FRANKLIN STRATEGIC SERIES, 497, 1999-09-07

FRANKLIN STRATEGIC SERIES
497, 1999-09-07

Previous: CHASE MANHATTAN BANK USA, S-3/A, 1999-09-07

Next: IMMULOGIC PHARMACEUTICAL CORP /DE, SC 13D, 1999-09-07

PROSPECTUS

FRANKLIN STRATEGIC SERIES

INVESTMENT STRATEGY

GROWTH

FRANKLIN AGGRESSIVE GROWTH FUND - CLASS A, B & C
FRANKLIN BLUE CHIP FUND - CLASS A
FRANKLIN CALIFORNIA GROWTH FUND - CLASS A, B & C
FRANKLIN LARGE CAP GROWTH FUND - CLASS A, B & C
FRANKLIN MIDCAP GROWTH FUND - CLASS A
FRANKLIN SMALL CAP GROWTH FUND - CLASS A & C

SEPTEMBER 1, 1999

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.

CONTENTS

The Fund

INFORMATION ABOUT
EACH FUND YOU SHOULD
KNOW BEFORE INVESTING

2 Franklin Aggressive Growth Fund

9 Franklin Blue Chip Fund

16 Franklin California Growth Fund

26 Franklin Large Cap Growth Fund

32 Franklin MidCap Growth Fund

39 Franklin Small Cap Growth Fund

47 Distributions and Taxes; Year 2000 Problem

Your Account

INFORMATION ABOUT
SALES CHARGES, ACCOUNT
TRANSACTIONS AND SERVICES

49 Choosing a Share Class

54 Buying Shares

56 Investor Services

59 Selling Shares

61 Account Policies

64 Questions

For More Information

WHERE TO LEARN MORE
ABOUT EACH FUND

Back Cover

Franklin Aggressive Growth Fund

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS The fund normally invests primarily in equity
securities of companies demonstrating accelerating growth, increasing
profitability, or above-average growth or growth potential as compared with
the overall economy.

[BEGIN - CALL OUT BOX]

The fund invests primarily in aggressive growth companies' equity securities.

[END - CALL OUT BOX]

Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, convertible securities
and warrants.

The fund invests in small, medium, and large capitalization companies with
strong growth potential across a wide range of sectors. In choosing equity
investments, the fund's manager will focus on sectors that have exceptional
growth potential and fast growing, innovative companies within these sectors.
In addition, solid management and sound financial records are factors the
manager also considers.

Although the manager will search for investments across a large number of
sectors, it expects to have significant positions in particular sectors.
These sectors may include, for example, technology (including computers and
telecommunications), health care (including biotechnology), consumer
products, and consumer services (including media, broadcasting and
entertainment).

TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economy are
experiencing excessive volatility or a prolonged general decline, or other
adverse conditions exist. Under these circumstances, the fund may be unable
to pursue its investment goal, because it may not invest or may invest
substantially less in aggressive growth companies' equity securities.

Main Risks

[Insert graphic of chart with line going up and down]

[BEGIN - CALL OUT BOX]

Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.

[END - CALL OUT BOX]

STOCKS While stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.

The prices of aggressive growth stocks are based largely on projections of
the issuer's future earnings and revenues. If a company's earnings or
revenues fall short of expectations, its stock price may fall dramatically.
The fund's manager uses an aggressive growth strategy in choosing the fund's
investments. As a result, an investment in the fund involves a greater degree
of risk and its share price may be more volatile than an investment in a
conservative equity fund or a growth fund investing entirely in proven growth
stocks. Aggressive growth stocks may be more expensive relative to their
earnings or assets compared to value or other stocks.

SMALLER AND MIDSIZE COMPANIES Historically, smaller and midsize company
securities 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 and midsize
companies, the lower degree of liquidity in the markets for such securities,
and the greater sensitivity of smaller and midsize companies to changing
economic conditions.

Smaller and midsize companies involve greater risks than larger, more
established companies and should be considered speculative.

HEALTH CARE COMPANIES The activities of health care companies may be funded
or subsidized by federal and state governments. If government funding and
subsidies are reduced or discontinued, the profitability of these companies
could be adversely affected. Health care companies may also be affected by
government policies on health care reimbursements, regulatory approval for
new drugs and medical instruments, and similar matters. They are also subject
to legislative risk, i.e., the risk of a reform of the health care system
through legislation.

TELECOMMUNICATIONS, MEDIA, AND BROADCASTING COMPANIES The activities of
telecommunications, media, and broadcasting companies operate under
international, federal, and state regulations. These companies may be
adversely affected by changes in government regulations. In addition, these
sectors have been undergoing deregulation to enable increased competition,
which could affect the companies in these sectors that the fund holds.

CONSUMER PRODUCTS, SERVICES, AND ENTERTAINMENT COMPANIES These companies have
historically been sensitive to the economy in general, through changes in
consumer spending patterns. These companies may be adversely affected by
changes in consumer opinion or demand for a given product or service.

PORTFOLIO TURNOVER Because of the fund's aggressive growth strategy, the
fund's portfolio turnover rate may be higher than that of other mutual funds.
High portfolio turnover may involve additional expenses to the fund,
including transaction costs for purchases and sales of securities. These
transactions may result in realization of taxable capital gains, including
short-term capital gains, which are generally taxed at ordinary income tax
rates.

MARKET A security's value may be reduced by market activity or the results
of supply and demand. This is a basic risk associated with all securities.
When there are more sellers than buyers, prices tend to fall. Likewise, when
there are more buyers than sellers, prices tend to rise.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by
companies about their Year 2000 readiness. The manager, of course, cannot
audit each company and its major suppliers to verify their Year 2000
readiness.

If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be
adversely affected. A decrease in the value of one or more of the fund's
portfolio holdings will have a similar impact on the fund's performance.
Please see page 48 for more information.

More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).

[BEGIN - CALL OUT BOX]

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.

[END - CALL OUT BOX]

PERFORMANCE

[Insert graphic of bull and bear]

Because the fund is new, it has no performance history.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------

Maximum sales charge (load) as a
percentage of offering price ...................... 5.75% 4.00 1.99%
Load imposed on purchases .......................... 5.75% None 1.00%
Maximum deferred sales charge (load) ............... None 1 4.00% 0.99% 2
Exchange fee 3......................................$ 5.00 $5.00 $5.00

Please see "Choosing a Share Class" on page 49 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)4

CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Management fees 5 0.50% 0.50% 0.50%
Distribution and service (12b-1) fees 6 0.35% 1.00% 1.00%
Other expenses 5 0.84% 0.84% 0.84%
-------------------------
Total annual fund operating expenses 5 1.69% 2.34% 2.34%
=========================

1. Except for investments of $1 million or more (see page 50) and purchases
by certain retirement plans without an initial sales charge.

2. This is equivalent to a charge of 1% based on net asset value.

3. This fee is only for market timers (see page 62).

4. The management fees and distribution and service (12b-1) fees shown are
based on the fund's maximum contractual amount. Other expenses are estimated
for the current fiscal year.

5. The manager and administrator have agreed in advance to limit their
respective fees and to assume as their own expense certain expenses otherwise
payable by the fund. With this reduction, management and administration fees
are estimated to be 0.26% and total annual fund operating expenses are
estimated to be 1.25% for Class A, 1.90% for Class B, and 1.90% for Class C
for the current fiscal year. The manager and administrator may end this
arrangement at any time upon notice to the fund's Board of Trustees.

6. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell
all of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS
- --------------------------------------------------------

CLASS A $ 737 1 $ 1,077
CLASS B
Assuming you sold your shares
at the end of the period $ 637 $ 1,030
Assuming you stayed in the fund $ 237 $ 730

CLASS C $ 433 2 $ 823

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. For the same Class C investment, your costs would be $335 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS

Mr. Herrmann has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1989.

MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS

Mr. McCarthy has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1992.

JOHN P. SCANDALIOS, SENIOR SECURITIES ANALYST OF ADVISERS

Mr. Scandalios has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1996. Previously, he was with Chase Manhattan
Bank.

The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of:

o 0.50% of the value of net assets up to and including $500 million;

o 0.40% of the value of net assets over $500 million up to and including $1
billion;

o 0.35% of the value of net assets over $1 billion up to and including $1.5
billion;

o 0.30% of the value of net assets over $1.5 billion up to and including $6.5
billion;

o 0.275% of the value of net assets over $6.5 billion up to and including
$11.5 billion;

o 0.25% of the value of net assets over $11.5 billion up to and including
$16.5 billion;

o 0.24% of the value of net assets over $16.5 billion up to and including $19
billion;

o 0.23% of the value of net assets over $19 billion up to and including $21.5
billion; and

o 0.22% of the value of net assets in excess of $21.5 billion.

Franklin Blue Chip Fund

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is long-term capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest at
least 80% of its total assets in equity securities of blue chip companies
located in the U.S.

For purposes of the fund's investments, blue chip companies are
well-established companies with a record of growth in earnings, revenue, or
EBITDA (earnings before interest, taxes, depreciation and amortization)
relative to other companies in their respective industries. These companies
generally dominate or are expected to dominate their respective industries
and have a reputation for quality management as well as superior products and
services.

[BEGIN - CALL OUT BOX]

The fund invests primarily in blue chip companies' common stocks.

[END - CALL OUT BOX]

Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, preferred stocks,
convertible securities and warrants. The fund tries to be fully invested at
all times in equity securities, and it invests primarily in common stocks.

In choosing equity investments, the fund's manager focuses on companies that
have a sustainable competitive advantage, a strong financial record, and a
market capitalization of more than $1 billion. The manager searches for
investments across a large number of industries. The fund intends to limit
its investment in foreign securities not publicly traded in the U.S. to 10%
of total assets. This may include companies in developed or emerging markets.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position
when it believes the securities trading markets or the economies where the
fund invests are experiencing excessive volatility or a prolonged general
decline, or other adverse conditions exist. Under these circumstances, the
fund may be unable to pursue its investment goal, because it may not invest
or may invest substantially less in blue chip companies' common stocks.

MAIN RISKS

[Insert graphic of chart with line going up and down]

[BEGIN - CALL OUT BOX]

Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.

[END - CALL OUT BOX]

FOREIGN SECURITIES Securities of companies located outside the U.S. may
involve risks that can increase the potential for losses in the fund.
Investments in depositary receipts also involve some or all of the following
risks.

COUNTRY. General securities market movements in any country where the fund
has investments are likely to affect the value of the securities the fund
owns that trade in that country.

CURRENCY To the extent the fund's investments are denominated in foreign
currencies, changes in foreign currency exchange rates will affect the value
of what the fund owns and the fund's share price. Generally, when the U.S.
dollar rises in value against a foreign currency, an investment in that
country loses value because that currency is worth fewer U.S. dollars.
Devaluation of a currency by a country's government or banking authority also
will have a significant impact on the value of any securities denominated in
that currency. Currency markets generally are not as regulated as securities
markets.

EURO. On January 1, 1999, the European Monetary Union (EMU) introduced a new
single currency, the euro, which will replace the national currency for
participating member countries.

Because this change to a single currency is new and untested, it is not
possible to predict the impact of the euro on the business or financial
condition of European issuers which the fund may hold in its portfolio, and
their impact on fund performance. To the extent the fund holds non-U.S.
dollar (euro or other) denominated securities, it will still be exposed to
currency risk due to fluctuations in those currencies versus the U.S. dollar.

MARKET A security's value may be reduced by market activity or the results of
supply and demand. This is a basic risk associated with all securities. When
there are more sellers than buyers, prices tend to fall. Likewise, when there
are more buyers than sellers, prices tend to rise.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by
companies about their Year 2000 readiness. Issuers in countries outside the
U.S., particularly in emerging markets, may be more susceptible to Year 2000
risks and may not be required to make the same level of disclosure about Year
2000 readiness as is required in the U.S. The manager, of course, cannot
audit each company and its major suppliers to verify their Year 2000
readiness.

More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).

[Begin callout]

[End callout]

PERFORMANCE

[Insert graphic of bull and bear]

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past two calendar
years. The table shows how the fund's average annual total returns compare to
those of two broad-based securities market indices. Of course, past
performance cannot predict or guarantee future results.

[BEGIN - CALL OUT BOX]

Best
Quarter:

Q4 '98
18.66%

Worst
Quarter:

Q3 '98
- -10.85%

[END - CALL OUT BOX]

ANNUAL TOTAL RETURNS1
7.45% 18.24%

97 98

Year

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR (6/3/96)
- -----------------------------------------------

Blue Chip Fund2 11.43% 9.54%
S&P 500 Index3,4 28.58% 28.79%
MSCI World Index4,5 24.80% 18.45%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of June 30, 1999, the fund's year-to-date return was 13.05%.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains.

3. Source: Standard & Poor's(R) Micropal. The S&P 500(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.

4. The S&P 500 Index is replacing the MSCI World Index as the fund's
benchmark. The manager believes the composition of the S&P 500 Index provides
a more appropriate comparison to the fund's current portfolio because the
fund now has a more domestic focus. The MSCI World Index may be excluded from
this comparison in the future.

5. Source: Standard & Poor's(R) Micropal. The unmanaged MSCI World Index tracks
the performance of approximately 1500 securities in 22 countries and is
designed to measure world stock market performance. It includes reinvested
dividends. One cannot invest directly in an index, nor is an index
representative of the fund's portfolio.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Maximum sales charge (load) as a percentage of offering price 5.75%
Load imposed on purchases 5.75%
Maximum deferred sales charge (load) None 1
Exchange fee 2 $5.00

Please see "Choosing a Share Class" on page 49 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

Management fees3 0.75%
Distribution and service (12b-1) fees 4 0.30%
Other expenses 0.46%
-----
Total annual fund operating expenses 3 1.51%
=====

1. Except for investments of $1 million or more (see page 50) and purchases
by certain retirement plans without an initial sales charge.

2. This fee is only for market timers (see page 62).

3. For the fiscal year ended April 30, 1999, the manager 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 0.49% and total annual fund operating expenses were 1.25%. The manager
may end this arrangement at any time upon notice to the fund's Board of
Trustees.

4. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------
$720 1 $1,026 $1,353 $2,277

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

SALLY EDWARDS HAFF, SENIOR VICE PRESIDENT OF ADVISERS

Ms. Haff has been a manager of the fund since April, 1999. She joined the
Franklin Templeton Group in 1986.

ALYSSA RIEDER, PORTFOLIO MANAGER OF ADVISERS

Ms. Rieder has been a manager of the fund since April, 1999. She joined the
Franklin Templeton Group in 1998. Previously, she was in financial management
roles at T. Rowe Price and YFA.

The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended April 30, 1999, management
fees, before any advance waiver, were 0.75% of the fund's average daily net
assets. Under an agreement by the manager to limit its fees, the fund paid
0.49% of its average daily net assets to the manager. The manager may end
this arrangement at any time upon notice to the fund's Board of Trustees.

FINANCIAL HIGHLIGHTS

[Insert graphic of dollar bill]

This table presents the fund's financial performance since its inception.
This information has been audited by PricewaterhouseCoopers LLP.

YEAR ENDED APRIL 30,

1999 1998 1997 1
- -------------------------------------------------------------------------

PER SHARE DATA ($)

Net asset value, beginning of year 12.46 10.85 10.00
--------------------------
Net investment income .04 .09 .09
Net realized and unrealized gains 1.97 1.67 .82
--------------------------
Total from investment operations 2.01 1.76 .91
--------------------------
Distributions from net investment income (.06) (.06) (.06)
Distributions from net realized gains - (.09) -
--------------------------
Total distributions (.06) (.15) (.06)
--------------------------
Net asset value, end of year 14.41 12.46 10.85
==========================
Total return (%)2 16.18 16.41 9.14

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 54,880 16,836 5,600
Ratios to average net assets: (%)
Expenses 1.25 1.25 1.25 3
Expenses excluding waiver and
payments by affiliate 1.51 1.95 2.22 3
Net investment income .55 1.04 1.07 3
Portfolio turnover rate (%) 35.74 57.67 11.14

1. For the period June 3, 1996 (effective date) to April 30, 1997.

2. Total return does not include sales charges, and is not annualized.

3. Annualized.

FRANKLIN CALIFORNIA
GROWTH FUND

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS The fund normally invests primarily in equity
securities of California companies.

[BEGIN - CALL OUT BOX]

The fund invests primarily in California companies' equity securities.

[END - CALL OUT BOX]

For purposes of the fund's investments, California companies are companies
headquartered or conducting a majority of their operations in the state of
California. The fund invests in small to mid-size companies as well as in
relatively well-known, larger capitalization companies in mature industries
that the manager believes have the potential for capital appreciation.

Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, preferred stocks,
convertible securities and warrants.

The manager expects to invest a portion of the fund's assets in securities of
companies in the technology sector, including computer companies. Typically,
the fund will invest in technology companies that market their products or
services globally rather than only domestically or regionally.

MAIN RISKS

[Insert graphic of chart with line going up and down]

CALIFORNIA Since the fund invests heavily in California companies' equity
securities, events and conditions in California are likely to affect the
fund's investments and its performance. These events may include changes in
economic and political conditions. These and other conditions within
California are unpredictable and can change at any time.

[BEGIN - CALL OUT BOX]

Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.

[END - CALL OUT BOX]

The prices of growth stocks are based largely on projections of the issuer's
future earnings and revenues. If a company's earnings or revenues fall short
of expectations, its stock price may fall dramatically. Growth stocks may be
more expensive relative to their earnings or assets compared to value or
other stocks. Because the fund invests in growth stocks, its share price may
be more volatile than other types of investments.

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

Smaller and midsize companies involve greater risks than larger, more
established companies and should be considered speculative.

MARKET A security's value may be reduced by market activity or the results of
supply and demand. This is a basic risk associated with all securities. When
there are more sellers than buyers, prices tend to fall. Likewise, when there
are more buyers than sellers, prices tend to rise.

DIVERSIFICATION The fund is a non-diversified fund. It may invest a greater
portion of its assets in the securities of one issuer than a diversified
fund. The fund may be more sensitive to economic, business, political or
other changes affecting similar issuers or securities, which may result in
greater fluctuation in the value of the fund's shares, and may involve more
risk than an investment in a fund that does not focus on securities of a
single state. The fund, however, intends to meet certain tax diversification
requirements.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).

[BEGIN - CALL OUT BOX]

[END - CALL OUT BOX]

PERFORMANCE

[Insert graphic of bull and bear]

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past seven calendar
years. The table shows how the fund's average annual total returns compare to
those of two broad-based securities market indices. Of course, past
performance cannot predict or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS1

[BEGIN - CALL OUT BOX]

Best
Quarter:

Q4 '98
22.00%

Worst
Quarter:

Q3 '98
- -15.27%

[END - CALL OUT BOX]

- ----------------------------------------------------------------------
5.50% 17.57% 16.53% 47.63% 30.44% 15.70% 10.72%
- ----------------------------------------------------------------------
92 93 94 95 96 97 98
- ----------------------------------------------------------------------
Year

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR 5 YEARS (10/18/91)

California Fund - Class A2 4.35% 22.05% 18.92%
S&P 500 Index3 28.58% 24.06% 20.13%
Franklin California 250 Index4 28.02% 23.18% 19.97%

SINCE
INCEPTION
1 YEAR (09/03/96)

California Fund - Class C2 7.87% 17.15%
S&P 500 Index3 28.58% 33.49%
Franklin California 250 Index4 28.02% 26.98%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of June 30, 1999, the fund's year-to-date return was 16.56% for Class A.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains.

July 1, 1993, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

4. The unmanaged Franklin California 250 Growth Index consists of the 250
largest California based companies on an equal weighted basis chosen to
approximate the business segment weightings of the California economy. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A1 CLASS B2 CLASS C1

Maximum sales charge (load)
as a percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge (load) None 3 4.00% 0.99% 4
Exchange fee None None None

Please see "Choosing a Share Class" on page 49 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A1 CLASS B2 CLASS C1

Management fees 0.48% 0.48% 0.48%
Distribution and service (12b-1) fees 5 0.25% 1.00% 1.00%
Other expenses 0.27% 0.27% 0.27%
-----------------------
Total annual fund operating expenses 1.00% 1.75% 1.75%
=======================

1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.

2. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class A and C for the fiscal
year ended April 30, 1999. The distribution and service (12b-1) fees are
based on the maximum fees allowed under Class B's Rule 12b-1 plan.

3. Except for investments of $1 million or more (see page 50) and purchases
by certain retirement plans without an initial sales charge.

4. This is equivalent to a charge of 1% based on net asset value.

5. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------

CLASS A $671 1 $875 $1,096 $1,729

CLASS B

Assuming you sold your shares

at the end of the period $578 $851 $1,149 $1,864 2

Assuming you stayed in the fund $178 $551 $949 $1,864 2

CLASS C $374 3 $646 $1,039 $2,142

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. Assumes conversion of Class B shares to Class A shares after eight years,
lowering your annual expenses from that time on.

3. For the same Class C investment, your costs would be $276 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS

Mr. Herrmann has been a manager of the fund since 1993. He joined the
Franklin Templeton Group in 1989.

CANYON A. CHAN CFA, VICE PRESIDENT OF ADVISERS

Mr. Chan has been a manager of the fund since April, 1999. He joined the
Franklin Templeton Group in 1991.

FRANK FELICELLI CFA, SENIOR VICE PRESIDENT OF ADVISERS

Mr. Felicelli has been generally involved with investment strategy of the
fund's portfolio since its inception. He joined the Franklin Templeton Group
in 1986.

The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended April 30, 1999, the fund paid
0.48% of its average daily net assets to the manager.

Financial Highlights

[Insert graphic of dollar bill]

This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

CLASS A YEAR ENDED APRIL 30,

1999 1 1998 1997 2 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share data ($)

Net asset value, beginning of year 24.97 19.35 18.26 14.03 12.05
-------------------------------------------------
Net investment income .10 .14 .13 .20 .16
Net realized and unrealized gains 1.42 6.48 1.51 6.03 3.04
-------------------------------------------------
Total from investment operations 1.52 6.62 1.64 6.23 3.20
-------------------------------------------------
Distributions from net
investment income (.14) (.14) (.12) (.23) (.12)
Distributions from net realized gains (.53) (.86) (.43) (1.77) (1.10)
------------------------------------------------
Total distributions (.67) (1.00) (.55) (2.00) (1.22)
------------------------------------------------
Net asset value, end of year 25.82 24.97 19.35 18.26 14.03
=================================================
Total return (%)3 6.39 34.98 8.94 47.42 29.09

Ratios/supplemental data
Net assets, end of year ($ x 1,000) 780,598 721,254 282,898 81,175 13,844
Ratios to average net assets: (%)
Expenses 1.00 .99 1.08 .71 .25
Expenses excluding waiver and
payments by affiliate 1.00 .99 1.08 1.09 1.27
Net investment income .41 .67 .84 1.42 1.63
Portfolio turnover rate (%) 52.76 48.52 44.81 61.82 79.52

</TABLE>

CLASS B

Per share data ($)
Net asset value, beginning of year 24.31
Net investment (loss) (.01)
Net realized and unrealized gains 1.45
Total from investment operations 1.44
Net asset value, end of period 25.75
Total return (%)3 5.88

Ratios/supplemental data
Net assets, end of year ($ x 1,000)2,657
Ratios to average net assets: (%)
Expenses 1.75 4
Net investment loss (.33)4
Portfolio turnover rate (%) 52.76

CLASS C YEAR ENDED APRIL 30,
1999 1 1998 1997 2
- -------------------------------------------------------------------

PER SHARE DATA ($)
Net asset value, beginning of year 24.81 19.27 18.05
-------------------------------
Net investment income (loss) (.07) - .05
Net realized and unrealized gains 1.42 6.43 1.65
-------------------------------
Total from investment operations 1.35 6.43 1.70
-------------------------------
Distributions from net
investment income - (.03) (.05)
Distributions from net
realized gains (.53) (.86) (.43)
------------------------------
Total distributions (.53) (.89) (.48)
-------------------------------
Net asset value, end of year 25.63 24.81 19.27
===============================
Total return (%)3 5.67 34.02 9.32
Ratios/supplemental data
Net assets, end of year ($ x 1,000) 159,310 122,701 24,556
Ratios to average net assets: (%)
Expenses 1.75 1.74 1.86 4
Net investment income (loss) (.33) (.10) (.05)4
Portfolio turnover rate (%) 52.76 48.52 44.81

1. For the period January 1, 1999 (effective date) to April 30, 1999 for
Class B.

2. For the period September 3, 1996 (effective date) to April 30, 1997 for
Class C.

3. Total return does not include sales charges, and is not annualized.

4. Annualized.

Franklin Large Cap Growth Fund

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's principal investment goal is long-term capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest at
least 80% of its total assets in equity securities of large cap growth
companies located in the U.S.

For purposes of the fund's investments, large cap growth companies include
well-established companies with a market capitalization of $8.5 billion or
more that are expected to have revenue growth in excess of the economy as a
whole either through above-average industry expansion or market share gains.
These companies generally dominate, or are gaining market share, in their
respective industries and have a reputation for quality management, as well
as superior products and services.

Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, convertible securities
and warrants.

[Begin callout]

The fund invests primarily in large cap growth companies' equity securities.

[End callout]

In choosing equity investments, the fund's manager will focus on companies
that have exhibited above average growth, strong financial records and large
market capitalization. In addition, management expertise, industry
leadership, growth in market share and sustainable competitive advantage are
factors the manager also considers. Although the manager will search for
investments across a large number of industries, it expects to have
significant positions (but not in excess of 25% of its total assets in a
given sector) in the technology (including computers, telecommunications and
electronics), health care and financial services industries.

MAIN RISKS

[Insert graphic of chart with line going up and down]

[Begin callout]

Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.

[End callout]

STOCKS WHILE stocks have historically outperformed other asset classes over
the long term, they tend to go up and down more dramatically over the shorter
term. These price movements may result from factors affecting individual
companies, industries or the securities market as a whole.

TECHNOLOGY COMPANIES The technology sector has historically been volatile due
to the rapid pace of product change and development within the sector. The
stock prices of companies operating within this sector may be subject to
abrupt or erratic movements. In addition, the activities of
telecommunications companies fall under international, federal and state
regulations. These companies may be adversely affected by changes in
government regulations.

FINANCIAL SERVICES COMPANIES Financial services companies are subject to
extensive government regulation which tends to limit both the amount and
types of loans and other financial commitments such companies can make, and
the interest rates and fees they can charge. These limitations can have a
significant impact on the profitability of a financial services company since
profitability is impacted by the company's ability to make financial
commitments such as loans.

The financial services industry is currently undergoing a number of changes
such as continuing consolidations, development of new products and structures
and changes to its regulatory framework. These changes are likely to have a
significant impact on the financial services industry.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).

[Begin callout]

[End callout]

PERFORMANCE

[Insert graphic of bull and bear]

Because the fund is new, it has no performance history.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS B CLASS C

Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge (load) None 1 4.00% 0.99% 2
Exchange fee 3 $5.00 $5.00 $5.00

Please see "Choosing a Share Class" on page 49 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)4

CLASS A CLASS B CLASS C

Management fees 5 0.50% 0.50% 0.50%
Distribution and service (12b-1) fees 6 0.35% 1.00% 1.00%
Other expenses 5 0.84% 0.84% 0.84%
--------------------------

Total annual fund operating expenses 5 1.69% 2.34% 2.34%
==========================

1. Except for investments of $1 million or more (see page 50) and purchases
by certain retirement plans without an initial sales charge.

2. This is equivalent to a charge of 1% based on net asset value.

3. This fee is only for market timers (see page 62).

4. The management fees and distribution and service (12b-1) fees shown are
based on the fund's maximum contractual amount. Other expenses are estimated
for the current fiscal year.

6. Because of the distribution and service (12b-1)fees, over the long-term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS

CLASS A $737 1 $1,077
CLASS B
Assuming you sold your shares at the end of the period $637 $1,030
Assuming you stayed in the fund $237 $730
CLASS C $433 2 $823

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. For the same Class C investment, your costs would be $335 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS

Mr. Jamieson has been a manager of the fund since its inception. He joined
the Franklin Templeton Group in 1987.

JASON R. NUNN, PORTFOLIO MANAGER OF ADVISERS

Mr. Nunn has been a manager of the fund since its inception. He joined the
Franklin Templeton Group in 1998. Previously, he worked in corporate finance
with Alex. Brown & Sons.

THERESA SPATH, CFA PORTFOLIO MANAGER OF ADVISERS

Ms. Spath has been a manager of the fund since its inception. She joined the
Franklin Templeton Group in 1994.

The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of:

o 0.50% of the value of net assets up to and including $500 million;

o 0.40% of the value of net assets over $500 million and not over
$1 billion;

o 0.35% of the value of net assets over $1 billion and not over
$1.5 billion;

o 0.30% of the value of net assets over $1.5 billion and not over
$6.5 billion;

o 0.275% of the value of net assets over $6.5 billion and not over $11.5
billion;

o 0.25% of the value of net assets over $11.5 billion and not over $16.5
billion;

o 0.24% of the value of net assets over $16.5 billion and not over
$19 billion;

o 0.23% of the value of net assets over $19 billion and not over $21.5
billion; and

o 0.22% of the value of net assets in excess of $21.5 billion.

Franklin MidCap
Growth Fund

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is long-term capital growth.

PRINCIPAL INVESTMENTS The fund normally invests primarily in equity
securities of mid-cap growth companies located in the U.S.

[Begin callout]
The fund invests primarily in U.S. mid-cap growth companies' equity
securities.
[End callout]

For purposes of the fund's investments, mid-cap growth companies include
companies with market capitalization of $1 to $8 billion that the manager
believes are positioned for rapid growth in revenues or earnings and assets,
characteristics that may provide for significant capital appreciation.

In choosing equity investments, the fund's manager considers such factors as
the financial strength of the company, the expertise of management, the
growth potential of the company within the industry, and the growth potential
of the industry itself.

MAIN RISKS

[Insert graphic of chart with line going up and down]

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

In addition, mid-cap companies may lack depth of management, they may be
unable to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not
yet established and may never become established.

Mid-cap companies involve greater risks than larger, more established
companies and should be considered speculative.

[Begin Callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End Callout]

MARKET A security's value may be reduced by market activity or the results of
supply and demand. This is a basic risk associated with all securities. When
there are more sellers than buyers, prices tend to fall. Likewise, when there
are more buyers than sellers, prices tend to rise.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).

[Begin callout]
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.
[End callout]

PERFORMANCE

[Insert graphic of bull and bear]

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past five calendar
years. The table shows how the fund's average annual total returns compare to
those of two broad-based securities market indices. Of course, past
performance cannot predict or guarantee future results.

ANNUAL TOTAL RETURNS1

[Begin callout]
Best
Quarter:

Q4 '98
17.46%

Worst
Quarter:

Q3 '98
- -23.19%
[End callout]

- ----------------------------------------------------------------------
-2.90% 33.07% 23.47% 14.94% -1.84%
- ----------------------------------------------------------------------
94 95 96 97 98
- ----------------------------------------------------------------------
Year

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR 5 YEARS (8/17/93)
- -------------------------------------------------------------------

MidCap Fund 2 -7.49% 11.63% 11.76%
S&P 500 Index 3 28.58% 24.06% 22.96%
S&P MidCap 400 Index 4 19.11% 18.84% 18.65%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of June 30, 1999, the fund's year-to-date return was 9.06%.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains.

June 1, 1996, the fund implemented a Rule 12b-1 plan, which affects
subsequent performance.

4. Source: Standard & Poor's(R) Micropal. The unmanaged S&P MidCap 400 Index
consists of 400 domestic stocks chosen for market size, liquidity, and
industry group representation. It is a market-value weighted index and
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the fund's portfolio.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

Maximum sales charge (load) as a percentage of offering price 5.75%
Load imposed on purchases 5.75%
Maximum deferred sales charge (load) None 1
Exchange fee 2 $5.00

Please see "Choosing a Share Class" on page 49 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

Management fees 0.65%
Distribution and service (12b-1) fees 3 0.26%
Other expenses 0.33%
Total annual fund operating expenses 1.24%

1. Except for investments of $1 million or more (see page 50) and purchases
by certain retirement plans without an initial sales charge.

2. This fee is only for market timers (see page 62).

3. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------

$694 1 $946 $1,217 $1,989

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS

Mr. Jamieson has been a manager of the fund since 1996. He joined the
Franklin Templeton Group in 1987.

CATHERINE ROBERTS BOWMAN, VICE PRESIDENT OF ADVISERS

Ms. Bowman has been a manager of the fund since 1996. She joined the Franklin
Templeton Group in 1990.

KENNETH BROAD, VICE PRESIDENT OF ADVISERS

Mr. Broad has been a manager of the fund since April, 1999. He joined the
Franklin Templeton Group in 1994.

The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended April 30, 1999, the fund paid
0.65% of its average daily net assets to the manager.

FINANCIAL HIGHLIGHTS

[Insert graphic of dollar bill]

This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.

YEAR ENDED APRIL 30,

1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 17.44 13.34 14.24 10.81 10.05
---------------------------------------------------------
Net investment income (loss) .04 - (.02) .18 .21
Net realized and unrealized
gains (losses) (1.17) 4.66 .93 3.59 .77
---------------------------------------------------------
Total from investment operations (1.13) 4.66 .91 3.77 .98
---------------------------------------------------------
Distributions from net
investment income - - (.05) (.21) (.20)
Distributions from net
realized gains (.16) (.56) (1.76) (.13) (.02)
---------------------------------------------------------
Total distributions (.16) (.56) (1.81) (.34) (.22)
---------------------------------------------------------
Net asset value, end of year 16.15 17.44 13.34 14.24 10.81
=========================================================
Total return (%)1 (6.36) 35.53 6.31 35.40 10.06
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 33,901 29,864 12,853 7,575 5,591
Ratios to average net assets: (%)
Expenses 1.24 1.17 1.07 .16 -
Expenses excluding waiver and
payments by affiliate 1.24 1.17 1.07 .96 .98
Net investment income (loss) .30 (.03) (.22) 1.42 2.12
Portfolio turnover rate (%) 59.97 50.16 76.35 102.65 163.54

</TABLE>
1. Total return does not include sales charges.

Franklin Small Cap Growth Fund

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is long-term capital growth.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund invests at
least 65% of total assets in equity securities of small cap growth companies.

[Begin callout]
The fund invests primarily in small cap growth companies' equity securities.
[End callout]

For purposes of the fund's investments, small cap growth companies generally
include companies that have market capitalization of less than $1.5 billion
at the time of the fund's investments that the manager believes are
positioned for rapid growth in revenues or earnings and assets. The manager
believes the securities of these companies may experience significant capital
appreciation.

Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, preferred stocks,
convertible securities and warrants. These may also include private
investments in companies whose securities are not publicly traded, which may
take the form of letter stock or convertible preferred stock.

In choosing equity investments, the fund's manager considers such factors 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.

The fund also may invest up to 35% of its total assets in equity securities
of larger capitalization companies that the manager believes have the
potential for capital appreciation.

MAIN RISKS

[Insert graphic of chart with line going up and down]

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

In addition, small cap companies may lack depth of management, they may be
unable to generate funds necessary for growth or development, or they may be
developing or marketing new products or services for which markets are not
yet established and may never become established.

Small cap companies involve greater risks than larger, more established
companies and should be considered speculative.

[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money
over short or even extended periods.
[End callout]

MARKET A security's value may be reduced by market activity or the results of
supply and demand. This is a basic risk associated with all securities. When
there are more sellers than buyers, prices tend to fall. Likewise, when there
are more buyers than sellers, prices tend to rise.

YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the fund's manager considers.

More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).

PERFORMANCE

[Insert graphic of bull and bear]

This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past six calendar
years. The table shows how the fund's average annual total returns compare to
those of two broad-based securities market indices. Of course, past
performance cannot predict or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS1

[Begin callout]
Best
Quarter:

Q4 '98
23.32%

Worst
Quarter:

Q3 '98
- -23.56%
[End callout]

- ----------------------------------------------------------------------
21.77% 9.22% 42.20% 27.07% 15.78% -0.02%
- ----------------------------------------------------------------------
93 94 95 96 97 98
- ----------------------------------------------------------------------
YEAR

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR 5 YEARS (2/14/92)

Small Cap Fund - Class A 2 -5.77% 16.58% 16.82%
S&P 500 Index 3 28.58% 24.06% 20.11%
Russell 2500 Index 4 0.38% 14.13% 14.03%

SINCE
INCEPTION
1 YEAR (10/2/95)

Small Cap Fund - Class C 2 -2.64% 12.03%
S&P 500 Index 3 28.58% 28.08%
Russell 2500 Index 4 0.38% 13.90%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of June 30, 1999, the fund's year-to-date return was 17.86% for Class A.

2. Figures reflect sales charges.

All fund performance assumes reinvestment of dividends and capital gains.
July 1, 1993, Class A implemented a Rule 12b-1 plan, which affects subsequent
performance.

4. Source: Standard & Poor's(R) Micropal. The Russell 2500 Index is an
unmanaged group of 2,500 stocks of smaller capitalization companies. The
index includes reinvested dividends. One cannot invest directly in an index,
nor is an index representative of the fund's portfolio.

FEES AND EXPENSES

[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A 1 CLASS C 1

Maximum sales charge (load) as a
percentage of offering price 5.75% 1.99%
Load imposed on purchases 5.75% 1.00%
Maximum deferred sales charge (load) None 2 0.99% 3
Exchange fee None None

Please see "Choosing a Share Class" on page 49 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A 1 CLASS C 1

Management fees 0.46% 0.46%
Distribution and service (12b-1) fees 4 0.25% 1.00%
Other expenses 0.23% 0.23%
Total annual fund operating expenses 0.94% 1.69%

1. Before January 1, 1999, Class A shares were designated Class I and Class C
shares were designated Class II.

2. Except for investments of $1 million or more (see page 50) and purchases
by certain retirement plans without an initial sales charge.

3. This is equivalent to a charge of 1% based on net asset value.

4. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -----------------------------------------------------------
CLASS A $665 1 $857 $1,065 $1,663
CLASS C $368 2 $627 $1,009 $2,078

1. Assumes a contingent deferred sales charge (CDSC) will not apply.

2. For the same Class C investment, your costs would be $270 if you did not
sell your shares at the end of the first year. Your costs for the remaining
periods would be the same.

MANAGEMENT

[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the fund's investment manager. Together, Advisers and its
affiliates manage over $227 billion in assets.

The team responsible for the fund's management is:

EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS

Mr. Jamieson has been a manager of the fund since 1992. He joined the
Franklin Templeton Group in 1987.

MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS

Mr. McCarthy has been a manager of the fund since 1993. He joined the
Franklin Templeton Group in 1992.

AIDAN O'CONNELL, PORTFOLIO MANAGER OF ADVISERS

Mr. O'Connell has been a manager of the fund since 1998. Previously, he was a
research associate and a corporate finance associate at Hambrecht & Quist.

The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. For the fiscal year ended April 30, 1999, the fund paid
0.46% of its average daily net assets to the manager.

FINANCIAL HIGHLIGHTS

[Insert graphic of dollar bill]

This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
<TABLE>
<CAPTION>

CLASS A YEAR ENDED APRIL 30,

1999 1998 1997 19961 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 25.93 18.96 19.75 14.90 12.75
----------------------------------------------------
Net investment income .06 .07 .03 .01 .03
Net realized and unrealized
gains (losses) (1.02) 7.92 .04 6.23 3.14
----------------------------------------------------
Total from investment operations (.96) 7.99 .07 6.24 3.17
----------------------------------------------------
Distributions from net investment income (.14) (.09) (.06) (.01) (.02)
Distributions from net realized gains (.18) (.93) (.80) (1.38) (1.00)
----------------------------------------------------
Total distributions (.32) (1.02) (.86) (1.39) (1.02)
----------------------------------------------------
Net asset value, end of year 24.65 25.93 18.96 19.75 14.90
====================================================
Total return (%)2 (3.44) 43.09 .14 44.06 27.05

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 4,251,284 3,957,972 1,071,352 444,912 63,010
Ratios to average net assets: (%)
Expenses .94 .89 .92 .97 .69
Expenses excluding waiver and
payments by affiliate .94 .89 .92 1.00 1.16
Net investment income .30 .32 .10 .09 .25
Portfolio turnover rate (%) 46.73 42.97 55.27 87.92 104.84

Class C

Per share data ($)
Net asset value, beginning of year 25.59 18.78 19.66 17.94
-----------------------------------------
Net investment loss (.09) (.02) (.05) (.03)
Net realized and unrealized
gains (losses) (1.00) 7.76 (.03) 2.71
-----------------------------------------
Total from investment operations (1.09) 7.74 (.08) 2.68
-----------------------------------------
Distributions from net realized gains (.18) (.93) (.80) (.96)
-----------------------------------------
Net asset value, end of year 24.32 25.59 18.78 19.66
=========================================
Total return (%)2 (4.08) 42.06 (.65) 15.98
Ratios/supplemental data
Net assets, end of year ($ x 1,000) 764,715 731,707 146,164 24,102
Ratios to average net assets: (%)
Expenses 1.69 1.64 1.69 1.76 3
Net investment loss (.44) (.42) (.70) (.69)3
Portfolio turnover rate (%) 46.73 42.97 55.27 87.92

</TABLE>

1. For the period October 1, 1995 (effective date) to April 30, 1996 for
Class C.

2. Total return does not include sales charges, and is not annualized.

3. Annualized

DISTRIBUTIONS AND TAXES;
YEAR 2000 PROBLEM

[Insert graphic of dollar signs and stacks of coins]

INCOME AND CAPITAL GAINS DISTRIBUTIONS Each of the California Fund, MidCap
Fund and Small Cap Fund intends to pay a dividend at least semiannually
representing its net investment income. Capital gains, if any, may be
distributed annually. Each of the Aggressive Growth Fund, Blue Chip Fund and
Large Cap Fund intends to pay a dividend at least annually representing
substantially all of its net investment income and any net realized capital
gains. The amount of these distributions will vary and there is no guarantee
any fund will pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record dates for each fund's distributions will vary. Please keep in mind
that if you invest in a fund shortly before the record date of a
distribution, any distribution will lower the value of the fund's shares by
the amount of the distribution and you will receive some of your investment
back in the form of a taxable distribution. If you would like information on
upcoming record dates for a fund's distributions, please call 1-800/DIAL BEN(R).

TAX CONSIDERATIONS In general, fund distributions are taxable to you as
either ordinary income or capital gains. This is true whether you reinvest
your distributions in additional fund shares or receive them in cash. Any
capital gains a fund distributes are taxable to you as long-term capital
gains no matter how long you have owned your shares.

[Begin callout]
Backup Withholding

By law, a fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct social security or taxpayer identification
number, or if the IRS instructs the fund to do so.
[End callout]

Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.

When you sell your shares of a fund, you may have a capital gain or loss. For
tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale. The individual tax rate on any
gain from the sale or exchange of your shares depends on how long you have
held your shares.

Fund distributions and gains from the sale or exchange of your shares
generally will be subject to state and local income tax. Non-U.S. investors
may be subject to U.S. withholding and estate tax. You should consult your
tax advisor about the federal, state, local or foreign tax consequences of
your investment in a fund.

YEAR 2000 PROBLEM The funds' business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a leap year
may create difficulties for some systems.

When the Year 2000 arrives, the funds' operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
funds' portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others. The funds could experience difficulties in effecting transactions if
any of their foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.

Each fund's manager and its affiliated service providers are making a
concerted effort to take steps they believe are reasonably designed to
address their Year 2000 problems. Of course, the fund's ability to reduce the
effects of the Year 2000 problem is also very much dependent upon the efforts
of third parties over which the fund and its manager may have no control.

Your Account

CHOOSING A SHARE CLASS

[Insert graphic of pencil marking an X]

The Aggressive Growth Fund, California Fund and Large Cap Fund each offer
Class A, B and C shares. The Small Cap Fund offers Class A and C shares. The
Blue Chip Fund and MidCap Fund offer Class A shares. Each class of each fund
has its own sales charge and expense structure, allowing you to choose the
class that best meets your situation. Your investment representative can help
you decide.

- ----------------------------------------------------------------------
CLASS A CLASS B CLASS C

- ----------------------------------------------------------------------
o Initial sales charge o No initial sales o Initial sales
of 5.75% or less charge charge of 1%

- ----------------------------------------------------------------------
o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% or charge of 1% on
purchases of $1 less on shares you shares you sell
million or more sold sell within six within 18 months
within 12 months years

- ----------------------------------------------------------------------
o Lower annual o Higher annual o Higher annual
expenses than Class expenses than Class expenses than Class
B or C due to lower A (same as Class C) A (same as Class B)
distribution fees due to higher due to higher
distribution fees. distribution fees.
Automatic No conversion to
conversion to Class Class A shares, so
A shares after annual expenses do
eight years, not decrease.
reducing future
annual expenses.

- ----------------------------------------------------------------------

BEFORE JANUARY 1, 1999, CLASS A SHARES WERE DESIGNATED CLASS I AND CLASS C
SHARES WERE DESIGNATED CLASS II. THE CALIFORNIA FUND BEGAN OFFERING CLASS B
SHARES ON JANUARY 1, 1999.

SALES CHARGES-CLASS A

THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING PRICE OF YOUR NET INVESTMENT

Under $50,000 5.75 6.10
$50,000 but under $100,000 4.50 4.71
$100,000 but under $250,000 3.50 3.63
$250,000 but under $500,000 2.50 2.56
$500,000 but under $1 million 2.00 2.04

INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either as
a lump sum or through our cumulative quantity discount or letter of intent
programs (see pages 52 and 53), you can buy Class A shares without an initial
sales charge. However, there is a 1% contingent deferred sales charge (CDSC)
on any shares you sell within 12 months of purchase. The way we calculate the
CDSC is the same for each class (please see page 52).

DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Aggressive Growth Fund,
Blue Chip Fund, Large Cap Fund and MidCap Fund to pay distribution fees of up
to 0.35% per year to those who sell and distribute Class A shares and provide
other services to shareholders. For the California Fund and Small Cap Fund,
Class A has a distribution plan, sometimes known as a Rule 12b-1 plan, that
allows the funds to pay distribution fees of up to 0.25% per year to those
who sell and distribute Class A shares and provide other services to
shareholders. Because these fees are paid out of Class A's assets on an
on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.

SALES CHARGES - CLASS B

IF YOU SELL YOUR SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC

1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 52). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.

MAXIMUM PURCHASE AMOUNT The maximum amount you may invest in Class B shares
at one time is $249,999. We place any investment of $250,000 or more in Class
A shares, since a reduced initial sales charge is available and Class A's
annual expenses are lower.

RETIREMENT PLANS Class B shares are available to certain retirement plans,
including IRAs (of any type), Franklin Templeton Trust Company 403(b) plans,
and Franklin Templeton Trust Company qualified plans with participant or
earmarked accounts.

DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 1% per year for the sale of Class B
shares and for services provided to shareholders. Because these fees are paid
out of Class B's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.

SALES CHARGES - CLASS C

THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING PRICE OF YOUR NET INVESTMENT

Under $1 million 1.00 1.01

WE PLACE ANY INVESTMENT OF $1 MILLION OR MORE IN CLASS A SHARES, SINCE THERE
IS NO INITIAL SALES CHARGE AND CLASS A'S ANNUAL EXPENSES ARE LOWER.

CDSC There is a 1% contingent deferred sales charge (CDSC) on any Class C
shares you sell within 18 months of purchase. The way we calculate the CDSC
is the same for each class (please see below).

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 0.75% per year for the sale of Class C
shares and for services provided to shareholders. Because these fees are paid
out of Class C's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.

CONTINGENT DEFERRED SALES CHARGE (CDSC) - CLASS A, B & C

The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. There is no
CDSC on shares you acquire by reinvesting your dividends or capital gains
distributions.

[Begin callout]
The holding period for the CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.

For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
[End callout]

To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that are not subject to
a CDSC. If there are not enough of these to meet your request, we will sell
the shares in the order they were purchased. We will use this same method if
you exchange your shares into another Franklin Templeton Fund (please see
page 57 for exchange information).

SALES CHARGE REDUCTIONS AND WAIVERS

If you qualify for any of the sales charge reductions or waivers below,
please let us know at the time you make your investment to help ensure you
receive the lower sales charge.

QUANTITY DISCOUNTS We offer several ways for you to combine your purchases in
the Franklin Templeton Funds to take advantage of the lower sales charges for
large purchases of Class A shares.

[Begin callout]
The Franklin Templeton Funds include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust, Templeton Capital Accumulator Fund, Inc., and Templeton
Variable Products Series Fund.
[End callout]

o Cumulative Quantity Discount - lets you combine all of your shares in the
Franklin Templeton Funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.

o Letter of Intent (LOI) - expresses your intent to buy a stated dollar
amount of shares over a 13-month period and lets you receive the same sales
charge as if all shares had been purchased at one time. We will reserve a
portion of your shares to cover any additional sales charge that may apply
if you do not buy the amount stated in your LOI.

TO SIGN UP FOR THESE PROGRAMS, COMPLETE THE APPROPRIATE SECTION OF YOUR
ACCOUNT APPLICATION.

REINSTATEMENT PRIVILEGE If you sell shares of a Franklin Templeton Fund, you
may reinvest some or all of the proceeds within 365 days without an initial
sales charge. The proceeds must be reinvested within the same share class,
except proceeds from the sale of Class B shares will be reinvested in Class A
shares.

If you paid a CDSC when you sold your Class A or C shares, we will credit
your account with the amount of the CDSC paid but a new CDSC will apply. For
Class B shares reinvested in Class A, a new CDSC will not apply, although
your account will not be credited with the amount of any CDSC paid when you
sold your Class B shares.

Proceeds immediately placed in a Franklin Bank Certificate of Deposit (CD)
also may be reinvested without an initial sales charge if you reinvest them
within 365 days from the date the CD matures, including any rollover.

This privilege does not apply to shares you buy and sell under our exchange
program. Shares purchased with the proceeds from a money fund may be subject
to a sales charge.

SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365 days.
The CDSC for each class also may be waived for certain redemptions and
distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. For information about retirement plans, you may call
Retirement Plan Services at 1-800/527-2020. A list of available sales charge
waivers also may be found in the Statement of Additional Information (SAI).

GROUP INVESTMENT PROGRAM Allows established groups of 11 or more investors to
invest as a group. For sales charge purposes, the group's investments are
added together. There are certain other requirements and the group must have
a purpose other than buying fund shares at a discount.

Buying Shares

[Insert graphic of paper with lines and someone writing]

MINIMUM INVESTMENTS

INITIAL ADDITIONAL

<S> <C> <C>
REGULAR ACCOUNTS $1,000 $50
- -----------------------------------------------------------------------------------------
UGMA/UTMA ACCOUNTS $100 $50
- -----------------------------------------------------------------------------------------

RETIREMENT ACCOUNTS no minimum no minimum

(OTHER THAN IRAS, IRA ROLLOVERS, EDUCATION IRAS OR ROTH IRAS)
IRAS, IRA ROLLOVERS, EDUCATION IRAS OR ROTH IRAS $250 $50
- -----------------------------------------------------------------------------------------
BROKER-DEALER SPONSORED WRAP ACCOUNT PROGRAMS $250 $50
- -----------------------------------------------------------------------------------------
FULL-TIME EMPLOYEES, OFFICERS, TRUSTEES AND DIRECTORS OF
FRANKLIN TEMPLETON ENTITIES, AND THEIR IMMEDIATE FAMILY MEMBERS $100 $50
- -----------------------------------------------------------------------------------------
</TABLE>

ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see the next page).

BUYING SHARES
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- ----------------------------------------------------------------------
[Insert graphic of Contact your Contact your
hands shaking] investment investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE

- ----------------------------------------------------------------------
[Insert graphic of Make your check Make your check
envelope] payable to the fund. payable to the fund.
BY MAIL Include your account
Mail the check and number on the check.
your signed
application to Fill out the deposit
Investor Services. slip from your account
statement. If you do
not have a slip,
include a note with
your name, the fund
name, and your account
number.

Mail the check and
deposit slip or note
to Investor Services.

- ----------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a wire
three lightning bolts] wire control number control number and
BY WIRE and wire instructions. wire instructions.
1-800/632-2301
(OR 1-650/312-2000 Wire the funds and To make a same day
COLLECT) mail your signed wire investment,
application to please call us by 1:00
Investor Services. p.m. pacific time and
Please include the make sure your wire
wire control number arrives by 3:00 p.m.
or your new account
number on the
application.

To make a same day
wire investment,
please call us by
1:00 p.m. pacific
time and make sure
your wire arrives by
3:00 p.m.

- ----------------------------------------------------------------------
[Insert graphic of Call Shareholder Call Shareholder
two arrows pointing Services at the Services at the number
in opposite number below, or send below or our automated
directions] signed written TeleFACTS system, or
BY EXCHANGE instructions. The send signed written
TELEFACTS(R) TeleFACTS system instructions.
1-800/247-1753 cannot be used to
(AROUND-THE-CLOCK open a new account. (Please see page 57
ACCESS) for information on
(Please see page 57 exchanges.)
for information on
exchanges.)
- ----------------------------------------------------------------------

FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)

[Insert graphic of person with handset] INVESTOR SERVICES

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in a fund by automatically transferring money from your checking or savings
account each month to buy shares. The minimum investment to open an account
with an automatic investment plan is $50 ($25 for an Education IRA). To sign
up, complete the appropriate section of your account application.

AUTOMATIC PAYROLL DEDUCTION Except for Class A shares of the Aggressive
Growth Fund and Large Cap Fund, you may be able to invest automatically in
Class A shares of a fund by transferring money from your paycheck to the fund
by electronic funds transfer. If you are interested, indicate on your
application that you would like to receive an Automatic Payroll Deduction
Program kit.

DISTRIBUTION OPTIONS You may reinvest distributions you receive from a fund
in an existing account in the same share class* of the fund or another
Franklin Templeton Fund. Initial sales charges and CDSCs will not apply if
you reinvest your distributions within 365 days. You can also have your
distributions deposited in a bank account, or mailed by check. Deposits to a
bank account may be made by electronic funds transfer.

[Begin callout]
For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
[End callout]

Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the same share class of the
fund.

*Class B and C shareholders may reinvest their distributions in Class A
shares of any Franklin Templeton money fund.

RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Plan Services at 1-800/527-2020.

TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.

TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to
sell or exchange your shares and make certain other changes to your account
by phone.

For accounts with more than one registered owner, telephone privileges also
allow the funds to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.

As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class*, generally without paying any additional sales
charges. If you exchange shares held for less than six months, however, you
may be charged the difference between the initial sales charge of the two
funds if the difference is more than 0.25%. If you exchange shares from a
money fund, a sales charge may apply no matter how long you have held the
shares.

*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may
exchange into Class A without any sales charge. Advisor Class shareholders of
another Franklin Templeton Fund also may exchange into Class A without any
sales charge. Advisor Class shareholders who exchange their shares for Class
A shares and later decide they would like to exchange into another fund that
offers Advisor Class may do so.

[Begin callout]
An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
[End callout]

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares. If you exchange shares subject to a CDSC into a Class A
money fund, the time your shares are held in the money fund will not count
towards the CDSC holding period.

If you exchange your Class B shares for the same class of shares of another
Franklin Templeton Fund, the time your shares are held in that fund will
count towards the eight year period for automatic conversion to Class A
shares.

Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 62).

SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of your application.

[Insert graphic of certificate] SELLING SHARES

You can sell your shares at any time.

SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:

[Begin callout]
A SIGNATURE GUARANTEE helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
[End callout]

o you are selling more than $100,000 worth of shares

o you want your proceeds paid to someone who is not a registered owner

o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account

We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.

SELLING RECENTLY PURCHASED SHARES If you sell shares 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.

REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.

RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.

SELLING SHARES
- -------------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
- ----------------------------------------------------------------------
[Insert graphic of hands Contact your investment
shaking] representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE

- ----------------------------------------------------------------------
[Insert graphic of envelope] Send written instructions and
BY MAIL endorsed share certificates (if you
hold share certificates) to Investor
Services. Corporate, partnership or
trust accounts may need to send
additional documents.

Specify the fund, the account number
and the dollar value or number of
shares you wish to sell. If you own
both Class A and B shares, also
specify the class of shares,
otherwise we will sell your Class A
shares first. Be sure to include all
necessary signatures and any
additional documents, as well as
signature guarantees if required.

A check will be mailed to the
name(s) and address on the account,
or otherwise according to your
written instructions.

- ----------------------------------------------------------------------
[Insert graphic of phone] As long as your transaction is for
BY PHONE $100,000 or less, you do not hold
1-800/632-2301 share certificates and you have not
changed your address by phone within
the last 15 days, you can sell your
shares by phone.

- ----------------------------------------------------------------------
[Insert graphic of three You can call or write to have
lightning bolts] redemption proceeds of $1,000 or
BY WIRE more wired to a bank or escrow
account. See the policies above for
selling shares by mail or phone.

Before requesting a bank wire,
please make sure we have your bank
account information on file. If we
do not have this information, you
will need to send written
instructions with your bank's name
and address, your bank account
number, the ABA routing number, and
a signature guarantee.

Requests received in proper form by
1:00 p.m. pacific time will be wired
the next business day.

- ----------------------------------------------------------------------
[Insert graphic of two arrows Obtain a current prospectus for the
pointing in opposite fund you are considering.
directions]
BY EXCHANGE Call Shareholder Services at the
TELEFACTS(R) number below or our automated
1-800/247-1753 TeleFACTS system, or send signed
(AROUND-THE-CLOCK written instructions. See the
ACCESS) policies above for selling shares by
mail or phone.

If you hold share certificates, you
will need to return them to the fund
before your exchange can be
processed.
- ----------------------------------------------------------------------

[Insert graphic of paper and pen] ACCOUNT POLICIES

CALCULATING SHARE PRICE Each fund calculates its net asset value per share
(NAV) each business day at the close of trading on the New York Stock
Exchange (normally 1:00 p.m. pacific time). Each class's NAV is calculated by
dividing its net assets by the number of its shares outstanding.

[Begin callout]
When you buy shares, you pay the offering price. The offering price is the
NAV plus any applicable sales charge.

When you sell shares, you receive the NAV minus any applicable contingent
deferred sales charge (CDSC).
[End callout]

Each fund's assets are generally valued at their market value. If market
prices are unavailable, or if an event occurs after the close of the trading
market that materially affects the values, assets may be valued at their fair
value. If the fund holds securities listed primarily on a foreign exchange
that trades on days when the fund is not open for business, the value of your
shares may change on days that you cannot buy or sell shares.

Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.

ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its
applicable minimum investment amount. If you choose not to do so within 30
days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.

STATEMENTS AND REPORTS You will receive statements that show your account
transactions. You also will receive the funds' financial reports every six
months. To reduce fund expenses, we try to identify related shareholders in a
household and send only one copy of the financial reports. If you need
additional copies, please call 1-800/DIAL BEN.

If there is a dealer or other investment representative of record on your
account, he or she also will receive confirmations, account statements and
other information about your account directly from the fund.

STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.

JOINT ACCOUNTS Unless you specify a different registration, accounts with two
or more owners are registered as "joint tenants with rights of survivorship"
(shown as "Jt Ten" on your account statement). To make any ownership changes
to a joint account, all owners must agree in writing, regardless of the law
in your state.

MARKET TIMERS The Aggressive Growth Fund, Blue Chip Fund, Large Cap Fund and
MidCap Fund may restrict or refuse exchanges by market timers. If accepted,
each exchange by a market timer will be charged $5 by Franklin/Templeton
Investor Services, Inc., the fund's transfer agent. The California Fund and
Small Cap Fund do not allow investments by market timers. You will be
considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (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, or (iv) otherwise seem to follow a timing pattern. Shares under
common ownership or control are combined for these limits.

ADDITIONAL POLICIES Please note that the funds maintain additional policies
and reserve certain rights, including:

o The funds may refuse any order to buy shares, including any purchase
under the exchange privilege.

o At any time, the funds may change their investment minimums or waive or
lower their minimums for certain purchases.

o The funds may modify or discontinue the exchange privilege on 60 days'
notice.

o You may only buy shares of a fund eligible for sale in your state or
jurisdiction.

o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.

o For redemptions over a certain amount, each fund reserves the right to
make payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check or wire would be harmful to existing
shareholders.

o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the funds promptly.

DEALER COMPENSATION Qualifying dealers who sell fund shares may receive sales
commissions and other payments. These are paid by Franklin Templeton
Distributors, Inc. (Distributors) from sales charges, distribution and
service (12b-1) fees and its other resources.

CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------

COMMISSION (%) - 4.00 2.00
Investment under $50,000 5.00 - -
$50,000 but under $100,000 3.75 - -
$100,000 but under $250,000 2.80 - -
$250,000 but under $500,000 2.00 - -
$500,000 but under $1 million 1.60 - -
$1 million or more up to 1.00 1 - -
12B-1 FEE TO DEALER 0.25 2 0.25 3 1.00 4

A dealer commission of up to 1% may be paid on Class A NAV purchases by
certain retirement plans1 and up to 0.25% on Class A NAV purchases by certain
trust companies and bank trust departments, eligible governmental
authorities, and broker-dealers or others on behalf of clients participating
in comprehensive fee programs.

1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.

2. The Aggressive Growth Fund, Blue Chip Fund, Large Cap Fund and MidCap Fund
may pay up to 0.35% to Distributors or others, out of which 0.10% generally
will be retained by Distributors for its distribution expenses.

3. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.

4. Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.

[Insert graphic of question mark] QUESTIONS

If you have any questions about the funds or your account, you can write to
us at P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one
of the following numbers. For your protection and to help ensure we provide
you with quality service, all calls may be monitored or recorded.

HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- --------------------------------------------------------------------------------

Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m.
(Saturday)
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.
Dealer Services 1-800/524-4040 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.

FOR MORE INFORMATION

You can learn more about each fund in the following documents:

ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS

Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.

STATEMENT OF ADDITIONAL INFORMATION (SAI)

Contains more information about each fund, its investments and policies. It
is incorporated by reference (is legally a part of this prospectus).

For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.

FRANKLIN(R)TEMPLETON(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com

You can also obtain information about each fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.

Investment Company Act file #811-6243 FSS1 P 09/99

Prospectus

FRANKLIN STRATEGIC SERIES

ADVISOR CLASS

INVESTMENT STRATEGY

GROWTH

FRANKLIN AGGRESSIVE GROWTH FUND
FRANKLIN LARGE CAP GROWTH FUND
FRANKLIN SMALL CAP GROWTH FUND

SEPTEMBER 1, 1999

[INSERT FRANKLIN TEMPLETON BEN HEAD]

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.

CONTENTS

The Fund

[Begin callout]
Information about each fund you should know before investing
[End callout]

2 Franklin Aggressive Growth Fund

8 Franklin Large Cap Growth Fund

14 Franklin Small Cap Growth Fund

21 Distribution and Taxes; Year 2000 Problem

Your Account

[Begin callout]
Information about qualified investors, account transactions and
services
[End callout]

23 Qualified Investors

25 Buying Shares

27 Investor Services

29 Selling Shares

31 Account Policies

37 Questions

For More Information

[Begin callout]
Where to learn more about each fund
[End callout]

Back Cover

FRANKLIN AGGRESSIVE GROWTH FUND

GOAL AND STRATEGIES
- -------------------
[Insert graphic of bullseye and arrows]

GOAL The fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS The fund normally invests primarily in equity securities
of companies demonstrating accelerating growth, increasing profitability, or
above-average growth or growth potential as compared with the overall economy.

[Begin callout]
The fund invests primarily in aggressive growth companies' equity securities.
[End callout]

Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, convertible securities
and warrants.

The fund invests in small, medium, and large capitalization companies with
strong growth potential across a wide range of sectors. In choosing equity
investments, the fund's manager will focus on sectors that have exceptional
growth potential and fast growing, innovative companies within these sectors. In
addition, solid management and sound financial records are factors the manager
also considers.

Although the manager will search for investments across a large number of
sectors, it expects to have significant positions in particular sectors. These
sectors may include, for example, technology (including computers and
telecommunications), health care (including biotechnology), consumer products,
and consumer services (including media, broadcasting and entertainment).

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other adverse conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goal, because it may not invest or may invest substantially less in
aggressive growth companies' equity securities.

MAIN RISKS
- -----------
[Insert graphic of chart with line going up and down]

STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole.

[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money over
short or even extended periods.
[End callout]

The prices of aggressive growth stocks are based largely on projections of the
issuer's future earnings and revenues. If a company's earnings or revenues fall
short of expectations, its stock price may fall dramatically. The fund's manager
uses an aggressive growth strategy in choosing the fund's investments. As a
result, an investment in the fund involves a greater degree of risk and its
share price may be more volatile than an investment in a conservative equity
fund or a growth fund investing entirely in proven growth stocks. Aggressive
growth stocks may be more expensive relative to their earnings or assets
compared to value or other stocks.

SMALLER AND MIDSIZE COMPANIES Historically, smaller and midsize company
securities 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 and midsize
companies, the lower degree of liquidity in the markets for such securities, and
the greater sensitivity of smaller and midsize companies to changing economic
conditions.

Smaller and midsize companies involve greater risks than larger, more
established companies and should be considered speculative.

HEALTH CARE COMPANIES The activities of health care companies may be funded or
subsidized by federal and state governments. If government funding and subsidies
are reduced or discontinued, the profitability of these companies could be
adversely affected. Health care companies may also be affected by government
policies on health care reimbursements, regulatory approval for new drugs and
medical instruments, and similar matters. They are also subject to legislative
risk, i.e., the risk of a reform of the health care system through legislation.

TELECOMMUNICATIONS, MEDIA, AND BROADCASTING COMPANIES The activities of
telecommunications, media, and broadcasting companies operate under
international, federal, and state regulations. These companies may be adversely
affected by changes in government regulations. In addition, these sectors have
been undergoing deregulation to enable increased competition, which could affect
the companies in these sectors that the fund holds.

CONSUMER PRODUCTS, SERVICES, AND ENTERTAINMENT COMPANIES These companies have
historically been sensitive to the economy in general, through changes in
consumer spending patterns. These companies may be adversely affected by changes
in consumer opinion or demand for a given product or service.

PORTFOLIO TURNOVER Because of the fund's aggressive growth strategy, the fund's
portfolio turnover rate may be higher than that of other mutual funds. High
portfolio turnover may involve additional expenses to the fund, including
transaction costs for purchases and sales of securities. These transactions may
result in realization of taxable capital gains, including short-term capital
gains, which are generally taxed at ordinary income tax rates.

MARKET A security's value may be reduced by market activity or the results of
supply and demand. This is a basic risk associated with all securities. When
there are more sellers than buyers, prices tend to fall. Likewise, when there
are more buyers than sellers, prices tend to rise.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. The manager, of course, cannot audit each
company and its major suppliers to verify their Year 2000 readiness.

If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the fund's performance. Please see page
22 for more information.

[Begin callout]
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. [End callout]

More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).

PERFORMANCE
- ------------
[Insert graphic of bull and bear]

Because the fund is new, it has no performance history.

FEES AND EXPENSES
- -----------------
[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

ADVISOR CLASS
- -------------------------------------------------------------------

Maximum sales charge (load) imposed on purchases None
Exchange fee 1 $5.00

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND
ASSETS) 2

ADVISOR CLASS
- -------------------------------------------------------------------

Management fees 3 0.50%
Distribution and service (12b-1) fees None
Other expenses 0.84%
Total annual fund operating expenses 3 1.34%

1. This fee is only for market timers (see page 32).

2. The management fees shown are based on the fund's maximum contractual amount.
Other expenses are estimated for the current fiscal year.

3. The manager and administrator have agreed in advance to limit their
respective fees and to assume as their own expense certain expenses otherwise
payable by the fund. With this reduction, management and administration fees are
estimated to be 0.26% and total annual fund operating expenses are estimated to
be 0.90% for the current fiscal year. The manager and administrator may end this
arrangement at any time upon notice to the fund's Board of Trustees.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS
- -------------------------------------------------------------------
$136 $425

MANAGEMENT
- -----------
[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its affiliates
manage over $227 billion in assets.

The team responsible for the fund's management is:

CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS

Mr. Herrmann has been a manager of the fund since its inception.
He joined the Franklin Templeton Group in 1989.

MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS

Mr. McCarthy has been a manager of the fund since its inception.
He joined the Franklin Templeton Group in 1992.

JOHN P. SCANDALIOS, SENIOR SECURITIES ANALYST OF ADVISERS

Mr. Scandalios has been a manager of the fund since its
inception. He joined the Franklin Templeton Group in 1996.
Previously, he was with Chase Manhattan Bank.

The fund pays Advisers a fee for managing the fund's assets and making its
investment decisions. The fee is equal to an annual rate of:

o 0.50% of the value of net assets up to and including $500
million;

o 0.40% of the value of net assets over $500 million up to and
including $1 billion;

o 0.35% of the value of net assets over $1 billion up to and
including $1.5 billion;

o 0.30% of the value of net assets over $1.5 billion up to and
including $6.5 billion;

o 0.275% of the value of net assets over $6.5 billion up to and
including $11.5 billion;

o 0.25% of the value of net assets over $11.5 billion up to and
including $16.5 billion;

o 0.24% of the value of net assets over $16.5 billion up to and
including $19 billion;

o 0.23% of the value of net assets over $19 billion up to and
including $21.5 billion; and

o 0.22% of the value of net assets in excess of $21.5 billion.

FRANKLIN LARGE CAP GROWTH FUND

GOAL AND STRATEGIES
- -------------------
[Insert graphic of bullseye and arrows]

GOAL The fund's principal investment goal is long-term capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the fund will invest at
least 80% of its total assets in equity securities of large cap growth companies
located in the U.S.

For purposes of the fund's investments, large cap growth companies include
well-established companies with a market capitalization of $8.5 billion or more
that are expected to have revenue growth in excess of the economy as a whole
either through above-average industry expansion or market share gains. These
companies generally dominate, or are gaining market share, in their respective
industries and have a reputation for quality management, as well as superior
products and services.

Equity securities generally entitle the holder to participate in a company's
general operating results. They include common stocks, convertible securities
and warrants.

[Begin callout]
The fund invests primarily in large cap growth companies' equity securities.
[End callout]

In choosing equity investments, the fund's manager will focus on companies that
have exhibited above average growth, strong financial records and large market
capitalization. In addition, management expertise, industry leadership, growth
in market share and sustainable competitive advantage are factors the manager
also considers. Although the manager will search for investments across a large
number of industries, it expects to have significant positions (but not in
excess of 25% of its total assets in a given sector) in the technology
(including computers, telecommunications and electronics), health care and
financial services industries.

TEMPORARY INVESTMENTS The manager may take a temporary defensive position when
it believes the securities trading markets or the economy are experiencing
excessive volatility or a prolonged general decline, or other adverse conditions
exist. Under these circumstances, the fund may be unable to pursue its
investment goal, because it may not invest or may invest substantially less in
large cap growth companies' equity securities.

MAIN RISKS
- ----------
[Insert graphic of chart with line going up and down]

STOCKS While stocks have historically outperformed other asset classes over the
long term, they tend to go up and down more dramatically over the shorter term.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole.

[Begin callout]
Because the securities the fund holds fluctuate in price, the value of your
investment in the fund will go up and down. This means you could lose money over
short or even extended periods.
[End callout]

TECHNOLOGY COMPANIES The technology sector has historically been volatile due to
the rapid pace of product change and development within the sector. The stock
prices of companies operating within this sector may be subject to abrupt or
erratic movements. In addition, the activities of telecommunications companies
fall under international, federal and state regulations. These companies may be
adversely affected by changes in government regulations.

HEALTH CARE COMPANIES The activities of health care companies may be funded or
subsidized by federal and state governments. If government funding and subsidies
are reduced or discontinued, the profitability of these companies could be
adversely affected. Health care companies may also be affected by government
policies on health care reimbursements, regulatory approval for new drugs and
medical instruments, and similar matters. They are also subject to legislative
risk, i.e., the risk of a reform of the health care system through legislation.

FINANCIAL SERVICES COMPANIES Financial services companies are subject to
extensive government regulation which tends to limit both the amount and types
of loans and other financial commitments such companies can make, and the
interest rates and fees they can charge. These limitations can have a
significant impact on the profitability of a financial services company since
profitability is impacted by the company's ability to make financial commitments
such as loans.

The financial services industry is currently undergoing a number of changes such
as continuing consolidations, development of new products and structures and
changes to its regulatory framework. These changes are likely to have a
significant impact on the financial services industry.

YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the fund's manager considers.

The manager will rely upon public filings and other statements made by companies
about their Year 2000 readiness. The manager, of course, cannot audit each
company and its major suppliers to verify their Year 2000 readiness.

If a company in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. A decrease in the value of one or more of the fund's portfolio
holdings will have a similar impact on the fund's performance. Please see page
22 for more information.

More detailed information about the fund, its policies (including temporary
investments), and risks can be found in the fund's Statement of Additional
Information (SAI).

[Begin callout]
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. [End callout]

PERFORMANCE
- ------------
[Insert graphic of bull and bear]

Because the fund is new, it has no performance history.

FEES AND EXPENSES
- -----------------
[Insert graphic of percentage sign]

This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

ADVISOR CLASS
- -------------------------------------------------------------------

Maximum sales charge (load) imposed on purchases None
Exchange fee 1 $5.00

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND
ASSETS) 2

ADVISOR CLASS
- -------------------------------------------------------------------

Management fees 3 0.50%
Distribution and service (12b-1) fees None
Other expenses 0.84%
Total annual fund operating expenses 3 1.34%

1. This fee is only for market timers (see page 32).

2. The management fees shown are based on the fund's maximum contractual amount.
Other expenses are estimated for the current fiscal year.

EXAMPLE

This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds.

The example assumes you invest $10,000 for the periods shown and then sell all
of your shares at the end of those periods. The example also assumes your
investment has a 5% return each year and the fund's operating expenses remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 YEAR 3 YEARS
- -------------------------------------------------------------------
$136 $425

MANAGEMENT
- ----------
[Insert graphic of briefcase]

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94403, is the fund's investment manager. Together, Advisers and its affiliates
manage over $227 billion in assets.

The team responsible for the fund's management is:

EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS

Mr. Jamieson has been a manager of the fund since its inception.
He joined the Franklin Templeton Group in 1987.

JASON R. NUNN, PORTFOLIO MANAGER OF ADVISERS

Mr. Nunn has been a manager of the fund since its inception. He
joined the Franklin Templeton Group in 1997. Previously, he
worked in corporate finance for Alex. Brown & Sons.

THERESA SPATH CFA, PORTFOLIO MANAGER OF ADVISERS

Ms. Spath has been a manager of the fund since its inception. She
joined the Franklin Templeton Group in 1994.