o402 STK SAI 1
SUPPLEMENT DATED AUGUST 3, 1998
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
DATED SEPTEMBER 15, 1997
The Statement of Additional Information is amended as follows:
I. The section "Officers and Trustees" is revised to replace Trustee David W.
Garbellano with the following:
Edith E. Holiday (46)
3239 38th Street, N.W.
Washington, DC 20016
Trustee
Director, Amerada Hess Corporation and Hercules Incorporated (1993 - present);
Director, Beverly Enterprises, Inc. (1995 - present) and H.J. Heinz Company
(1994 - present); director or trustee, as the case may be, of 25 of the
investment companies in the Franklin Templeton Group of Funds; and formerly,
Chairman (1995 - 1997) and Trustee (1993 - 1997) of National Child Research
Center, Assistant to the President of the United States and Secretary of the
Cabinet (1990 - 1993), General Counsel to the United States Treasury Department
(1989 - 1990), and Counselor to the Secretary and Assistant Secretary for
Public Affairs and Public Liaison - United States Treasury Department (1988 -
1989).
II. The section "Officers and Trustees" is revised to add the following:
As of February 25, 1998, the officers and Board members did not own of record
or beneficially any shares of the Fund.
III. The first paragraph under "How Do I Buy, Sell and Exchange Shares?
Additional Information on Selling Shares" is replaced with the following:
SYSTEMATIC WITHDRAWAL Plan. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account,
generally on the 25th day of the month in which a payment is scheduled. If the
25th falls on a weekend or holiday, we will process the redemption on the next
business day.
IV. The following is added to the end of the section "Cumulative Total Return,"
found under "How does the Fund Measure Performance? - Total Return." The figure
below has been restated to reflect the Fund's current, maximum 5.75% initial
sales charge.
The Fund's cumulative total return for the period from inception (September 15,
1997) through January 31, 1998, was -8.79%.
V. The following sentence is added to the end of the fifth paragraph in the
section "Miscellaneous Information":
To the best knowledge of the Fund, no other person holds beneficially or of
record more than 5% of the Fund's outstanding shares.
VI. The following new section is added after the section "Miscellaneous
Information":
- --------------------------------------------------------------------------------
Financial Statements
The unaudited financial statements of the Fund for the period ended January 31,
1998, are as follows:
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
Financial Highlights
Period Ended
January 31, 1998
(unaudited)*
- ----------------------------------------------------------------------------
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ....................... $25.00
-----------
Income from investment operations:
Net investment loss ....................................... (.05)
Net realized and unrealized loss .......................... (.75)
-----------
Total from investment operations ........................... (.80)
-----------
Less distributions from:
Net realized gains ........................................ (.05)
-----------
Net asset value, end of period ............................. $24.15
===========
Total return** ............................................. (3.21%)
Ratios/supplemental data
Net assets, end of period (000's) .......................... $53,228
Ratios to average net assets:
Expenses .................................................. 1.48%****
Expenses excluding waiver and payments by affiliate ....... 1.61%****
Net investment loss ....................................... (.67%)****
Portfolio turnover rate .................................... 39.49%
Average commission rate paid*** ............................ $.0314
*For the period September 15, 1997 (effective date) to January 31, 1998.
**Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized.
***Relates to purchases and sales of equity securities.
****Annualized.
<TABLE>
<CAPTION>
Statement of Investments, January 31, 1998 (unaudited)
<S> <C> <C>
Franklin Biotechnology Discovery Fund SHARES VALUE
- ------------------------------------------------------------------------------------------
aCommon Stocks 91.4%
Biomedical 31.8%
Aviron ............................................. 109,800$ 2,820,488
Centocor, Inc....................................... 37,500 1,500,000
IDEC Pharmaceuticals Corp. ......................... 69,800 2,914,150
Inhale Therapeutic Systems ......................... 81,200 2,628,850
Lifecell Corp. ..................................... 420,000 2,205,000
Synaptic Pharmaceutical Corp. ...................... 140,000 1,680,000
Texas Biotechnology Corp. .......................... 455,700 2,705,719
Vical, Inc.......................................... 30,000 466,875
-----------
16,921,082
-----------
Delivery Systems 5.4%
Alkermes, Inc....................................... 50,000 1,212,500
Aradigm Corp. ...................................... 116,600 961,950
DepoTech Corp. ..................................... 182,300 695,019
-----------
2,869,469
-----------
Diagnostics 3.3%
Technical Chemicals and Products, Inc. ............. 165,000 1,773,750
-----------
Statement of Investments, January 31, 1998 (unaudited) (cont.)
Franklin Biotechnology Discovery Fund SHARES VALUE
- ------------------------------------------------------------------------------------------
aCommon Stocks (cont.)
Drugs 41.2%
Agouron Pharmaceuticals, Inc. ...................... 65,100$ 2,262,225
Cell Therapeutics, Inc. ............................ 96,500 1,326,875
Chiroscience Group, Plc. (United Kingdom) .......... 623,000 2,499,616
Gilead Sciences, Inc. .............................. 73,000 2,956,500
Ligand Pharmaceuticals-Class B ..................... 170,000 1,870,000
MedImmune, Inc. .................................... 45,500 2,087,313
PathoGenesis Corp. ................................. 68,000 2,448,000
Sepracor, Inc. ..................................... 25,000 878,125
Vertex Pharmaceutical, Inc. ........................ 72,300 2,837,775
Zonagen, Inc. ...................................... 145,100 2,756,900
-----------
21,923,329
-----------
Miscellaneous 3.7%
SYNSORB Biotech, Inc. (Canada)...................... 278,000 1,957,410
-----------
Therapeutics 6.0%
Alteon, Inc. ....................................... 115,000 1,035,000
COR Therapeutics, Inc. ............................. 72,300 700,406
Neurogen Corp. ..................................... 100,000 1,475,000
-----------
3,210,406
-----------
Total Long Term Investments (Cost $53,225,073) ..... 48,655,446
-----------
PRINCIPAL
AMOUNT
----------
bRepurchase Agreement 8.3%
Joint Repurchase Agreement, 5.578%, 2/02/98, (Maturity Value $4,394,350) (Cost $4,392,309)
BancAmerica Robertson Stephens (Maturity Value $342,760)
Barclays Capital Group, Inc. (Maturity Value $342,760)
Bear, Stearns & Co., Inc. (Maturity Value $206,534)
BT Alex Brown, Inc. (Maturity Value $342,759)
Chase Securities, Inc. (Maturity Value $70,310)
CIBC Wood Gundy Securities Corp. (Maturity Value $342,760)
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (Maturity Value $342,759)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $342,759)
Dresdner Kleinwort Benson, North America, L.L.C. (Maturity Value $342,759)
Greenwich Capital Markets, Inc. (Maturity Value $342,759)
Lehman Gov't. Securities (Maturity Value $347,154)
Paribas Corp. (Maturity Value $342,759)
SBC Warburg Dillon Read, Inc. (Maturity Value $342,759)
UBS Securities, L.L.C. (Maturity Value $342,759)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Collateralized by U.S. Treasury Bills and Notes .. $4,392,309 4,392,309
------------
Total Investments (Cost $57,617,382) 99.7% ......... 53,047,755
Securities Sold Short (6.9%) ....................... (3,655,313)
Other Assets, less Liabilities 7.2% ................ 3,835,574
------------
Net Assets 100.0% .................................. $53,228,016
------------
</TABLE>
aSecurities Sold Short
<TABLE>
<CAPTION>
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Icos Corp. ......................................... 25,000 $ 401,563
Protein Design Labs, Inc. .......................... 50,000 1,868,750
Transkaryotic Therapies, Inc. ...................... 40,000 1,385,000
-----------
Total (Proceeds $3,918,464) ........................ $ 3,655,313
-----------
</TABLE>
aNon-income producing.
bInvestment is through participation in a joint account with other funds
managed by the investment advisor. At January 31, 1998, all repurchase
agreements had been entered into on January 30, 1998.
See notes to financial statements.
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND Financial Statements Statement of Assets
and Liabilities January 31, 1998 (unuadited)
Assets:
Investments in securities,
at value (cost $57,617,382) $53,047,755
Cash 400,411
Receivables:
Investment securities sold 3,918,464
Capital shares sold 486,815
Deposits with brokers for securities sold short 1,537,161
Other assets 27,991
--------------------
Total assets 59,418,597
--------------------
Liabilities:
Payables:
Investment securities purchased 2,369,686
Capital shares redeemed 12,728
Securities sold short, at value
(Proceeds $3,918,464) 3,655,313
Other liabilities 152,854
--------------------
Total liabilities 6,190,581
--------------------
Net assets, at value $53,228,016
--------------------
Net assets consist of:
Accumulated distributions in excess
of net investment income $ (101,117)
Net unrealized depreciation (4,306,476)
Accumulated net realized loss (70,539)
Capital shares 57,706,148
--------------------
Net assets, at value $53,228,016
--------------------
Net asset value per share
($53,228,016 / 2,204,409 shares outstanding)* $24.15
--------------------
Maximum offering price per share
($24.15 / 95.50%) $25.29
--------------------
Statement of Operations
for the period ended January 31, 1998 (unuadited)
Investment income:
Interest $ 122,188
Expenses:
Management fees (Note 3) $94,117
Administration fees (Note 3) 13,453
Distribution fees (Note 3) 51,512
Transfer agent fees (Note 3) 42,666
Amortization of offering costs 24,460
Other 16,447
-----------
Total expenses 242,655
Expenses waived/paid by
affiliate (Note 3) (19,350)
----------
Net expenses 223,305
----------
Net investment loss (101,117)
----------
Realized and unrealized gains (losses) Net realized gain on:
Investments 19,463
Foreign currency transactions 2,676
----------
Net realized gain 22,139
Net unrealized depreciation (4,306,476)
----------
Net realized and unrealized loss (4,284,337)
----------
Net decrease in net assets resulting
from operations $(4,385,454)
----------
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
Financial Statements (cont.)
Statement of Changes in Net Assets
for the period ended January 31, 1998 (unuadited)
<TABLE>
<CAPTION>
Period Ended
January 31, 1998*
- -----------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C>
Net investment loss ...................................................... $ (101,117)
Net realized gain from investments and foreign currency transactions ..... 22,139
Net unrealized depreciation on investments and translation of
assets and liabilities denominated in foreign currencies .................. (4,306,476)
-------------
Net decrease in net assets resulting from operations ................. (4,385,454)
Distributions to shareholders from:
Net realized gains ....................................................... (92,678)
Capital share transactions (Note 2) ....................................... 57,706,148
-------------
Net increase in net assets ........................................... 53,228,016
Net assets:
Beginning of period ....................................................... --
-------------
End of period ............................................................. $53,228,016
Undistributed net investment loss included in net assets:
End of period ............................................................. $ (101,117)
-------------
</TABLE>
*For the period September 15, 1997 (effective date) to January 31, 1998.
See notes to financial statements.
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Franklin Biotechnology Discovery Fund (the Fund) is a separate,
non-diversified series of Franklin Strategic Series (the Trust), which is an
open-end investment company registered under the Investment Company Act of
1940.
The Fund seeks capital growth.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales
of securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded
amounts of dividends, interest, and foreign withholding taxes and the U.S.
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in foreign exchange rates
on foreign denominated assets and liabilities other than investments in
securities held at the end of the reporting period.
C. SECURITIES SOLD SHORT:
The Fund is engaged in selling securities short, which obligates the Fund to
replace a security borrowed by purchasing the same security at the current
market value. The Fund would incur a loss if the price of the security
increases between the date of the short sale and the date on which the Fund
replaces the borrowed security. The Fund would realize a gain if the price of
the security declines between those dates.
The Fund is required to establish a margin account with the broker lending the
security sold short. While the short sale is outstanding, the broker retains
the proceeds of the short sale and the Fund must maintain a deposit with the
broker consisting of cash and securities having a value equal to a specified
percentage of the value of the securities sold short.
D. INCOME TAXES:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and
losses on security transactions are determined on a specific identification
basis. Interest income and estimated expenses are accrued daily. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Common expenses incurred by the Trust are allocated among the funds based on
the ratio of net assets of each fund to the combined net assets. Other expenses
are charged to each fund on a specific identification basis.
F. OFFERING COSTS:
Offering costs are amortized on a straight-line basis over twelve months.
G. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
At January 31, 1998, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Fund's shares were as follows:
Period Ended
January 31,
1998*
-------------------------
Shares Amount
-------------------------
Shares sold .......................................... 2,319,379 $60,531,850
Shares issued in reinvestment of distributions ....... 3,077 72,112
Shares redeemed ...................................... (118,047) (2,897,814)
-------------------------
Net increase ......................................... 2,204,409 $57,706,148
*For the period September 15, 1997 (effective date) to January 31, 1998.
3. TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also officers and/or directors of Franklin
Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc. (Distributors),
Franklin Templeton Services, Inc. (FT Services) and Franklin/Templeton Investor
Services, Inc. (Investor Services), the Fund's investment manager, principal
underwriter, administrative manager and transfer agent, respectively.
The Fund pays an investment management fee to Advisers based on the average net
assets of the Fund as follows:
Annualized
Fee Rate Average Daily Net Assets
---------------------------------------------------------------
0.625% First $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
Fees are further reduced on net assets over $10 billion.
The Fund pays an administrative fee to FT Services based on the Fund's average
net assets as follows:
Annualized
Fee Rate Average Daily Net Assets
-------------------------------------------------------------------
0.150% First $200 million
0.135% Over $200 million, up to and including $700 million
0.100% Over $700 million, up to and including $1.2 billion
0.075% Over $1.2 billion
Advisers agreed in advance to waive management fees for the Fund, as noted in
the Statement of Operations.
The Fund reimburses Distributors up to 0.35% per year of its average daily net
assets for costs incurred in marketing the Fund's shares.
Distributors received net commission from sales of the Fund's shares of
$219,649. The Fund paid transfer agent fees of $42,666, of which $28,842 was
paid to Investor Services. At January 31, 1998, Franklin Resources, Inc. owned
5% of the Fund.
4. INCOME TAXES
At January 31, 1998, the net unrealized depreciation based on the cost of
investments for income tax purposes of $54,017,955 was as follows:
Unrealized appreciation .......... $ 2,651,584
Unrealized depreciation .......... $(7,277,097)
--------------
Net unrealized depreciation ...... $(4,625,513)
Net investment income differs for financial statement and tax purposes
primarily due to differing treatments of foreign currency transactions.
Net realized capital gains differ for financial statement and tax purposes
primarily due to differing treatment of wash sales and foreign currency
transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended January 31, 1998, aggregated $58,700,584 and $12,854,627,
respectively.
VII. The following replaces the definition of "Offering Price" under the section
"Useful Terms and Definitions":
Offering Price - The public offering price is based on the Net Asset Value per
share and includes the front-end sales charge. The maximum front-end sales
charge is 5.75%.
Please keep this supplement for future reference
