198 STKP2
SUPPLEMENT DATED APRIL 21, 1998
TO THE PROSPECTUS OF
FRANKLIN SMALL CAP GROWTH FUND
DATED SEPTEMBER 1, 1997
The prospectus is amended as follows:
I. The section "Who Manages the Fund? - Management Team" is replaced in its
entirety with the following:
MANAGEMENT TEAM. The team responsible for the day-to-day management of the
Fund's portfolio is: Mr. Jamieson since inception and Mr. McCarthy since 1993.
Edward B. Jamieson
Senior Vice President of Advisers
Mr. Jamieson holds a Masters 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 the Franklin Templeton Group since
1987.
Michael McCarthy
Portfolio Manager of Advisers
Mr. McCarthy holds a Bachelor of Arts degree in History from the University of
California at Los Angeles. He has been with the Franklin Templeton Group since
1992.
II. The following paragraph is added to the end of the section "Group Purchases
Class I Only" found under "How Do I Buy Shares? - Sales Charge Reductions and
Waivers":
A qualified group does not include a 403(b) plan that only allows salary
deferral contributions. 403(b) plans that only allow salary deferral
contributions and that purchased Class I shares of the Fund at a reduced sales
charge under the group purchase privilege before February 1, 1998, however, may
continue to do so.
III. The first two paragraphs and the first waiver category in the section
"Sales Charge Waivers," found under "How Do I Buy Shares? - Sales Charge
Reductions and Waivers," are replaced with the following:
SALES CHARGE WAIVERS. If one of the following sales charge waivers applies to
you or your purchase of Fund shares, you may buy shares of the Fund without a
front-end sales charge or a Contingent Deferred Sales Charge. All of the sales
charge waivers listed below apply to purchases of Class I shares only, except
for items 1 and 4 which also apply to Class II purchases.
Certain distributions, payments or redemption proceeds that you receive may be
used to buy shares of the Fund without a sales charge if you reinvest them
within 365 days of their payment or redemption date. They include:
1. Dividend and capital gain distributions from any Franklin Templeton Fund or
a real estate investment trust (REIT) sponsored or advised by Franklin
Properties, Inc. The distributions generally must be reinvested in the same
class of shares. Certain exceptions apply, however, to Class II shareholders
who chose to reinvest their distributions in Class I shares of the Fund before
November 17, 1997, and to Advisor Class or Class Z shareholders of a Franklin
Templeton Fund who may reinvest their distributions in Class I shares of the
Fund.
IV. The section "Retirement Plans," found under "How Do I Buy Shares? - Sales
Charge Reductions and Waivers," is replaced in its entirety with the following:
RETIREMENT PLANS. Retirement plans that (i) are sponsored by an employer with
at least 100 employees, or (ii) have plan assets of $1 million or more, or
(iii) agree to invest at least $500,000 in the Franklin Templeton Funds over a
13 month period may buy Class I shares without a front-end sales charge.
Retirement plans that are not Qualified Retirement Plans, SIMPLEs or SEPs must
also meet the requirements described under "Group Purchases - Class I Only"
above to be able to buy Class I shares without a front-end sales charge. We may
enter into a special arrangement with a Securities Dealer, based on criteria
established by the Fund, to add together certain small Qualified Retirement
Plan accounts for the purpose of meeting these requirements.
For retirement plan accounts opened on or after May 1, 1997, a Contingent
Deferred Sales Charge may apply if the retirement plan is transferred out of
the Franklin Templeton Funds or terminated within 365 days of the retirement
plan account's initial purchase in the Franklin Templeton Funds. Please see
"How Do I Sell Shares? - Contingent Deferred Sales Charge" for details.
V. The sections "Contingent Deferred Sales Charge - Class I" and "Contingent
Deferred Sales Charge - Class II," found under "May I Exchange Shares for Shares
of Another Fund? - Will Sales Charges Apply to My Exchange?", are replaced with
the following:
CONTINGENT DEFERRED SALES CHARGE. For accounts with shares subject to a
Contingent Deferred Sales Charge, we will first exchange any shares in your
account that are not subject to the charge. If there are not enough of these to
meet your exchange request, we will exchange shares subject to the charge in
the order they were purchased.
If you exchange Class I shares into one of our money funds, the time your
shares are held in that fund will not count towards the completion of any
Contingency Period. If you exchange your Class II shares for shares of Money
Fund II, however, the time your shares are held in that fund will count towards
the completion of any Contingency Period.
VI. The following replaces the second paragraph under "How Do I Sell Shares?
Contingent Deferred Sales Charge":
Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class I shares without a front-end sales charge may also be
subject to a Contingent Deferred Sales Charge if the retirement plan is
transferred out of the Franklin Templeton Funds or terminated within 365 days
of the account's initial purchase in the Franklin Templeton Funds.
VII. Under "What Distributions Might I Receive from the Fund? - Distribution
Options," the references in the first two paragraphs to the ability of Class II
shareholders to reinvest or direct their distributions to Class I shares of the
Fund or another Franklin Templeton Fund are deleted and the following paragraph
is added to the section:
Distributions may be reinvested only in the same class of shares, except as
follows: (i) Class II shareholders who chose to reinvest their distributions in
Class I shares of the Fund or another Franklin Templeton Fund before November
17, 1997, may continue to do so; and (ii) Class II shareholders may reinvest
their distributions in shares of any Franklin Templeton money fund.
VIII. The following definitions are revised or added, as applicable, to the
"Useful Terms and Definitions" section:
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the
contingency period is 18 months. The holding period for Class I begins on the
first day of the month in which you buy shares. Regardless of when during the
month you buy Class I shares, they will age one month on the last day of that
month and each following month. The holding period for Class II begins on the
day you buy your shares. For example, if you buy Class II shares on the 18th of
the month, they will age one month on the 18th day of the next month and each
following month.
SIMPLE (Savings Incentive Match Plan for Employees) - An employer sponsored
salary deferral plan established under section 408(p) of the Code
