o 198 SAA-2
SUPPLEMENT DATED MAY 17, 1999
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN SMALL CAP GROWTH FUND - ADVISOR CLASS
DATED SEPTEMBER 1, 1998
The Statement of Additional Information is amended as follows:
I. The fund offers three classes of shares: Class A, Class C and Advisor
Class. Before January 1, 1999, Class A shares were designated Class I and
Class C shares were designated Class II. All references in the Statement
of Additional Information to Class I shares are replaced with Class A, and
all references to Class II shares are replaced with Class C.
II. The section "Small Companies," found under "How Does the Fund Invest Its
Assets? - More Information About the Kinds of Securities the Fund Buys,"
is replaced with the following:
SMALL COMPANIES. Small companies are often overlooked by investors or
undervalued in relation to their earnings power. Because small companies
generally are not as well known to the investing public and have less of
an investor following than larger companies, they may provide greater
opportunities for long-term capital growth as a result of relative
inefficiencies in the marketplace. These companies may be undervalued
because they are part of an industry that is out of favor with investors,
although the individual companies may have high rates of earnings growth
and be financially sound.
III. In the section, "Investment Restrictions," the first sentence of the
first paragraph following the numbered investment restrictions is replaced
with the following:
In addition to these fundamental policies, it is the present policy of the
fund (which may be changed without shareholder approval) not to pledge,
mortgage or hypothecate the fund's assets as security for loans, and not
to engage in joint or joint and several trading accounts in securities,
except that it may: (i) participate in joint repurchase arrangements; (ii)
invest in shares of one or more money market funds managed by Advisers or
its affiliates, to the extent permitted by exemptions granted under the
1940 Act; or (iii) combine orders to buy or sell with orders from other
persons to obtain lower brokerage commissions.
IV. The first sentence in the section "Additional Information on Exchanging
Shares," found under "How Do I Buy, Sell and Exchange Shares?", is
replaced with the following:
If you request the exchange of the total value of your account, declared
but unpaid income dividends and capital gain distributions will be
reinvested in the fund and exchanged into the new fund at Net Asset Value
when paid.
V. Under "Miscellaneous Information," the following is added:
The Information Services & Technology division of Resources established a
Year 2000 Project Team in 1996. This team has already begun making
necessary software changes to help the computer systems that service the
fund and its shareholders to be Year 2000 compliant. After completing
these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources
continues to seek reasonable assurances from all major hardware, software
or data-services suppliers that they will be Year 2000 compliant on a
timely basis. Resources is also beginning to develop a contingency plan,
including identification of those mission critical systems for which it is
practical to develop a contingency plan. However, in an operation as
complex and geographically distributed as Resources' business, the
alternatives to use of normal systems, especially mission critical
systems, or supplies of electricity or long distance voice and data lines
are limited.
Please keep this supplement for future reference.
