Registrant and Bank of
New York dated February 16, 1996
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A File No. 33-39088
Filing Date: March 14, 1996

(iv) Terminal Link Agreement between Registrant and Bank of
New York dated February 16, 1996
Filing: Post-Effective Amendment No. 18 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: March 14, 1996

(9) copies of all other material contracts not made in the
ordinary course of business which are to be performed in
whole or in part at or after the date of filing the
Registration Statement;

Not Applicable

(10) an opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will
when sold be legally issued, fully paid and nonassessable;

Not Applicable

(11) Copies of any other opinions, appraisals or rulings and
consents to the use thereof relied on in the preparation of
this registration statement and required by Section 7 of the
1933 Act;

(i) Consent of Independent Auditors dated March 25, 1996

(12) all financial statements omitted from Item 23;

Not Applicable

(13) copies of any agreements or understandings made in
consideration for providing the initial capital between or
among the Registrant, the underwriter, adviser, promoter or
initial stockholders and written assurances from promoters
or initial stockholders that their purchases were made for
investment purposes without any present intention of
redeeming or reselling;

(i) Letter of Understanding dated August 20, 1991.
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(ii) Letter of Understanding dated April 12, 1995.
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iii)Letter of Understanding dated June 5, 1995
Filing: Post-Effective Amendment No. 17 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: December 5, 1995
(14) copies of the model plan used in the establishment of any
retirement plan in conjunction with which Registrant offers
its securities, any instructions thereto and any other
documents making up the model plan. Such form(s) should
disclose the costs and fees charged in connection therewith;

Not Applicable

(15) copies of any plan entered into by Registrant pursuant to
Rule 12b-l under the 1940 Act, which describes all material
aspects of the financing of distribution of Registrant's
shares, and any agreements with any person relating to
implementation of such plan.

(i) Amended and Restated Distribution Plan between Franklin
Strategic Series on behalf of Franklin California
Growth Fund, Franklin Small Cap Growth Fund, Franklin
Global Health Care Fund and Franklin Global Utilities
Fund and Franklin Distributors, Inc., dated July 1,
1993:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(ii) Distribution Plan between Franklin Strategic Series on
behalf of Franklin Global Utilities Fund - Class II and
Franklin/Templeton Distributors, Inc., dated March 30,
1995:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iii)Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the Franklin Strategic Income
Fund and Franklin Distributors, Inc., dated May 24,
1994 is incorporated herein by reference to:
Registrant: Franklin Strategic Series
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iv) Distribution Plan pursuant to Rule 12b-1 between the
Registrant on behalf of the Franklin Natural Resources
Fund and Franklin/Templeton Distributors, Inc., dated
June 1, 1995 is Incorporated herein by reference to:
Registrant: Franklin Strategic Series
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(v) Form of Distribution Plan pursuant to Rule
12b-1 between the Registrant on behalf of the Franklin
MidCap Growth Fund and Franklin/Templeton Distributors
Inc.

(16) schedule for computation of each performance quotation
provided in the registration statement in response to Item
22 (which need not be audited).

(i) Schedule for Computation of Performance and Quotations
Registrant: Franklin Tax-Advantaged U.S. Government
Securities Fund
Filing: Post-Effective Amendment No. 8 to Registration
Statement on Form N-1A
File No. 33-11963
Filing Date: March 1, 1995

(17) Powers of Attorney

(i) Power of Attorney for Franklin Strategic Series dated
February 16, 1995
Registrant: Franklin Strategic Series
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(ii) Power of Attorney for MidCap Growth Portfolio dated
June 29, 1995:
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: July 3, 1995

(iii)Certificate of Secretary for Franklin Strategic Series
dated February 16, 1995:
Filing: Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: June 1, 1995

(iv) Certificate of Secretary for MidCap Growth Portfolio
dated June 29, 1995:
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: July 3, 1995

(18) Copies of any plan entered into by Registrant pursuant to
Rule 18f-3 under the 1940 Act

(i) Form of Multiple Class Plan:
Filing: Post-Effective Amendment No. 15 to Registration
Statement on Form N-1A
File No. 33-39088
Filing Date: July 3, 1995

(27) Financial Data Schedule Computation

Not Applicable

Item 25 Persons Controlled by or under Common Control with Registrant

None

Item 26 Number of Holders of Securities

As of February 29, 1996 the number of record holders of the only
classes of securities of the Registrant was as follows:

Title of Class Number of Record
Holders

Shares of Beneficial Interest Class I Class II

Franklin Blue Chip Fund 0 N/A
Franklin California Growth Fund 7,637 N/A
Franklin Global Health Care Fund 5,718 N/A
Franklin Global Utilities Fund 13,467 209
Franklin Small Cap Growth Fund 32,804 1,358
FISCO Midcap Growth Fund 1 N/A
Franklin MidCap Growth Fund 1 N/A
Franklin Strategic Income Fund 390 N/A
Franklin Natural Resources Fund 519 N/A

Item 27 Indemnification

Insofar as indemnification for liabilities arising under the
securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court or appropriate jurisdiction the
question whether such indemnification is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.

Item 28 Business and Other Connections of Investment Adviser

a) Franklin Advisers, Inc.

The officers and Directors of the Registrant's manager also
serve as officers and/or directors for (1) the manager's
corporate parent, Franklin Resources, Inc., and/or (2) other
investment companies in the Franklin Group of Funds (Registered
Trademark). In addition, Mr. Charles B. Johnson is a director of
General Host Corporation. For additional information please see
Part B and Schedules A and D of Form ADV of the Funds' Investment
Manager (SEC File 801-26292), incorporated herein by reference,
which sets forth the officers and directors of the Investment
Manager and information as to any business, profession, vocation
or employment of a substantial nature engaged in by those
officers and directors during the past two years.

b) Templeton Investment Counsel, Inc.

Templeton Investment Counsel, Inc. ("TICI"), an indirect,
wholly owned subsidiary of Franklin Resources, Inc., serves as
the Franklin Strategic Income Fund's Sub-adviser, furnishing to
Franklin Advisers, Inc. in that capacity, portfolio management
services and investment research. For additional information
please see Part B and Schedules A and D of Form ADV of the
Franklin Strategic Income Fund's Sub-adviser (SEC File 801-
15125), incorporated herein by reference, which sets forth the
officers and directors of the Sub-adviser and information as to
any business, profession, vocation or employment of a substantial
nature engaged in by those officers and directors during the past
two years.

Item 29 Principal Underwriters

a) Franklin/Templeton Distributors, Inc., ("Distributors") also
acts as principal underwriter of shares of:

AGE High Income Fund, Inc.
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund, Inc.
Franklin New York Tax-Free Trust
Franklin Premier Return Fund
Franklin Real Estate Securities Trust
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Institutional Fiduciary Trust

Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Real Estate Securities Fund
Templeton Smaller Companies Growth Fund, Inc.
Templeton Variable Products Series Fund

b) The information required by this Item 29 with respect to
each director and officer of Distributors is incorporated by
reference to Part B of this N-1A and Schedule A of Form BD filed
by Distributors with the Securities and Exchange Commission
pursuant to the Securities Act of 1934 (SEC File No. 8-5889)

c) Not Applicable. Registrant's principal underwriter is an
affiliated person of an affiliated person of the Registrant.

Item 30 Location of Accounts and Records

The accounts, books or other documents required to be maintained
by Section 31(a) of the Investment Company Act of 1940 are kept
by the Registrant or its shareholder services agent,
Franklin/Templeton Investor Services, Inc., both of whose address
is 777 Mariners Island Blvd., San Mateo, CA 94404.

Item 31 Management Services

There are no management-related service contracts not discussed
in Part A or Part B.

Item 32 Undertakings

a) The Registrant hereby undertakes to promptly call a meeting
of shareholders for the purpose of voting upon the question of
removal of any trustee or trustees when requested in writing to
do so by the record holders of not less than 10 percent of the
Registrant's outstanding shares to assist its shareholders in the
communicating with other shareholders in accordance with the
requirements of Section 16(c) of the Investment Company Act of
1940.

b) The Registrant hereby undertakes to comply with the
information requirement in Item 5A of the Form N-1A by including
the required information in the Trust's annual report and to
furnish each person to whom a prospectus is delivered a copy of
the annual report upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, as amended, the Registrant
has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of San Mateo
and the State of California, on the 27th day of March 1996.

Franklin Strategic Series
(Registrant)

By: Rupert H. Johnson, Jr., President
Rupert H. Johnson, Jr., President

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Amendment has been signed below by
the following persons in the capacities and on the dates
indicated:

Rupert H. Johnson, Jr.* Principal Executive Officer and
Rupert H. Johnson, Jr. Trustee
Dated: March 26, 1996

Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: March 26, 1996

Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: March 26, 1996

Frank H. Abbott, III* Trustee
Frank H. Abbott, III Dated: March 26, 1996

Harris J. Ashton* Trustee
Harris J. Ashton Dated: March 26, 1996

Harmon E. Burns* Trustee
Harmon E. Burns Dated: March 26, 1996

S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: March 26, 1996

David W. Garbellano* Trustee
David W. Garbellano Dated: March 26, 1996

Charles B. Johnson* Trustee
Charles B. Johnson Dated: March 26, 1996

Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: March 26, 1996

Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: March 26, 1996

*By /s/ Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)

FRANKLIN STRATEGIC SERIES
REGISTRATION STATEMENT
EXHIBITS INDEX

EXHIBIT NO. DESCRIPTION LOCATION

EX-99.B1(i) Agreement and Declaration of Trust of *
Franklin California 250 Growth Index Fund
as of January 22, 1991

EX-99.B1(ii) Certificate of Trust of Franklin California *
250 Growth Index Fund dated January 22, 1991

EX-99.B1(iii) Certificate of Amendment to the Certificate *
of Trust of Franklin California 250 Growth
Index Fund dated November 19, 1991

EX-99.B1(iv) Certificate of Amendment to the Certificate *
of Trust of Franklin Strategic Series dated
May 14, 1992

EX-99.B2(i) Amended and Restated By-Laws of Franklin *
California 250 Growth Index Fund as of
April 25, 1991

EX-99.B2(ii) Amendment to By-Laws dated October 27, 1994 *

EX-99.B5(i) Management Agreement between Registrant on *
behalf of Franklin Small Cap Growth Fund,
Franklin Global Healthcare Fund, Franklin
Global Utilities Fund and Franklin Advisers,
Inc., dated February 24, 1992

EX-99.B5(ii) Administration Agreement between Registrant *
on behalf of Franklin MidCap Growth Fund and
Franklin Advisers, Inc., dated April 12, 1993

EX-99.B5(iii) Management Agreement between Registrant on *
behalf of Franklin Strategic Income Fund and
Franklin Advisers, Inc., effective May 24,
1994

EX-99.B5(iv) Subadvisory Agreement between Franklin *
Advisers, Inc., and Templeton Investment
Counsel, Inc., providing for services to
Franklin Strategic Income Fund dated May 24,
1994

EX-99.B5(v) Amended and Restated Management Agreement *
between Franklin Advisers, Inc. and the
Registrant on behalf of Franklin California
Growth Fund effective July 12, 1993

EX-99.B5(vi) Management Agreement between Registrant on *
behalf of Franklin Blue Chip Fund and Franklin
Advisers, Inc. effective February 13, 1996

EX-99.B5(vii) Management Agreement between Registrant Attached
on behalf of Franklin Institutional Growth
Fund, and Franklin Advisers, Inc., dated
January 1, 1996

EX-99.B6(i) Amended and Restated Distribution Agreement *
between Registrant and Franklin/Templeton
Distributors, Inc., on behalf of all Series
except Franklin Strategic Income Series
dated April 23, 1995

EX-99.B6(ii) Amended and Restated Distribution Agreement *
between Registrant and Franklin/Templeton
Distributors, Inc. on behalf of Franklin
Strategic Income Series dated March 29, 1995

Ex-99.B6(iii) Form of Dealer Agreement between *
Franklin/Templeton Distributors, Inc., and
dealers

EX-99.B8(i) Custodian Agreement between Registrant and *
Bank of America NT&SA (Franklin Small Cap
Growth Fund)dated May 24, 1994

EX-99.B8(ii) Custodian Agreements between Registrant and *
Citibank Delaware

EX-99.B8(iii) Master Custody Agreement between Registrant *
and Bank of New York dated February 16, 1996

EX-99.B8(iv) Terminal Link Agreement between Registrant *
and Bank of New York dated February 16, 1996

EX-99.B11(i) Consent of Independent Auditors dated March Attached
25, 1996

EX-99.B13(i) Letter of Understanding dated August 20, 1991 *

EX-99.B13(ii) Letter of Understanding dated April 12, 1995 *

EX-99.B13(iii) Letter of Understanding for Franklin Natural *
Resources Fund dated June 5, 1995

EX-99.B15(i) Amended and Restated Distribution Plan *
between Franklin Strategic Series and
Franklin/Templeton Distributors, Inc., on
behalf of Franklin California Growth Fund,
Franklin Small Cap Growth Fund, Franklin
Global Health Care Fund and Franklin Global
Utilities Fund dated July 1, 1993

EX-99.B15(ii) Distribution Plan between Franklin Strategic *
Series and Franklin/Templeton Distributors,
Inc., on behalf of Franklin Global Utilities
Fund-Class II dated March 30, 1995

EX-99.B15(iii) Distribution Plan pursuant to Rule 12b-1 *
between Registrant, on behalf of the Franklin
Strategic Income Fund, and Franklin Distributors,
Inc., dated May 24, 1994

EX-99.B15(iv) Distribution Plan pursuant to Rule 12b-1 *
between the Registrant on behalf of the Franklin
Natural Resources Fund and Franklin/Templeton
Distributors, Inc., dated June 1, 1995

EX-99.B15(v) Form of Distribution Plan pursuant to Attached
Rule 12b-1 between the Registrant on behalf
of Franklin MidCap Growth Fund and
Franklin/Templeton Distributors, Inc.

EX-99.B16(i) Schedule for Computation of Performance *
Quotations

EX-99.B17(i) Power of Attorney for Franklin Strategic *
Series dated February 16, 1995

EX-99.B17(ii) Power of Attorney for MidCap Growth Portfolio *
dated June 29, 1995

EX-99.B17(iii) Certificate of Secretary for Franklin Strategic *
Series dated February 16, 1995

EX-99.B17(iv) Certificate of Secretary for MidCap Growth *
Portfolio dated June 29, 1995

EX-99.B18(i) Form of Multiple Class Plan *

* Incorporated by reference

FRANKLIN STRATEGIC SERIES
on behalf of
FRANKLIN INSTITUTIONAL MIDCAP GROWTH FUND

MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT made between FRANKLIN STRATEGIC SERIES, a
Delaware business trust (the "Trust"), on behalf of FRANKLIN INSTITUTIONAL
MIDCAP GROWTH FUND (the "Fund"), a series of the Trust, and FRANKLIN ADVISERS,
INC., a California corporation, (the "Manager").

WHEREAS, the Trust has been organized and intends to operate as an
investment company registered under the Investment Company Act of 1940 (the
"1940 Act") for the purpose of investing and reinvesting its assets in
securities, as set forth in its Agreement and Declaration of Trust, its By-Laws
and its Registration Statements under the 1940 Act and the Securities Act of
1933, all as heretofore and hereafter amended and supplemented; and the Trust
desires to avail itself of the services, information, advice, assistance and
facilities of an investment manager and to have an investment manager perform
various management, statistical, research, investment advisory and other
services for the Fund; and,

WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, is engaged in the business of rendering
management, investment advisory, counseling and supervisory services to
investment companies and other investment counseling clients, and desires to
provide these services to the Fund.

NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is mutually agreed as follows:

l. Employment of the Manager. The Trust hereby employs the Manager to
manage the investment and reinvestment of the Fund's assets and to administer
its affairs, subject to the direction of the Board of Trustees and the officers
of the Trust, for the period and on the terms hereinafter set forth. The Manager
hereby accepts such employment and agrees during such period to render the
services and to assume the obligations herein set forth for the compensation
herein provided. The Manager shall for all purposes herein be deemed to be an
independent contractor and shall, except as expressly provided or authorized
(whether herein or otherwise), have no authority to act for or represent the
Fund or the Trust in any way or otherwise be deemed an agent of the Fund or the
Trust.

2. Obligations of and Services to be Provided by the Manager. The Manager
undertakes to provide the services hereinafter set forth and to assume the
following obligations:

A. Administrative Services. The Manager shall furnish to the Fund
adequate (i) office space, which may be space within the offices of the Manager
or in such other place as may be agreed upon from time to time, (ii) office
furnishings, facilities and equipment as may be reasonably required for managing
the affairs and conducting the business of the Fund, including conducting
correspondence and other communications with the shareholders of the Fund,
maintaining all internal bookkeeping, accounting and auditing services and
records in connection with the Fund's investment and business activities. The
Manager shall employ or provide and compensate the executive, secretarial and
clerical personnel necessary to provide such services. The Manager shall also
compensate all officers and employees of the Trust who are officers or employees
of the Manager or its affiliates.

B. Investment Management Services.

(a) The Manager shall manage the Fund's assets subject to
and in accordance with the investment objectives and policies of the Fund and
any directions which the Trust's Board of Trustees may issue from time to time.
In pursuance of the foregoing, the Manager shall make all determinations with
respect to the investment of the Fund's assets and the purchase and sale of its
investment securities, and shall take such steps as may be necessary to
implement the same. Such determinations and services shall include determining
the manner in which any voting rights, rights to consent to corporate action and
any other rights pertaining to the Fund's investment securities shall be
exercised. The Manager shall render or cause to be rendered regular reports to
the Trust, at regular meetings of its Board of Trustees and at such other times
as may be reasonably requested by the Trust's Board of Trustees, of (i) the
decisions made with respect to the investment of the Fund's assets and the
purchase and sale of its investment securities, (ii) the reasons for such
decisions and (iii) the extent to which those decisions have been implemented.

(b) The Manager, subject to and in accordance with any
directions which the Trust's Board of Trustees may issue from time to time,
shall place, in the name of the Fund, orders for the execution of the Fund's
securities transactions. When placing such orders, the Manager shall seek to
obtain the best net price and execution for the Fund, but this requirement shall
not be deemed to obligate the Manager to place any order solely on the basis of
obtaining the lowest commission rate if the other standards set forth in this
section have been satisfied. The parties recognize that there are likely to be
many cases in which different brokers are equally able to provide such best
price and execution and that, in selecting among such brokers with respect to
particular trades, it is desirable to choose those brokers who furnish research,
statistical, quotations and other information to the Fund and the Manager in
accordance with the standards set forth below. Moreover, to the extent that it
continues to be lawful to do so and so long as the Board of Trustees determines
that the Fund will benefit, directly or indirectly, by doing so, the Manager may
place orders with a broker who charges a commission for that transaction which
is in excess of the amount of commission that another broker would have charged
for effecting that transaction, provided that the excess commission is
reasonable in relation to the value of "brokerage and research services" (as
defined in Section 28(e) (3) of the Securities Exchange Act of 1934) provided by
that broker.

Accordingly, the Trust and the Manager agree that the
Manager shall select brokers for the execution of the Fund's transactions from
among:

(i) Those brokers and dealers who provide quotations and
other services to the Fund, specifically including the
quotations necessary to determine the Fund's net assets, in
such amount of total brokerage as may reasonably be required
in light of such services; and

(ii) Those brokers and dealers who supply research,
statistical and other data to the Manager or its affiliates
which the Manager or its affiliates may lawfully and
appropriately use in their investment advisory capacities,
which relate directly to securities, actual or potential, of
the Fund, or which place the Manager in a better position to
make decisions in connection with the management of the
Fund's assets and securities, whether or not such data may
also be useful to the Manager and its affiliates in managing
other portfolios or advising other clients, in such amount
of total brokerage as may reasonably be required. Provided
that the Trust's officers are satisfied that the best
execution is obtained, the sale of shares of the Fund may
also be considered as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.

(c) When the Manager has determined that the Fund should
tender securities pursuant to a "tender offer solicitation," Franklin/Templeton
Distributors, Inc. ("Distributors") shall be designated as the "tendering
dealer" so long as it is legally permitted to act in such capacity under the
federal securities laws and rules thereunder and the rules of any securities
exchange or association of which Distributors may be a member. Neither the
Manager nor Distributors shall be obligated to make any additional commitments
of capital, expense or personnel beyond that already committed (other than
normal periodic fees or payments necessary to maintain its corporate existence
and membership in the National Association of Securities Dealers, Inc.) as of
the date of this Agreement. This Agreement shall not obligate the Manager or
Distributors (i) to act pursuant to the foregoing requirement under any
circumstances in which they might reasonably believe that liability might be
imposed upon them as a result of so acting, or (ii) to institute legal or other
proceedings to collect fees which may be considered to be due from others to it
as a result of such a tender, unless the Trust on behalf of the Fund shall enter
into an agreement with the Manager and/or Distributors to reimburse them for all
such expenses connected with attempting to collect such fees, including legal
fees and expenses and that portion of the compensation due to their employees
which is attributable to the time involved in attempting to collect such fees.

(d) The Manager shall render regular reports to the Trust,
not more frequently than quarterly, of how much total brokerage business has
been placed by the Manager, on behalf of the Fund, with brokers falling into
each of the categories referred to above and the manner in which the allocation
has been accomplished.

(e) The Manager agrees that no investment decision will be
made or influenced by a desire to provide brokerage for allocation in accordance
with the foregoing, and that the right to make such allocation of brokerage
shall not interfere with the Manager's paramount duty to obtain the best net
price and execution for the Fund.

C. Provision of Information Necessary for Preparation of Securities
Registration Statements, Amendments and Other Materials. The Manager, its
officers and employees will make available and provide accounting and
statistical information required by the Fund in the preparation of registration
statements, reports and other documents required by federal and state securities
laws and with such information as the Fund may reasonably request for use in the
preparation of such documents or of other materials necessary or helpful for the
underwriting and distribution of the Fund's shares.

D. Other Obligations and Services. The Manager shall make its
officers and employees available to the Board of Trustees and officers of the
Trust for consultation and discussions regarding the administration and
management of the Fund and its investment activities.

3. Expenses of the Fund. It is understood that the Fund will pay all of
its own expenses other than those expressly assumed by the Manager herein, which
expenses payable by the Fund shall include:

A. Fees and expenses paid to the Manager as provided herein;

B. Expenses of all audits by independent public accountants;

C. Expenses of transfer agent, registrar, custodian, dividend disbursing
agent and shareholder record-keeping services, including the expenses of issue,
repurchase or redemption of its shares;

D. Expenses of obtaining quotations for calculating the value of the Fund's
net assets;

E. Salaries and other compensations of executive officers of the Trust who
are not officers, directors, stockholders or employees of the Manager or its
affiliates;

F. Taxes levied against the Fund;

G. Brokerage fees and commissions in connection with the purchase and sale
of securities for the Fund;

H. Costs, including the interest expense, of borrowing money;

I. Costs incident to meetings of the Board of Trustees and shareholders of
the Fund, reports to the Fund's shareholders, the filing of reports with
regulatory bodies and the maintenance of the Fund's and the Trust's legal
existence;

J. Legal fees, including the legal fees related to the registration and
continued qualification of the Fund's shares for sale;

K. Trustees' fees and expenses to trustees who are not directors, officers,
employees or stockholders of the Manager or any of its affiliates;

L. Costs and expense of registering and maintaining the registration of the
Fund and its shares under federal and any applicable state laws; including the
printing and mailing of prospectuses to its shareholders;

M. Trade association dues; and

N. The Fund's pro rata portion of fidelity bond, errors and omissions, and
trustees and officer liability insurance premiums.

4. Compensation of the Manager. The Fund shall pay a management fee in
cash to the Manager based upon a percentage of the value of the Fund's net
assets, calculated as set forth below, as compensation for the services rendered
and obligations assumed by the Manager, during the preceding month, on the first
business day of the month in each year.

A. For purposes of calculating such fee, the value of the net assets
of the Fund shall be determined in the same manner as that Fund uses to compute
the value of its net assets in connection with the determination of the net
asset value of its shares, all as set forth more fully in the Fund's current
prospectus and statement of additional information. The rate of the management
fee payable by the Fund shall be calculated daily at the annual rate of 0.65% of
average daily net assets.

B. The management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash payments
of tender offer solicitation fees less certain costs and expenses incurred in
connection therewith and to the extent necessary to comply with the limitations
on expenses which may be borne by the Fund as set forth in the laws, regulations
and administrative interpretations of those states in which the Fund's shares
are registered. The Manager may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in purchase price of
its services. The Manager shall be contractually bond hereunder by the terms of
any publicly announced waiver of its fee, or any limitation of the Fund's
expenses, as if such waiver or limitation were full set forth herein.

C. If this Agreement is terminated prior to the end of any month, the
accrued management fee shall be paid to the date of termination.

5. Activities of the Manager. The services of the Manager to the Fund
hereunder are not to be deemed exclusive, and the Manager and any of its
affiliates shall be free to render similar services to others. Subject to and in
accordance with the Agreement and Declaration of Trust and By-Laws of the Trust
and Section 10(a) of the 1940 Act, it is understood that trustees, officers,
agents and shareholders of the Trust are or may be interested in the Manager or
its affiliates as directors, officers, agents or stockholders; that directors,
officers, agents or stockholders of the Manager or its affiliates are or may be
interested in the Trust as trustees, officers, agents, shareholders or
otherwise; that the Manager or its affiliates may be interested in the Fund as
shareholders or otherwise; and that the effect of any such interests shall be
governed by said Agreement and Declaration of Trust, By-Laws and the 1940 Act.

6. Liabilities of the Manager.

A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties hereunder on the part
of the Manager, the Manager shall not be subject to liability to the Trust or
the Fund or to any shareholder of the Fund for any act or omission in the course
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security by the Fund.

B. Notwithstanding the foregoing, the Manager agrees to reimburse
the Trust for any and all costs, expenses, and counsel and trustees' fees
reasonably incurred by the Trust in the preparation, printing and distribution
of proxy statements, amendments to its Registration Statement, holdings of
meetings of its shareholders or trustees, the conduct of factual investigations,
any legal or administrative proceedings (including any applications for
exemptions or determinations by the Securities and Exchange Commission) which
the Trust incurs as the result of action or inaction of the Manager or any of
its affiliates or any of their officers, directors, employees or stockholders
where the action or inaction necessitating such expenditures (i) is directly or
indirectly related to any transactions or proposed transaction in the stock or
control of the Manager or its affiliates (or litigation related to any pending
or proposed or future transaction in such shares or control) which shall have
been undertaken without the prior, express approval of the Trust's Board of
Trustees; or, (ii) is within the control of the Manager or any of its affiliates
or any of their officers, directors, employees or stockholders. The Manager
shall not be obligated pursuant to the provisions of this Subparagraph 6(B), to
reimburse the Trust for any expenditures related to the institution of an
administrative proceeding or civil litigation by the Trust or a shareholder
seeking to recover all or a portion of the proceeds derived by any stockholder
of the Manager or any of its affiliates from the sale of his shares of the
Manager, or similar matters. So long as this Agreement is in effect, the Manager
shall pay to the Trust the amount due for expenses subject to this Subparagraph
6(B) within 30 days after a bill or statement has been received by the Manager
therefor. This provision shall not be deemed to be a waiver of any claim the
Trust may have or may assert against the Manager or others for costs, expenses
or damages heretofore incurred by the Trust or for costs, expenses or damages
the Trust may hereafter incur which are not reimbursable to it hereunder.

C. No provision of this Agreement shall be construed to protect any
trustee or officer of the Trust, or director or officer of the Manager, from
liability in violation of Sections 17(h) and (i) of the 1940 Act.

7. Renewal and Termination.

A. This Agreement shall become effective on the date written below
and shall continue in effect for two (2) years thereafter, unless sooner
terminated as hereinafter provided and shall continue in effect thereafter for
periods not exceeding one (1) year so long as such continuation is approved at
least annually (i) by a vote of a majority of the outstanding voting securities
of each Fund or by a vote of the Board of Trustees of the Trust, and (ii) by a
vote of a majority of the Trustees of the Trust who are not parties to the
Agreement (other than as Trustees of the Trust), cast in person at a meeting
called for the purpose of voting on the Agreement.

B. This Agreement:

(i) may at any time be terminated without the payment of any penalty either
by vote of the Board of Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Fund on 60 days' written notice to the
Manager;

(ii) shall immediately terminate with respect to the Fund in the event of
its assignment; and

(iii) may be terminated by the Manager on 60 days' written notice to the
Fund.

C. As used in this Paragraph the terms "assignment," "interested
person" and "vote of a majority of the outstanding voting securities" shall have
the meanings set forth for any such terms in the 1940 Act.

D. Any notice under this Agreement shall be given in writing addressed and
delivered, or mailed post-paid, to the other party at any office of such party.

8. Severability. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.

9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and effective on the 1st day of January 1996.

FRANKLIN STRATEGIC SERIES

By: /s/ Deborah R. Gatzek

FRANKLIN ADVISERS, INC.

By: /s/ Harmon E. Burns

CONSENT OF INDEPENDENT AUDITORS

To the Board of Trustees of
Franklin Strategic Series

We consent to the incorporation by reference in Post-Effective Amendment No. 19
to the Registration Statement of Franklin Strategic Series on Form N-1A File
Nos. 33-39088 and 811-6243 of our report dated June 2, 1995 on our audit of the
financial statements and financial highlights of Franklin Strategic Series,
which report is included in the Annual Report to Shareholders for the year ended
April 30, 1995, which is incorporated by reference in the Registration
Statement.

/s/ COOPERS & LYBRAND L.L.P.

San Francisco, California
March 25, 1996

FRANKLIN STRATEGIC SERIES
on behalf of FRANKLIN MIDCAP GROWTH FUND
Preamble to Distribution Plan

The following Distribution Plan (the "Plan") has been adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940 (the "Act") by Franklin
Strategic Series ("Trust") for the use of its series named Franklin MidCap
Growth Fund (the "Fund"), which Plan shall take effect on the date the shares of
the Fund are first offered (the "Effective Date of the Plan"). The Plan has been
approved by a majority of the Board of Trustees of the Trust (the "Board"),
including a majority of the trustees who are not interested persons of the Trust
and who have no direct or indirect financial interest in the operation of the
Plan (the "non-interested trustees"), cast in person at a meeting called for the
purpose of voting on such Plan.

In reviewing the Plan, the Board considered the schedule and nature of
payments and terms of the Management Agreement between the Trust on behalf of
the Fund and Franklin Advisers, Inc. ("Advisers") and the terms of the
Underwriting Agreement between the Trust on behalf of the Fund and
Franklin/Templeton Distributors, Inc. ("Distributors"). The Board concluded that
the compensation of Advisers under the Management Agreement was fair and not
excessive; however, the Board also recognized that uncertainty may exist from
time to time with respect to whether payments to be made by the Fund to
Advisers, Distributors, or others or by Advisers or Distributors to others may
be deemed to constitute distribution expenses. Accordingly, the Board determined
that the Plan should provide for such payments and that adoption of the Plan
would be prudent and in the best interests of the Fund and its shareholders.
Such approval included a determination that in the exercise of their reasonable
business judgment and in light of their fiduciary duties, there is a reasonable
likelihood that the Plan will benefit the Fund and its shareholders.

DISTRIBUTION PLAN

1. The Fund shall reimburse Distributors or others for all expenses incurred by
Distributors or others in the promotion and distribution of the shares of the
Fund, as well as for shareholder services provided for existing shareholders of
the Fund. These expenses may include, but are not limited to, the expenses of
the printing of prospectuses and reports used for sales purposes, 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. These
expenses may also include any distribution or service fees paid to securities
dealers or their firms or others. Agreements for the payment of service fees to
securities dealers or their firms or others shall be in a form which has been
approved from time to time by the Board, including the non-interested trustees.

2. The maximum amount which may be reimbursed by the Fund to Distributors or
others pursuant to Paragraph 1 herein shall be 0.35% per annum of the average
daily net assets of the Fund. Said reimbursement shall be made quarterly by the
Fund to Distributors or others.

3. In addition to the payments which the Fund is authorized to make pursuant to
paragraphs 1 and 2 hereof, to the extent that the Fund, Advisers, Distributors
or other parties on behalf of the Fund, Advisers or Distributors make payments
that are deemed to be payments by the Fund for the financing of any activity
primarily intended to result in the sale of shares issued by the Fund within the
context of Rule 12b-1 under the Act, then such payments shall be deemed to have
been made pursuant to the Plan.

In no event shall the aggregate asset-based sales charges which include
payments specified in paragraphs 1 and 2, plus any other payments deemed to be
made pursuant to the Plan under this paragraph, exceed the amount permitted to
be paid pursuant to the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., Article III, Section 26(d).

4. Distributors shall furnish to the Board, for its review, on a quarterly
basis, a written report of the monies reimbursed to it and to others under the
Plan, and shall furnish the Board with such other information as the Board may
reasonably request in connection with the payments made under the Plan in order
to enable the Board to make an informed determination of whether the Plan should
be continued.

5. The Plan shall continue in effect for a period of more than one year only so
long as such continuance is specifically approved at least annually by a vote of
the Board, including the non-interested trustees, cast in person at a meeting
called for the purpose of voting on the Plan.

6. The Plan, and any agreements entered into pursuant to this Plan, may be
terminated at any time, without penalty, by vote of a majority of the
outstanding voting securities of the Fund or by vote of a majority of the
non-interested trustees, on not more than sixty (60) days' written notice, or by
Distributors on not more than sixty (60) days' written notice, and shall
terminate automatically in the event of any act that constitutes an assignment
of the Management Agreement between the Trust on behalf of the Fund and
Advisers.

7. The Plan, and any agreements entered into pursuant to this Plan, may not be
amended to increase materially the amount to be spent for distribution pursuant
to Paragraph 2 hereof without approval by a majority of the Fund's outstanding
voting securities.

8. All material amendments to the Plan, or any agreements entered into pursuant
to this Plan, shall be approved by a vote of the non-interested trustees cast in
person at a meeting called for the purpose of voting on any such amendment.

9. So long as the Plan is in effect, the selection and nomination of the Trust's
non-interested trustees shall be committed to the discretion of such
non-interested trustees.

This Plan and the terms and provisions thereof are hereby accepted and agreed to
by the Trust and Distributors as evidenced by their execution hereof.

FRANKLIN STRATEGIC SERIES
on behalf of the Franklin MidCap Growth Fund

By:

FRANKLIN/TEMPLETON DISTRIBUTORS, INC.

By: