FRANKLIN STRATEGIC SERIES, 485APOS, 1998-06-19

FRANKLIN STRATEGIC SERIES
485APOS, 1998-06-19

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As filed with the Securities and Exchange Commission on June 19, 1998

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. 29 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 32 (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 (650) 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)(1)
[x] on September 1, 1998 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) 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.

Title of Securities Being Registered:
Shares of Beneficial Interest of:

Franklin California Growth Fund - Class I
Franklin California Growth Fund - Class II
Franklin Strategic Income Fund - Class I
Franklin Strategic Income Fund - Class II
Franklin MidCap Growth Fund - Class I
Franklin Global Utilities Fund - Class I
Franklin Global Utilities Fund - Class II
Franklin Small Cap Growth Fund - Class I
Franklin Small Cap Growth Fund - Class II
Franklin Small Cap Growth Fund - Advisor Class
Franklin Global Health Care Fund - Class I
Franklin Global Health Care Fund - Class II
Franklin Natural Resources Fund - Class I
Franklin Natural Resources Fund - Advisor Class
Franklin Blue Chip Fund - Class I
Franklin Biotechnology Discovery Fund - Class I

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin California Growth Fund
Franklin MidCap Growth Fund
Franklin Blue Chip Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial Information "Financial Highlights"

4. General Description of the "How Is the Trust Organized?";
Registrant "How Do the Funds Invest Their
Assets?" "What Are the Risks of
Investing in the Funds?"

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

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

6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions
Might I Receive from the Funds?";
"How Taxation Affects the Funds
and Their Shareholders"; "What If
I Have Questions About My
Account?"

7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?"; "Transaction
Procedures and Special
Requirements"; "Services to Help
You Manage Your Account"; "Who
Manages the Funds?"; "Useful
Terms and Definitions"

8. Redemption or Repurchase "May I Exchange Shares for Shares

9. Legal Proceedings Not Applicable

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Global Health Care Fund
Franklin Global Utilities Fund
Franklin Natural Resources Fund - Class I
Franklin Biotechnology Discovery Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial Information "Financial Highlights"

4. General Description of the "How Is the Trust Organized?";
Registrant "How Do the Funds Invest Their
Assets?" "What Are the Risks of
Investing in the Funds?"

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

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

8. Redemption or Repurchase "May I Exchange Shares for Shares

9. Legal Proceedings Not Applicable

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Strategic Income Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial Information "Financial Highlights"

4. General Description of the "How Is the Trust Organized?";
Registrant "How Does the Fund Invest Its
Assets?" "What Are the Risks of
Investing in the Fund?"

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

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

6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage Your
Account"; "What Distributions
Might I Receive from the Fund?";
"How Taxation Affects the Fund
and Its Shareholders"; "What If I
Have Questions About My Account?"

8. Redemption or Repurchase "May I Exchange Shares for Shares

9. Legal Proceedings Not Applicable

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Small Cap Growth Fund - Class I & Class II

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Risk/Return Summary"

3. Condensed Financial Information "Financial Highlights"

4. General Description of the "How Is the Trust Organized?";
Registrant "How Does the Fund Invest Its
Assets?" "What Are the Risks of
Investing in the Fund?"

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

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

8. Redemption or Repurchase "May I Exchange Shares for Shares

9. Legal Proceedings Not Applicable

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Small Cap Growth Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial Information "Financial Highlights"

4. General Description of the "How Is the Trust Organized?";
Registrant "How Does the Fund Invest Its
Assets?" "What Are the Risks of
Investing in the Fund?"

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

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

8. Redemption or Repurchase "May I Exchange Shares for Shares

9. Legal Proceedings Not Applicable

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART A: INFORMATION REQUIRED IN PROSPECTUS
Franklin Natural Resources Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

1. Cover Page Cover Page

2. Synopsis "Expense Summary"

3. Condensed Financial Information "Financial Highlights"

4. General Description of the "How Is the Trust Organized?";
Registrant "How Does the Fund Invest Its
Assets?" "What Are the Risks of
Investing in the Fund?"

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

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

8. Redemption or Repurchase "May I Exchange Shares for Shares

9. Legal Proceedings Not Applicable

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
Franklin California Growth Fund
Franklin MidCap Growth Fund
Franklin Blue Chip Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How Do the Funds Invest Their
Policies Assets?"; "What Are the Risks of
Investing in the Funds?";
"Investment Restrictions"

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

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

16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Funds'
Underwriter"

17. Brokerage Allocation "How Do the Funds Buy Securities
for Their Portfolios?"

18. Capital Stock and Other Not Applicable
Securities

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Funds' Underwriter"

22. Calculation of Performance Data "How Do the Funds Measure
Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
Franklin Global Health Care Fund
Franklin Global Utilities Fund
Franklin Natural Resources Fund - Class I
Franklin Biotechnology Discovery Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How Do the Funds Invest Their
Policies Assets?"; "What Are the Risks of
Investing in the Funds?";
"Investment Restrictions"

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

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

16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Funds'
Underwriter"

17. Brokerage Allocation "How Do the Funds Buy Securities
for Their Portfolios?"

18. Capital Stock and Other Not Applicable
Securities

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Funds' Underwriter"

22. Calculation of Performance Data "How Do the Funds Measure
Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
Franklin Strategic Income Fund

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How Does the Fund Invest its
Policies Assets?"; "What Are the Risks of
Investing in the Fund?";
"Investment Restrictions"

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

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

16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's
Underwriter"

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

18. Capital Stock and Other Not Applicable
Securities

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance Data "How Does the Fund Measure
Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
Franklin Small Cap Growth Fund - Class I & Class II

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How Does the Fund Invest its
Policies Assets?"; "What Are the Risks of
Investing in the Fund?";
"Investment Restrictions"

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

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

16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's
Underwriter"

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

18. Capital Stock and Other Not Applicable
Securities

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance Data "How Does the Fund Measure
Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
Franklin Small Cap Growth Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How Does the Fund Invest its
Policies Assets?"; "What Are the Risks of
Investing in the Fund?";
"Investment Restrictions"

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

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

16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's
Underwriter"

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

18. Capital Stock and Other Not Applicable
Securities

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance Data "How Does the Fund Measure
Performance?"

23. Financial Statements "Financial Statements"

FRANKLIN STRATEGIC SERIES
CROSS REFERENCE SHEET
FORM N-1A

PART B: INFORMATION REQUIRED IN
STATEMENT OF ADDITIONAL INFORMATION
Franklin Natural Resources Fund - Advisor Class

N-1A Location in
ITEM NO. ITEM REGISTRATION STATEMENT

10. Cover Page Cover Page

11. Table of Contents Contents

12. General Information and History Not Applicable

13. Investment Objectives and "How Does the Fund Invest its
Policies Assets?"; "What Are the Risks of
Investing in the Fund?";
"Investment Restrictions"

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

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

16. Investment Advisory and Other "Investment Management and Other
Services Services"; "The Fund's
Underwriter"

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

18. Capital Stock and Other Not Applicable
Securities

19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Being Shares?"; "How Are Fund Shares
Offered Valued?"; "Financial Statements"

20. Tax Status "Additional Information on
Distributions and Taxes"

21. Underwriters "The Fund's Underwriter"

22. Calculation of Performance Data "How Does the Fund Measure
Performance?"

23. Financial Statements "Financial Statements"

PROSPECTUS & APPLICATION
FRANKLIN STRATEGIC SERIES
SEPTEMBER 1, 1998
FRANKLIN CALIFORNIA GROWTH FUND
FRANKLIN MIDCAP GROWTH FUND
FRANKLIN BLUE CHIP FUND

INVESTMENT STRATEGY: GROWTH

Please read this prospectus before investing, and keep it for future reference.
It contains important information, including how the funds invest and the
services available to shareholders.

To learn more about the funds and their policies, you may request a copy of the
funds' Statement of Additional Information ("SAI"), dated September 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.

For a free copy of the SAI or a larger print version of this prospectus, contact
your investment representative or call 1-800/DIAL BEN.

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

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

THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY 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 DISTRIBUTORS.

FRANKLIN STRATEGIC SERIES

September 1, 1998

When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.

TABLE OF CONTENTS

ABOUT THE FUND
Expense Summary ..................................................
Financial Highlights .............................................
How Do the Funds Invest Their Assets? ............................
What Are the Risks of Investing in the Funds? ....................
Who Manages the Funds? ...........................................
How Taxation Affects the Funds and Their Shareholders . ..........
How Is the Trust Organized? ......................................

ABOUT YOUR ACCOUNT
How Do I Buy Shares? .............................................
May I Exchange Shares for Shares of Another Fund? ................
How Do I Sell Shares? ............................................
What Distributions Might I Receive From the Funds? ...............
Transaction Procedures and Special Requirements ..................
Services to Help You Manage Your Account .........................
What If I Have Questions About My Account? .......................

GLOSSARY
Useful Terms and Definitions .....................................

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777

1-800/DIAL BEN(R)

ABOUT THE FUND

EXPENSE SUMMARY

This table is designed to help you understand the costs of investing in the
funds. It is based on the historical expenses of each class for the fiscal year
ended April 30, 1998. The funds' actual expenses may vary.

CALIFORNIA CALIFORNIA
FUND - FUND - MIDCAP BLUE CHIP
CLASS I CLASS II FUND FUND
- --------------------------------------------------------------------------------
A. SHAREHOLDER TRANSACTION EXPENSES+
Maximum Sales Charge (as a
percentage of Offering Price) 5.75% 1.99% 5.75% 5.75%
Paid at time of purchase++ 5.75% 1.00% 5.75% 5.75%
Paid at Redemption++++ None 0.99% None None
Exchange Fee (per transaction) None None $5.00* $5.00*
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees 0.49% 0.49% 0.65% 0.87%**
Rule 12b-1 Fees*** 0.25% 1.00% 0.21% 0.25%
Other Expenses 0.25% 0.25% 0.31% 0.83%
---------------------------------------------
Total Fund Operating Expenses 0.99% 1.74% 1.17% 1.95%**
=============================================

C. EXAMPLE

Assume the annual return for each class is 5%, operating expenses are as
described above, and you sell your shares after the number of years shown. These
are the projected expenses for each $1,000 that you invest in a fund.

1 YEAR**** 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------
California Fund - Class I $67 $87 $109 $172
California Fund - Class II $37 $64 $103 $213
MidCap Fund $69 $93 $118 $191
Blue Chip Fund $76 $115 $157 $272

For the same Class II investment in the California Fund, you would pay projected
expenses of $28 if you did not sell your shares at the end of the first year.
Your projected expenses for the remaining periods would be the same.

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. Each
fund pays its operating expenses. The effects of these expenses are reflected in
the Net Asset Value or dividends of each class and are not directly charged to
your account.

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++There is no front-end sales charge if you invest $1 million or more in Class I
shares.
+++Although Class II has a lower front-end sales charge than Class I, its Rule
12b-1 fees are higher. Over time you may pay more for Class II shares. Please
see "How Do I Buy Shares? - Choosing a Share Class."
++++A Contingent Deferred Sales Charge may apply to any Class II purchase if you
sell the shares within 18 months and to Class I purchases of $1 million or more
if you sell the shares within one year. A Contingent Deferred Sales Charge may
also apply to purchases by certain retirement plans that qualify to buy Class I
shares without a front-end sales charge. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
The number in the table shows the charge as a percentage of Offering Price.
While the percentage is different depending on whether the charge is shown based
on the Net Asset Value or the Offering Price, the dollar amount you would pay is
the same. See "How Do I Sell Shares? - Contingent Deferred Sales Charge" for
details.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**For the period shown, Advisers had agreed in advance to limit its management
fees and to assume as its own expense certain expenses otherwise payable by the
fund. With this reduction, management fees were 0.17% and total operating
expenses were 1.25%.
***These fees may not exceed 0.25% for Class I and 1.00% for Class II for the
California Fund and 0.35% for the Blue Chip Fund and the MidCap Fund. 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 charge permitted under the NASD's rules.
****Assumes a Contingent Deferred Sales Charge will not apply.

FINANCIAL HIGHLIGHTS

This table summarizes each fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the funds' independent auditors. Their
audit report covering the periods shown below appears in the Trust's Annual
Report to Shareholders for the fiscal year ended April 30, 1998. The Annual
Report to Shareholders also includes more information about each fund's
performance. For a free copy, please call Fund Information.

CALIFORNIA FUND - CLASS I
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1998 1997 1996 1995 1994 1993 19921
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $19.35 $18.26 $14.03 $12.05 $10.21 $9.87 $10.04
-------------------------------------------------------------------------------

Income from investment operations:
Net investment income .14 .13 .20 .16 .14 .12 .07
Net realized & unrealized gains 6.48 1.51 6.03 3.04 2.43 .34 (.17)
-------------------------------------------------------------------------------
Total from investment operations 6.62 1.64 6.23 3.20 2.57 .46 (.10)
-------------------------------------------------------------------------------
Less distributions from:
Net investment income (.14) (.12) (.23) (.12) (.15) (.12) (.07)
Net realized gains (.86) (.43) (1.77) (1.10) (.58) -- --
-------------------------------------------------------------------------------
Total distributions (1.00) (.55) (2.00) (1.22) (.73) (.12) (.07)
Net Asset Value, end of year $24.97 $19.35 $18.26*** $14.03 $12.05 $10.21 $9.87
================================================================================
Total return* 34.98% 8.94% 47.42% 29.09% 25.55% 4.72% (1.77)%**

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) $721,254 $282,898 $81,175 $13,844 $4,646 $3,412 $3,091
Ratios to average net assets:
Expenses .99% 1.08% .71% .25% .09% -- --
Expenses excluding waiver and
payments by affiliate .99% 1.08% 1.09% 1.27% 1.89% 1.99% 1.61%**
Net investment income .67% .84% 1.42% 1.63% 1.16% 1.23% 1.27%**
Portfolio turnover rate 48.52% 44.81% 61.82% 79.52% 135.12% 38.28% 13.73%
Average commission rate paid*** $.0530 $.0544 $.0536 -- -- -- --
</TABLE>

CALIFORNIA FUND - CLASS II
YEAR ENDED APRIL 30, 1998 19972
- -----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $19.27 $18.05
-------------------------
Income from investment operations:
Net investment income -- .05
Net realized and unrealized gains 6.43 1.65
---------------------
Total from investment operations 6.43 1.70
---------------------
Less distributions from:
Net investment income (.03) (.05)
Net realized gains (.86) (.43)
----------------------------
Total distributions (.89) (.48)
----------------------------
Net Asset Value, end of year $24.81 $19.27
=========================
Total Return* 34.02% 9.32%
RATIOS/SUPPLEMENTAL DATA
Net assets end of year (in 000's) $122,701 $24,556
Rations to average net assets:
Expenses 1.74% 1.86%**
Net investment income (.10%) .05%**
Portfolio turnover rate 48.52% 44.81%
Average commission rate paid*** $.0530 $.0544

MIDCAP FUND
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1998 1997 1996 1995 19943
- -----------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $13.34 $14.24 $10.81 $10.05 $10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income (loss) -- (.02) .18 .21 .15
Net realized and unrealized gains 4.66 .93 3.59 .77 .01
-------------------------------------------------------------
Total from investment operations 4.66 .91 3.77 .98 .16
-------------------------------------------------------------
Less distributions from:
Net investment income -- (.05) (.21) (.20) (.08)
Net realized gains (.56) (1.76) (.13) (.02) (.03)
-------------------------------------------------------------
Total distributions (.56) (1.81) (.34) (.22) (.11)
-------------------------------------------------------------
Net Asset Value, end of year $17.44 $13.34 $14.24 $10.81 $10.05
=============================================================

Total return* 35.53% 6.31% 35.40% 10.06% 1.62%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) $29,864 $12,853 $7,575 $5,591 $5,079
Ratios to average net assets:
Expenses 1.17% 1.07% .16% -- --
Expenses excluding waiver and
payments by affiliate 1.17% 1.07% .96% .98% .91%**
Net investment income (loss) (.03%) (.22)% 1.42% 2.12% 2.21%**
Portfolio turnover rate 50.16% 76.35% 102.65% 163.54% 70.53%
Average commission rate paid*** $.0621 $.0550 $.0467 -- --
</TABLE>

BLUE CHIP FUND
YEAR ENDED APRIL 30, 1998 19974
- -------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $10.85 $10.00
------------------------
Income from investment operations:
Net investment income .09 .09
Net realized and unrealized gains 1.67 .82
------------------------
Total from investment operations 1.76 .91
------------------------
Less distributions from:
Net investment income (.06) (.06)
Net realized gains (.09) ---
------------------------
Total distributions (.15) (.06)
------------------------
Net Asset Value, end of year $12.46 $10.85
========================

Total return* 16.41% 9.14%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (in 000's) $16,836 $5,600
Ratios to average net assets:
Expenses 1.25% 1.25%**
Expenses excluding waiver and
payments by affiliate 1.95% 2.22%**
Net investment income 1.04% 1.07%**
Portfolio turnover rate 57.67% 11.14%
Average commission rate paid*** $.0367 $.0525

1For the period October 18, 1991 (effective date) to April 30, 1992.
2For the period September 3, 1996 (effective date) to April 30, 1997.
3For the period August 17, 1993 (effective date) to April 30, 1994. 4For the
period June 3, 1996 (effective date) to April 30, 1997. *Total return does not
reflect sales commissions or the Contingent Deferred Sales Charge, and is not
annualized. Prior to May 1, 1994, dividends from net investment income were
reinvested at the Offering Price.
**Annualized.
***Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commision rate was not required.

HOW DO THE FUNDS INVEST THEIR ASSETS?

WHAT ARE THE FUNDS' GOALS?

The investment goal of the MidCap Fund is long-term capital growth. The
investment goal of the California Fund is capital appreciation. The investment
goal of the Blue Chip Fund is long-term capital appreciation. These goals are
fundamental, which means that they may not be changed without shareholder
approval.

The Blue Chip Fund may also seek current income incidental to long-term capital
appreciation, although this is not a fundamental policy of the fund.

WHAT KINDS OF SECURITIES DO THE FUNDS BUY?

THE MIDCAP FUND tries to achieve its investment goal by investing primarily in
equity securities of medium capitalization companies that Advisers believes are
positioned for rapid growth in revenues or earnings and assets, characteristics
that may provide for significant capital appreciation. Under normal market
conditions, the MidCap Fund will invest its assets primarily in a diversified
portfolio of medium capitalization stocks. The MidCap Fund tries to be fully
invested at all times in equity securities.

The MidCap Fund may invest up to 35% of its total assets in equity securities
that are outside the medium market capitalization range but with similar
potential for capital appreciation, or in corporate debt securities.

Under normal market conditions, the BLUE CHIP FUND invests at least 80%, and
intends to try to invest up to 100%, of its total assets in a diversified
portfolio of equity securities of "blue chip companies."

Under normal market conditions, the CALIFORNIA FUND invests at least 65% of its
assets in the equity and debt securities of companies headquartered or
conducting a majority of their operations in the state of California.

The California Fund expects to invest a significant portion of its assets in
small to mid-size companies, but it may also invest in relatively well known,
larger capitalization companies in mature industries that Advisers believes have
the potential for capital appreciation.

The California Fund may invest up to 35% of its assets in the securities of
companies headquartered or conducting a majority of their operations outside of
the state of California. In this way, the California Fund tries to benefit from
its research into companies and industries within or beyond its primary region.

EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock; preferred stock;
convertible securities; and warrants.

Although the Blue Chip Fund may invest without limit in common stock,
convertible securities, and warrants, it intends to invest primarily in common
stock.

DEBT SECURITIES represent an obligation of the issuer to repay a loan of money
to it, and, generally, provide for the payment of interest. These include bonds,
notes, and debentures.

The MidCap Fund and the California Fund may invest in debt securities that
Advisers believes present an opportunity for capital appreciation as a result of
improvement in the creditworthiness of the issuer. The receipt of income from
debt securities is incidental to these funds' investment goals.

The California Fund may invest up to 35% of its total assets in debt securities.

Independent rating organizations rate debt securities based upon their
assessment of the financial soundness of the issuer. Generally, a lower rating
indicates higher risk. Securities rated BBB by S&P or Baa by Moody's or better
are considered to be investment grade. The MidCap Fund and the California Fund
may buy both rated and unrated debt securities.

The MidCap Fund may buy debt securities that are rated B by Moody's or S&P or
better, or unrated debt of comparable quality. The MidCap Fund will not invest
more than 5% of its total assets in securities rated below investment grade.

The California Fund may buy fixed-income securities, including convertible
securities and debt securities, that are rated B by Moody's or S&P or better, or
unrated securities of comparable quality. The California Fund will not invest
more than 5% of its assets in fixed-income securities rated below investment
grade.

Please see the SAI for more details on the risks associated with lower-rated
securities.

SMALL AND MEDIUM CAPITALIZATION COMPANIES. The MidCap Fund invests in medium
capitalization companies that have a market capitalization range between $200
million and $5 billion. The California Fund expects to invest a significant
portion of its assets in small and medium size companies with market
capitalization of up to $2.5 billion at the time of its investment. These
securities are traded primarily on the NYSE and the American Stock Exchange and
in the over-the-counter market.

Market capitalization is defined as the total market value of a company's
outstanding stock. Medium capitalization companies may offer greater potential
for capital appreciation as these companies are often growing more rapidly than
larger companies, but tend to be more stable and established than small
capitalization or emerging companies.

Advisers selects medium capitalization equity securities for the MidCap Fund
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.

BLUE CHIP COMPANIES are well-established companies with a long record of revenue
growth and profitability. These companies generally dominate their respective
markets, and have a reputation for quality management, as well as superior
products and services. Blue chip companies also tend to have relatively large
capitalization.

When selecting securities for the Blue Chip Fund's portfolio, Advisers tries to
identify quality blue chip companies based on a number of factors. Specifically,
Advisers looks for companies that are leaders in their industry with a dominant
market position and a sustainable competitive advantage. Advisers also looks for
companies that exhibit consistent growth, a strong financial record, and market
capitalization of more than $1 billion. The fund intends to invest in a
portfolio that is diversified across a large number of industries.

REAL ESTATE SECURITIES. The California Fund may invest in securities of
companies operating in the real estate industry, including real estate
investment trusts.

CONVERTIBLE SECURITIES. A convertible security generally is a preferred stock or
debt security that pays dividends or interest and may be converted into common
stock.

Each fund may invest in convertible securities. The MidCap Fund and the
California Fund may also invest in enhanced convertible securities.

Although the Blue Chip Fund may invest in convertible securities without limit,
it currently intends to limit these investments to no more than 5% of its net
assets.

FOREIGN SECURITIES AND DEPOSITARY RECEIPTS. The MidCap Fund may invest in
foreign securities. The MidCap Fund intends to limit its investment in foreign
securities to 5% of its total assets. The MidCap Fund may buy the securities of
issuers in developing nations.

The Blue Chip Fund seeks investment opportunities across all markets in the
world and may invest without limit in the equity securities of blue chip
companies located outside the U.S. This may include companies in either
developed or emerging markets. Certain companies in emerging markets meet all
the criteria of a blue chip company. The amount of the fund's assets that it
will invest in foreign securities may vary over time depending on Advisers'
outlook.

Each fund may buy foreign securities traded in the U.S. or directly in foreign
markets. The MidCap Fund will ordinarily buy foreign securities that are traded
in the U.S. or sponsored or unsponsored American Depositary Receipts. The
California Fund may also buy American Depositary Receipts. The Blue Chip Fund
may buy American, European, and Global Depositary Receipts. Depositary Receipts
are certificates typically issued by a bank or trust company that give their
holders the right to receive securities issued by a foreign or domestic
corporation.

WHAT ARE SOME OF THE FUNDS' OTHER INVESTMENT STRATEGIES AND PRACTICES?

TEMPORARY INVESTMENTS. When Advisers believes that there is or may be a general
decline in the market prices of stocks in which the MidCap Fund or the
California Fund invests, it may invest the fund's portfolio in a temporary
defensive manner. Under such circumstances, the MidCap Fund and the California
Fund may each invest up to 100% of their respective assets in short-term debt
instruments. The MidCap Fund and the California Fund may each also invest their
cash, including cash resulting from purchases and sales of fund shares,
temporarily in short-term debt instruments. Short-term debt instruments include
high-grade commercial paper, repurchase agreements, and other money market
equivalents. Subject to the terms of an exemption order from the SEC, the MidCap
Fund and the California Fund may each also invest their cash in the shares of
affiliated money market funds that invest primarily in short-term debt
securities. The MidCap Fund and the California Fund will each make temporary
investments with cash held to maintain liquidity to meet redemption requirements
or pending investment.

The Blue Chip Fund may occasionally hold cash or invest in high quality money
market instruments of U.S. and foreign issuers, pending investment of proceeds
from new sales of its shares or for cash management or temporary defensive
purposes. These securities include government securities, commercial paper, bank
certificates of deposit, bankers' acceptances, and repurchase agreements
securities by any of these instruments. These securities will be rated "A1" or
"A2" by S&P or "P1" or "P2" by Moody's, or unrated but of comparable quality.

REPURCHASE AGREEMENTS. Each fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, each fund may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, the fund agrees
to buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
fund's custodian securities with an initial value of at least 102% of the dollar
amount invested by the fund in each repurchase agreement.

OPTIONS, FUTURES, AND OPTIONS ON FUTURES. A stock option is a contract that
provides the holder the right to buy or sell shares of the stock at a fixed
price, within a specified period of time. An option on a stock index is a
contract that allows the buyer of the option the right to receive from the
seller cash, in an amount equal to the difference between the index's closing
price and the option's exercise price. A futures contract is an obligation to
buy or sell a specified security or currency at a set price on a specified
future date. A stock index futures contract is an agreement to take or make
delivery of an amount of cash based on the difference between the value of the
index at the beginning and end of the contract period. Options, futures, and
options on futures are considered "derivative securities."

The MidCap Fund may buy options on stocks and stock indices, stock index futures
contracts, and options on stock index futures contracts to help protect its
portfolio against market and/or exchange rate movements, to help protect against
changes in the price of securities it intends to buy, and to accommodate cash
flows.

The MidCap Fund may only enter into futures contracts or related options (except
for closing transactions) if the initial deposits and premiums it paid for such
contracts and options is 5% or less of its total assets. The MidCap Fund may
only buy options if the total premiums it paid for such options is 5% or less of
its total assets.

For hedging purposes only, the Blue Chip Fund may buy or sell options on
securities listed on a national securities exchange. The options may be traded
on an exchange or over-the-counter. All options the Blue Chip Fund sells will be
covered. The Blue Chip Fund will not buy an option if the amounts paid for its
open option positions exceed 5% of its net assets.

The Blue Chip Fund may buy and sell futures contracts for securities and
currencies. The Blue Chip Fund may invest in futures contracts only to hedge
against changes in the value of its securities or currencies or those it intends
to buy. The Blue Chip Fund will not enter into a futures contract if the amounts
paid for its open contracts, including required initial deposits, would exceed
5% of its net assets.

The California Fund may buy and sell options on securities and securities
indices. The California Fund may only buy options if the premiums it paid for
such options total 5% or less of its total assets. The California Fund may also
buy and sell securities index futures and options on securities index futures.
The California Fund will not buy futures if the amount of its initial deposits
and premiums paid for its open contracts is more than 5% of its total assets
(taken at current value).

SECURITIES LENDING. To generate additional income, each fund may lend its
portfolio securities to qualified securities dealers or other institutional
investors. Such loans may not exceed 20% of the value of the MidCap Fund's total
assets, one third of the Blue Chip Fund's total assets, or 10% of the California
Fund's total assets, measured at the time of the most recent loan. For each loan
the borrower must maintain with the fund's custodian collateral with a value at
least equal to 100% of the current market value of the loaned securities.

BORROWING. As a fundamental policy, the funds do not borrow money or mortgage or
pledge any of their assets, except that each fund may borrow from banks up to a
specified limit to meet redemption requests and for other temporary or emergency
purposes. The limits are 10% of the fund's total asset value for the MidCap Fund
and the California Fund, and 15% of the Blue Chip Fund's total assets, including
the amount borrowed. The Blue Chip Fund may pledge its assets in connection with
these borrowings. While borrowings exceed 5% of a fund's total assets, the fund
will not make any additional investments.

NON-DIVERSIFICATION. The California Fund is non-diversified, which means that
there is no restriction under the federal securities laws on the percentage of
the fund's assets that it may invest in the securities of any one issuer.

ILLIQUID INVESTMENTS. Each fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally securities
that cannot be sold within seven days in the normal course of business at
approximately the amount at which the fund has valued them.

OTHER POLICIES AND RESTRICTIONS. Each fund has a number of additional investment
policies and restrictions that govern its activities. Those that are identified
as "fundamental" may only be changed with shareholder approval. The others may
be changed by the Board alone. For a list of these restrictions and more
information about each fund's investment policies, including those described
above, please see "How Do the Funds Invest Their Assets?" and "Investment
Restrictions" in the SAI.

Generally, the policies and restrictions discussed in this prospectus and in the
SAI apply when a fund makes an investment. In most cases, a fund is not required
to sell a security because circumstances change and the security no longer meets
one or more of the fund's policies or restrictions.

TAX CONSIDERATIONS. The Fund's investments in options, futures, foreign
securities and other complex securities are subject to special tax rules that
may affect the amount, timing or character of the income earned by the Fund and
distributed to you. The Fund may also be subject to withholding taxes on
earnings from certain of its foreign securities. Please see "Additional
Information on Distributions and Taxes" in the SAI for a discussion of these
special tax rules. are discussed in the "Additional Information on Distributions
and Taxes" Section of the SAI.

WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?

There is no assurance that the funds will meet their investment goals.

The value of your shares of a fund will increase as the value of the securities
owned by the fund increases and will decrease as the value of the fund's
investments decrease. In this way, you participate in any change in the value of
the securities owned by the fund. In addition to the factors that affect the
value of any particular security that a fund owns, the value of fund shares may
also change with movements in the stock and bond markets as a whole.

MEDIUM AND SMALL CAPITALIZATION RISK. Investing in small and medium
capitalization stocks may involve greater risk than investing in large
capitalization stocks, since they can be subject to more abrupt or erratic
movements. Medium capitalization stocks tend, however, to involve less risk than
stocks of small capitalization companies.

Historically, the prices of medium and small capitalization stocks have been
more volatile than the prices of larger capitalization stocks. Several factors
contribute to the greater price volatility of medium capitalization stocks. The
growth prospects of smaller firms are less certain than those of larger firms.
There is a lesser degree of liquidity in the market for these stocks. Small and
medium size companies are more sensitive to changing economic conditions.

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. You should therefore expect that the value of the
MidCap Fund's shares, and the value of the California Fund's shares to the
extent it invests in medium and small company stocks, may be more volatile than
the shares of a fund that invests in larger capitalization stocks.

In addition, medium and small size companies may have products and management
that 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.

NON-DIVERSIFICATION RISK. To the extent that the California Fund's investments
are not diversified, the fund may be more susceptible than a fully diversified
fund to adverse economic, political, business, or regulatory developments
affecting a single issuer or industry.

CALIFORNIA RISK. The financial prospects of a number of the companies in which
the California Fund invests may depend on the strength of the California
economy. However, the California Fund tries to reduce the effect on its
portfolio of fluctuations in economic conditions in California by investing a
significant portion of its assets in companies whose financial prospects are
dependent on the global economy.

Like many other states, California was significantly affected by the national
recession of the early 1990s, especially in the southern portion of the state.
Most of its job losses during its recession resulted from military cutbacks and
the downturn in the construction industry. Downsizing in the state's aerospace
industry, excess office capacity, and slow growth in California's export market
also contributed to the state's recession.

Since mid-1993, California's economic recovery has been fueled by growth in the
export, entertainment, tourism and computer services sectors. The state's
diverse employment base has reached prerecession levels with manufacturing
accounting for 14.4% of employment (based on 1997 state estimates), trade 23%,
services 31.1%, and government 16.4%. Despite strong employment growth,
California's unemployment rate has remained above the national average and
wages, although still above national levels, have declined with the loss of high
paying aerospace jobs. Recent economic problems in Asia may affect the state's
economy and reduce growth rates, although the impact of Asia's economic problems
on the state is uncertain.

The information above is based primarily on information from independent credit
reports and historically reliable sources, but the fund has not independently
verified the information. It is not a complete discussion of the California
economy.

TECHNOLOGY COMPANIES RISK. The California Fund expects to have a portion of its
assets invested in securities of companies involved in computing technologies or
related companies. Typically, the California Fund will invest in technology
companies whose products or services are marketed on a global, rather than a
domestic or regional basis. The technology sector has historically been
volatile, and technology company securities tend to be subject to abrupt or
erratic price movements. The California Fund tries to reduce these risks through
extensive research and emphasis on more globally competitive companies.

REAL ESTATE SECURITIES RISK. The California Fund's investments in real estate
securities are subject to the risks associated with the real estate industry.
Economic, regulatory, and social factors that affect the value of real estate
will affect the value of the real estate securities in the fund's portfolio.
These factors include overbuilding and increased competition, increases in
property taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, variations in rental income, changes in neighborhood
values, the appeal of properties to tenants, and increases in interest rates.

FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is affected
by general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the funds. These risks can be significantly greater for investments in
emerging markets. Investments in Depositary Receipts also involve some or all of
the risks described below.

The political, economic, and social structures of some countries in which the
funds invest may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the imposition
of exchange controls, expropriation, restrictions on removal of currency or
other assets, nationalization of assets, and punitive taxes.

There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing, and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs on
foreign securities markets are generally higher than in the U.S. The settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The funds may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies, and obtaining judgments with
respect to foreign investments in foreign courts than with respect to domestic
issuers in U.S. courts.

Some of the countries in which the funds may invest such as Russia and certain
Asian and Eastern European countries are considered developing or emerging
markets. Investments in these markets are subject to all of the risks of foreign
investing generally, and have additional and heightened risks due to a lack of
legal, business, and social frameworks to support securities markets.

Emerging markets involve additional significant risks, including political and
social uncertainty (for example, regional conflicts and risk of war), currency
exchange rate volatility, pervasiveness of corruption and crime, delays in
settling portfolio transactions, and risk of loss arising out of the system of
share registration and custody. For more information on the risks associated
with emerging markets securities, please see the SAI.

On July 1, 1997, Hong Kong reverted to the sovereignty of China. As with any
major political transfer of power, this could result in political, social,
economic, market, or other developments in Hong Kong, China, or other countries
that could affect the value of the funds' investments.

INTEREST RATE, CURRENCY AND MARKET RISK. To the extent each fund invests in debt
securities, changes in interest rates in any country where the fund is invested
will affect the value of the fund's portfolio and its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of the fund's shares.
To the extent the fund invests in common stocks, a general market decline, shown
for example by a drop in the Dow Jones Industrials or other equity based index,
may cause the value of what the fund owns, and thus the fund's share price, to
decline. Changes in currency valuations may also affect the price of fund
shares. The value of stock markets, currency valuations and interest rates
throughout the world have increased and decreased in the past. These changes are
unpredictable.

WHO MANAGES THE FUNDS?

THE BOARD. The Board oversees the management of the funds and elects their
officers. The officers are responsible for the funds' day-to-day operations. The
Board also monitors each fund to ensure no material conflicts exist among the
fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.

INVESTMENT MANAGER. Advisers manages each fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. It is wholly
owned by Resources, a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources. Together, Advisers and its
affiliates manage over $243 billion in assets. Please see "Investment Management
and Other Services" and "Miscellaneous Information" in the SAI for information
on securities transactions and a summary of the funds' Code of Ethics.

MANAGEMENT TEAMS. The teams responsible for the day-to-day management of funds'
portfolios are:

CALIFORNIA FUND: Conrad B. Herrmann since 1993 and John P. Scandalios since
1997.

Conrad B. Herrmann, CFA
Vice President of Advisers

Mr. Herrmann is a Chartered Financial Analyst and holds a Master of Business
Administration degree from Harvard University. He earned his Bachelor of Arts
degree from Brown University. Mr. Herrmann has been with the Franklin Templeton
Group since 1989 and is a member of several securities industry-related
associations.

John P. Scandalios
Senior Securities Analyst

Mr. Scandalios holds a Masters in Business Administration degree with an
emphasis in Finance and a Bachelor of Arts degree from the University of
California at Los Angeles. He has been in the securities industry since 1990 and
with the Franklin Templeton Group since 1996. Prior thereto, he was with Chase
Manhattan Bank.

Frank Felicelli, CFA
Vice President of Advisers

Mr. Felicelli has been generally involved with investment strategy of the Fund's
portfolio since its inception. Mr. Felicelli is a Chartered Financial Analyst
and has a Master of Business Administration degree from Golden Gate University.
He earned a Bachelor of Arts degree in Economics from the University of
Illinois. He has been with the Franklin Templeton Group since 1986. He is a
member of several securities industry-related associations.

MIDCAP FUND: Edward B. Jamieson and Catherine Roberts Bowman since 1996.

Edward B. Jamieson
Senior Vice President of Advisers

Mr. Jamieson holds a Master 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

Catherine Roberts Bowman
Portfolio Manager of Advisers

Ms. Bowman holds a Master of Business Administration degree from the J.L.
Kellogg Graduate School of Management at Northwestern University. She received
her Bachelor of Arts degree from Princeton University. She joined the Franklin
Templeton Group in 1990.

BLUE CHIP FUND: Suzanne Willoughby Killea and Shan C. Green since the Fund's
inception.

Suzanne Willoughby Killea
Portfolio Manager of Advisers

Ms. Killea holds a Master of Business Administration degree from Stanford
University and a Bachelor of Arts degree from Princeton University. She has been
with the Franklin Templeton Group since 1991. She is a member of several
securities industry-related associations.

Shan Green
Portfolio Manager of Advisers

Ms. Green holds a Master of Business Administration degree from the University
of California at Berkeley. She earned her Bachelor of Science degree from State
University of New York at Stoney Brook. Ms. Green has been with the Franklin
Templeton Group since 1994.

MANAGEMENT FEES. During the fiscal year ended April 30, 1998, management fees
paid to Advisers, as a percentage of average daily net assets, and total
expenses, including fees paid to Advisers, were as follows:

MANAGEMENT TOTAL
FEES OPERATING EXPENSES
- -------------------------------------------------------------------
California Fund - Class I 0.49% 0.99%
California Fund - Class II 0.49% 1.74%
MidCap Fund 0.65% 1.17%
Blue Chip Fund* 0.17% 1.25%

*Management fees, before any advance waiver, totaled 0.87% and total operating
expenses totaled 1.95%. Under an agreement by Advisers to limit its fees, the
Blue Chip Fund paid the management fees and total operating expenses shown.
Advisers may end this arrangement at any time upon notice to the Board.

PORTFOLIO TRANSACTIONS. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How Do the Funds Buy
Securities for Their Portfolios?" in the SAI for more information.

ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for each fund. During the fiscal
year ended April 30, 1998, administration fees paid to FT Services, as a
percentage of average daily net assets, were as follows:

ADMINISTRATION FEES
- -----------------------------------------------------
California Fund 0.14%
MidCap Fund 0.15%
Blue Chip Fund 0.15%

These fees are paid by Advisers. They are not a separate expense of the funds.
Please see "Investment Management and Other Services" in the SAI for more
information.

THE RULE 12B-1 PLANS

Each fund and class have separate distribution plans or "Rule 12b-1 Plans" under
which they may pay or reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.

Payments by the California Fund under the Class I plan may not exceed 0.25% per
year of Class I's average daily net assets. Payments by the Blue Chip Fund and
MidCap Fund under the plan may not exceed 0.35% per year of the Fund's average
daily net assets. All distribution expenses over this amount will be borne by
those who have incurred them. During the first year after certain Class I
purchases made without a sales charge, Securities Dealers may not be eligible to
receive the Rule 12b-1 fees associated with the purchase.

Under the Class II plan of the California Fund, the fund may pay Distributors up
to 0.75% per year of Class II's average daily net assets to pay Distributors or
others for providing distribution and related services and bearing certain Class
II expenses. All distribution expenses over this amount will be borne by those
who have incurred them. During the first year after a purchase of Class II
shares, Securities Dealers may not be eligible to receive this portion of the
Rule 12b-1 fees associated with the purchase.

The California Fund may also pay a servicing fee of up to 0.25% per year of
Class II's average daily net assets under the Class II plan. This fee may be
used to pay Securities Dealers or others for, among other things, helping to
establish and maintain customer accounts and records, helping with requests to
buy and sell shares, receiving and answering correspondence, monitoring dividend
payments from the fund on behalf of customers, and similar servicing and account
maintenance activities.

The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Funds' Underwriter" in the SAI.

HOW TAXATION AFFECTS THE FUNDS AND THEIR SHAREHOLDERS

ON AUGUST 5, 1997, PRESIDENT CLINTON SIGNED INTO LAW THE TAXPAYER RELIEF ACT OF
1997 (THE "1997 ACT"). THIS NEW LAW MAKES SWEEPING CHANGES IN THE CODE. BECAUSE
MANY OF THESE CHANGES ARE COMPLEX THEY ARE DISCUSSED IN THE SAI.

TAXATION OF THE FUNDS' INVESTMENTS
<TABLE>
<CAPTION>

<S> <C>
-----------------------------------------------
Each fund invests your money in the HOW DO THE FUNDS EARN INCOME AND GAINS?
stocks, bonds and other securities that Each fund earns dividends and interest (the
are described in the section "How Does the fund's "income") on its investments. When a
Fund Invest Its Assets?" Special tax rules fund sells a security for a price that is
may apply in determining the income and higher than it paid, it has a gain. When a
gains that each fund earns on its fund sells a security for a price that is
investments. These rules may, in turn, lower than it paid, it has a loss. If a fund
affect the amount of distributions that a has held the security for more than one year,
fund pays to you. These special tax rules the gain or loss will be a long-term capital
are discussed in the SAI. gain or loss. If a fund has held the security
for one year or less, the gain or loss will
TAXATION OF THE FUNDS. As a regulated be a short-term capital gain or loss. A
investment company, each fund generally fund's gains and losses are netted together,
pays no federal income tax on the income and, if the fund has a net gain (the fund's
and gains that it distributes to you. "gains"), that gain will generally be
distributed to you.
-----------------------------------------------
FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from
a fund's investments in foreign stocks and bonds. These taxes will reduce the
amount of a fund's distributions to you, but, depending upon the amount of a
fund's assets that are invested in foreign securities and foreign taxes paid,
may be passed through to you as a foreign tax credit on your income tax return.
Each fund may also invest in the securities of foreign companies that are
"passive foreign investment companies" ("PFICs"). These investments in PFICs may
cause the fund to pay income taxes and interest charges. If possible, the fund
will adopt strategies to avoid PFIC taxes and interest charges.

TAXATION OF SHAREHOLDERS
-----------------------------------------------
DISTRIBUTIONS. Distributions from a fund, WHAT IS A DISTRIBUTION?
whether you receive them in cash or in As a shareholder, you will receive your share
additional shares, are generally subject of a fund's income and gains on its
to income tax. The fund will send you a investments in stocks, bonds and other
statement in January of the current year securities. A fund's income and short term
that reflects the amount of ordinary capital gains are paid to you as ordinary
dividends, capital gain distributions and dividends. A fund's long-term capital gains
non-taxable distributions you received are paid to you as capital gain
from the fund in the prior year. This distributions. If a fund pays you an amount
statement will include distributions in excess of its income and gains, this
declared in December and paid to you in excess will generally be treated as a
January of the current year, but which are non-taxable distribution. These amounts,
taxable as if paid on December 31 of the taken together, are what we call a fund's
prior year. The IRS requires you to distributions to you.
report these amounts on your income tax -----------------------------------------------
return for the prior year. A fund's
statement for the prior year will tell you
how much of your capital gain distribution
represents 28% rate gain. The remainder of
the capital gain distribution represents
20% rate gain.

DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends they receive
from a fund.

-----------------------------------------------
REDEMPTIONS AND EXCHANGES. If you redeem WHAT IS A REDEMPTION?
your shares or if you exchange your shares A redemption is a sale by you to the fund of
in the funds for shares in another some or all of your shares in the fund. The
Franklin Templeton Fund, you will price per share you receive when you redeem
generally have a gain or loss that the IRS fund shares may be more or less than the
requires you to report on your income tax price at which you purchased those shares. An
return. If you exchange fund shares held exchange of shares in the fund for shares of
for 90 days or less and pay no sales another Franklin Templeton Fund is treated as
charge, or a reduced sales charge, for the a redemption of fund shares and then a
new shares, all or a portion of the sales purchase of shares of the other fund. When
charge you paid on the purchase of the you redeem or exchange your shares, you will
shares you exchanged is not included in generally have a gain or loss, depending upon
their cost for purposes of computing gain whether the amount you receive for your
or loss on the exchange. If you hold your shares is more or less than your cost or
shares for six months or less, any loss other basis in the shares. Call Fund
you have will be treated as a long-term Information for a free shareholder Tax
capital loss to the extent of any capital Information Handbook if you need more
gain distributions received by you from a information in calculating the gain or loss
fund. All or a portion of any loss on the on the redemption or exchange of your shares.
redemption or exchange of your shares will -----------------------------------------------
be disallowed by the IRS if you purchase
other shares in the fund within 30 days
before or after your redemption or
exchange.

U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends paid
from interest earned on direct obligations of the U.S. Government, subject to
certain restrictions. Each fund in which you are a shareholder will provide you
with information at the end of each calendar year on the amount of such
dividends that may qualify for exemption from reporting on your individual
income tax returns.

NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S. income
tax withholding. Your home country may also tax ordinary dividends, capital gain
distributions and gains arising from redemptions or exchanges of your fund
shares. Fund shares held by the estate of a non-U.S. investor may be subject to
U.S. estate tax. You may wish to contact your tax advisor to determine the U.S.
and non-U.S. tax consequences of your investment in a fund.

STATE TAXES. Ordinary dividends and capital gain distributions that you receive
from a fund, and gains arising from redemptions or exchanges of your fund shares
will generally be subject to state and local income tax. The holding of fund
shares may also be subject to state and local intangibles taxes. You may wish to
contact your tax advisor to determine the state and local tax consequences of
your investment in a fund.

-----------------------------------------------
BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP WITHHOLDING?
account, IRS regulations require that you Backup withholding occurs when a fund is
provide your taxpayer identification required to withhold and pay over to the IRS
number ("TIN"), certify that it is 31% of your distributions and redemption
correct, and certify that you are not proceeds. You can avoid backup withholding by
subject to backup withholding under IRS providing the fund with your TIN, and by
rules. If you fail to provide a correct completing the tax certifications on your
TIN or the proper tax certifications, the shareholder application that you were asked
fund is required to withhold 31% of all to sign when you opened your account.
the distributions (including ordinary However, if the IRS instructs the fund to
dividends and capital gain distributions), begin backup withholding, it is required to
and redemption proceeds paid to you. The do so even if you provided the fund with your
fund is also required to begin backup TIN and these tax certifications, and backup
withholding on your account if the IRS withholding will remain in place until the
instructs the fund to do so. The fund fund is instructed by the IRS that it is no
reserves the right not to open your longer required.
account, or, alternatively, to redeem your -----------------------------------------------
shares at the current net asset value,
less any taxes withheld, if you fail to
provide a correct TIN, fail to provide
the proper tax certifications, or the IRS
instructs the fund to begin backup
withholding on your account.
</TABLE>

THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE FUNDS. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "ADDITIONAL INFORMATION ON DISTRIBUTIONS AND TAXES" IN THE SAI. THE TAX
TREATMENT TO YOU OF DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS, FOREIGN TAXES PAID
AND INCOME TAXES WITHHELD IS ALSO DISCUSSED IN A FREE FRANKLIN TEMPLETON TAX
INFORMATION HANDBOOK, WHICH YOU MAY REQUEST BY CONTACTING FUND INFORMATION.

HOW IS THE TRUST ORGANIZED?

The MidCap Fund and the Blue Chip Fund are diversified series, and the
California Fund is a non-diversified series of Franklin Strategic Series (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Delaware business trust on January 25, 1991, and is
registered with the SEC. The California Fund offers two classes of shares:
Franklin California Growth Fund - Class I and Franklin California Growth Fund -
Class II. All shares outstanding before the offering of Class II shares are
considered Class I shares. All shares of the MidCap Fund and the Blue Chip Fund
are considered Class I shares for redemption, exchange and other purposes.
Additional series and classes of shares may be offered in the future.

Before July 12, 1993, the California Fund was named the Franklin California 250
Growth Fund. On that date, the fund's investment objective and various
investment policies were changed. Consistent with these changes, the fund's name
was changed to the Franklin California Growth Fund.

The MidCap Fund changed its name from FISCO MidCap Growth Fund to Franklin
Institutional MidCap Growth Fund on September 1, 1994, and to its current name
on April 18, 1996.

Shares of each class of the California Fund represent proportionate interests in
the assets of the fund and have the same voting and other rights and preferences
as any other class of the fund for matters that affect the fund as a whole. For
matters that only affect one class, however, only shareholders of that class may
vote. Each class will vote separately on matters affecting only that class, or
expressly required to be voted on separately by state or federal law. Shares of
each class of a series have the same voting and other rights and preferences as
the other classes and series of the Trust for matters that affect the Trust as a
whole.

The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.

The Trust does not intend to hold annual shareholder meetings. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares. In
certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.

As of June 2, 1998, Resources owned of record and beneficially more that 25% of
the outstanding shares of the MidCap Fund.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, please follow the steps below. This will help avoid any
delays in processing your request. PLEASE KEEP IN MIND THAT THE CALIFORNIA FUND
DOES NOT CURRENTLY ALLOW INVESTMENTS BY MARKET TIMERS.

1. Read this prospectus carefully.

2. Determine how much you would like to invest. The fund's minimum
investments are:

o To open a regular, non-retirement account $1,000
o To open an IRA, IRA Rollover, Roth IRA,
or Education IRA $250*
o To open a custodial account for a minor
(an UGMA/UTMA account) $100
o To open an account with an automatic
investment plan $50**
o To add to an account $50***
*For all other retirement accounts, there is no minimum investment
requirement.
**$25 for an Education IRA.
***For all retirement accounts except IRAs, IRA Rollovers, Roth IRAs, or
Education IRAs, there is no minimum to add to an account.

We reserve the right to change the amount of these minimums from time to
time or to waive or lower these minimums for certain purchases. We also
reserve the right to refuse any order to buy shares.

3. Carefully complete and sign the enclosed shareholder application, including
the optional shareholder privileges section. By applying for privileges
now, you can avoid the delay and inconvenience of having to send an
additional application to add privileges later. PLEASE ALSO INDICATE WHICH
CLASS OF SHARES YOU WANT TO BUY. IF YOU DO NOT SPECIFY A CLASS, WE WILL
AUTOMATICALLY INVEST YOUR PURCHASE IN CLASS I SHARES. It is important that
we receive a signed application since we will not be able to process any
redemptions from your account until we receive your signed application.

4. Make your investment using the table below.

Return the application to the fund with your check
made payable to the fund.

For additional investments:

Send a check made payable to the fund. Please
include your account number on the check.

- --------------------------------------------------------------------------------
BY WIRE 1. Call Shareholder Services or, if that number is
busy, call 1-650/312-2000 collect, to receive a
wire control number and wire instructions. You
need a new wire control number every time you
wire money into your account. If you do not have
a currently effective wire control number, we
will return the money to the bank, and we will
not credit the purchase to your account.

2. For an initial investment you must also return
your signed shareholder application to the fund.

- --------------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------------------------------------------------------

CHOOSING A SHARE CLASS (CALIFORNIA FUND ONLY)

Each class has its own sales charge and expense structure, allowing you to
choose the class that best meets your situation. The class that may be best for
you depends on a number of factors, including the amount and length of time you
expect to invest. Generally, Class I shares may be more attractive for long-term
investors or investors who qualify to buy Class I shares at a reduced sales
charge. Your financial representative can help you decide.

CLASS I CLASS II
o Higher front-end sales charges o Lower front-end sales charges than
than Class II shares. There are Class I shares
several ways to reduce these
charges, as described below. There
is no front-end sales charge for
purchases of $1 million or more.*
o Contingent Deferred Sales Charge o Contingent Deferred Sales Charge on
purchases of $1 million or more on purchases sold within 18 months
sold within one year
o Lower annual expenses than Class o Higher annual expenses than Class
II shares I shares

*If you are investing $1 million or more, it is generally more beneficial for
you to buy Class I shares because there is no front-end sales charge and the
annual expenses are lower. Therefore, ANY PURCHASE OF $1 MILLION OR MORE IS
AUTOMATICALLY INVESTED IN CLASS I SHARES. You may accumulate more than $1
million in Class II shares through purchases over time. If you plan to do this,
however, you should determine if it would be better for you to buy Class I
shares through a Letter of Intent.

PURCHASE PRICE OF FUND SHARES

For Class I shares, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares is 1%
and, unlike Class I, does not vary based on the size of your purchase.

TOTAL SALES CHARGE AMOUNT PAID TO
AS A PERCENTAGE OF DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- ----------------------------------------------------------------
CLASS I
Under $50,000 5.75% 6.10% 5.00%
$50,000 but less than 4.50% 4.71% 3.75%
$100,000
$100,000 but less than 3.50% 3.63% 2.80%
$250,000
$250,000 but less than 2.50% 2.56% 2.00%
$500,000
$500,000 but less than 2.00% 2.04% 1.60%
$1,000,000
$1,000,000 or more* None None None

CLASS II
Under $1,000,000* 1.00% 1.01% 1.00%

*A Contingent Deferred Sales Charge of 1% may apply to Class I purchases of $1
million or more and any Class II purchase. Please see "How Do I Sell Shares? -
Contingent Deferred Sales Charge." Please also see "Other Payments to Securities
Dealers" below for a discussion of payments Distributors may make out of its own
resources to Securities Dealers for certain purchases. Purchases of Class II
shares are limited to purchases below $1 million. Please see "Choosing a Share
Class."

SALES CHARGE REDUCTIONS AND WAIVERS

- - IF YOU QUALIFY TO BUY SHARES UNDER ONE OF THE SALES CHARGE REDUCTION OR
WAIVER CATEGORIES DESCRIBED BELOW, PLEASE INCLUDE A WRITTEN STATEMENT WITH
EACH PURCHASE ORDER EXPLAINING WHICH PRIVILEGE APPLIES. If you don't include
this statement, we cannot guarantee that you will receive the sales charge
reduction or waiver.

CUMULATIVE QUANTITY DISCOUNTS - CLASS I ONLY. To determine if you may pay a
reduced sales charge, the amount of your current Class I purchase is added to
the cost or current value, whichever is higher, of your existing shares in the
Franklin Templeton Funds, as well as those of your spouse, children under the
age of 21 and grandchildren under the age of 21. If you are the sole owner of a
company, you may also add any company accounts, including retirement plan
accounts. Companies with one or more retirement plans may add together the total
plan assets invested in the Franklin Templeton Funds to determine the sales
charge that applies.

LETTER OF INTENT - CLASS I ONLY. You may buy Class I 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 on Class I shares.

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

o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.

o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

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

Your periodic statements will include the reserved shares in the total shares
you own. We will pay or reinvest dividend and capital gain distributions on the
reserved shares as you direct. Our policy of reserving shares does not apply to
certain retirement plans.

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

GROUP PURCHASES - CLASS I ONLY. If you are a member of a qualified group, you
may buy Class I shares at a reduced sales charge that applies 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.

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and

o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

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 a fund at a reduced sales
charge under the group purchase privilege before February 1, 1998, however, may
continue to do so.

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 funds 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 2 which also apply to Class II purchases.

Certain distributions, payments or redemption proceeds that you receive may be
used to buy shares of the funds 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.
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.

2. Redemption proceeds from the sale of shares of any Franklin Templeton Fund
if you originally paid a sales charge on the shares and you reinvest the
money in the SAME CLASS of shares. This waiver does not apply to exchanges.

If you paid a Contingent Deferred Sales Charge when you redeemed your
shares from a Franklin Templeton Fund, a Contingent Deferred Sales Charge
will apply to your purchase of fund shares and a new Contingency Period
will begin. We will, however, credit your fund account with additional
shares based on the Contingent Deferred Sales Charge you paid and the
amount of redemption proceeds that you reinvest.

If you immediately placed your redemption proceeds in a Franklin Bank CD,
you may reinvest them as described above. The proceeds must be reinvested
within 365 days from the date the CD matures, including any rollover.

3. Dividend or capital gain distributions from a real estate investment trust
(REIT) sponsored or advised by Franklin Properties, Inc.

4. Annuity payments received under either an annuity option or from death
benefit proceeds, only if the annuity contract offers as an investment
option the Franklin Valuemark Funds or the Templeton Variable Products
Series Fund. You should contact your tax advisor for information on any tax
consequences that may apply.

5. Redemption proceeds from a repurchase of shares of Franklin Floating Rate
Trust, if the shares were continuously held for at least 12 months.

If you immediately placed your redemption proceeds in a Franklin Bank CD or
a Franklin Templeton money fund, you may reinvest them as described above.
The proceeds must be reinvested within 365 days from the date the CD
matures, including any rollover, or the date you redeem your money fund
shares.

6. Redemption proceeds from the sale of Class A shares of any of the Templeton
Global Strategy Funds if you are a qualified investor.

If you paid a contingent deferred sales charge when you redeemed your Class
A shares from a Templeton Global Strategy Fund, a Contingent Deferred Sales
Charge will apply to your purchase of fund shares and a new Contingency
Period will begin. We will, however, credit your fund account with
additional shares based on the contingent deferred sales charge you paid
and the amount of the redemption proceeds that you reinvest.

If you immediately placed your redemption proceeds in a Franklin Templeton
money fund, you may reinvest them as described above. The proceeds must be
reinvested within 365 days from the date they are redeemed from the money
fund.

7. Distributions from an existing retirement plan invested in the Franklin
Templeton Funds

Various individuals and institutions also may buy Class I shares without a
front-end sales charge or Contingent Deferred Sales Charge, including:

1. Trust companies and bank trust departments agreeing to invest in Franklin
Templeton Funds over a 13 month period at least $1 million of assets held
in a fiduciary, agency, advisory, custodial or similar capacity and over
which the trust companies and bank trust departments or other plan
fiduciaries or participants, in the case of certain retirement plans, have
full or shared investment discretion. We will accept orders for these
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 the order.

2. An Eligible Governmental Authority. Please consult your legal and
investment advisors to determine if an investment in the fund is
permissible and suitable for you and the effect, if any, of payments by the
fund on arbitrage rebate calculations.

3. Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs. The minimum initial investment
is $250.

4. Registered Securities Dealers and their affiliates, for their investment
accounts only

5. Current employees of Securities Dealers and their affiliates and their
family members, as allowed by the internal policies of their employer

6. Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies. The minimum initial investment
is $100.

7. Investment companies exchanging shares or selling assets pursuant to a
merger, acquisition or exchange offer

8. Accounts managed by the Franklin Templeton Group

9. Certain unit investment trusts and their holders reinvesting distributions
from the trusts

10. Group annuity separate accounts offered to retirement plans

11. Chilean retirement plans that meet the requirements described under
"Retirement Plans" below

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 funds, 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.

HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?

Your individual or employer-sponsored retirement plan may invest in the funds.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.

Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, call Retirement Plan Services.

Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.

OTHER PAYMENTS TO SECURITIES DEALERS

The payments described below may be made to Securities Dealers who initiate and
are responsible for Class II purchases and certain Class I purchases made
without a sales charge. The payments are subject to the sole discretion of
Distributors, and are paid by Distributors or one of its affiliates and not by
the fund or its shareholders.

1. Class II purchases - up to 1% of the purchase price.

2. Class I purchases of $1 million or more - up to 1% of the amount invested.

3. Class I purchases made without a front-end sales charge by certain
retirement plans described under "Sales Charge Reductions and Waivers -
Retirement Plans" above - up to 1% of the amount invested.

4. Class I purchases by trust companies and bank trust departments, Eligible
Governmental Authorities, and broker-dealers or others on behalf of clients
participating in comprehensive fee programs - up to 0.25% of the amount
invested.

5. Class I purchases by Chilean retirement plans - up to 1% of the amount
invested.

A Securities Dealer may receive only one of these payments for each qualifying
purchase. Securities Dealers who receive payments in connection with investments
described in paragraphs 1, 2 or 5 above or a payment of up to 1% for investments
described in paragraph 3 will be eligible to receive the Rule 12b-1 fee
associated with the purchase starting in the thirteenth calendar month after the
purchase.

FOR BREAKPOINTS THAT MAY APPLY AND INFORMATION ON ADDITIONAL COMPENSATION
PAYABLE TO SECURITIES DEALERS IN CONNECTION WITH THE SALE OF FUND SHARES, PLEASE
SEE "HOW DO I BUY, SELL AND EXCHANGE SHARES? - OTHER PAYMENTS TO SECURITIES
DEALERS" IN THE SAI.

FOR INVESTORS OUTSIDE THE U.S.

The distribution of this prospectus and the offering of each fund's shares may
be limited in many jurisdictions. An investor who wishes to buy shares of a fund
should determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.

MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?

We offer a wide variety of funds. If you would like, you can move your
investment from your fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.

If you own Class I shares, you may exchange into any of our money funds except
Franklin Templeton Money Fund II ("Money Fund II"). Money Fund II is the only
money fund exchange option available to Class II shareholders. Unlike our other
money funds, shares of Money Fund II may not be purchased directly and no drafts
(checks) may be written on Money Fund II accounts.

Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund, its investment goal and
policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums. Some Franklin Templeton Funds do not offer Class II shares.

- --------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions
2. Include any outstanding share certificates for
the shares you want to exchange

- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services or TeleFACTS(R)

- If you do not want the ability to exchange by phone
to apply to your account, please let us know.

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.

WILL SALES CHARGES APPLY TO MY EXCHANGE?

You generally will not pay a front-end sales charge on exchanges. If you have
held your shares less than six months, however, you will pay the percentage
difference between the sales charge you previously paid and the applicable sales
charge of the new fund. If you have never paid a sales charge on your shares
because, for example, they have always been held in a money fund, you will pay
the fund's applicable sales charge no matter how long you have held your shares.
These charges may not apply if you qualify to buy shares without a sales charge.

CONTINGENT DEFERRED SALES CHARGE. We will not impose a Contingent Deferred Sales
Charge when you exchange shares. Any shares subject to a Contingent Deferred
Sales Charge at the time of exchange, however, will remain so in the new fund.

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.

For more information about the Contingent Deferred Sales Charge, please see "How
Do I Sell Shares?"

EXCHANGE RESTRICTIONS

Please be aware that the following restrictions apply to exchanges:

o You must meet the applicable minimum investment amount of the fund you are
exchanging into, or exchange 100% of your fund shares

o You may only exchange shares within the SAME CLASS, except as noted below.

o The accounts must be identically registered. You may, however, exchange
shares from a fund account requiring two or more signatures into an
identically registered money fund account requiring only one signature for
all transactions. PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION
TO BE AVAILABLE ON YOUR ACCOUNT. Additional procedures may apply. Please see
"Transaction Procedures and Special Requirements."

o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact Retirement Plan Services for information on exchanges within
these plans.

o The fund you are exchanging into must be eligible for sale in your state.

o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.

o Your exchange may be restricted or refused if you have: (i) requested an
exchange out of the fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the fund more than twice in a calendar quarter,
or (iii) exchanged shares equal to at least $5 million, or more than 1% of
the fund's net assets. Shares under common ownership or control are combined
for these limits. If you have exchanged shares as described in this
paragraph, you will be considered a Market Timer. Each exchange by a Market
Timer, if accepted, will be charged $5.00. Some of our funds do not allow
investments by Market Timers.

o Currently, the California Fund does not allow investments by Market Timers.

Because excessive trading can hurt fund performance, operations and
shareholders, we may refuse any exchange purchase if (i) we believe the fund
would be harmed or unable to invest effectively, or (ii) the fund receives or
anticipates simultaneous orders that may significantly affect the fund.

LIMITED EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES

Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the funds, such as "Advisor Class" or "Class Z" shares. Because the
funds do not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for Class I shares of a fund at Net Asset
Value. If you do so and you later decide you would like to exchange into a fund
that offers an Advisor Class, you may exchange your Class I shares for Advisor
Class shares of that fund. Certain shareholders of Class Z shares of Franklin
Mutual Series Fund Inc. may also exchange their Class Z shares for Class I
shares of the funds at Net Asset Value.

HOW DO I SELL SHARES?

You may sell (redeem) your shares at any time.

- --------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
BY MAIL 1. Send us signed written instructions. If you would
like your redemption proceeds wired to a bank
account, your instructions should include:

o The name, address and telephone number of the
bank where you want the proceeds sent
o Your bank account number The Federal Reserve ABA
routing number
o If you are using a savings and loan or credit
union, the name of the corresponding bank and the
account number

2. Include any outstanding share certificates for the
shares you are selling

3. Provide a signature guarantee if required

4. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under court
jurisdiction may have other requirements.

- --------------------------------------------------------------------------------
BY PHONE Call Shareholder Services. If you would like your
redemption proceeds wired to a bank account, other
than an escrow account, you must first sign up for
the wire feature. To sign up, send us written
instructions, with a signature guarantee. To avoid
any delay in processing, the instructions should
include the items listed in "By Mail" above.

Telephone requests will be accepted:

o If the request is $50,000 or less. Institutional
accounts may exceed $50,000 by completing a
separate agreement. Call Institutional Services
to receive a copy.
o If there are no share certificates issued for the
shares you want to sell or you have already
returned them to the fund
o Unless you are selling shares in a Trust Company
retirement plan account
o Unless the address on your account was changed
by phone within the last 15 days

- If you do not want the ability to redeem by phone to
apply to your account, please let us know.

We will send your redemption check within seven days after we receive your
request in proper form. If you would like the check sent to an address other
than the address of record or made payable to someone other than the registered
owners on the account, send us written instructions signed by all account
owners, with a signature guarantee. We are not able to receive or pay out cash
in the form of currency.

The wiring of redemption proceeds is a special service that we make available
whenever possible for redemption requests of $1,000 or more. If we receive your
request in proper form before 1:00 p.m. Pacific time, your wire payment will be
sent the next business day. For requests received in proper form after 1:00 p.m.
Pacific time, the payment will be sent the second business day. By offering this
service to you, the funds are not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the funds nor their agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire is not processed as described in this section.

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

Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.

Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.

TRUST COMPANY RETIREMENT PLAN ACCOUNTS

To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
59 1/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call Retirement Plan Services.

CONTINGENT DEFERRED SALES CHARGE

For Class I purchases, if you did not pay a front-end sales charge because you
invested $1 million or more or agreed to invest $1 million or more under a
Letter of Intent, a Contingent Deferred Sales Charge may apply if you sell all
or a part of your investment within the Contingency Period. Once you have
invested $1 million or more, any additional Class I investments you make without
a sales charge may also be subject to a Contingent Deferred Sales Charge if they
are sold within the Contingency Period. For any Class II purchase, a Contingent
Deferred Sales Charge may apply if you sell the shares within the Contingency
Period. The charge is 1% of the value of the shares sold or the Net Asset Value
at the time of purchase, whichever is less.

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.

We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will redeem
shares subject to the charge in the order they were purchased.

Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.

WAIVERS. We waive the Contingent Deferred Sales Charge for:

o Account fees

o Sales of shares purchased without a front-end sales charge by certain
retirement plan accounts if (i) the account was opened before May 1, 1997, or
(ii) the Securities Dealer of record received a payment from Distributors of
0.25% or less, or (iii) Distributors did not make any payment in connection
with the purchase, or (iv) the Securities Dealer of record has entered into a
supplemental agreement with Distributors

o Redemptions by the fund when an account falls below the minimum required
account size

o Redemptions following the death of the shareholder or beneficial owner

o Redemptions through a systematic withdrawal plan set up before February 1,
1995

o Redemptions through a systematic withdrawal plan set up on or after February
1, 1995, at a rate of up to 1% a month of an account's Net Asset Value. For
example, if you maintain an annual balance of $1 million in Class I shares,
you can redeem up to $120,000 annually through a systematic withdrawal plan
free of charge. Likewise, if you maintain an annual balance of $10,000 in
Class II shares, $1,200 may be redeemed annually free of charge.

o Distributions from IRAs due to death or disability or upon periodic
distributions based on life expectancy

o Tax-free returns of excess contributions from employee benefit plans

o Redemptions by Trust Company employee benefit plans or employee benefit plans
serviced by ValuSelect(R)

o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee benefit
plans

WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUNDS?

The California Fund and MidCap Fund declare dividends from their net investment
income semiannually in June and December to shareholders of record on the first
business day before the 15th of the month and pay them on or about the last day
of that month.

The Blue Chip Fund declares dividends from its net investment income annually in
December to shareholders of record on the first business day before the 15th of
the month and pays them on or about the last day of that month.

Capital gains, if any, may be distributed annually, usually in December.

Dividends and capital gains are calculated and distributed the same way for each
class. The amount of any income dividends per share will differ, however,
generally due to the difference in the Rule 12b-1 fees of Class I and Class II.

Dividend payments are not guaranteed, are subject to the Board's discretion and
may vary with each payment. THE FUNDS DO NOT PAY "INTEREST" OR GUARANTEE ANY
FIXED RATE OF RETURN ON AN INVESTMENT IN THEIR SHARES.

If you buy shares shortly before the record date, please keep in mind that any
distribution will lower the value of the fund's shares by the amount of the
distribution and you will then receive a portion of the price you paid back in
the form of a taxable distribution.

DISTRIBUTION OPTIONS

You may receive your distributions from a fund in any of these ways:

1. BUY ADDITIONAL SHARES OF THE FUND - You may buy 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. BUY SHARES OF OTHER FRANKLIN TEMPLETON FUNDS - You may direct your
distributions to buy 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 receive dividends, or both dividend
and capital gain distributions in cash. If you have the money sent to another
person or to a checking account, you may need a signature guarantee. If you send
the money to a checking account, please see "Electronic Fund Transfers - Class I
Only" under "Services to Help You Manage Your Account."

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 a 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.

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 YOU DO NOT SELECT AN OPTION, WE WILL
AUTOMATICALLY REINVEST DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS IN THE SAME CLASS
OF THE FUND. You may change your distribution option at any time by notifying us
by mail or phone. Please allow at least seven days before the record date for us
to process the new option. For Trust Company retirement plans, special forms are
required to receive distributions in cash.

TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS

SHARE PRICE

When you buy shares, you pay the Offering Price. This is the Net Asset Value per
share of the class you wish to purchase, plus any applicable sales charges. When
you sell shares, you receive the Net Asset Value per share minus any applicable
Contingent Deferred Sales Charges.

The Net Asset Value we use when you buy or sell shares is the one next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the fund. Your redemption proceeds will not
earn interest between the time we receive the order from your dealer and the
time we receive any required documents.

HOW AND WHEN SHARES ARE PRICED

The funds are open for business each day the NYSE is open. We determine the Net
Asset Value per share of each class as of the close of the NYSE, normally 1:00
p.m. Pacific time. You can find the prior day's closing Net Asset Value and
Offering Price for each class in many newspapers.

The Net Asset Value of all outstanding shares of each class is calculated on a
pro rata basis. It is based on each class' proportionate participation in the
fund, determined by the value of the shares of each class. Each class, however,
bears the Rule 12b-1 fees payable under its Rule 12b-1 plan. To calculate Net
Asset Value per share of each class, the assets of each class are valued and
totaled, liabilities are subtracted, and the balance, called net assets, is
divided by the number of shares of the class outstanding. The funds' assets are
valued as described under "How Are Fund Shares Valued?" in the SAI.

WRITTEN INSTRUCTIONS

Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:

o Your name,

o The fund's name,

o The class of shares,

o A description of the request,

o For exchanges, the name of the fund you are exchanging into,

o Your account number,

o The dollar amount or number of shares, and

o A telephone number where we may reach you during the day, or in the evening
if preferred.

JOINT ACCOUNTS. For accounts with more than one registered owner, we accept
written instructions signed by only one owner for certain types of transactions
or account changes. These include transactions or account changes that you could
also make by phone, such as certain redemptions of $50,000 or less, exchanges
between identically registered accounts, and changes to the address of record.
For most other types of transactions or changes, written instructions must be
signed by all registered owners.

Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed by
all registered owners on the account.

SIGNATURE GUARANTEES

For our mutual protection, we require a signature guarantee in the following
situations:

1) You wish to sell over $50,000 worth of shares,

2) You want the proceeds to be paid to someone other than the registered
owners,

3) The proceeds are not being sent to the address of record, preauthorized
bank account, or preauthorized brokerage firm account,

4) We receive instructions from an agent, not the registered owners,

5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.

A signature guarantee verifies the authenticity of your signature. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. A NOTARIZED
SIGNATURE IS NOT SUFFICIENT.

SHARE CERTIFICATES

We will credit your shares to your fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.

Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.

TELEPHONE TRANSACTIONS

You may initiate many transactions and changes to your account by phone. Please
refer to the sections of this prospectus that discuss the transaction you would
like to make or call Shareholder Services.

When you call, we will request personal or other identifying information to
confirm that instructions are genuine. We may also record calls.

If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send us written
instructions, as described elsewhere in this prospectus.

For your protection, we may delay a transaction or not implement one if we are
not reasonably satisfied that the instructions are genuine. If this occurs, we
will not be liable for any loss. We also will not be liable for any loss if we
follow instructions by phone that we reasonably believe are genuine or if you
are unable to execute a transaction by phone.

TRUST COMPANY RETIREMENT PLAN ACCOUNTS. We cannot accept instructions to sell
shares or change distribution options on Trust Company retirement plans by
phone. While you may exchange shares of Trust Company IRA and 403(b) retirement
accounts by phone, certain restrictions may be imposed on other retirement
plans.

To obtain any required forms or more information about distribution or transfer
procedures, please call Retirement Plan Services.

ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS

When you open an account, we need you to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.

JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, we cannot accept instructions to change owners on the account unless ALL
owners agree in writing, even if the law in your state says otherwise. If you
would like another person or owner to sign for you, please send us a current
power of attorney.

GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.

TRUSTS. You should register your account as a trust only if you have a valid
written trust document. This avoids future disputes or possible court action
over who owns the account.

REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.

- --------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that identify
the general partners, or
2. A certification for a partnership agreement

- --------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- --------------------------------------------------------------------------------

STREET OR NOMINEE ACCOUNTS. If you have fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we cannot process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.

IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE

If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the funds. Telephone
instructions directly from your representative will be accepted unless you have
told us that you do not want telephone privileges to apply to your account.

KEEPING YOUR ACCOUNT OPEN

Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250, or less than $50 for
employee accounts and custodial accounts for minors. We will only do this if the
value of your account fell below this amount because you voluntarily sold your
shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $1,000,
or $100 for employee accounts and custodial accounts for minors. These minimums
do not apply to IRAs and other retirement plan accounts or to accounts managed
by the Franklin Templeton Group.

SERVICES TO HELP YOU MANAGE YOUR ACCOUNT

AUTOMATIC INVESTMENT PLAN

Our automatic investment plan offers a convenient way to invest in the funds.
Under the plan, you can have money transferred automatically from your checking
account to a fund each month to buy additional shares. If you are interested in
this program, please refer to the automatic investment plan application included
with this prospectus or contact your investment representative. The market value
of the funds' shares may fluctuate and a systematic investment plan such as this
will not assure a profit or protect against a loss. You may discontinue the
program at any time by notifying Investor Services by mail or phone.

AUTOMATIC PAYROLL DEDUCTION - CLASS I ONLY

You may have money transferred from your paycheck to a fund to buy additional
Class I shares. Your investments will continue automatically until you instruct
the fund and your employer to discontinue the plan. To process your investment,
we must receive both the check and payroll deduction information in required
form. Due to different procedures used by employers to handle payroll
deductions, there may be a delay between the time of the payroll deduction and
the time we receive the money.

SYSTEMATIC WITHDRAWAL PLAN

Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. 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 direct your payments to buy the same class of shares of another
Franklin Templeton Fund or 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 - Class I Only" below.
Once your plan is established, any distributions paid by the fund will be
automatically reinvested in your account.

You will generally receive your payment by the end of the month in which a
payment is scheduled. When you sell your shares under a systematic withdrawal
plan, it is a taxable transaction.

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold 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 discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. Please see "How Do I Buy, Sell and Exchange Shares? -
Systematic Withdrawal Plan" in the SAI for more information.

ELECTRONIC FUND TRANSFERS - CLASS I ONLY

You may choose to have dividend and capital gain distributions from Class I
shares of a fund or payments under a systematic withdrawal plan sent directly to
a checking account. If the checking account is with 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. We will send any payments made during that
time to the address of record on your account.

TELEFACTS(R)

From a touch-tone phone, you may call our TeleFACTS(R) system (day or night) at
1-800/247-1753 to:

o obtain information about your account;

o obtain price and performance information about any Franklin Templeton Fund;

o exchange shares (within the same class) between identically registered
Franklin Templeton Class I and Class II accounts; and

o request duplicate statements and deposit slips for Franklin Templeton
accounts.

You will need the code number for each class to use TeleFACTS(R). The code
numbers are as follows:

CODE NUMBER
------------------------------------------
California Fund - Class I 180
California Fund - Class II 280
MidCap Fund 196
Blue Chip Fund 283

STATEMENTS AND REPORTS TO SHAREHOLDERS

We will send you the following statements and reports on a regular basis:

o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. PLEASE VERIFY THE
ACCURACY OF YOUR STATEMENTS WHEN YOU RECEIVE THEM.

o Financial reports of the funds will be sent every six months. To reduce fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the funds' financial reports.

INSTITUTIONAL ACCOUNTS

Additional methods of buying, selling or exchanging shares of the funds may be
available to institutional accounts. Institutional investors may also be
required to complete an institutional account application. For more information,
call Institutional Services.

AVAILABILITY OF THESE SERVICES

The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the funds may not be able to offer these services directly to
you. Please contact your investment representative.

WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?

If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The funds, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.

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.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.

Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.

GLOSSARY

USEFUL TERMS AND DEFINITIONS

ADVISERS - Franklin Advisers, Inc., the funds' investment manager

AMEX - American Stock Exchange

BOARD - The Board of Trustees of the Trust

CD - Certificate of deposit

CLASS I AND CLASS II - The California Fund offers two classes of shares,
designated "Class I" and "Class II." The two classes have proportionate
interests in the fund's portfolio. They differ, however, primarily in their
sales charge and structures and Rule 12b-1 plans. Shares of the MidCap Fund and
Blue Chip Fund are considered Class I shares for redemption, exchange and other
purposes.

CODE - Internal Revenue Code of 1986, as amended

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.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.

DEPOSITARY RECEIPTS - Certificates that give their holders the right to receive
securities (a) of a foreign issuer deposited in a U.S. bank or trust company
(American Depositary Receipts, "ADRs"); or (b) of a foreign or U.S. issuer
deposited in a foreign bank or trust company (Global Depositary Receipts "GDRs"
or European Depositary Receipts, "EDRs")

DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the funds' principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."

ELIGIBLE GOVERNMENTAL AUTHORITY - Any state or local government or any
instrumentality, department, authority or agency thereof that has determined the
fund is a legally permissible investment and that can only buy shares of the
funds without paying sales charges.

FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund

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

FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds

FT SERVICES - Franklin Templeton Services, Inc., the funds' administrator

INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the funds'
shareholder servicing and transfer agent

IRA - Individual retirement account or annuity qualified under section 408 of
the Code

IRS - Internal Revenue Service

LETTER - Letter of Intent

MARKET TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.

MOODY'S - Moody's Investors Service, Inc.

NASD - National Association of Securities Dealers, Inc.

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.

NSCC - National Securities Clearing Corporation

NYSE - New York Stock Exchange

OFFERING PRICE - The public offering price is based on the Net Asset Value per
share of the class and includes the front-end sales charge. The maximum
front-end sales charge is 5.75% for Class I and 1% for Class II.

QUALIFIED RETIREMENT PLANS - An employer sponsored pension or profit-sharing
plan that qualifies under section 401 of the Code. Examples include 401(k),
money purchase pension, profit sharing and defined benefit plans.

RESOURCES - Franklin Resources, Inc.

SAI - Statement of Additional Information

S&P - Standard & Poor's Corporation

SEC - U.S. Securities and Exchange Commission

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

SEP - An employer sponsored simplified employee pension plan established under
section 408(k) of the Code

SIMPLE (Savings Incentive Match Plan for Employees) - An employer sponsored
salary deferral plan established under section 408(p) of the Code

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

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

WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.

PROSPECTUS & APPLICATION
FRANKLIN STRATEGIC SERIES
SEPTEMBER 1, 1998
INVESTMENT STRATEGIES
FRANKLIN BIOTECHNOLOGY DISCOVERY FUND GROWTH
FRANKLIN GLOBAL HEALTH CARE FUND GLOBAL GROWTH
FRANKLIN GLOBAL UTILITIES FUND GLOBAL GROWTH & INCOME
FRANKLIN NATURAL RESOURCES FUND GROWTH & INCOME

Please read this prospectus before investing, and keep it for future reference.
It contains important information, including how the fund invests and the
services available to shareholders.

This prospectus describes Class I shares of Franklin Global Health Care Fund
(the "Health Care Fund"), Franklin Global Utilities Fund (the "Utilities Fund"),
Franklin Natural Resources Fund (the "Natural Resources Fund") and Franklin
Biotechnology Discovery Fund (the "Biotechnology Fund") and Class II shares of
the Health Care Fund and the Utilities Fund. The Natural Resources Fund
currently offers another share class with a different sales charge and expense
structure, which affects performance.

To learn more about each fund and its policies, you may request a copy of the
fund's Statement of Additional Information ("SAI"), dated September 1, 1998,
which we may amend from time to time. We have filed the SAI with the SEC and
have incorporated it by reference into this prospectus.

For a free copy of the SAI or a larger print version of this prospectus, or to
receive a free copy of the prospectus for the Natural Resources Fund's other
share class, contact your investment representative or call 1-800/DIAL BEN.

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

FRANKLIN STRATEGIC SERIES
September 1, 1998

When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section.

TABLE OF CONTENTS

ABOUT THE FUNDS
Expense Summary ..................................................
Financial Highlights .............................................
How Do the Funds Invest Their Assets? ............................
What Are the Risks of Investing in the Funds? ....................
Who Manages the Funds? ...........................................
How Taxation Affects the Funds and Their Shareholders ............
How Is the Trust Organized? ......................................

GLOSSARY
Useful Terms and Definitions .....................................

777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777

1-800/DIAL BEN(R)

ABOUT THE FUNDS

EXPENSE SUMMARY

This table is designed to help you understand the costs of investing in the
funds. It is based on the historical expenses of each class for the fiscal year
ended April 30, 1998. The Biotechnology Fund's expenses are annualized. The
funds' actual expenses may vary.
<TABLE>
<CAPTION>

A. SHAREHOLDER TRANSACTION EXPENSES+ NATURAL
CLASS I BIOTECHNOLOGY FUND HEALTH CARE FUND RESOURCES FUND UTILITIES FUND
Maximum Sales Charge
<S> <C> <C> <C> <C>
(as a percentage of 5.75% 5.75% 5.75% 5.75%
Offering Price)
Paid at time of 5.75% 5.75% 5.75% 5.75%
purchase++
Paid at redemption++++ None None None None
Exchange Fee (per None None $5.00* None
transaction)

CLASS II
Maximum Sales Charge
(as a percentage of - 1.99% - 1.99%
Offering Price)
Paid at time of - 1.00%+++ - 1.00%+++
purchase
Paid at - 0.99% - 0.99%
redemption++++
Exchange Fee (per - None - None
transaction)

B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
CLASS I
Management Fees 0.63%** 0.56% 0.62%** 0.56%
Rule 12b-1 Fees 0.34%*** 0.25%*** 0.32%*** 0.25%***
Other Expenses 0.64% 0.34% 0.37% 0.22%
------- ------- ------- ------
Total Fund Operating 1.61%** 1.15% 1.31%** 1.03%
======= ======= ======= ======
Expenses

CLASS II
Management Fees - 0.56% - 0.56%
Rule 12b-1 Fees - 1.00%*** - 1.00%***
Other Expenses - 0.34% - 0.22%
------- ------
Total Fund Operating - 1.90% - 1.78%
======= ======
Expenses

C. EXAMPLE
</TABLE>

BIOTECH- HEALTH NATURAL
NOLOGY CARE RESOURCES UTILITIES
FUND FUND FUND FUND

CLASS I
1 Year**** $ 73 $ 69 $ 70 $ 67
3 Years 105 92 97 88
5 Years 140 117 125 111
10 Years 238 189 206 176

CLASS II
1 Year - 39 - 38
3 Years - 69 - 65
5 Years - 111 - 105
10 Years - 230 - 217

For the same Class II investment, you would pay projected expenses of $29(Health
Care Fund) or $28 (Utilities Fund) if you did not sell your shares at the end of
the first year. Your projected expenses for the remaining periods would be the
same.

THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
funds pay their operating expenses. The effects of these expenses are reflected
in the Net Asset Value or dividends of each class and are not directly charged
to your account.

+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
++There is no front-end sales charge if you invest $1 million or more in Class I
shares.
+++Although Class II has a lower front-end sales charge than Class I, its Rule
12b-1 fees are higher. Over time you may pay more for Class II shares. Please
see "How Do I Buy Shares? - Choosing a Share Class."
++++A Contingent Deferred Sales Charge may apply to any Class II purchase if you
sell the shares within 18 months and to Class I purchases of $1 million or more
if you sell the shares within one year. A Contingent Deferred Sales Charge may
also apply to purchases by certain retirement plans that qualify to buy Class I
shares without a front-end sales charge. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
The number in the table shows the charge as a percentage of Offering Price.
While the percentage is different depending on whether the charge is shown based
on the Net Asset Value or the Offering Price, the dollar amount you would pay is
the same. See "How Do I Sell Shares? - Contingent Deferred Sales Charge" for
details.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees were 0.52% for the Biotechnology Fund
and 0.27% for the Natural Resources Fund and total operating expenses were 1.50%
for the Biotechnology Fund and 0.96% for the Natural Resources Fund.
***These fees may not exceed 0.35% for the Biotechnology Fund and the Natural
Resources Fund. The Rule 12b-1 fees for the Biotechnology Fund are annualized.
The actual Rule 12b-1 fees for the period September 15 through April 30, 1998
were 0.39%. 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 charge permitted under the NASD's rules.
****Assumes a Contingent Deferred Sales Charge will not apply.

FINANCIAL HIGHLIGHTS

This table summarizes each fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the funds' independent auditors. Their
audit report covering each of the most recent five years appears in the Trust's
Annual Report to Shareholders for the fiscal year ended April 30, 1998. The
Annual Report to Shareholders also includes more information about the funds'
performance. For a free copy, please call Fund Information.

BIOTECHNOLOGY FUND

YEAR ENDED APRIL 30, 19981
- -------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $25.00
-------
Income from investment operations:
Net investment loss (.05)
Net realized and unrealized gains 1.99
-------
Total from investment operations 1.94
-------
Less distributions from:
Net realized gains (.05)
-------
Net Asset Value, end of year $26.89
=======
Total return* 7.78%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $73,546
Ratios to average net assets:
Expenses 1.50%***
Expenses excluding waiver and
payments by affiliate 1.61%***
Net investment loss (.44%)***
Portfolio turnover rate 75.50%
Average commission rate paid** $.0339

HEALTH CARE FUND - CLASS I

<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1998 1997 1996 1995 1994 1993 19922
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $16.11 $19.34 $11.45 $10.43 $8.88 $8.84 $10.00
---------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (.14) (.06) .11 .08 .07 .09 .02
Net realized and unrealized gains (losses) 4.58 (2.75) 8.96 1.56 1.86 .04 (1.18)
--------------------------------------------------------------------------------------
Total from investment operations 4.44 (2.81) 9.07 1.64 1.93 .13 (1.16)
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.09) (.04) (.13) (.06) (.08) (.09) -
Net realized gains (1.18) (.38) (1.05) (.56) (.30) - -
--------------------------------------------------------------------------------------
Total distributions (1.27) (.42) (1.18) (.62) (.38) (.09) -
--------------------------------------------------------------------------------------
Net Asset Value, end of year $19.28 $16.11 $19.34 $11.45 $10.43 $8.88 $8.84
======================================================================================
Total return* 28.22% (14.71)% 82.78% 16.33% 21.93% 1.41% (55.14)%***
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $176,545 $150,653 $108,914 $12,906 $5,795 $3,422 $1,368
Ratios to average net assets:
Expenses 1.15% 1.14% .73% .25% .10% - -
Expenses excluding waiver
and payments by affiliate 1.15% 1.14% 1.16% 1.37% 1.74% 2.16% 1.62%
Net investment income (loss) (.67%) (.39)% .50% .80% .68% 1.13% 1.68%***
Portfolio turnover rate 66.84% 73.17% 54.78% 93.79% 110.82% 62.74% 41.01%
Average commission rate paid** $.0358 $.0368 $.0709 - - - -
</TABLE>

HEALTH CARE FUND - CLASS II

YEAR ENDED APRIL 30, 1998 19973
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $16.07 $17.37
Income from investment operations:
Net investment loss (.20) (.07)
Net realized and unrealized gains (losses) 4.48 (.85)
Total from investment operations 4.28 (.92)
Less distributions from:
Net realized gains (1.18) (.38)
Net Asset Value, end of year $19.17 $16.07

Total return* 27.22% (5.47%)

Ratios/supplemental data
Net assets, end of year (000's) $25,321 $10,099
Ratios to average net assets:
Expenses 1.90% 1.92%***
Net investment loss (1.44%) (1.29%)***
Portfolio turnover rate 66.84% 73.17%
Average commission rate paid** $.0358 $.0368

NATURAL RESOURCES FUND

YEAR ENDED APRIL 30, 1998 1997 19964
- ------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $14.07 $13.14 $10.00
----------------------------------
Income from investment operations:
Net investment income .10 .09 .08
Net realized and unrealized gains 2.26 1.25 3.22
----------------------------------
Total from investment operations 2.36 1.34 3.30
----------------------------------
Less distributions from:
Net investment income (.09) (.09) (.06)
Net realized gains (.88) (.32) (.10)
----------------------------------
Total distributions (.97) (.41) (.16)
----------------------------------
Net Asset Value, end of year $15.46 $14.07 $13.14
==================================
Total return* 17.57% 10.23% 33.36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $62,274 $45,386 $9,909
Ratios to average net assets:
Expenses .96% .98% .99%***
Expenses excluding waiver
and payments by affiliate 1.31% 1.31% 1.77%***
Net investment income .67% .72% 1.16%***
Portfolio turnover rate 72.93% 46.31% 59.04%
Average commission rate paid** $.0305 $.0331 $.0517

UTILITIES FUND - CLASS I
<TABLE>
<CAPTION>

<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 30, 1998 1997 1996 1995 1994 19935
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $14.46 $14.28 $12.23 $12.60 $11.36 $10.00
------------------------------------------------------------------------
Income from investment operations:
Net investment income .33 .42 .37 .42 .30 .22
Net realized and unrealized gains (losses) 4.69 1.35 2.39 (.07) 1.28 1.27
------------------------------------------------------------------------
Total from investment operations 5.02 1.77 2.76 .35 1.58 1.49
------------------------------------------------------------------------
Less distributions from:
Net investment income (.37) (.38) (.39) (.36) (.30) (.13)
Net realized gains (1.75) (1.21) (.32) (.36) (.04) -
------------------------------------------------------------------------
Total distributions (2.12) (1.59) (.71) (.72) (.34) (.13)
------------------------------------------------------------------------
Net Asset Value, end of year $17.36 $14.46 $14.28 $12.23 $12.60 $11.36
========================================================================
Total return* 37.02% 12.94% 23.27% 3.17% 14.04% 18.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $226,594 $174,023 $167,225 $119,250 $124,188 $14,227
Ratios to average net assets:
Expenses 1.03% 1.00% 1.04% 1.12% .84% -
Expenses excluding waiver
and payments by affiliate 1.03% 1.00% 1.04% 1.12% 1.28% 1.51%***
Net investment income 2.02% 2.82% 2.85% 3.47% 2.95% 3.89%***
Portfolio turnover rate 45.51% 47.55% 50.51% 16.65% 16.28% -
Average commission rate paid** $.0277 $.0150 $.0313 - - -
</TABLE>

UTILITIES FUND - CLASS II

YEAR ENDED APRIL 30, 1998 1997 1996
- ------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net Asset Value, beginning of year $14.37 $14.24 $12.23
------------------------------------
Income from investment operations:
Net investment income .24 .32 .37
Net realized and unrealized gains 4.66 1.33 2.32
------------------------------------
Total from investment operations 4.90 1.65 2.69
------------------------------------
Less distributions from:
Net investment income (.27) (.31) (.36)
Net realized gains (1.75) (1.21) (.32)
------------------------------------
Total distributions (2.02) (1.52) (.68)
------------------------------------
Net Asset Value, end of year $17.25 $14.37 $14.24
====================================
Total return* 36.21% 12.04% 22.63%

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $16,324 $8,467 $2,727
Ratios to average net assets:
Expenses 1.78% 1.77% 1.81%
Net investment income 1.29% 1.98% 2.10%
Portfolio turnover rate 45.51% 47.55% 50.51%
Average commission rate paid** $.0277 $.0150 $.0313

1 For the period September 15, 1997 (effective date) to April 30, 1998.
2For the period February 14, 1992 (effective date) to April 30, 1992.
3For the period September 3, 1996 (effective date) to April 30, 1997.
4For the period June 5, 1995 (effective date) to April 30, 1996. 5For the period
July 2, 1992 (effective date) to April 30, 1993.
*Total return does not reflect sales commissions or the Contingent Deferred
Sales Charge, and is not annualized except where indicated. Prior to May 1,
1994, dividends from net investment income for the Health Care and Utilities
funds were reinvested at the Offering Price.
**Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.
***Annualized.

HOW DO THE FUNDS INVEST THEIR ASSETS?

WHAT ARE THE FUNDS' GOALS?

The investment goal of the NATURAL RESOURCES FUND is to seek to provide high
total return. The Natural Resources Fund's total return consists of both capital
appreciation and current dividend and interest income.

The investment goal of the UTILITIES FUND is to seek to provide total return,
without incurring undue risk, by investing at least 65% of its total assets in
securities issued by companies that are, in the opinion of Advisers, primarily
engaged in the ownership or operation of facilities used to generate, transmit
or distribute electricity, telephone communications, cable and other pay
television services, wireless telecommunications, gas or water. Total return
consists of both capital appreciation and current dividend and interest income.

The investment goal of the HEALTH CARE FUND is to seek capital appreciation by
investing primarily in the equity securities of health care companies located
throughout the world. The Health Care Fund will seek to invest in companies that
have, in the opinion of Advisers, the potential for above average growth in
revenues and/or earnings.

The investment goal of the BIOTECHNOLOGY FUND is to seek capital appreciation by
investing primarily in securities of biotechnology companies and discovery
research firms located in the U.S. and other countries.

These goals are fundamental, which means that they may not be changed without
shareholder approval.

WHAT KINDS OF SECURITIES DO THE FUNDS BUY?

The NATURAL RESOURCES FUND tries to achieve its goal by investing at least 65%
of its assets in the equity and debt securities of U.S. and foreign companies in
the natural resources sector. The Natural Resources Fund may also invest up to
35% of its assets outside the natural resources sector, including in U.S. and
foreign equity and debt securities and real estate investment trusts ("REITs").

The UTILITIES FUND tries to achieve its goal by investing at least 65% of its
total assets in the equity and debt securities of U.S. and foreign companies in
the utilities industries. The Utilities Fund may invest up to 35% of its assets
in securities of U.S. and foreign issuers outside the utilities industries.

The HEALTH CARE FUND invests at least 70% of its total assets in the equity
securities of U.S. and foreign health care companies. The Health Care Fund may
invest a substantial portion of its assets in smaller capitalization companies,
which are generally companies with a market capitalization of less than $1
billion at the time of the fund's investment. The Health Care Fund may also
invest up to 30% of its assets in domestic and foreign debt securities.

The BIOTECHNOLOGY FUND invests at least 65% of its assets in equity securities
of biotechnology companies. The Biotechnology Fund may also invest up to 35% of
its assets in debt securities of any type of foreign or U.S. issuer.

When the Biotechnology Fund's assets total $150 million, no new accounts, other
than retirement plan accounts, will be accepted. If you are a shareholder of
record at that time, you will be able to continue to add to your existing
account through new purchases, including purchases through reinvestment of
dividends or capital gains distributions. The Biotechnology Fund reserves the
right to modify this policy at any time.

EQUITY SECURITIES generally entitle the holder to participate in a company's
general operating results. These include common stock, preferred stock,
convertible securities, warrants, and rights.

Each fund may invest in common stock, preferred stock, and convertible
securities. The Health Care fund and the Biotechnology Fund may also invest in
warrants and rights.

DEBT SECURITIES represent an obligation of the issuer to repay a loan of money
to it, and generally, provide for the payment of interest. These include bonds,
notes, debentures, and commercial paper.

The funds may buy both rated and unrated debt securities. Independent rating
organizations rate debt securities based upon their assessment of the financial
soundness of the issuer. Generally, a lower rating indicates higher risk.
Securities rated BBB by S&P or Baa by Moody's or better are considered to be
investment grade.

The Natural Resources Fund may buy debt securities that are rated B by Moody's
or S&P or better, or unrated debt that it determines to be of comparable
quality. The Natural Resources Fund will not invest more than 15% of its total
assets in lower-rated securities (rated lower than BB by S&P or Ba by Moody's)
and unrated securities of comparable quality.

The Utilities Fund may buy debt securities that are rated Caa by Moody's or CCC
by S&P or better, or unrated debt that it determines to be of comparable
quality. The Utilities Fund will not invest more than 5% of its total assets in
non-investment grade securities.

The Natural Resources Fund and the Utilities Fund will only buy commercial paper
rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's, or unrated commercial
paper that it determines to be of comparable quality.

The Health Care Fund may buy debt securities that are rated B by Moody's or S&P
or better, or unrated debt that it determines to be of comparable quality. At
present, the Health Care Fund intends to invest less than 5% in debt securities
considered to be below investment grade.

The Biotechnology Fund generally buys debt securities that are rated investment
grade or unrated securities that it determines to be of comparable quality. The
Biotechnology Fund intends to invest less than 5% in debt securities rated below
investment grade.

THE NATURAL RESOURCES SECTOR includes companies that own, produce, refine,
process, and market natural resources and companies that provide related
services. The sector includes the following industries: integrated oil, oil and
gas exploration and production, gold and precious metals, steel and iron ore
production, aluminum production, forest products, farming products, paper
products, chemicals, building materials, energy services and technology, and
environmental services.

THE UTILITIES INDUSTRIES include companies primarily engaged in the ownership,
operation, or manufacture of facilities used to provide electricity, telephone
communications, cable and other pay television services, wireless
telecommunications, gas, or water.

HEALTH CARE COMPANIES. A health care company is one that derives at least 50% of
its earnings or revenues from health care activities, or has devoted at least
50% of its assets to such activities, based on the company's most recent fiscal
year. Health care activities include research, development, production, or
distribution of products and services in industries such as pharmaceutical,
biotechnology, health care facilities, medical supplies, medical technology,
managed care companies, health care related information systems, and personal
health care products. Advisers believes that a portfolio of global securities
may provide a greater potential for investment participation in present and
future opportunities that may present themselves in the health care related
industries.

BIOTECHNOLOGY COMPANIES. A biotechnology company has at least 50% of its
earnings derived from biotechnology activities, or at least 50% of its assets
devoted to such activities, based on the company's most recent fiscal year.
Biotechnology activities are research, development, manufacture, and
distribution of various biotechnological or biomedical products, services, and
processes. This may include companies involved with genomics, genetic
engineering, and gene therapy. It also includes companies involved in the
application and development of biotechnology in areas such as healthcare,
pharmaceuticals, and agriculture.

GOVERNMENT SECURITIES. The Natural Resources Fund and the Utilities Fund may
invest in Treasury bills, notes and bonds, which are direct obligations of the
U.S. government, backed by the full faith and credit of the U.S. Treasury, and
in securities issued or guaranteed by federal agencies. These funds may also
invest in securities issued or guaranteed by foreign governments and their
agencies.

DEPOSITARY RECEIPTS. The Natural Resources Fund may invest in American
Depositary Receipts, and the Utilities Fund, the Health Care Fund, and the
Biotechnology Fund may invest in American, European, and Global Depositary
Receipts. Depositary Receipts are certificates typically issued by a bank or
trust company that give their holders the right to receive securities issued by
a foreign or domestic corporation.

CONVERTIBLE SECURITIES. Each fund may invest in convertible securities, and the
Utilities Fund may invest in enhanced convertible securities. A convertible
security generally is a preferred stock or debt security that pays dividends or
interest and may be converted into common stock.

GENERAL. The Natural Resources Fund may invest up to 10% of its assets in REITs.
The Natural Resources Fund expects to invest more of its assets in U.S.
securities than in securities of any other single country, but the fund may
invest more than 50% of its total assets in foreign securities.

The Utilities Fund may normally invests at least 65% of its total assets in
issuers in at least three different countries. The Utilities Fund expects to
invest more of its assets in U.S. securities than in securities of any other
single country, but the fund may invest more than 65% of its total assets in
foreign securities. The Utilities Fund will limit its investments in Russian
securities to 5% of its total assets.

The Health Care Fund invests 70% of its assets in securities of issuers in at
least three different countries. The Health Care Fund will not invest more than
40% of its net assets in any one country other than the U.S. The Health Care
Fund expects that from time to time a significant portion of its investments
will be in securities of domestic issuers. When Advisers believes that no
attractive investment opportunities exist, the Health Care Fund may maintain a
significant portion of its assets in cash. The Health Care Fund will not invest
in securities of foreign issuers without stock certificates or comparable
evidence of ownership.

The Biotechnology Fund anticipates that under normal conditions, it will invest
more of its assets in U.S. securities than in securities of any other single
country, although the fund may have more than 50% of its total assets in foreign
securities. The fund may buy securities of issuers in developing nations, but it
has no present intention of doing so. The Biotechnology Fund will not invest in
securities of foreign issuers that are issued without stock certificates or
other evidences of ownership. The Biotechnology Fund may invest in securities
that are traded on U.S. or foreign securities exchanges, the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") national
market system, or in the U.S. or foreign over-the-counter markets.

Please see the SAI for more details on the types of securities in which the
funds invest.

WHAT ARE SOME OF THE FUNDS' OTHER INVESTMENT STRATEGIES AND PRACTICES?

TEMPORARY INVESTMENTS. Each fund may invest its cash temporarily in short-term
debt instruments, including U.S. government securities, CDs, high-grade
commercial paper, repurchase agreements, and other money market equivalents, and
the shares of money market funds managed by Advisers that invest primarily in
short-term debt securities. The funds will make these temporary investments with
cash they hold to maintain liquidity or pending investment. In the event of a
general decline in the market prices of stocks in which a fund invests, or when
Advisers anticipates such a decline, the fund may invest its portfolio in a
temporary defensive manner. Under such circumstances, a fund may invest up to
100% of its assets in short-term debt instruments.

REPURCHASE AGREEMENTS. Each fund will generally have a portion of its assets in
cash or cash equivalents for a variety of reasons including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the funds may enter into repurchase agreements with
certain banks and broker-dealers. Under a repurchase agreement, a fund agrees to
buy a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less than
seven days) at a higher price. The bank or broker-dealer must transfer to the
fund's custodian securities with an initial value of at least 102% of the dollar
amount invested by the fund in each repurchase agreement. The Biotechnology Fund
may also invest in tri-party repurchase agreements. In a tri-party repurchase
agreement, the security is maintained at the bank or broker-dealer's custodian
bank, as opposed to being transferred to and maintained at the fund's custodian.

The funds may also enter into reverse repurchase agreements. Under a reverse
repurchase agreement, a fund agrees to sell a security in its portfolio and then
to repurchase the security at an agreed-upon price, date, and interest payment.
The fund will maintain cash or high-grade liquid debt securities with a value
equal to the value of the fund's obligation under the agreement, including
accrued interest, in a segregated account with the fund's custodian bank. The
securities subject to the reverse repurchase agreement will be marked-to-market
daily.

HEDGING TRANSACTIONS. Hedging is a technique designed to reduce a potential loss
to the fund as a result of certain economic or market risks, including risks
related to fluctuations in interest rates, currency exchange rates between U.S.
and foreign currencies or between different foreign currencies, and broad or
specific market movements. The funds may use various hedging strategies, which
are discussed in the SAI. Many mutual funds and other institutional investors
also use these strategies. When pursuing these hedging strategies, the funds may
engage in the following types of transactions:

o options on securities, securities indices, and other financial instruments
(all funds except the Natural Resources Fund)
o futures contracts and options on futures contracts (all funds except the
Natural Resource Fund)
o currency transactions, including currency forward contracts, currency futures
contracts, options on currencies, and options on currency futures (all funds)

The Biotechnology Fund may also use these hedging transactions to produce income
to the fund or to bet on the fluctuation of certain indices, currencies, or
economic or market changes such as a reduction in interest rates. The
Biotechnology Fund will not expose more than 5% of its assets to the risks of
these instruments when it uses them for non-hedging purposes.

SECURITIES LENDING. To generate additional income, the funds may lend their
portfolio securities to qualified securities dealers or other institutional
investors. Such loans may not exceed 33% of the value of the Natural Resources
Fund's total assets, one third of the Utilities Fund's total assets, 20% of the
Health Care Fund's total assets, or one third of the Biotechnology Fund's total
assets, measured at the time of the most recent loan. For each loan, the
borrower must maintain collateral with a value at least equal to 100% of the
current market value of the loaned securities.

BORROWING. The funds do not borrow money or mortgage or pledge any of their
assets, except that each fund may enter into reverse repurchase agreements or
borrow for temporary or emergency purposes up to a specified limit. This limit
is 33% of total assets for the Natural Resources Fund and the Utilities Fund,
10% of total assets for the Health Care Fund, and 33 1/3% of total assets for
the Biotechnology Fund. A fund will not make any additional investments while
its borrowings exceed 5% of its total assets.

SHORT SALES. The Biotechnology Fund may engage in two types of short sale
transactions, "naked short sales" and "short sales against the box." In a naked
short sale transaction, the fund sells a security that it does not own to a
purchaser at a specified price. In order to complete the short sale transaction,
the fund must (1) borrow the security to deliver the security to the purchaser,
and (2) buy the same security in the market in order to return it to the
borrower. In buying the security to replace the borrowed security, the fund
expects to buy the security in the market for less than the amount it earned on
the short sale, thereby yielding a profit. No securities will be sold short if,
after the sale, the total market value of all the Biotechnology fund's open
naked short positions would exceed 50% of its assets.

The Biotechnology Fund may also sell securities "short against the box" without
limit. In a short sale against the box, the fund actually holds in its portfolio
the securities which it has sold short. In replacing the borrowed securities in
the transaction, the fund may either buy securities in the open market or use
those in its portfolio. See "Short-Selling" in the SAI for more discussion of
these practices.

PRIVATE INVESTMENTS. Consistent with their respective investment goals and
policies, the Health Care Fund and the Biotechnology Fund may from time to time
make private investments in companies whose securities are not publicly traded.
These investments typically will take the form of letter stock or convertible
preferred stock. Because these securities are not publicly traded, there is no
secondary market for the securities. The Health Care Fund and the Biotechnology
Fund will treat these securities as illiquid.

ILLIQUID INVESTMENTS. Each fund's policy is not to invest more than 15% of its
net assets (10% in the case of the Health Care Fund) in illiquid securities.
Illiquid securities are generally securities that cannot be sold within seven
days in the normal course of business at approximately the amount at which the
fund has valued them.

OTHER POLICIES AND RESTRICTIONS. Each fund has a number of additional investment
policies and restrictions that govern its activities. Those that are identified
as "fundamental" may only be changed with shareholder approval. The others may
be changed by the Board alone. For a list of these restrictions and more
information about the funds' investment policies, including those described
above, please see "How Do the Funds Invest Their Assets?" and "Investment
Restrictions" in the SAI.

TAX CONSIDERATIONS. The Fund's investments in options, futures, foreign
securities and other complex securities are subject to special tax rules that
may affect the amount, timing or character of the income earned by the fund and
distributed to you. The fund may also be subject to withholding taxes on
earnings from certain of its foreign securities. These special tax rules are
discussed in the "Additional Information on Distributions and Taxes" section of
the SAI.

WHAT ARE THE RISKS OF INVESTING IN THE FUNDS?

There is no assurance that the funds will meet their investment goals.

NATURAL RESOURCES SECTOR RISK. The securities of companies in the natural
resources sector may experience more price volatility than securities of
companies in other industries. Some of the commodities in these industries are
subject to limited pricing flexibility because of similar supply and demand
factors. Others are subject to more broad price fluctuations as a result of the
volatility of the prices for certain raw materials and the instability of
supplies of other materials. These factors can affect the profitability of
companies in the natural resources sector and, as a result, the value of their
securities.

UTILITIES INDUSTRY RISK. Utility companies are generally subject to substantial
regulations. While regulations may cause certain companies to develop more
profitable opportunities, others may be forced to defend their core businesses
and may be less profitable.

Electric utilities have historically been subject to the risks associated with
increases in fuel and other operating costs, high interest costs on borrowings,
costs associated with compliance with environmental, nuclear facility, and other
safety regulations, and changes in the regulatory climate. Increased scrutiny of
electric utilities may result in higher costs and higher capital expenditures,
with the risk that regulators may not allow these costs to be included in rate
authorizations.

Increasing competition due to past regulatory changes in the telephone
communications industry continues and, whereas certain companies have benefited,
many companies may be adversely affected in the future.

The cable television industry is regulated in most countries and, although such
companies typically have a local monopoly, emerging technologies and
pro-competitive legislation are combining to threaten these monopolies and could
change the future outlook.

The wireless telecommunications industry is in its early developmental stages,
and is predominantly characterized by emerging, rapidly growing companies. Gas
transmission and distribution companies continue to undergo significant changes
as well. Many companies have diversified into oil and gas exploration and
development, making returns more sensitive to energy prices. The water supply
industry is highly fragmented due to local ownership. Generally, these companies
are more mature and expect little or no per capita volume growth.

There is no assurance that favorable developments will occur in the utility
industries generally or that investment opportunities will continue to undergo
significant changes or growth. Please see "What are the Funds' Potential Risks?"
in the SAI for more information.

HEALTH CARE INDUSTRY RISK. The activities of health care companies may be funded
or subsidized by federal and state governments. If government subsidies are
discontinued, the profitability of these companies could be adversely affected.
Stocks held by the Health Care Fund will be affected by government policies on
health care reimbursements, regulatory approval for new drugs and medical
instruments, and similar matters. Health care companies are also subject to
legislative risk, which is the risk of a reform of the health care system
through legislation. Health care companies may face lawsuits related to product
liability issues. Also, many products and services provided by health care
companies are subject to rapid obsolescence. The value of an investment in the
Health Care fund may fluctuate significantly over relatively short periods of
time.

BIOTECHNOLOGY INDUSTRY RISK. The biotechnology industry is subject to extensive
government regulation. The industry will be affected by government regulatory
requirements, regulatory approval for new drugs and medical products, patent
considerations, product liability, and similar matters. For example, in the past
several years, the U.S. Congress has considered legislation concerning
healthcare reform and changes to the U.S. Food and Drug Administration's ("FDA")
approval process. If such legislation is passed it may affect the biotechnology
industry. As these factors impact the biotechnology industry, the value of your
shares may fluctuate significantly over relatively short periods of time.

Because the biotechnology industry is relatively new, investors may be quick to
react to developments that affect the industry. In the past, biotechnology
securities have exhibited considerable volatility in reaction to research and
other developments. In comparison to more developed industries, there may be a
thin trading market in biotechnology securities and adverse developments in the
biotechnology industry may be more likely to result in decreases in the value of
biotechnology stocks.

Biotechnology companies are often small, start-up ventures, whose products are
only in the research stage. Only a limited number of biotechnology companies
have reached the point of approval of products by the FDA and subsequent
commercial production and distribution of such products. Therefore, the success
of investments in the biotechnology industry is often based upon speculation and
expectations about future products, research progress, and new product filings
with regulatory authorities. Such investments are speculative and may drop
sharply in value in response to regulatory or research setbacks.

FOREIGN SECURITIES RISK. The value of foreign (and U.S.) securities is affected
by general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the fund. These risks can be significantly greater for investments in
emerging markets. Investments in Depositary Receipts also involve some or all of
the risks described below.

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

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

NON-DIVERSIFICATION AND INDUSTRY RISK. The funds are non-diversified, which
means that there is no limit on the amount of each fund's assets that it can
invest in any one issuer. In addition, each fund concentrates its investments in
a particular industry. Economic, business, political, or other changes can
affect securities of a similar type or industry. The funds may be more sensitive
to these changes than a diversified fund.

CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect its value.

Securities rated below investment grade, sometimes called "junk bonds,"
generally have more credit risk than higher-rated securities. The risk of
default or price changes due to changes in the issuer's credit quality is
greater. Issuers of lower-rated securities are typically in weaker financial
health than issuers of higher-rated securities, and their ability to make
interest payments or repay principal is less certain. These issuers are also
more likely to encounter financial difficulties and to be materially affected by
these difficulties when they do encounter them. The market price of lower-rated
securities may fluctuate more than higher-rated securities and may decline
significantly in periods of economic difficulty. Lower-rated securities may also
be less liquid than higher-rated securities.

Please see the SAI for more details on the risks associated with lower-rated
securities.

REITS RISK. REITs are subject to risks related to the skill of their management,
changes in value of the properties the REITs own, the quality of any credit
extended by the REITs, and general economic and other factors.

HEDGING TRANSACTIONS RISK. Hedging transactions, whether entered into as a hedge
or for gain, have risks associated with them. The three most significant risks
associated with hedging transactions are (i) possible default by the other party
to the transaction, (ii) illiquidity, and (iii) to the extent Adviser's view as
to certain market movements is incorrect, the risk that the use of hedging
transactions could result in losses greater than if they had not been used. Use
of put and call options may (i) result in losses to a fund, (ii) force the
purchase or sale of portfolio securities at inopportune times or for prices
higher than or lower than current market values, (iii) limit the amount of
appreciation a fund can realize on its investments, (iv) increase the cost of
holding a security and reduce the returns on securities, or (v) cause a fund to
hold a security it might otherwise sell.

The use of currency transactions can result in a fund incurring losses as a
result of a number of factors including the imposition of controls by a foreign
or the U.S. government on the exchange of foreign currencies, the inability of
foreign securities transactions to be completed with the security being
delivered to the fund, or the inability to deliver or receive a specified
currency.

SHORT SALES. Short sales carry risks of loss if the price of the security sold
short increases after the sale. In this situation, when the Biotechnology Fund
replaces the borrowed security by buying the security in the securities markets,
the fund may pay more for the security than it has received from the purchaser
in the short sale. The fund may, however, profit from a change in the value of
the security sold short, if the price decreases.

144A SECURITIES. Subject to its liquidity limitation, each fund may invest in
certain unregistered securities which may be sold under Rule 144A of the
Securities Act of 1933 ("144A securities"). Due to changing market or other
factors, 144A securities may be subject to a greater possibility of becoming
illiquid than securities that have been registered with the SEC for sale. In
addition, a fund's purchase of 144A securities may increase the level of the
security's illiquidity, as some institutional buyers may become disinterested in
purchasing such securities after the fund has purchased them.

INTEREST RATE CURRENCY AND MARKET RISK. To the extent a fund invests in debt
securities, changes in interest rates in any country where the fund is invested
will affect the value of the fund's portfolio and its share price. Rising
interest rates, which often occur during times of inflation or a growing
economy, are likely to have a negative effect on the value of the fund's shares.
To the extent a fund invests in common stocks, a general market decline in any
country where the fund is invested may cause the value of what the fund owns,
and thus the fund's share price, to decline. Changes in currency valuations may
also affect the price of fund shares. The value of stock markets, currency
valuations and interest rates throughout the world have increased and decreased
in the past. These changes are unpredictable.

WHO MANAGES THE FUNDS?

THE BOARD. The Board oversees the management of the funds and elects their
officers. The officers are responsible for the funds' day-to-day operations. The
Board also monitors the funds to ensure no material conflicts exist among the
fund's classes of shares. While none is expected, the Board will act
appropriately to resolve any material conflict that may arise.

MANAGEMENT TEAM. The teams responsible for the day-to-day management of the
funds' portfolios are:

BIOTECHNOLOGY FUND: Kurt von Emster, Evan McCulloch and Rupert H. Johnson, Jr
since inception in 1997.

HEALTH CARE FUND: Kurt von Emster and Rupert H. Johnson, Jr. since inception in
1992 and Evan McCulloch since 1994.

Kurt von Emster
Portfolio Manager of Advisers

Mr. von Emster is a Chartered Financial Analyst and holds a Bachelor of Arts
degree in Business and Economics from the University of California at Santa
Barbara. He has been with the Franklin Templeton Group since 1989.

Evan McCulloch
Portfolio Manager of Advisers

Mr. McCulloch is a Chartered Financial Analyst and holds a Bachelor of Science
degree in Economics from the University of California at Berkeley. He has been
with the Franklin Templeton Group since 1992. He is a member of several
industry-related associations.

Rupert H. Johnson, Jr.
President of Advisers

Mr. Johnson is a graduate of Washington and Lee University. He has been with the
Franklin Templeton Group since 1965 and prior thereto was an officer in the U.S.
Marine Corps. Mr. Johnson is a member of several securities industry-related
associations.

UTILITIES FUND: Sally Edwards Haff since the fund's inception in 1992 and Ian
Link since February 1995.

Sally Edwards Haff
Vice President of Advisers

Ms. Haff is a Chartered Financial Analyst and holds a Bachelor of Arts degree in
Economics from the University of California at Santa Barbara. She has been with
the Franklin Templeton Group since 1986. Ms. Haff is a member of several
securities industry-related associations.

Ian Link
Portfolio Manager of Advisers

Mr. Link is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the Haas School at the University of California,
Berkeley and a Bachelor of Arts degree in Economics from the University of
California at Davis. He has been with the Franklin Templeton Group since 1989.
He is a member of several securities industry-related associations.

NATURAL RESOURCES FUND: Suzanne Willoughby Killea since inception in 1995 and
Edward D. Perks since 1996.

Suzanne Willoughby Killea
Portfolio Manager of Advisers

Edward D. Perks
Portfolio Manager of Advisers

Mr. Perks is a Certified Financial Analyst and holds a Bachelor of Arts degree
in Economics and Political Science from Yale University. Mr. Perks joined the
Franklin Templeton Group in October 1992.

MANAGEMENT FEES. The table below shows the management fees paid to Advisers and
total expenses of each fund during the fiscal year ended April 30, 1998, as a
percentage of average daily net assets.

MANAGEMENT TOTAL OPERATING TOTAL
FEES BEFORE ANY MANAGEMENT EXPENSES BEFORE ANY OPERATING
ADVANCE WAIVER FEES PAID ** ADVANCE WAIVER EXPENSES PAID
CLASS I
Biotechnology Fund*.... 0.63% 0.52% 1.61% 1.50%
Health Care Fund....... 0.56% 0.56% 1.15% 1.15%
Natural Resources Fund. 0.62% 0.27% 1.31% 0.96%
Utilities Fund......... 0.56% 0.56% 1.03% 1.03%

CLASS II
Health Care Fund....... 0.56% 0.56% 1.90% 1.90%
Utilities Fund......... 0.56% 0.56% 1.78% 1.78%

* Annualized
**Under an agreement by Advisers to limit its fees, the Biotechnology Fund and
the Natural Resources Fund paid the management fees and operating expenses
shown. Advisers ended this arrangement as of May 1, 1998.

ADMINISTRATIVE SERVICES. Under an agreement with Advisers, FT Services provides
certain administrative services and facilities for the funds. During the fiscal
year ended April 30, 1998, administration fees paid to FT Services, as a
percentage of average daily net assets, were as follows:

ADMINISTRATION
FEES
- -----------------------------------------
Biotechnology Fund 0.10%*
Health Care Fund 0.15%
Natural Resources Fund 0.15%
Utilities fund 0.15%

*For the period September 15, 1997 through April 30, 1998. Annualized.

For the Health Care, Natural Resources, and Utilities funds, these fees are paid
by Advisers and are not a separate expense of the fund. For the Biotechnology
Fund, these fees are included in the amount of total expenses shown above.
Please see "Investment Management and Other Services" in the SAI for more
information.

THE RULE 12B-1 PLANS

Class I and Class II have separate distribution plans or "Rule 12b-1 Plans"
under which they may pay or reimburse Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses may include, among others, distribution or service fees paid to
Securities Dealers or others who have executed a servicing agreement with the
fund, Distributors or its affiliates; a prorated portion of Distributors'
overhead expenses; and the expenses of printing prospectuses and reports used
for sales purposes, and preparing and distributing sales literature and
advertisements.

Payments by the Biotechnology Fund and the Natural Resources Fund under the
Class I plan may not exceed 0.35% per year of Class I's average daily net
assets. Of this amount, each fund may reimburse up to 0.35% to Distributors or
others, out of which 0.10% will generally be retained by Distributors for
distribution expenses. Payments by the Health Care Fund and the Utilities Fund
may not exceed 0.25% per year of Class I's average daily net assets. All
distribution expenses over this amount will be borne by those who have incurred
them. During the first year after certain Class I purchases made without a sales
charge, Securities Dealers may not be eligible to receive the Rule 12b-1 fees
associated with the purchase.

Under the Class II plan, the Health Care Fund and the Utilities Fund may pay
Distributors up to 0.75% per year of Class II's average daily net assets to pay
Distributors or others for providing distribution and related services and
bearing certain Class II expenses. All distribution expenses over this amount
will be borne by those who have incurred them. During the first year after a
purchase of Class II shares, Securities Dealers may not be eligible to receive
this portion of the Rule 12b-1 fees associated with the purchase.

The Health Care Fund and the Utilities Fund may also pay a servicing fee of up
to 0.25% per year of Class II's average daily net assets under the Class II
plan. This fee may be used to pay Securities Dealers or others for, among other
things, helping to establish and maintain customer accounts and records, helping
with requests to buy and sell shares, receiving and answering correspondence,
monitoring dividend payments from the fund on behalf of customers, and similar
servicing and account maintenance activities.

The Rule 12b-1 fees charged to each class are based only on the fees
attributable to that particular class. For more information, please see "The
Funds' Underwriter" in the SAI.

HOW TAXATION AFFECTS THE FUNDS AND THEIR SHAREHOLDERS

TAXATION OF THE FUNDS' INVESTMENTS.
<S> <C>
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Each fund invests your money in the HOW DO THE FUNDS EARN INCOME AND GAINS?
stocks, bonds and other securities that Each fund earns dividends and interest (the
are described in the section "How Do the fund's "income") on its investments. When a
Funds Invest Their Assets?" Special tax fund sells a security for a price that is
rules may apply in determining the income higher than it paid, it has a gain. When a
and gains that each fund earns on its fund sells a security for a price that is
investments. These rules may, in turn, lower than it paid, it has a loss. If a fund
affect the amount of distributions that a has held the security for more than one year,
fund pays to you. These special tax rules the gain or loss will be a long-term capital
are discussed in the SAI. gain or loss. If a fund has held the
security for one year or less, the gain or
TAXATION OF THE FUNDS. As a regulated loss will be a short-term capital gain or
investment company, each fund generally loss. A fund's gains and losses are netted
pays no federal income tax on the income together, and, if the fund has a net gain
and gains that it distributes to you. (the fund's "gains"), that gain will
generally be distributed to you.
-----------------------------------------------

FOREIGN TAXES. Foreign governments may impose taxes on the income and gains from
a fund's investments in foreign stocks and bonds. These taxes will reduce the
amount of a fund's distributions to you.

TAXATION OF SHAREHOLDERS.
-----------------------------------------------
DISTRIBUTIONS. Distributions from a fund, WHAT IS A DISTRIBUTION?
whether you receive them in cash or in As a shareholder, you will receive your share
additional shares, are generally subject of a fund's income and gains on its
to income tax. The fund will send you a investments in stocks, bonds and other
statement in January of the current year securities. A fund's income and short term
that reflects the amount of ordinary capital gains are paid to you as ordinary
dividends, capital gain distributions and dividends. A fund's long-term capital gains
non-taxable distributions you received are paid to you as capital gain
from the fund in the prior year. This distributions. If a fund pays you an amount
statement will include distributions in excess of its income and gains, this
declared in December and paid to you in excess will generally be treated as a
January of the current year, but which are non-taxable distribution. These amounts,
taxable as if paid on December 31 of the taken together, are what we call a fund's
prior year. The IRS requires you to distributions to you.
report these amounts on your income tax -----------------------------------------------
return for the prior year. A fund's
statement for the prior year will tell you
how much of your capital gain distribution
represents 28% rate gain. The remainder
of the capital gain distribution
represents 20% rate gain.

DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your qualified
retirement plan, such as a 401(k) plan or IRA, are generally tax-deferred; this
means that you are not required to report fund distributions on your income tax
return when paid to your plan, but, rather, when your plan makes payments to
you. Special rules apply to payouts from Roth and Education IRAs.
DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends they receive
from a fund.

-----------------------------------------------
REDEMPTIONS AND EXCHANGES. If you redeem WHAT IS A REDEMPTION?
your shares or if you exchange your shares A redemption is a sale by you to the fund of
in a fund for shares in another Franklin some or all of your shares in the fund. The
Templeton Fund, you will generally have a price per share you receive when you redeem
gain or loss that the IRS requires you to fund shares may be more or less than the
report on your income tax return. If you price at which you purchased those shares.
exchange fund shares held for 90 days or An exchange of shares in the fund for shares
less and pay no sales charge, or a reduced of another Franklin Templeton Fund is treated
sales charge, for the new shares, all or a as a redemption of fund shares and then a
portion of the sales charge you paid on purchase of shares of the other fund. When
the purchase of the shares you exchanged you redeem or exchange your shares, you will
is not included in their cost for purposes generally have a gain or loss, depending upon
of computing gain or loss on the whether the amount you receive for your
exchange. If you hold your shares for six shares is more or less than your cost or
months or less, any loss you have will be other basis in the shares. Call Fund
treated as a long-term capital loss to the Information for a free shareholder Tax
extent of any capital gain distributions Information Handbook if you need more
received by you from a fund. All or a information in calculating the gain or loss
portion of any loss on the redemption or on the redemption or exchange of your shares.
exchange of your shares will be disallowed -----------------------------------------------
by the IRS if you purchase other shares in
the fund within 30 days before or after
your redemption or exchange.

-----------------------------------------------
BACKUP WITHHOLDING. When you open an WHAT IS A BACKUP WITHHOLDING?
account, IRS regulations require that you Backup withholding occurs when a fund is
provide your taxpayer identification required to withhold and pay over to the IRS
number ("TIN"), certify that it is 31% of your distributions and redemption
correct, and certify that you are not proceeds. You can avoid backup withholding
subject to backup withholding under IRS by providing the fund with your TIN, and by
rules. If you fail to provide a correct completing the tax certifications on your
TIN or the proper tax certifications, the shareholder application that you were asked
fund is required to withhold 31% of all to sign when you opened your account.
the distributions (including ordinary However, if the IRS instructs the fund to
dividends and capital gain distributions), begin backup withholding, it is required to
and redemption proceeds paid to you. The do so even if you provided the fund with your
fund is also required to begin backup TIN and these tax certifications, and backup
withholding on your account if the IRS withholding will remain in place until the
instructs the fund to do so. The fund fund is instructed by the IRS that it is no
reserves the right not to open your longer required.
account, or, alternatively, to redeem your -----------------------------------------------
shares at the current net asset value,
less any taxes withheld, if you fail to
provide a correct TIN, fail to provide
the proper tax certifications, or the IRS
instructs the fund to begin backup
withholding on your account.
</TABLE>

HOW IS THE TRUST ORGANIZED?

Each fund is a non-diversified series of Franklin Strategic Series (the
"Trust"), an open-end management investment company, commonly called a mutual
fund. It was organized as a Delaware business trust on January 25, 1991, and is
registered with the SEC. As of January 1, 1997, the Natural Resources Fund began
offering a new class of shares designated Franklin Natural Resources Fund -
Advisor Class. All shares outstanding before the offering of Advisor Class
shares have been designated Franklin Natural Resources Fund - Class I. The
Health Care Fund and the Utilities Fund offer two class of shares: Franklin
Global Health Care Fund - Class I, Franklin Global Health Care Fund - Class II,
Franklin Global Utilities Fund - Class I, and Franklin Global Utilities Fund -
Class II. All shares outstanding before the offering of Class II shares are
considered Class I shares. Additional series and classes of shares may be
offered in the future.

Shares of each class of a fund represent proportionate interests in the assets
of the fund and have the same voting and other rights and preferences as any
other class of the fund for matters that affect the fund as a whole. For matters
that only affect one class, however, only shareholders of that class may vote.
Each class will vote separately on matters affecting only that class, or
expressly required to be voted on separately by state or federal law. Shares of
each class of a series have the same voting and other rights and preferences as
the other classes and series of the Trust for matters that affect the Trust as a
whole.

ABOUT YOUR ACCOUNT

HOW DO I BUY SHARES?

OPENING YOUR ACCOUNT

To open your account, please follow the steps below. This will help avoid any
delays in processing your request. PLEASE KEEP IN MIND THAT THE BIOTECHNOLOGY
FUND, THE HEALTH CARE FUND AND THE UTILITIES FUND DO NOT CURRENTLY ALLOW
INVESTMENTS BY MARKET TIMERS.

1. Read this prospectus carefully.

2. Determine how much you would like to invest. The funds' minimum investments
are:

We reserve the right to change the amount of these minimums from time to
time or to waive or lower these minimums for certain purchases. We also
reserve the right to refuse any order to buy shares.

4. Make your investment using the table below.

Return the application to the fund with your check
made payable to the fund.

For additional investments:

Send a check made payable to the fund. Please
include your account number on the check.

2. For an initial investment you must also return
your signed shareholder application to the fund.

CHOOSING A SHARE CLASS

Each class of the Health Care Fund and the Utilities Fund has its own sales
charge and expense structure, allowing you to choose the class that best meets
your situation. The class that may be best for you depends on a number of
factors, including the amount and length of time you expect to invest.
Generally, Class I shares may be more attractive for long-term investors or
investors who qualify to buy Class I shares at a reduced sales charge. Your
financial representative can help you decide.

PURCHASE PRICE OF FUND SHARES

For Class I shares (including shares of the Biotechnology and the Natural
Resources Fund, the sales charge you pay depends on the dollar amount you
invest, as shown in the table below. The sales charge for Class II shares of the
Health Care Fund and the Utilities Fund is 1% and, unlike Class I, does not vary
based on the size of your purchase.

TOTAL SALES CHARGE AMOUNT PAID TO
AS A PERCENTAGE OF DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- -----------------------------------------------------------------------
CLASS I
Under $50,000 5.75% 6.10% 5.00%
$50,000 but less than 4.50% 4.71% 3.75%
$100,000
$100,000 but less than 3.50% 3.63% 2.80%
$250,000
$250,000 but less than 2.50% 2.56% 2.00%
$500,000
$500,000 but less than 2.00% 2.04% 1.60%
$1,000,000
$1,000,000 or more* None None None

CLASS II
Under $1,000,000* 1.00% 1.01% 1.00%

SALES CHARGE REDUCTIONS AND WAIVERS

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

o You authorize Distributors to reserve 5% of your total intended purchase in
Class I shares registered in your name until you fulfill your Letter.

o You give Distributors a security interest in the reserved shares and appoint
Distributors as attorney-in-fact.

o Distributors may sell any or all of the reserved shares to cover any
additional sales charge if you do not fulfill the terms of the Letter.

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

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

A qualified group is one that:

o Was formed at least six months ago,

o Has a purpose other than buying fund shares at a discount,

o Has more than 10 members,

o Can arrange for meetings between our representatives and group members,

o Agrees to include Franklin Templeton Fund sales and other materials in
publications and mailings to its members at reduced or no cost to
Distributors,

o Agrees to arrange for payroll deduction or other bulk transmission of
investments to the fund, and

o Meets other uniform criteria that allow Distributors to achieve cost savings
in distributing shares.

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.

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 2 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: