FRANKLIN STRATEGIC SERIES, 485APOS, 2000-06-30

FRANKLIN STRATEGIC SERIES
485APOS, 2000-06-30

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As filed with the Securities and Exchange Commission on June 29, 2000

File Nos.
33-39088
811-6243

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 40 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 43 (X)

FRANKLIN STRATEGIC SERIES
(Exact Name of Registrant as Specified in Charter)

777 MARINERS ISLAND BOULEVARD, SAN MATEO, CA 94404
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code (650) 312-2000

MURRAY L. SIMPSON, 777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)

Approximate Date of Proposed Public Offering:

It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[x] on September 1, 2000 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

PROSPECTUS

FRANKLIN
STRATEGIC
SERIES

INVESTMENT STRATEGY

GROWTH FRANKLIN BIOTECHNOLOGY DISCOVERY FUND - CLASS A

FRANKLIN TECHNOLOGY FUND - CLASS A, B & C

GLOBAL GROWTH FRANKLIN GLOBAL HEALTH CARE FUND - CLASS A, B & C

GLOBAL GROWTH FRANKLIN GLOBAL COMMUNICATIONS FUND - CLASS A, B & C
& INCOME

GROWTH & INCOME FRANKLIN NATURAL RESOURCES FUND - CLASS A

SEPTEMBER 1, 2000

[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 FUNDS

[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

[insert page #] Franklin Biotechnology Discovery Fund

[insert page #] Franklin Technology Fund

[insert page #] Franklin Global Health Care Fund

[insert page #] Franklin Global Communications Fund

[insert page #] Franklin Natural Resources Fund

[insert page #] Distributions and Taxes

YOUR ACCOUNT

[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

[insert page #] Choosing a Share Class

[insert page #] Buying Shares

[insert page #] Investor Services

[insert page #] Selling Shares

[insert page #] Account Policies

[insert page #] Questions

FOR MORE INFORMATION

[Begin callout]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]

Back Cover

THE FUNDS

FRANKLIN BIOTECHNOLOGY DISCOVERY FUND

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The Fund's goal is to seek capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the Fund invests at least
65% of its assets in equity securities of biotechnology companies and discovery
research firms located anywhere in the world. The Fund invests a substantial
portion of its assets in smaller capitalization companies, which are generally
companies with a market capitalization of less than $1.5 billion at the time of
the Fund's investment.

[Begin callout]
The Fund normally invests at least 65% of its assets in equity securities of
biotechnology companies.

[End callout]

For the Fund's investment purposes, a biotechnology company is one that has at
least 50% of its earnings derived from biotechnology activities, or at least 50%
of its assets devoted to such activities, based on the company's most recent
fiscal year. Biotechnology activities are research, development, manufacture,
and distribution of various biotechnological or biomedical products, services,
and processes. This may include companies involved with genomics, genetic
engineering, and gene therapy. It also includes companies involved in the
application and development of biotechnology in areas such as health care,
pharmaceuticals, and agriculture. In addition to its equity investments in
biotechnology companies, the Fund may also invest up to 35% of its assets in
equity or debt securities of any type of foreign or U.S. issuer.

An equity security, or stock, represents a proportionate share of the ownership
of a company; its value is based on the success of the company's business, any
income paid to stockholders, the value of its assets, and general market
conditions. Common stocks and preferred stocks are examples of equity
securities. The Fund engages in naked short sales and short sales against the
box of equity securities when it believes that the sales present favorable
opportunities. In a naked short sale, the Fund sells a security that it does not
own to a purchaser at a specified price, while in a short sale against the box,
the Fund actually holds in its portfolio the securities which it has sold short.
The Fund will not sell any securities short if, after the sale, the total market
value of its open naked short positions would exceed 50% of its assets.

The Fund anticipates that under normal conditions, it will invest more of its
assets in U.S. securities than in securities of any other single country,
although the Fund may have more than 50% of its total assets in foreign
securities. The Fund may buy foreign securities that are traded in the U.S. or
in foreign markets, as well as American, European, and Global Depositary
Receipts. Depositary receipts are certificates typically issued by a bank or
trust company that give their holders the right to receive securities issued by
a foreign or domestic company.

The Fund does not accept any new accounts, other than retirement plan accounts.
If you are a shareholder of record, you may continue to add to your existing
account through new purchases, including purchases through reinvestment of
dividends or capital gains distributions. The Fund reserves the right to modify
this policy at any time.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of the
Fund's portfolio in cash. Temporary defensive investments generally may include
money market fund shares, money market instruments and short-term debt
securities. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the Fund may be unable to achieve its
investment goal.

MAIN RISKS

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

BIOTECHNOLOGY INDUSTRY By focusing on the biotechnology industry, the Fund
carries much greater risks of adverse developments than a fund that invests in a
wider variety of industries. Prices often change collectively without regard to
the merits of individual companies. The biotechnology industry is subject to
extensive government regulation. The industry will be affected by government
regulatory requirements, regulatory approval for new drugs and medical products,
patent considerations, product liability, and similar matters. For example, in
the past several years, the U.S. Congress has considered legislation concerning
health care reform and changes to the U.S. Food and Drug Administration's (FDA)
approval process. If such legislation is enacted it may affect the biotechnology
industry. In addition, this industry is characterized by competition and rapid
technological developments which may make a company's products or services
obsolete in a short period of time. As these factors impact the biotechnology
industry, the value of your shares may fluctuate significantly over relatively
short periods of time.

[Begin callout]
Because the securities the Fund holds fluctuate significantly 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. The Fund's investments are
speculative and may drop sharply in value in response to adverse research and
development, regulatory, or market EVENTS.{CUSTOMIZATION FOR THIS FUND ONLY.}
[End callout]

Investors tend to react quickly to developments that affect the biotechnology
industry. In the past, the biotechnology sector has experienced considerable
volatility in reaction to research and other business developments which may
affect only one, or a few companies within the sector. In comparison to more
developed industries, there may be a thin trading market in biotechnology
securities, and adverse developments in the biotechnology industry may be more
likely to result in decreases in the value of biotechnology stocks.

Biotechnology companies are often small, start-up ventures whose products are
only in the research stage. Only a limited number of biotechnology companies
have reached the point of approval of products by the FDA and subsequent
commercial production and distribution of such products. Therefore, the market
value of investments in the biotechnology industry is often based upon
speculation and expectations about future products, research progress, and new
product filings with regulatory authorities. There can be no assurance that the
Fund will continue to have access to adequate investment opportunities on terms
that the manager believes to be favorable. The Fund's investments are
speculative and may drop sharply in value in response to adverse research and
development, regulatory, or market events.

The Fund's performance at times in the past has been positively affected by
highly favorable investment conditions in the biotechnology industry that are
likely not sustainable. Investors should not expect similar performance in the
future.

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

SMALLER COMPANIES Smaller companies involve greater risks than larger, more
established companies and should be considered speculative. Historically,
smaller 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 companies, the
lower degree of liquidity in the markets for such securities, and the greater
sensitivity of smaller companies to changing economic conditions.

In addition, smaller companies may lack depth of management, may be unable to
generate funds necessary for growth or development, or may be developing or
marketing new products or services for which markets are not yet established and
may never become established. Smaller companies may be particularly affected by
interest rate increases, as they may find it more difficult to borrow money to
continue or expand operations, or may have difficulty in repaying any loans
which are floating rate.

Initial public offerings (IPOs) of securities issued by unseasoned companies
with little or no operating history are risky and their prices are highly
volatile, but they can result in very large gains in their initial trading.
Attractive IPOs are often oversubscribed and may not be available to the Fund,
or only in very limited quantities. Thus, when the Fund's size is smaller, any
gains from IPOs will have an exaggerated impact on the Fund's reported
performance than when the Fund is larger. Although IPO investments have had a
positive impact on the Fund's performance in the past, there can be no assurance
that the Fund will have favorable IPO investment opportunities in the future.

CURRENCY EXCHANGE RATES. Foreign securities may be issued and traded in foreign
currencies. As a result, their values may be affected by changes in exchange
rates between foreign currencies and the U.S. dollar, as well as between
currencies of countries other than the U.S. For example, if the value of the
U.S. dollar goes up compared to a foreign currency, an investment traded in that
foreign currency will go down in value because it will be worth less U.S.
dollars. The impact of the euro, a relatively new currency adopted by certain
European countries to replace their national currencies, is unclear at this
time.

POLITICAL AND ECONOMIC DEVELOPMENTS. The political, economic and social
structures of some foreign countries may be less stable and more volatile than
those in the U.S. Investments in these countries may be subject to the risks of
internal and external conflicts, currency devaluations, foreign ownership
limitations and tax increases. It is possible that a government may take over
the assets or operations of a company or impose restrictions on the exchange or
export of currency or other assets. Some countries also may have different legal
systems that may make it difficult for the Fund to vote proxies, exercise
shareholder rights, and pursue legal remedies with respect to its foreign
investments.

TRADING PRACTICES. Brokerage commissions and other fees generally are higher for
foreign securities. Government supervision and regulation of foreign stock
exchanges, currency markets, trading systems and brokers may be less than in the
U.S. The procedures and rules governing foreign transactions and custody
(holding of the Fund's assets) also may involve delays in payment, delivery or
recovery of money or investments.

AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and practices
as U.S. companies. Thus, there may be less information publicly available about
foreign companies than about most U.S. companies.

LIMITED MARKETS. Certain foreign securities may be less liquid (harder to sell)
and more volatile than many U.S. securities. This means the Fund may at times be
unable to sell foreign securities at favorable prices.

SHORT SALES The Fund engages in naked short sales. In a naked short sale of a
security, the Fund must borrow the security to deliver it to the purchaser, and
later buy the same security in the market in order to return it to the lender.
Naked short sales carry risks of loss if the price of the security sold short
increases after the sale and the Fund must pay more for the security than it has
received from the purchaser in the short sale.

LIQUIDITY The Fund may invest up to 15% of its net assets in securities with a
limited trading market. Reduced liquidity may have an adverse impact on market
price and the Fund's ability to sell particular securities when necessary to
meet the Fund's liquidity needs or in response to a specific economic event.

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. The Fund, however, intends to meet certain
tax diversification requirements.

More detailed information about the Fund, its policies (including temporary
investments), risks and bond ratings 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]

[Insert graphic of a bull and a bear] PERFORMANCE

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 2 calendar years. The table
shows how the Fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

ANNUAL TOTAL RETURNS1

[Begin callout]
BEST

QUARTER:
Q4 '99
61.33%

WORST QUARTER:
Q3 '98
-10.57%

[End callout]

[Insert bar graph]

10.73% 97.91%
98 99

YEAR

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1999

SINCE
INCEPTION
1 YEAR (9/15/97)
--------------------------------------------------------------------------------
Franklin Biotechnology Discovery Fund2 86.54% 32.99%
S&P 500 Index3 21.04% 24.26%
AMEX Biotechnology Index4 111.44% 46.27%

1. Figures do not reflect sales charges. If they did, returns would be lower.
As of June 30, 2000, the Fund's year-to-date return was xx%.

2. Figures reflect sales charges.

All Fund performance assumes reinvestment of dividends and capital gains.

3. Source: Standard & Poor's Micropal. The S&P 500 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 unmanaged AMEX Biotechnology Index is an equal-dollar weighted index. It
is designed to measure the performance of a cross section of companies in the
biotechnology industry that are involved primarily in the use of biological
processes to develop products or provide services. It does not include
reinvested dividends.

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) None1

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

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A

----------------------------------------------------------
Management fees 0.47%
Distribution and service 0.31%
(12b-1) fees
Other expenses 0.35%
---------------
Total annual fund operating expenses 1.13%
---------------

1. Except for investments of $1 million or more (see page [#]) and purchases by
certain retirement plans without an 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 5 YEARS 10 YEARS
------------------------------------------------------------------------------
If you sell your shares at the end of the period:

CLASS A $684 1 $913 $1,161 $1,871

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 $225 billion in assets.

The team responsible for the Fund's management is:

KURT VON EMSTER CFA, VICE PRESIDENT OF ADVISERS
Mr. von Emster has been a manager of the Fund since 1997. He joined Franklin
Templeton Investments in 1989.

EVAN MCCULLOCH CFA, VICE PRESIDENT OF ADVISERS
Mr. McCulloch has been a manager of the Fund since 1997. He joined Franklin
Templeton Investments in 1992.

PAUL WALKER CFA, PORTFOLIO MANAGER OF aDVISERS
Mr. Walker has been a manager of the Fund since 2000. He joined Franklin
Templeton Investments in 1996.

The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal year
ended April 30, 2000, the Fund paid 0.47% of its average daily net assets to the
manager for its services.

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.

CLASS A YEAR ENDED APRIL 30,
-------------------------------------
2000 1999 1998 1
-------------------------------------
PER SHARE DATA ($)

Net asset value, beginning of year 23.41 26.89 25.00
-------------------------------------
Net investment loss (.23) (.10) (.05)
Net realized and unrealized gains 37.32 (2.96) 1.99
(losses)2 -------------------------------------
Total from investment operations 37.09 (3.06) 1.94
-------------------------------------
Less distributions from net realized (.06) (.42) (.05)
gains -------------------------------------
Net asset value, end of year 60.44 23.41 26.89
-------------------------------------
Total return (%)3 158.78 (11.46) 7.78

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year ($ x 1,000) 918,473 69,450 73,546
Ratios to average net assets: (%)
Expenses 1.13 1.52 1.50 4
Expenses excluding waiver and 1.13 1.52 1.61 4
payments by affiliate
Net investment loss (.40) (.40) (.44) 4
Portfolio turnover rate (%) 40.87 97.62 75.50

1. For the period September 15, 1997 (effective date) to April 30, 1998.
2. Based on average shares outstanding effective year April 30, 2000.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.

FRANKLIN TECHNOLOGY FUND

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

Goal The Fund's investment goal is capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the Fund invests at least
65% of its total assets in equity securities of companies expected to benefit
from the development, advancement, and use of technology. These may include, for
example, companies in the following areas:

o Information technology services, including Internet services, data
processing, technology consulting and implementation, and electronics
distributors;
o Computer software;
o Computing hardware, peripherals, and electronic components;
o Semiconductors, semiconductor fabrication equipment, and precision
instruments;
o Telecommunications, including communications equipment and services;
o Media and information services, including cable television, broadcasting,
satellite and media content;
o Health-care technology and biotechnology; and
o Aerospace and defense technologies.

The Fund may invest in companies of any size, and may, from time to time, invest
a significant portion of its assets in smaller companies. The Fund may invest up
to 35% of its total assets in foreign securities.

[Begin callout]
The Fund concentrates in equity securities of technology companies.
[End callout]

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a growth strategy. As a "bottom-up" investor focusing primarily on
individual securities, the manager chooses companies that it believes are
positioned for rapid growth in revenues, earnings or assets. The manager relies
on a team of analysts to provide in-depth industry expertise and uses both
qualitative and quantitative analysis to evaluate companies for distinct and
sustainable competitive advantages. Such advantages as a particular marketing
niche, proven technology, strong management and industry leadership are all
factors the manager believes point to strong growth potential.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable to investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of the
Fund's portfolio in cash. Temporary defensive investments generally may include
money market fund shares, money market instruments or short-term debt
securities. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the Fund may be unable to achieve its
investment goal.

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

TECHNOLOGY COMPANIES By focusing on technology industries, the Fund carries much
greater risks of adverse developments among such industries than a fund that
invests in a wider variety of industries. Prices often change collectively
without regard to the merits of individual companies. Technology company stocks
can be subject to abrupt or erratic price movements and have been volatile,
especially over the short term, due to the rapid pace of product change and
development affecting such companies. Technology companies are subject to
significant competitive pressures, such as new market entrants, aggressive
pricing, and competition for market share, and the potential for falling profit
margins. These companies also face the risks that new services, equipment or
technologies will not be accepted by consumers and businesses or will become
rapidly obsolete. These factors can affect the profitability of technology
companies and, as a result, the value of their securities. In addition, many
internet-related companies are in the emerging stage of development and are
particularly vulnerable to the risks of rapidly changing technologies. Prices of
these companies' securities historically have been more volatile than other
securities, especially over the short term.

[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, their value tends to go up and down more dramatically over the
short-term. These price movements may result from factors affecting individual
companies, industries, or securities markets.

GROWTH STYLE STOCK INVESTING Growth stock prices reflect projections of future
earnings or revenues, and can, therefore, fall dramatically if the company fails
to meet those projections. Growth stocks may also be more expensive relative to
their earnings or assets compared to value or other stocks. Because the Fund's
manager uses an aggressive growth strategy, an investment in the Fund involves
greater risk and more volatility than an investment in a growth Fund investing
entirely in proven growth stocks.

For example, smaller companies may lack depth of management, may be unable to
generate funds necessary for growth or development, or may be developing or
marketing new products or services for which markets are not yet established and
may never become established. Smaller companies may be particularly affected by
interest rate increases, as they may find it more difficult to borrow money to
continue or expand operations, or may have difficulty in repaying any loans
which are floating rate.

PORTFOLIO TURNOVER Because of the Fund's emphasis on technology stocks, the
Fund's portfolio turnover rate may exceed 100% annually, which may involve
additional expenses to the Fund, including portfolio transaction costs.

More detailed information about the Fund, its policies 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 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]

[Insert graphic of a bull and a bear] PERFORMANCE

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

[Insert graphic of percentage sign] FEES AND EXPENSES

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 5.75% 4.00% 1.99%
percentage of offering price
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge (load) None1 4.00%2 0.99%3

Please see "Choosing a Share Class" on page [#] 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 fees5 0.55% 0.55% 0.55%
Distribution and service
(12b-1) fees 0.35% 1.00% 1.00%
Other expenses 0.57% 0.57% 0.57%
------------------------------------
Total annual fund operating expenses5 1.47% 2.12% 2.12%
------------------------------------

1. Except for investments of $1 million or more (see page [#]) and purchases by
certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. The management fees shown are based on the fund's maximum contractual amount.
Other expenses are estimated. 5. The manager and administrator have agreed in
advance to waive or limit their respective fees and assume as their own expense
certain expenses otherwise payable by the fund so that total annual fund
operating expenses do not exceed 1.40% for Class A, 2.05% for Class B and 2.05%
for Class C for the current fiscal year. After April 30, 2001 the manager and
administrator may end this arrangement at any time.

EXAMPLE

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

o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o 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
-----------------------------------------------------------
If you sell your shares at the end of the period:

CLASS A $ 716 1 $ 1,013
CLASS B $ 615 $ 964 2
CLASS C $ 412 $ 757
If you do not sell your shares:
CLASS B $ 215 $ 664 2
CLASS C $ 313 $ 757

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.

[Insert graphic of briefcase] MANAGEMENT

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., P.O. Box 7777,
San Mateo, California 94403-7777, is the fund's investment manager. Together,
Advisers and its affiliates manage over $225 billion in assets.

The team responsible for the fund's management is:

CANYON CHAN CFA, VICE PRESIDENT OF ADVISERS
Mr. Chan has been a manager of the fund since its inception. He joined the
Franklin Templeton group in 1991.

CONRAD 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.

IAN LINK CFA, Vice President of Advisers
Mr. Link has been a manager of the fund since its inception. He joined the
Franklin Templeton group in 1989.

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

o 0.550% of the value of net assets up to and including $500 million;
o 0.450% of the value of net assets over $500 million, up to and including $1
billion;
o 0.400% of the value of net assets over $1 billion, up to and including $1.5
billion;
o 0.350% of the value of net assets over $1.5 billion, up to and including
$6.5 billion;
o 0.325% of the value of net assets over $6.5 billion, up to and including
$11.5 billion;
o 0.300% of the value of net assets over $11.5 billion, up to and including
$16.5 billion;
o 0.290% of the value of net assets over $16.5 billion, up to and including
$19 billion;
o 0.280% of the value of net assets over $19 billion, up to and including
$21.5 billion; and 0.270% of the value of net assets over $21.5 billion.

FINANCIAL HIGHLIGHTS

[Insert graphic of dollar bill]

Because the fund is new, it has no financial highlights.

FRANKLIN GLOBAL
HEALTH CARE FUND

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The Fund's goal is to seek capital appreciation.

PRINCIPAL INVESTMENTS Under normal market conditions, the Fund invests at least
70% of its total assets in the equity securities of health care companies
located throughout the world. The Fund will seek to invest in companies that
have, in the opinion of the manager, the potential for above average growth in
revenues and/or earnings. The Fund invests a substantial portion of its assets
in smaller capitalization companies, which are generally companies with a market
capitalization of less than $1.5 billion at the time of the Fund's investment.

[Begin callout]
The Fund normally invests at least 70% of its total assets in the equity
securities of U.S. and foreign health care companies.

[End callout]

For the Fund's investment purposes, a health care company is one that derives at
least 50% of its earnings or revenues from health care activities, or has
devoted at least 50% of its assets to such activities, based on the company's
most recent fiscal year. Health care activities include research, development,
production, or distribution of products and services in industries such as
pharmaceutical, biotechnology, health care facilities, medical supplies, medical
technology, managed care companies, health care related information systems, and
personal health care products. The manager believes that a portfolio of global
securities may provide a greater potential for investment participation in
present and future opportunities that may present themselves in the health care
related industries. In addition to its equity investments in health care
companies, the Fund may also invest up to 30% of its assets in equity or debt
securities of any type of foreign or U.S. issuer.

The Fund invests in securities of issuers in at least three different countries.
The Fund will not invest more than 40% of its net assets in any one country
other than the U.S. The Fund expects that a significant portion of its
investments will be in securities of domestic issuers. The Fund may buy
American, European, and Global Depositary Receipts. Depositary receipts are
certificates typically issued by a bank or trust company that give their holders
the right to receive securities issued by a foreign or domestic company.

MAIN RISKS

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

HEALTH CARE INDUSTRY By focusing on the health care industry, the Fund carries
much greater risks of adverse developments than a fund that invests in a wider
variety of industries. The activities of health care companies are strongly
affected by government activities, regulation and legislation. Health care
companies may be funded or subsidized by federal and state governments. If
government subsidies are discontinued or reduced, the profitability of these
companies could be adversely affected. Stocks held by the Fund will be affected
by government policies on health care reimbursements, regulatory approval for
new drugs and medical instruments, and similar matters. Health care companies
are also subject to legislative risk, which is the risk of changes in the health
care system through legislation. Health care companies may face lawsuits related
to product liability issues. Also, many products and services provided by health
care companies are subject to rapid obsolescence. Price changes among stocks in
the health care sector are often affected by developments pertaining only to one
or a few companies and the value of an investment in the Fund may fluctuate
significantly over relatively short periods of time.

[End callout]

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

[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 7 calendar years. The table
shows how the Fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS1

[Begin callout]
BEST

QUARTER:
Q3 '95
22.17%

WORST QUARTER:
Q3 '98
-17.73%

[End callout]

[Insert bar graph]

6.21% 14.29% 54.59% 16.47% 10.20% -7.54% -0.77%
93 94 95 96 97 98 99

YEAR

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1999

SINCE
INCEPTION
1 YEAR 5 YEARS (2/14/92)
--------------------------------------------------------------------------------
Franklin Global Health
Care Fund - Class A2 -6.50% 11.40% 9.83%
S&P 500 Index3 21.04% 28.56% 20.22%

1 YEAR
--------------------------------------------------------------------
Franklin Global Health Care Fund - Class B2 -5.47%
S&P 500 Index3 21.04%

SINCE
INCEPTION
1 YEAR (9/3/96)
--------------------------------------------------------------------------------
Franklin Global Health Care Fund - Class C2 -3.39% 0.92%
S&P 500 Index3 21.04% 29.52%

1. Figures do not reflect sales charges. If they did, returns would be lower. As
of June 30, 2000, the Fund's year-to-date return was xx% for Class A.
2. Figures reflect sales charges.
All Fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. The S&P 500 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.

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) None1 4.00%2 0.99%3

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

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS B CLASS C
------------------------------------------------------------------------------
Management fees 0.62% 0.62% 0.62%
Distribution and service 0.25% 1.00% 1.00%
(12b-1) fees
Other expenses 0.66% 0.66% 0.66%
-----------------------------------
Total annual fund operating expenses 1.53% 2.28% 2.28%
-----------------------------------
Sweep money fund management fee waiver4 0.01 0.01 0.01
-----------------------------------
Net annual fund operating expenses4 1.52 2.27 2.27
-----------------------------------

1. Except for investments of $1 million or more (see page [#]) and purchases by
certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. For the fiscal year ended April 30, 2000, the manager had agreed in advance
to reduce its fees to reflect reduced services resulting from the Fund's
investment in a Franklin Templeton money fund. This reduction is required by the
Fund's Board of Trustees and an order by the Securities and Exchange Commission.

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
------------------------------------------------------------------------------
If you sell your shares at the end of the period:

CLASS A $ 721 1 $1,028 $1,356 $2,283
CLASS B $ 630 $1,009 $1,415 $2,417 2
CLASS C $ 427 $ 802 $1,303 $2,679
If you do not sell your shares:
CLASS B $ 230 $ 709 $1,215 $2,417 2
CLASS C $ 328 $ 802 $1,303 $2,679

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.

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 $225 billion in assets.

The team responsible for the Fund's management is:

KURT VON EMSTER CFA, VICE PRESIDENT OF ADVISERS
Mr. von Emster has been a manager of the Fund since 1992. He joined Franklin
Templeton Investments in 1989.

EVAN MCCULLOCH CFA, VICE PRESIDENT OF ADVISERS
Mr. McCulloch has been a manager of the Fund since 1994. He joined Franklin
Templeton Investments in 1992.

RUPERT H. JOHNSON, JR., PRESIDENT OF ADVISERS
Mr. Johnson has been a manager of the Fund since 1992. He joined Franklin
Templeton Investments in 1965.

The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal year
ended April 30, 2000, managements fees, before any advance waiver, were 0.62% of
the Fund's average daily net assets for its services. Under an agreement by the
manager to reduce its fees to reflect reduced services resulting from the Fund's
investment in a Franklin Templeton money fund, the Fund paid 0.61% of its
average daily net assets to the manager for its services. This reduction is
required by the Fund's Board of Trustees and an order by the Securities and
Exchange Commission.

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,

---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1 1998 1997 2 1996
---------------------------------------------------------------------------------------
PER SHARE DATA ($)

Net asset value, beginning of year 13.88 19.28 16.11 19.34 11.45
-------------------------------------------------
Net investment income (loss) (.12) (.16) (.14) (.06) .11
Net realized and unrealized
gains (losses)3 6.53 (5.23) 4.58 (2.75) 8.96
-------------------------------------------------
Total from investment operations 6.41 (5.39) 4.44 (2.81) 9.07
-------------------------------------------------
Less dividends from net
investment income - - (.09) (.04) (.13)
Less distributions from net
realized gains - (.01) (1.18) (.38) (1.05)
-------------------------------------------------
Total distributions - (.01) (1.27) (.42) (1.18)
-----------======================================
Net asset value, end of year 20.29 13.88 19.28 16.11 19.34
-----------======================================
Total return (%)4 46.18 (27.95) 28.22 (14.71) 82.78

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year ($ x 1,000) 90,563 74,252 176,545 150,653 108,914
Ratios to average net assets: (%)
Expenses 1.52 1.34 1.15 1.14 .73
Expenses excluding waiver and
payments by affiliate 1.52 1.34 1.15 1.14 1.16
Net investment income (loss) (.70) (.72) (.67) (.39) .50
Portfolio turnover rate (%) 123.48 66.54 66.84 73.17 54.78
</TABLE>

CLASS B

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

PER SHARE DATA ($)

Net asset value, beginning of period 13.84 16.97
---------------------------
Net investment loss3 (.26) (.03)
Net realized and unrealized losses 6.51 (3.10)
---------------------------
Total from investment operations 6.25 (3.13)
Net asset value, end of period 20.09 13.84
===========================
Total return (%)4 45.16 (18.44)

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period ($ x 1,000) 3,037 208
Ratios to average net assets: (%)
Expenses 2.20 1.84 5
Net investment loss (1.44) (1.22)5
Portfolio turnover rate (%) 123.48 66.54

CLASS C YEAR ENDED APRIL 30,

----------------------------------------------------------------------------
2000 1999 1998 1997
--------------------------------------
PER SHARE DATA ($)

Net asset value, beginning of year 13.71 19.17 16.07 17.37
--------------------------------------
Net investment loss (.23) (.29) (.20) (.07)
Net realized and unrealized
gains (losses)3 6.41 (5.16) 4.48 (.85)
--------------------------------------
Total from investment operations 6.18 (5.45) 4.28 (.92)
Less distributions from net
realized gains - (.01) (1.18) (.38)
======================================
Net asset value, end of year 19.89 13.71 19.17 16.07
======================================
Total return (%)4 45.08 (28.42) 27.22 (5.47)

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year ($ x 1,000) 20,398 13,747 25,321 10,099
Ratios to average net assets: (%)
Expenses 2.25 2.07 1.90 1.92 5
Net investment loss (1.44) (1.45) (1.44) (1.29)5
Portfolio turnover rate (%) 123.48 66.54 66.84 73.17

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. Based on average shares outstanding effective year ended April 30, 2000.
4. Total return does not include sales charges, and is not annualized.
5. Annualized.

FRANKLIN GLOBAL
COMMUNICATIONS FUND

PRIOR TO NOVEMBER 15, 1999, THE FUND'S NAME WAS "FRANKLIN GLOBAL UTILITIES
FUND."

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The Fund's investment goal is to seek to provide total return, without
undue risk. Total return consists of both capital appreciation and current
dividend and interest income.

PRINCIPAL INVESTMENTS Under normal market conditions, the Fund will invest at
least 65% of its total assets in equity securities of U.S. and non-U.S.
companies that are involved in the development, manufacture or sale of
communications services and communications equipment (communications companies).
These may include, for example, companies that provide:

o local and long distance telephone services or equipment;
o cellular and other wireless communications, paging, and local and wide area
network services or equipment;
o satellite, microwave, cable and other pay television services or equipment;
and
o internet-related services or equipment, including internet service
providers, web hosting and web content providers and internet portals.

[Begin callout]
The Fund concentrates in equity securities of U.S. and non-U.S. communications
companies.
[End callout]

In addition to its equity investments in communications companies, the Fund may
also invest up to 30% of its assets in equity or debt securities of any type of
foreign or U.S. issuer.

The Fund may buy communications companies anywhere in the world, including
emerging markets, but generally invests a greater percentage of its assets in
U.S. companies than any other single country. The Fund may also buy American,
European, and Global Depositary Receipts. Depositary receipts are certificates
typically issued by a bank or trust company that give their holders the right to
receive securities issued by a foreign or domestic company.

PORTFOLIO SELECTION The manager is a research driven, fundamental investor,
pursuing a disciplined investment strategy. Relying on a team of analysts to
provide in-depth industry expertise, the manager looks for companies that will
position the Fund to benefit from potential future technological advances in and
increasing worldwide demand for communications services and communications
equipment. As a "bottom-up" investor focusing primarily on individual
securities, the Fund's manager will focus on the market price of a company's
securities relative to its evaluation of the company's long-term earnings, asset
value and cash flow potential.

MAIN RISKS

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

COMMUNICATIONS INDUSTRY By concentrating in a single industry sector, the Fund
carries much greater risk of adverse developments affecting these companies than
a fund that invests in companies from a wide variety of industries. The
securities of communications companies may experience more price volatility than
securities of companies in other industries. For example, communications
companies are subject to significant competitive pressures, such as new market
entrants, aggressive pricing and competition for market share and the potential
for falling profit margins. These companies also face the risks that new
services, equipment or technologies will not be accepted by consumers and
businesses or will become rapidly obsolete. These factors can affect the
profitability of communications companies and, as a result, the value of their
securities. In addition, many wireless telecommunication and internet-related
companies are in the emerging stage of development and are particularly
vulnerable to the risks of rapidly changing technologies and market conditions.
Prices of these companies' securities historically have been more volatile than
other securities, especially over the short term. Portions of the communications
industry is also subject to government regulation which may affect company
profitability and share price.

[Begin callout]
Because the securities the Fund holds fluctuate in price with global market
conditions, currencies, and interest rate movements, 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]

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).

[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 7 calendar years. The table
shows how the Fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS1

[Begin callout]
BEST

QUARTER:
Q4 '99
34.38%

WORST QUARTER:
Q3 '98
-12.94%

[End callout]

[Insert bar graph]

31.43% -8.79% 27.47% 15.01% 26.96% 6.48% 51.60%
93 94 95 96 97 98 99

YEAR

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1999

SINCE
INCEPTION
1 YEAR 5 YEARS (7/2/92)
--------------------------------------------------------------------------------
Franklin Global Communications Fund
- Class A2 42.85% 23.14% 18.54%
S&P 500 Index3 21.04% 28.56% 21.22%

1 YEAR
--------------------------------------------------------------------
Franklin Global Communications Fund - Class B2 46.44%
S&P 500 Index3 21.04%

SINCE
INCEPTION
1 YEAR (5/1/95)
--------------------------------------------------------------------------------
Franklin Global Communications Fund - Class C2 47.91% 23.74%
S&P 500 Index3 21.04% 27.51%

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) None1 4.00%2 0.99%3

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

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS B CLASS C
------------------------------------------------------------------------------
Management fees 0.54% 0.54% 0.54%
Distribution and service 0.25% 1.00% 1.00%
(12b-1) fees
Other expenses 0.22% 0.22% 0.22%
Total annual fund operating expenses 1.01% 1.76% 1.76%
Sweep money fund management fee waiver4 0.02% 0.02% 0.02%
-----------------------------------
Net annual fund operating expenses4 0.99% 1.74% 1.74%
-----------------------------------

1. Except for investments of $1 million or more (see page [#]) and purchases by
certain retirement plans without an initial sales charge.
2. Declines to zero after six years.
3. This is equivalent to a charge of 1% based on net asset value.
4. For the fiscal year ended April 30, 2000, the manager had agreed in advance
to reduce its fees to reflect reduced services resulting from the Fund's
investment in a Franklin Templeton money fund. This reduction is required by the
Fund's Board of Trustees and an order by the Securities and Exchange Commission.

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
------------------------------------------------------------------------------
If you sell your shares at the end of the period:

CLASS A $670 1 $872 $1,091 $1,718
CLASS B $577 $848 $1,144 $1,853 2
CLASS C $374 $643 $1,034 $2,131
If you do not sell your shares:
CLASS B $177 $548 $944 $1,853 2
CLASS C $275 $643 $1,034 $2,131

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.

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 $225 billion in assets.

The team responsible for the Fund's management is:

ALEX PETERS, PORTFOLIO MANAGER OF ADVISERS
Mr. Peters has been a manager of the Fund since 1998. He joined Franklin
Templeton Investments in 1992.

ALAN MUSCHOTT, PORTFOLIO MANAGER OF ADVISERS
Mr. Muschott has been a manager of the Fund since 2000. He joined Franklin
Templeton Investments in 1998.

The Fund pays Advisers a fee for managing the Fund's. For the fiscal year ended
April 30, 2000, managements fees, before any advance waiver, were 0.54% of the
Fund's average daily net assets. Under an agreement by the manager to reduce its
fees to reflect reduced services resulting from the Fund's investment in a
Franklin Templeton money fund, the Fund paid 0.52% of its average daily net
assets to the manager for its services. This reduction is required by the Fund's
Board of Trustees and an order by the Securities and Exchange Commission.

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,
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1 1998 1997 1996
----------------------------------------------
PER SHARE DATA ($)

Net asset value, beginning of year 16.97 17.36 14.46 14.28 12.23
----------------------------------------------
Net investment income2 .13 .27 .33 .42 .37
Net realized and unrealized
gains (losses) 6.20 .31 4.69 1.35 2.39
----------------------------------------------
Total from investment operations 6.33 .58 5.02 1.77 2.76
----------------------------------------------
Less dividends from net
investment income (.35) (.19) (.37) (.38) (.39)
Less distributions from net
realized gains (2.97) (.78) (1.75) (1.21) (.32)
----------------------------------------------
Total distributions (3.32) (.97) (2.12) (1.59) (.71)
==============================================
Net asset value, end of year 19.98 16.97 17.36 14.46 14.28
==============================================
Total return (%)3 38.93 4.02 37.02 12.94 23.27

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year ($ x 1,000) 291,103 199,824 226,594 174,023 167,225
Ratios to average net assets: (%)
Expenses .99 1.05 1.03 1.00 1.04
Net investment income .64 1.55 2.02 2.82 2.85
Portfolio turnover rate (%) 132.25 68.50 45.51 47.55 50.51
</TABLE>

CLASS B 2000 1999
---------------------------------------------------------

PER SHARE DATA ($)

Net asset value, beginning of period 16.92 15.84
--------------------
Net investment income2 (.08) .02
Net realized and unrealized gains 6.25 1.06
--------------------
Total from investment operations 6.17 1.08
Less distributions from:
Net investment income (.32) --
Net realized gains (2.97) --
--------------------
Total distributions (3.29) --
--------------------
Net asset value, end of period 19.80 16.92
====================
Total return (%)3 37.98 6.82

RATIOS/SUPPLEMENTAL DATA

Net assets, end of period ($ x 4,338 79
1,000)

Ratios to average net assets: (%)
Expenses 1.74 1.80 4
Net investment income (.38) .83 4
Portfolio turnover rate (%) 132.25 68.50

CLASS C YEAR ENDED APRIL 30,

-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
-------------------------------------------------------------------------------------

PER SHARE DATA ($)

Net asset value, beginning of year 16.85 17.25 14.37 14.24 12.23
------------------------------------------------
Net investment income (loss)2 (.03) .14 .24 .32 .37
Net realized and unrealized gains 6.16 .32 4.66 1.33 2.32
------------------------------------------------
Total from investment operations 6.13 .46 4.90 1.65 2.69
------------------------------------------------
Less dividends from net
investment income (.22) (.08) (.27) (.31) (.36)
Less distributions from net
realized gains (2.97) (.78) (1.75) (1.21) (.32)
------------------------------------------------
Total distributions (3.19) (.86) (2.02) (1.52) (.68)
================================================
Net asset value, end of year 19.79 16.85 17.25 14.37 14.24
================================================
Total return (%)3 37.93 3.19 36.21 12.04 22.63

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year ($ x 1,000) 33,216 16,807 16,324 8,467 2,727
Ratios to average net assets: (%)
Expenses 1.74 1.80 1.78 1.77 1.81
Net investment income (.14) .81 1.29 1.98 2.10
Portfolio turnover rate (%) 132.25 68.50 45.51 47.55 50.51
</TABLE>

1. For the period January 1, 1999 (effective date) to April 30, 1999 for Class
B.
2. Based on average shares outstanding effective year ended April 30, 2000.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.

FRANKLIN NATURAL
RESOURCES FUND

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

GOAL The Fund's goal is to seek to provide high total return. Total return
consists of both capital appreciation and current dividend and interest income.

PRINCIPAL INVESTMENTS Under normal market conditions, the Fund invests at least
65% of its assets in the equity and debt securities of U.S. and foreign
companies in the natural resources sector. The Fund invests a substantial
portion of its assets in smaller capitalization companies, which are generally
companies with a market capitalization of less than $1.5 billion at the time of
the Fund's investment.

[Begin callout]
The Fund normally invests at least 65% of its assets in the equity and debt
securities of U.S. and foreign companies in the natural resources sector.

[End callout]

For the Fund's investment purposes, the natural resources sector includes
companies that own, produce, refine, process, and market natural resources and
companies that provide related services. The sector includes, for example, the
following industries: integrated oil, oil and gas exploration and production,
gold and other precious metals, steel and iron ore production, aluminum
production, forest products, farming products, paper products, chemicals,
building materials, energy services and technology, and environmental services.
In addition to its investments in companies in the natural resources sector, the
Fund may also invest up to 35% of its assets in equity or debt securities of any
type of foreign or U.S. issuer.

The Fund invests most of its assets in equity securities and in debt securities
convertible into equity securities. An equity security, or stock, represents a
proportionate share of the ownership of a company; its value is based on the
success of the company's business, any income paid to stockholders, the value of
its assets, and general market conditions. Common stocks and preferred stocks
are examples of equity securities. Debt securities represent the obligation of
the issuer to repay a loan of money to it, and generally pay interest to the
holder. Bonds, notes, and debentures are examples of debt securities.
Convertible securities have characteristics of both debt securities (which is
frequently the form in which they are first issued) and equity securities (which
is what they can be converted into).

The Fund expects to invest more of its assets in U.S. securities than in
securities of any other single country, but the Fund may invest more than 50% of
its total assets in foreign securities, including emerging market securities.
The Fund may also buy American Depositary Receipts. Depositary receipts are
certificates typically issued by a bank or trust company that give their holders
the right to receive securities issued by a foreign or domestic company.

MAIN RISKS

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

NATURAL RESOURCES SECTOR By focusing on the natural resources sector, the Fund
carries much greater risks of adverse developments than a fund that invests in a
wider variety of industries. The securities of companies in the natural
resources sector may experience more price volatility than securities of
companies in other industries. Some of the commodities which these industries
provide are subject to limited pricing flexibility because of supply and demand
factors. Others are subject to broad price fluctuations as a result of the
volatility of the prices for certain raw materials and the instability of
supplies of other materials. These factors can affect the profitability of
companies in the natural resources sector and, as a result, the value of their
securities.

[End callout]

The Fund's concentration in the securities of companies with substantial natural
resource assets will expose the Fund to the price movements of natural resources
to a greater extent than a more broadly diversified mutual fund. Because the
Fund invests primarily in this economic sector, there is the risk that the Fund
will perform poorly during an economic downturn or a slump in demand for natural
resources.

SMALLER COMPANIES Smaller companies involve greater risks than larger, more
established companies and should be considered speculative. Historically,
smaller 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 companies, the
lower degree of liquidity in the markets for such securities and the greater
sensitivity of smaller companies to changing economic conditions.

FOREIGN SECURITIES Investing in foreign securities, including depositary
receipts, typically involves more risks than investing in U.S. securities.
Certain of these risks also may apply to securities of U.S. companies with
significant foreign operations. These risks can increase the potential for
losses in the Fund and affect its share price. In the natural resources sector,
many companies whose securities trade in the U.S. are nevertheless impacted by
many of these risks because they have operations in foreign countries, or may be
dependent upon commodities supplied by foreign countries.

CONVERTIBLE SECURITIES The value of convertible securities may rise and fall
with the market value of the underlying stock or, like a debt security, vary
with changes in interest rates and the credit quality of the issuer. A
convertible security tends to perform more like a stock when the underlying
stock price is high (because it is assumed it will be converted) and more like a
debt security when the underlying stock price is low (because it is assumed it
will not be converted). Because its value can be influenced by many different
factors, a convertible security is not as sensitive to interest rate changes as
a similar non-convertible debt security, and generally has less potential for
gain or loss than the underlying stock.

INCOME Since the Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.

CREDIT There is the possibility that an issuer will be unable to make interest
payments and repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect a security's value and, thus, impact Fund
performance.

INTEREST RATE When interest rates rise, debt security prices fall. The opposite
is also true: debt security prices rise when interest rates fall. In general,
securities with longer maturities are more sensitive to these price changes.

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

[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 4 calendar years. The table
shows how the Fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

CLASS A ANNUAL TOTAL RETURNS1

[Begin callout]
BEST

QUARTER:
Q2 '99
21.12%

WORST QUARTER:
Q3 '98
-19.58%

[End callout]

[Insert bar graph]

39.65% 3.67% -26.03% 33.52%
96 97 98 99

YEAR

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999

1 YEAR SINCE
INCEPTION
(6/5/95)
-------------------------------------------------------------------------------
Franklin Natural Resources Fund - Class A2 25.85% 9.15%
S&P 500 Index3 21.04% 26.95%

1. Figures do not reflect sales charges. If they did, returns would be lower. As
of June 30, 2000, the Fund's year-to-date return was XX%.
2. Figures reflect sales charges.
All Fund performance assumes reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. The S&P 500 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.

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
----------------------------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75%
Load imposed on purchases 5.75%
Maximum deferred sales charge (load) None1

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

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS B CLASS C

------------------------------------------------------------------------------
Management fees2 0.62% -- --
Distribution and service 0.33% -- --
(12b-1) fees
Other expenses 0.49% -- --
Total annual fund operating expenses2 1.44% -- --
Sweep money fund management fee waiver2 0.01%
-----------------------------------
Net annual fund operating expenses2 1.43%
-----------------------------------

1. Except for investments of $1 million or more (see page [#]) and purchases by
certain retirement plans without an initial sales charge.
2. For the fiscal year ended April 30, 2000, the manager had agreed in advance
to limit its management fees. The manager also had agreed in advance to reduce
its fees to reflect reduced services resulting from the Fund's investment in a
Franklin Templeton money fund. With these reductions, management fees were 0.16%
and total annual fund operating expenses were 0.98%. The manager may end this
arrangement at any time upon notice to the Fund's Board of Trustees. The
manager, however, is required by the Fund's Board of Trustees and an order by
the Securities and Exchange Commission to reduce its fees if the Fund invests in
a Franklin Templeton money fund.

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
------------------------------------------------------------------------------
If you sell your shares at the end of the period:

CLASS A $7121 $1,001 $1,312 $2,190

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 $225 billion in assets.

The team responsible for the Fund's management is:

MICHAEL R. WARD, PORTFOLIO MANAGER OF ADVISERS
Mr. Ward has been a manager of the Fund since April 1999. He joined Franklin
Templeton Investments in 1992.

STEVE LAND, PORTFOLIO MANAGER OF ADVISERS
Mr. Land has been a manager of the Fund since April 1999. He joined Franklin
Templeton Investments in 1997.

The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal year
ended April 30, 2000, management fees, before any advance waiver, were 0.62% of
the Fund's average daily net assets. Under an agreement by the manager to limit
its fees and to reduce its fees to reflect reduced services resulting from the
Fund's investment in a Franklin Templeton money fund, the Fund paid 0.16% of its
average daily net assets to the manager for its services. 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.

CLASS A YEAR ENDED APRIL 30,

------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996 1
-----------------------------------------------
PER SHARE DATA ($)

Net asset value, beginning of year 13.25 15.46 14.07 13.14 10.00
-----------------------------------------------
Net investment income2 .05 .12 .10 .09 .08
Net realized and unrealized gains
(losses) 2.52 (2.21) 2.26 1.25 3.22
-----------------------------------------------
Total from investment operations 2.57 (2.09) 2.36 1.34 3.30
-----------------------------------------------
Dividends from net investment income (.08) (.12) (.09) (.09) (.06)
Distributions from net realized gains - - (.88) (.32) (.10)
-----------------------------------------------
Total distributions (.08) (.12) (.97) (.41) (.16)
===============================================
Net asset value, end of year 15.74 13.25 15.46 14.07 13.14
===============================================
Total return (%)3 19.47 (13.42) 17.57 10.23 33.36

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year ($ x 1,000) 41,106 44,014 62,274 45,386 9,909
Ratios to average net assets: (%)
Expenses .98 .97 .96 .98 .99 4
Expenses excluding waiver and payments
by affiliate 1.43 1.47 1.31 1.31 1.77 4
Net investment income .39 .97 .67 .72 1.16 4
Portfolio turnover rate (%) 81.52 74.03 72.93 46.31 59.04
</TABLE>

1. For the period June 5, 1995 (effective date) to April 30, 1996.
2. Based on average shares outstanding effective year ended April 30, 2000.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.

[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES

INCOME AND CAPITAL GAINS DISTRIBUTIONS Each Fund, except the Biotechnology
Discovery Fund and the Technology Fund, intends to pay a dividend at least
semiannually in June and December representing its net investment income.
Capital gains, if any, may be distributed annually. The Biotechnology Discovery
Fund and Technology Fund intend 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 the
Funds will pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record dates for the Funds' 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
the Funds' 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 redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, or if the IRS instructs a 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.

Fund distributions and gains from the sale or exchange of your shares generally
will be subject to state and local taxes. 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.

YOUR ACCOUNT

[Insert graphic of pencil marking an "X"] CHOOSING A SHARE CLASS

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

o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% on charge of 1% on
purchases of $1 shares you sell shares you sell
million or more sold within the first within 18 months
within 12 months year, declining to
1% within six years
and eliminated
after that

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.

SALES CHARGES - CLASS A

THE SALES CHARGE WHICH EQUALS THIS
MAKES UP THIS % OF % OF YOUR NET
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE 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 page [#]), 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 [#]).

DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan, sometimes
known as a Rule 12b-1 plan, that allows Biotechnology Discovery Fund, Technology
Fund and Natural Resources Fund to pay distribution fees of up to 0.35% per year
and Health Care Fund and Communications Fund 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 - TECHNOLOGY FUND, HEALTH CARE FUND AND COMMUNICATIONS
FUND

IF YOU SELL YOUR SHARES

WITHIN THIS MANY YEARS AFTER BUYING THEM THIS % IS DEDUCTED FROM 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 [#]).
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 Bank & Trust 403(b) plans, and
Franklin Templeton Bank & Trust 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 Technology Fund, Health Care Fund and
Communications 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 -

TECHNOLOGY FUND, HEALTH CARE FUND AND COMMUNICATIONS FUND

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 Technology Fund, Health Care Fund and
Communications Fund to pay distribution and other fees of up to 1% 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 [#]
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 Franklin Templeton Investments U.S.
registered mutual funds, except Franklin Templeton Variable Insurance Products
Trust and Templeton Capital Accumulator Fund, Inc.
[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 ,and institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365 days.
Certain investors also may buy Class C shares without an initial sales charge.
The CDSC for each class 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 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.

[Insert graphic of a paper with lines
and someone writing] BUYING SHARES

MINIMUM INVESTMENTS

-----------------------------------------------------------------------------
INITIAL ADDITIONAL
-----------------------------------------------------------------------------
Regular accounts $1,000 $50
-----------------------------------------------------------------------------
Automatic investment plans $50 ($25 for $50 ($25 for
an Education an Education
IRA) IRA)
-----------------------------------------------------------------------------
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
-----------------------------------------------------------------------------

PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A
FUND ELIGIBLE FOR SALE IN YOUR STATE OR
JURISDICTION.

ACCOUNT APPLICATION The Biotechnology Discovery Fund is closed to new
investors, except retirement plan accounts. If you were a shareholder of record
as of February 18, 2000, you may continue to add to your account, subject to
your applicable minimum additional investment amount, or buy additional shares
through the reinvestment of dividend or capital gain distributions. The Fund
reserves the right to modify this policy at any time.

For the remaining Funds, 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
"Investor Services" on page [#]). For example, if you would like to link one of
your bank accounts to your Fund account so that you may use electronic fund
transfers to and from your bank account to buy and sell shares, please complete
the bank information section of the application. We will keep your bank
information on file for future purchases and redemptions.

BUYING SHARES

--------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT

--------------------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment Contact your investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
--------------------------------------------------------------------------------
[Insert graphic of If you have another Franklin Before requesting a
phone] Templeton fund account with telephone purchase, please
your bank account make sure we have your bank
BY PHONE information on file, you may account information on file.
open a new account by phone. If we do not have this
(Up to $100,000 per The accounts must be information, you will need
day) identically registered. to send written instructions
with your bank's name and
1-800/632-2301 To make a same day address, a voided check or
investment, please call us savings account deposit
by 1:00 p.m. Pacific time or slip, and a signature
the close of the New York guarantee if the ownership
Stock Exchange, whichever of the bank and Fund
is earlier. accounts is different.

To make a same day
investment, please call us
by 1:00 p.m. Pacific time or
the close of the New York
Stock Exchange, whichever is
earlier.

--------------------------------------------------------------------------------
Make your check payable to Make your check payable to
[Insert graphic of the Fund. the Fund. Include your
envelope] account number on the check.
Mail the check and your
BY MAIL signed application to Fill out the deposit slip
Investor Services. 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 wire Call to receive a wire
three lightning control number and wire control number and wire
bolts] instructions. instructions.

Wire the funds and mail your To make a same day wire
signed application to investment, please call us
BY WIRE Investor Services. Please by 1:00 p.m. Pacific time
include the wire control and make sure your wire
1-800/632-2301 number or your new account arrives by 3:00 p.m.
(or 1-650/312-2000 number on the application.
collect)
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 Services at Call Shareholder Services at
two arrows pointing the number below, or send the number below or our
in opposite signed written instructions. automated TeleFACTS system,
directions] The TeleFACTS system cannot or send signed written
be used to open a new instructions.
BY EXCHANGE account.

(Please see page # for (Please see page # for
TeleFACTS(R) information on exchanges.) information on exchanges.)
1-800/247-1753
(around-the-clock
access)
--------------------------------------------------------------------------------

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 a headset] INVESTOR SERVICES

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the Fund by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application and mail it to Investor Services. If you are opening
a new account, please include the minimum initial investment of $50 ($25 for an
Education IRA) with your application.

AUTOMATIC PAYROLL DEDUCTION You may invest in the Fund automatically 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 the 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 Bank & Trust 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 Investments 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 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 buy,
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 Fund 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. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one signature
for all transactions. This type of telephone exchange is available as long as
you have telephone exchange privileges on your account.

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 purchase, 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.

[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.

Because excessive trading can hurt Fund performance, operations and
shareholders, each Fund, effective November 1, 2000, reserves the right to
revise or terminate the exchange privilege, limit the amount or number of
exchanges, reject any exchange, or restrict or refuse purchases if (i) the Fund
or its manager believes the Fund would be harmed or unable to invest
effectively, or (ii) the Fund receives or anticipates simultaneous orders that
may significantly affect the Fund (please see "Market Timers" on page [#}).

*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 of Biotechnology Discovery Fund,
Health Care Fund and Communications Fund 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.

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 a certificate] SELLING SHARES

You can sell your shares at any time. For the Biotechnology Discovery Fund,
please keep in mind that a contingent deferred sales charge (CDSC) may apply.
Please also keep in mind that if you sell all the shares in your account, your
account will be closed and you will not be able to buy additional Fund shares or
to reopen your account.

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 Funds
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 Bank & Trust retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Services at 1-800/527-2020 for
details.

SELLING SHARES

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

THROUGH YOUR INVESTMENT
REPRESENTATIVE

-------------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] certificates (if you hold share certificates)
to Investor Services. Corporate, partnership
BY MAIL 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 As long as your transaction is for $100,000 or
phone] less, you do not hold share certificates and
you have not changed your address by phone
BY PHONE within the last 15 days, you can sell your shares
by phone.

1-800/632-2301
A check will be mailed to the name(s) and address on
the account. Written instructions, with a signature
guarantee, are required to send the check to another
address or to make it payable to another person.

--------------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption
three lightning bolts] proceeds sent to a bank account. See the
policies above for selling shares by mail or
phone.

Before requesting to have redemption proceeds
BY ELECTRONIC FUNDS sent to a bank account, please make sure we
TRANSFER (ACH) 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, a voided check or savings account deposit
slip, and a signature guarantee if the ownership of
the bank and fund accounts is different.

If we receive your request in proper form by 1:00 p.m.
Pacific time, proceeds sent by ACH generally will be
available within two to three business days.

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

The 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 quarterly account statements that show
all your account transactions during the quarter. You also will receive written
notification after each transaction affecting your account (except for
distributions and transactions made through automatic investment or withdrawal
programs, which will be reported on your quarterly statement). You also will
receive the Fund's 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 copies of all notifications and 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 Technology Fund and Natural Resources Fund may restrict or
refuse exchanges by market timers. The Biotechnology Discovery Fund, Health Care
Fund and Communications Fund do not allow investments by market timers.

You may be considered a Market Timer if you have (i) requested an exchange out
of any of the Franklin Templeton funds within two weeks of an earlier exchange
request out of any Fund, or (ii) exchanged shares out of any of the Franklin
Templeton funds more than twice within a rolling 90 day period, or (iii)
otherwise seem to follow a market timing pattern that may adversely affect the
Fund. Accounts under common ownership or control with an account that is covered
by (i), (ii), or (iii) are also subject to these limits.

Anyone, including the shareholder or the shareholder's agent, who is considered
to be a Market Timer by the Fund, its manager or shareholder services agent,
will be issued a written notice of their status and the Fund's policies.
Identified Market Timers will be required to register with the market timing
desk of Franklin Templeton Investor Services, Inc., and to place all purchase
and exchange trade requests through the desk.

ADDITIONAL POLICIES Please note that each Fund maintains additional policies and
reserves certain rights, including:

o The Funds may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.
o At any time, the Funds may change its investment minimums or waive or lower
its minimums for certain purchases.
o The Funds may modify or discontinue the exchange privilege on 60 days'
notice.
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, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the Fund 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.

BIOTECHNOLOGY DISCOVERY FUND AND NATURAL RESOURCES FUND

CLASS A
------------------------------------------------
COMMISSION (%) ---
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 1.001
12B-1 FEE TO DEALER 0.252

TECHNOLOGY FUND, HEALTH CARE FUND AND COMMUNICATIONS FUND

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 1.001 --- ---
12B-1 FEE TO DEALER 0.252 0.253 1.004

A dealer commission of up to 1% may be paid on Class A NAV purchases by certain
retirement plans1 and on Class C NAV purchases. A dealer commission of up to
0.25% may be paid 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.

MARKET TIMERS. Please note that for Class A NAV purchases by market timers,
including purchases of $1 million or more, dealers are not eligible to receive
the dealer commission. Dealers, however, may be eligible to receive the 12b-1
fee from the date of purchase.

1. During the first year after purchase, dealers may not be eligible to receive
the 12b-1 fee.
2. Technology Fund, Biotechnology Discovery Fund and Natural Resources 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. Biotechnology
Discovery Fund will not reimburse Distributors the additional 0.10% during
periods when the fund is closed to new investors.
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 Fund or your account, you can write to us at
P.O. Box 997151, Sacramento, CA 95899-9983. You also can 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 Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor 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
franklintempleton.com

You also can obtain information about each Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this
information, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request at the
following E-mail address: [email protected].

Investment Company Act file #811-6423 FSS2 P 09/00

Prospectus

FRANKLIN
STRATEGIC
SERIES

ADVISOR CLASS

INVESTMENT STRATEGY

GROWTH FRANKLIN TECHNOLOGY FUND

GROWTH & INCOME FRANKLIN NATURAL RESOURCES FUND

SEPTEMBER 1, 2000

[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 FUNDS

[Begin callout]
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

[insert page #] Franklin Technology Fund

[insert page #] Franklin Natural Resources Fund

[insert page #] Distributions and Taxes

YOUR ACCOUNT

[Begin callout]
INFORMATION ABOUT QUALIFIED INVESTORS, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

[insert page #] Qualified Investors

[insert page #] Buying Shares

[insert page #] Investor Services

[insert page #] Selling Shares

[insert page #] Account Policies

[insert page #] Questions

FOR MORE INFORMATION

[Begin callout]
WHERE TO LEARN MORE ABOUT EACH FUND
[End callout]

Back Cover

THE FUNDS

FRANKLIN TECHNOLOGY FUND

GOAL AND STRATEGIES

[Insert graphic of bullseye and arrows]

Goal The Fund's investment goal is capital appreciation.

[Begin callout]
The Fund concentrates in equity securities of technology companies.
[End callout]

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

[End callout]

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

[End callout]

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

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

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

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 fee1 $5.00

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

ADVISOR CLASS
-----------------------------------------------------------------------
Management fees3 0.55%
Distribution and service (12b-1) fees None
Other expenses 0.57%
==============
Total annual fund operating expenses3 1.12%
==============

1. This fee is only for market timers (see page [#]).
2. The management fees shown are based on the Fund's maximum contractual amount.
Other expenses are estimated.
3. The manager and administrator have agreed in advance to limit their
respective fees and assume as their own expense certain expenses otherwise
payable by the Fund so that total annual Fund operating expenses do not exceed
1.05% for the current fiscal year. After April 30, 2001 the administrator and
manager may end this arrangement at any time.

EXAMPLE

This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown; o Your investment has a 5%
return each year; o The Fund's operating expenses remain the same; and o You
sell your shares at the end of the periods shown.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS
----------------------------------------------------------------------------
If you sell your shares at the end of the period:
ADVISOR CLASS $114 $356

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

Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., P.O. Box 7777,
San Mateo, California 94403-7777, is the Fund's investment manager. Together,
Advisers and its affiliates manage over $225 billion in assets.

CANYON CHAN CFA, VICE PRESIDENT OF ADVISERS
Mr. Chan has been a manager of the Fund since its inception. He joined Franklin
Templeton Investments in 1991.

CONRAD HERRMANN CFA, Senior Vice President of Advisers
Mr. Herrmann has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1989.

IAN LINK CFA, Vice President of Advisers
Mr. Link has been a manager of the Fund since its inception. He joined Franklin
Templeton Investments in 1989.

The Fund pays Advisers a fee for managing the Fund's assets. The fee is equal to
an annual rate of:

o 0.550% of the value of net assets up to and including $500 million;

o 0.450% of the value of net assets over $500 million, up to and including $1
billion;

o 0.400% of the value of net assets over $1 billion, up to and including $1.5
billion;

o 0.350% of the value of net assets over $1.5 billion, up to and including
$6.5 billion;

o 0.325% of the value of net assets over $6.5 billion, up to and including
$11.5 billion;

o 0.300% of the value of net assets over $11.5 billion, up to and including
$16.5 billion;

o 0.290% of the value of net assets over $16.5 billion, up to and including
$19 billion;

o 0.280% of the value of net assets over $19 billion, up to and including
$21.5 billion; and 0.270% of the value of net assets over $21.5 billion.

FRANKLIN NATURAL RESOURCES FUND

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

GOAL The Fund's goal is to seek to provide high total return. Total return
consists of both capital appreciation and current dividend and interest income.

[Begin callout]
The Fund normally invests at least 65% of its assets in the equity and debt
securities of U.S. and foreign companies in the natural resources sector.

[End callout]

MAIN RISKS

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

[End callout]

SMALLER COMPANIES Smaller companies involve greater risks than larger, more
established companies and should be considered speculative. Historically,
smaller 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 companies, the
lower degree of liquidity in the markets for such securities and the greater
sensitivity of smaller companies to changing economic conditions.

INCOME Since the Fund can only distribute what it earns, the Fund's
distributions to shareholders may decline when interest rates fall.

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

[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 4 calendar years. The table
shows how the Fund's average annual total returns compare to those of a
broad-based securities market index. Of course, past performance cannot predict
or guarantee future results.

ADVISOR CLASS ANNUAL TOTAL RETURNS 1,2

[Insert bar graph]

39.65% 3.87% -25.59% 38.00%
96 97 98 99

YEAR

[Begin callout]
Best
Quarter:
Q2 '99
24.72%

Worst

Quarter:
Q3 '98
-19.53%

[End callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998

SINCE
INCEPTION
1 YEAR (6/5/95)
--------------------------------------------------------------------
Franklin Natural Resources

Fund - Advisor Class2 38.00% 11.79%

S&P 500 Index3 21.04% 26.95%

1. As of June 30, 2000, the Fund's year-to-date return was XX%.
2. Performance figures reflect a "blended" figure combining the following
methods of calculation: (a) For periods before January 1, 1997, a restated
figure is used based on the Fund's Class A performance, excluding the effect of
Class A's maximum initial sales charge and including the effect of the Class A
distribution and service (12b-1) fees; and (b) for periods after January 1,
1997, an actual Advisor Class figure is used reflecting a deduction of all
applicable charges and fees for that class. This blended figure assumes
reinvestment of dividends and capital gains.
3. Source: Standard & Poor's Micropal. The S&P 500 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.

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

ANNUAL FUND OPERATING EXPENSES

(EXPENSES DEDUCTED FROM FUND ASSETS)

ADVISOR CLASS

------------------------------------------------------ --------------
Management fees1 0.62%
Distribution and service None
(12b-1) fees
Other expenses 0.49%
Total annual fund operating expenses1 1.11%
--------------
Sweep money fund management fee waiver1 0.01%
--------------
Net annual fund operating expenses1 1.10%
--------------

1. For the fiscal year ended April 30, 2000, the manager had agreed in advance
to limit its management fees. The manager also had agreed in advance to reduce
its fees to reflect reduced services resulting from the Fund's investment in a
Franklin Templeton money fund. With these reductions, management fees were 0.16%
and total annual fund operating expenses were 0.65%. The manager may end this
arrangement at any time upon notice to the Fund's Board of Trustees. The
manager, however, is required by the Fund's Board of Trustees and an order by
the Securities and Exchange Commission to reduce its fees if the Fund invests in
a Franklin Templeton money fund.

EXAMPLE

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

<S> <C> <C> <C> <C>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------- ------------- ---------------- --------------- ----------------
If you sell your shares at the end of the period:

ADVISOR CLASS $112 $350 $606 $1,340
</TABLE>

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 $225 billion in assets.

The team responsible for the Fund's management is:

MICHAEL R. WARD, PORTFOLIO MANAGER OF ADVISERS
Mr. Ward has been a manager of the Fund since April 1999. He joined Franklin
Templeton Investments in 1992.

STEVE LAND, PORTFOLIO MANAGER OF ADVISERS
Mr. Land has been a manager of the Fund since April 1999. He joined Franklin
Templeton Investments in 1997.

[Insert graphic of dollar
signs and stacks of coins] DISTRIBUTIONS AND TAXES
-----------------------

INCOME AND CAPITAL GAINS DISTRIBUTIONS The Technology Fund intends to pay a
dividend at least annually representing substantially all of its net investment
income and any net realized capital gains. The Natural Resources Fund intends to
pay a dividend at least semiannually in June and December representing its net
investment income. Capital gains, if any, may be distributed annually. The
amount of these distributions will vary and there is no guarantee the Funds will
pay dividends.

[Begin callout]
Backup Withholding
By law, a Fund must withhold 31% of your taxable distributions and redemption
proceeds if you do not provide your correct social security or taxpayer
identification number and certify that you are not subject to backup
withholding, or if the IRS instructs a Fund to do so.

[End callout]

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.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS
--------------------

This table presents the financial performance for the Natural Resources Fund
Advisor Class since its inception. This information has been audited by
PricewaterhouseCoopers LLP.

FRANKLIN NATURAL RESOURCES
<TABLE>
<CAPTION>

ADVISOR CLASS YEAR ENDED APRIL 30,
------------------------------------------ ---------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 1999 1998 19971
------------------------------------------ --------------- -------------- ---------------- ---------------
PER SHARE DATA ($)

Net asset value, beginning of year 13.63 15.48 14.07 14.66
--------------- -------------- ---------------- ---------------
Net investment income (loss)2 .07 .19 .23 -
Net realized and unrealized
gains (losses) 2.63 (1.85) 2.20 (.59)
--------------- -------------- ---------------- ---------------
Total from investment operations 2.70 (1.66) 2.43 (.59)
--------------- -------------- ---------------- ---------------
Less dividends from net
investment income (.09) (.19) (.14) -
Less distributions from net
realized gains - - (.88) -
--------------- -------------- ---------------- ---------------
Total distributions (.09) (.19) (1.02) -
Net asset value, end of year 16.24 13.63 15.48 14.07
=============== ============== ================ ===============
Total return (%)3 19.91 (10.48) 18.11 (4.02)

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year ($ x 1,000) 8,791 319 892 1,123
Ratios to average net assets: (%)
Expenses .65 .65 .64 .644
Expenses excluding waiver and
payments by affiliate 1.10 1.15 .99 .864
Net investment income (loss) .49 1.29 1.02 1.034
Portfolio turnover rate (%) 81.52 74.03 72.93 46.31
</TABLE>

1. For the period January 2, 1997 (effective date) to April 30, 1997.
2. Based on average shares outstanding effective year ended April 30, 2000.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.

YOUR ACCOUNT

[Insert graphic of pencil marking an "X"]QUALIFIED INVESTORS
-------------------

The following investors may qualify to buy Advisor Class shares of the Funds.

Qualified registered investment advisors with clients invested in any series of
Franklin Mutual Series Fund Inc. on October 31, 1996, or who buy through a
broker-dealer or service agent who has an agreement with Franklin Templeton
Distributors, Inc. (Distributors). Minimum investments: $1,000 initial and $50
additional.

o Broker-dealers, registered investment advisors or certified financial
planners who have an agreement with Distributors for clients participating
in comprehensive fee programs. Minimum investments: $250,000 initial
($100,000 initial for an individual client) and $50 additional.

o Officers, trustees, directors and full-time employees of Franklin Templeton
Investments and their immediate family members. Minimum investments: $100
initial ($50 for accounts with an automatic investment plan) and $50
additional.

o Each series of the Franklin Templeton Fund Allocator Series. Minimum
investments: $1,000 initial and $1,000 additional.

Governments, municipalities, and tax-exempt entities that meet the requirements
for qualification under section 501 of the Internal Revenue Code. Minimum
investments: $1 million initial investment in Advisor Class or Class Z shares of
any Franklin Templeton fund and $50 additional.

o Accounts managed by Franklin Templeton Investments. Minimum investments: No
initial minimum and $50 additional.

o The Franklin Templeton Profit Sharing 401(k) Plan. Minimum investments: No
initial or additional minimums.

Defined contribution plans such as employer stock, bonus, pension or profit
sharing plans that meet the requirements for qualification under section 401 of
the Internal Revenue Code, including salary reduction plans qualified under
section 401(k) of the Internal Revenue Code, and that are sponsored by an
employer (i) with at least 10,000 employees, or (ii) with retirement plan assets
of $100 million or more. Minimum investments: No initial or additional minimums.

Trustcompanies and bank trust departments initially investing in Franklin
Templeton funds at least $1 million of assets held in a fiduciary, agency,
advisory, custodial or similar capacity and over which the trust companies and
bank trust departments or other plan fiduciaries or participants, in the case of
certain retirement plans, have full or shared investment discretion. Minimum
investments: No initial or additional minimums.

Individual investors. Minimum investments: $5 million initial and $50
additional. You may combine all of your shares in the Franklin Templeton funds
for purposes of determining whether you meet the $5 million minimum, as long as
$1 million is in Advisor Class or Class Z shares of any Franklin Templeton fund.

Any other investor, including a private investment vehicle such as a family
trust or foundation, who is a member of an established group of 11 or more
investors. Minimum investments: $5 million initial and $50 additional. For
minimum investment purposes, the group's investments are added together. The
group may combine all of its shares in Franklin Templeton funds for purposes of
determining whether it meets the $5 million minimum, as long as $1 million is in
Advisor Class or Class Z shares of any Franklin Templeton fund. There are
certain other requirements and the group must have a purpose other than buying
Fund shares without a sales charge.

Please note that Advisor Class shares of the Funds generally are not available
to retirement plans through Franklin Templeton's ValuSelect(R) program.
Retirement plans in the ValuSelect program before January 1, 1998, however, may
invest in the Fund's Advisor Class shares.

[Insert graphic of a paper with lines
and someone writing] BUYING SHARES
-------------

ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. 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 "Investor Services" on page [#]). For example, if you would
like to link one of your bank accounts to your Fund account so that you may use
electronic fund transfers to and from your bank account to buy and sell shares,
please complete the bank information section of the application. We will keep
your bank information on file for future purchases and redemptions.

BUYING SHARES
<TABLE>
<CAPTION>

----------------------------- ------------------------------------------- -------------------------------------------
<S> <C> <C>
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
----------------------------- ------------------------------------------- -------------------------------------------
[Insert graphic of hands
shaking]
Contact your investment representative Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE

----------------------------- ------------------------------------------- -------------------------------------------
[Insert graphic of phone] If you have another Franklin Templeton Before requesting a telephone purchase,
account with your bank account please make sure we have your bank
BY PHONE information on file, you may open a new account information on file. If we do not
account by phone. The accounts must be have this information, you will need to
(Up to $100,000 per day) identically registered. send written instructions with your
bank's name and address, a voided check
1-800/632-2301 To make a same day investment, please or savings account deposit slip, and a
call us by 1:00 p.m. Pacific time or the signature guarantee if the ownership of
close of the New York Stock Exchange, the bank and Fund accounts is different.
whichever is earlier.
To make a same day investment, please call
us by 1:00 p.m. Pacific time or the close
of the New York Stock Exchange, whichever
is earlier.

----------------------------- ------------------------------------------- -------------------------------------------
Make your check payable to the Fund. Make your check payable to the Fund.
[Insert graphic of envelope] Include your account number on the check.
Mail the check and your signed
BY MAIL application to Investor Services. Fill out the deposit 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 three Call to receive a wire control number Call to receive a wire control number and
lightning bolts] and wire instructions. wire instructions.

Wire the funds and mail your signed To make a same day wire investment,
application to Investor Services. Please please call us by 1:00 p.m. Pacific time
BY WIRE include the wire control number or your and make sure your wire arrives by 3:00
new account number on the application. p.m.
1-800/632-2301
(or 1-650/312-2000 collect) 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 two Call Shareholder Services at the number Call Shareholder Services at the number
arrows pointing in opposite below, or send signed written below, or send signed written
directions] instructions. (Please see page [#] for instructions. (Please see page [#] for
information on exchanges.) information on exchanges.)
BY EXCHANGE
----------------------------- ------------------------------------------- -------------------------------------------
</TABLE>

[Insert graphic of person with a headset] INVESTOR SERVICES
-----------------

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the Funds by automatically transferring money from your checking or savings
account each month to buy shares. To sign up, complete the appropriate section
of your account application and mail it to Investor Services. If you are opening
a new account, please include your minimum initial investment with your
application.

AUTOMATIC PAYROLL DEDUCTION You may invest in the Funds automatically by
transferring money from your paycheck to the Funds 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 the Funds
in an existing account in the same share class of each Fund or in Advisor Class
or Class A shares of another Franklin Templeton fund. To reinvest your
distributions in Advisor Class shares of another Franklin Templeton fund, you
must qualify to buy that fund's Advisor Class shares. For distributions
reinvested in Class A shares of another Franklin Templeton fund, initial sales
charges and contingent deferred sales charges (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 Bank & Trust 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.

For accounts with more than one registered owner, telephone privileges also
allows 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. In addition, our telephone exchange privilege allows you to
exchange shares by phone from a fund account requiring two or more signatures
into an identically registered money fund account requiring only one signature
for all transactions. This type of telephone exchange is available as long as
you have telephone exchange privileges on your account.

EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton funds
within the same class. You also may exchange your Advisor Class shares for Class
A shares of a fund that does not currently offer an Advisor Class (without any
sales charge)* or for Class Z shares of Franklin Mutual Series Fund Inc.

[End callout]

If you do not qualify to buy Advisor Class shares of Templeton Developing
Markets Trust or Templeton Foreign Fund, you also may exchange your shares for
Class A shares of those funds (without any sales charge)* or for shares of
Templeton Institutional Funds, Inc.

Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.

*If you exchange into Class A shares and you later decide you would like to
exchange into a fund that offers an Advisor Class, you may exchange your Class A
shares for Advisor Class shares if you otherwise qualify to buy the fund's
Advisor Class shares.

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

[Insert graphic of a certificate] SELLING SHARES
--------------

You can sell your shares at any time.

[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]

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 SHARES
---------------------------- ---------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
---------------------------- ---------------------------------------------------
[Insert graphic of hands
shaking]
Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
---------------------------- ---------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] certificates (if you hold share certificates) to
Investor Services. Corporate, partnership or trust
accounts may need to send additional documents.
BY MAIL
Specify the fund, the account number and the dollar
value or number of shares you wish to sell. 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 $100,000 or
less, you do not hold share certificates and
you have not changed your address by phone within
the last 15 days, you can sell your shares by
BY PHONE phone.

1-800/632-2301 A check will be mailed to the name(s) and address
on the account. Written instructions, with a
signature guarantee, are required to send the check
to another address or to make it payable to another
person.

---------------------------- ---------------------------------------------------
[Insert graphic of three You can call or write to have redemption proceeds
lightning bolts] sent to a bank account. See the policies above for
selling shares by mail or phone.

Before requesting to have redemption proceeds sent
to a bank account, please make sure we have your
bank account information on file. If we do not
BY ELECTRONIC FUNDS have this information, you will need to send
TRANSFER (ACH) written instructions with your bank's name and
address, a voided check or savings account
deposit slip, and a signature guarantee if the
ownership of the bank and fund accounts is
different.

If we receive your request in proper form by 1:00
p.m. Pacific time, proceeds sent by ACH generally
will be available within two to three business
days.
---------------------------- ---------------------------------------------------
[Insert graphic of two Obtain a current prospectus for the fund you are
arrows pointing in considering.
opposite directions]
Call Shareholder Services at the number below, or
send signed written instructions. See the policies
above for selling shares by mail or phone.
BY EXCHANGE
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 the 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). The NAV for Advisor Class is calculated by
dividing its net assets by the number of its shares outstanding.

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 Funds hold securities listed primarily on a foreign exchange that trades on
days when the Funds are 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 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.

STATEMENTS AND REPORTS You will receive quarterly account statements that show
all your account transactions during the quarter. You also will receive written
notification after each transaction affecting your account (except for
distributions and transactions made through automatic investment or withdrawal
programs, which will be reported on your quarterly statement). 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.

MARKET TIMERS The Funds may restrict or refuse exchanges by market timers. You
may be considered a Market Timer if you have (i) requested an exchange out of
any of the Franklin Templeton funds within two weeks of an earlier exchange
request out of any Fund, or (ii) exchanged shares out of any of the Franklin
Templeton funds more than twice within a rolling 90 day period, or (iii)
otherwise seem to follow a market timing pattern that may adversely affect the
Fund. Accounts under common ownership or control with an account that is covered
by (i), (ii), or (iii) are also subject to these limits.

ADDITIONAL POLICIES Please note that each Fund maintains additional policies and
reserves certain rights, including:

o The Funds may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.
o At any time, the Funds may change its investment minimums or waive or lower
its 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, the Funds reserve the right to make
payments in securities or other assets of the Funds, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to each Fund promptly.

DEALER COMPENSATION Qualifying dealers who sell Advisor Class shares may receive
up to 0.25% of the amount invested. This amount is paid by Franklin Templeton
Distributors, Inc. from its own resources.

[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 also can 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 Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor 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 each Fund's strategy,
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
franklintempleton.com

Investment Company Act file #811-6243 FSS2 PA 09/00

Prospectus

Franklin U.S. Long-Short Fund

Franklin Strategic Series

INVESTMENT STRATEGY
GROWTH

SEPTEMBER 1, 2000

[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 THE FUND YOU SHOULD KNOW BEFORE INVESTING
[End callout]

[insert page #] Goal and Strategies

[insert page #] Main Risks

[insert page #] Performance

[insert page #] Fees and Expenses

[insert page #] Management

[insert page #] Distributions and Taxes

[insert page #] Financial Highlights

YOUR ACCOUNT

[Begin callout]
INFORMATION ABOUT SALES CHARGES, ACCOUNT TRANSACTIONS AND SERVICES
[End callout]

[insert page #] Sales Charges

[insert page #] Buying Shares

[insert page #] Investor Services

[insert page #] Selling Shares

[insert page #] Account Policies

[insert page #] Questions

FOR MORE INFORMATION

[Begin callout]
WHERE TO LEARN MORE ABOUT THE FUND
[End callout]

Back Cover

THE FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The Fund's principal investment goal is to provide long-term capital
appreciation in both up and down (bull and bear) markets with less volatility
than the overall stock market.

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund will have
both long and short positions in equity securities, primarily common stocks of
U.S. companies. The Fund may invest up to 35% of its assets in foreign equity
securities, including depositary receipts of foreign issuers. An equity
security, or stock, represents a proportionate share of ownership of a company;
its value is based on the success of the company's business, any income paid to
stockholders, the value of its assets, and general market conditions.

[Begin Callout]
The Fund's investment philosophy is that a combination of long and short
equity positions can provide positive returns in either up or down markets as
well as reduce volatility risk.
[End Callout]

When the Fund takes a long position, it purchases a stock outright. When the
Fund takes a short position, it sells a stock it does not own at the current
market price and delivers to the buyer stock that it has borrowed. To complete,
or close out, the short sale transaction, the Fund buys the same stock in the
market and returns it to the lender. The Fund makes money when the market price
of the stock goes down after the short sale. Conversely, if the price of the
stock goes up after the sale, the Fund will lose money when it has to pay more
to replace the stock the Fund borrowed than it received when it sold the stock
short.

The Fund manager constructs the Fund's portfolio on a stock-by-stock basis.
Every purchase is evaluated by weighing the potential gains against associated
risks. The Fund buys stocks "long" that it believes will go up in price and
sells stocks "short" that it believes will go down in price. The Fund manager
does not attempt to time the direction of the entire market, but keeps the
flexibility to shift its net exposure (the value of securities held long less
the value of securities held short) depending on which market opportunities look
more attractive, long or short. As a result, there may be times when the Fund
holds a significant portion of its assets in cash or cash equivalents, although
the Fund generally intends to have all of its assets invested (either long or
short) in equities at all times. There also may be times when the Fund is fully
invested and will borrow money from banks (be leveraged) in an amount up to
one-third of the value of its total assets in order to take advantage of
opportunities to buy more stocks, either long or short. Because of the way that
the Fund constructs its portfolio, there may be times when the Fund's
investments are focused in one or more industry sectors.

The Fund may invest in stock of companies of any size. A substantial amount of
the Fund's assets may be invested in smaller companies (those with a market
capitalization of less than $1.5 billion) and mid-cap companies (those with a
market capitalization of between $1.5 and $8 billion.

TEMPORARY INVESTMENTS When the manager believes market or economic conditions
are unfavorable for investors, the manager may invest up to 100% of the Fund's
assets in a temporary defensive manner or hold a substantial portion of its
assets in cash, cash equivalents or other high quality short-term investments.
Temporary defensive investments generally may include short term debt
instruments. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or to maintain
liquidity. In these circumstances, the Fund may be unable to achieve its
investment goal.

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

STOCKS Although this may not be the case in foreign markets, in the U.S.,
stocks, as a class, have historically outperformed other types of investments
over the long term. Individual stock prices, however, tend to go up and down
more dramatically over the short term. These price movements may result from
factors affecting individual companies or industries, or the securities market
as a whole.

The Fund seeks to minimize its exposure to the risk of general equity market
volatility by selling stocks short to offset the stocks it holds long, but
cannot eliminate all risk. Due to the composition of the portfolio, however, you
should expect the Fund's performance to fluctuate independently of the overall
stock market as represented by indices such as the S&P 500 and the Nasdaq.

SHORT SALES Despite the intent to reduce risk by having both long and short
positions, it is possible that the Fund's long positions will decline in value
at the same time that the value of the stocks sold short increases thereby
increasing the potential for loss. The Fund may not always be able to close out
a short position at a particular time or at an acceptable price. A lender may
request the borrowed securities be returned to it on short notice and the Fund
may have to buy the borrowed securities at an unfavorable price. If this occurs
at a time when other short sellers of the same security also want to close out
their positions, a "short squeeze" can occur. A short squeeze occurs when demand
is greater than supply for the stock sold short. A short squeeze makes it more
likely that the Fund will have to cover its short sale at an unfavorable price.
If that happens, the Fund will lose some or all of the potential profit from, or
even incur a loss as a result of, the short sale.

Until the Fund replaces a borrowed security, it will set aside assets as
collateral for the borrowed security, as required by law. The Fund is also
required to repay the lender any dividends or interest that accrue on the stock
during the period of the loan. Depending on the arrangements made with the
broker or custodian, the Fund may or may not receive any payments (including
interest) on collateral deposited with the broker or custodian.

In addition, short selling may produce higher than normal portfolio turnover and
result in increased transaction costs to the Fund.

BORROWING/LEVERAGE Borrowing money to increase the Fund's combined long and
short exposure and enhance returns creates special risks. The use of leverage
may make any change in the Fund's net asset value even greater and thus result
in increased volatility of returns. The Fund's assets that are used as
collateral to secure the borrowing may decrease in value while the borrowing is
outstanding, which may force the Fund to use its other assets to increase the
collateral. Leverage also creates interest expense that may lower overall Fund
returns.

SMALLER COMPANIES Smaller companies may offer substantial opportunities for
capital growth, but they also involve substantial risks and should be considered
speculative. Historically, small and mid-size 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 companies, the lower degree of liquidity in
the markets for such securities, and the greater sensitivity of smaller
companies to changing economic conditions.

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

PORTFOLIO TURNOVER The Fund manager will sell a stock or close a short position
when it believes it is appropriate to do so, regardless of how long the Fund has
held or been short the securities. It is expected that the Fund's turnover rate
will exceed 100% per year. The rate of portfolio turnover will not be a limiting
factor for the Fund manager in making decisions on when to buy or sell stocks.
High turnover will increase the Fund's transaction costs and may increase your
tax liability if the transactions result in capital gains.

FOREIGN SECURITIES Investing in foreign securities, including securities of
depositary receipts, typically involves more risks than investing in U.S.
securities. Certain of these risks also may apply to securities of U.S.
companies with significant foreign operations. These risks can increase the
potential for losses in the Fund and affect its share price.

AVAILABILITY OF INFORMATION. Foreign companies may not be subject to the same
disclosure, accounting, auditing and financial reporting standards and
practices as U.S. companies. Thus, there may be less information publicly
available about foreign companies than about most U.S. companies.

EMERGING MARKETS. The risks of foreign investments typically are greater in less
developed countries, sometimes referred to as emerging markets. For example,
political and economic structures in these countries may be less established and
may change rapidly. These countries also are more likely to experience high
levels of inflation, deflation or currency devaluation, which can harm their
economies and securities markets and increase volatility. In fact, short-term
volatility in these markets, and declines of 50% or more, are not uncommon.

INTEREST RATE Increases in interest rates may make it harder for smaller and
emerging market companies to obtain credit to expand or to make interest
payments, as well as increase the cost of borrowing for the Fund. More detailed
information about the Fund, its policies, and risks can be found in the Fund's
Statement of Additional Information (SAI).

[Insert graphic of a bull and a bear] PERFORMANCE

Because the Fund is new, it does not have a full calendar year of performance.

[Insert graphic of percentage sign] FEES AND EXPENSES

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

Please see "Sales Charges" on page [#] for an explanation of how and when these
sales charges apply.

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

Management fees 3 1.00%
Distribution and service (12b-1) fees 0.35%
Other expenses 3.70%
-----------
Total annual Fund operating expenses 3 5.05%
-----------
Sweep money fund management fee waiver 3 -0.07%
-----------
Net annual fund operating expenses 3 4.98%
===========

1. Except for investments of $1 million or more (see page [#]) and purchases by
certain retirement plans without an initial sales charge.
2. The management fees and distribution and service (12b-1) fees shown are
based on the Fund's maximum contractual amount.
3. For the period May 28, 1999 (effective date) to April 30, 2000, the manager
and administrator had agreed in advance to waive their respective fees and to
assume as their own expense certain expenses otherwise payable by the Fund.
The manager also had agreed in advance to reduce its fees to reflect services
resulting from the fund's investment in a Franklin Templeton money fund. With
this reduction, management and administration fees were 0% and total Fund
operating expenses were 0% for the current fiscal year. The manager and
administrator have also agreed in advance to limit their respective fees and
to assume as their own expense certain expenses otherwise payable by the Fund,
so that total annual Fund operating expenses do not exceed 1.850% for the
current fiscal year. After April 30, 2001, the manager and administrator may end
this arrangement at any time upon notice to the Fund's Board of Trustees. The
manager, however, is required by the Fund's Board of Trustees and an order by
the Securities and Exchange Commission to reduce its fees if the Fund invests in
a Franklin Templeton money fund.

EXAMPLE

This example can help you compare the cost of investing in the Fund with the
cost of investing in other mutual funds. It assumes:

o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The Fund's operating expenses remain the same; and
o You sell your shares at the end of the periods shown.

Although your actual costs may be higher or lower, based on these assumptions
your costs would be:

1 YEAR 3 YEARS
----------------------------------------
$ 1,012 1 $ 1,891

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

[Insert graphic of briefcase] MANAGEMENT

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 $225 billion in assets.

The team responsible for the Fund's management is:

CHARLES E. JOHNSON, VICE PRESIDENT OF ADVISERS
Mr. Johnson has been a manager of the Fund since January 2000. He joined
Franklin Templeton Investments in 1981.

MICHAEL R. WARD, PORTFOLIO MANAGER OF ADVISERS
Mr. Ward has been a manager of the Fund since 1999. He joined Franklin
Templeton Investments in 1992.

The fund pays Advisers a fee for managing the fund's assets. The fee is equal to
an annual rate of 1% of the average daily net assets of the fund.

[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES

INCOME AND CAPITAL GAINS DISTRIBUTIONS The 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 this distribution will vary and
there is no guarantee the Fund will pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record date for the Fund's distributions will vary. Please keep in mind that if
you invest in the 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
the 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 gain. This is true whether you reinvest your
distributions in additional Fund shares or receive them in cash. Capital gain
dividends paid by the Fund are taxable to you as long-term capital gain no
matter how long you have owned your shares. Short sales may accelerate
recognition of income to the Fund and/or cause a greater portion of Fund
distributions to be taxable as ordinary income and not as capital gain.

[Begin callout]
BACKUP WITHHOLDING By law, the Fund must withhold 31% of your taxable
distributions and redemption proceeds if you do not provide your correct social
security or taxpayer identification number and certify that you are not subject
to backup withholding, or if the IRS instructs the Fund to do so.
[End callout]

When you sell your shares of the 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.

Fund distributions and gain from the sale or exchange of your shares
generally will be subject to state and local taxes. 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 the Fund.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS

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

PERIOD ENDING
APRIL 30, 2000 1
------------------------------------------------------------------------
PER SHARE DATA 2 ($)
Net asset value,
beginning of period 10.40
------------------
Net investment income .34
Net realized and unrealized gains 6.76
------------------
Total from investment operations 7.10
------------------
Less distributions from:
Net investment income (.25)
Net realized gains (.13)
------------------
Total distributions (.38)
------------------
Net asset value, end of year 17.12
------------------

Total return (%) 3 68.55

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 1,712
($ x 1,000)
Ratios to average net
assets: (%)
Expenses --
Expenses excluding waiver and payments by
affiliate 4.63 4
Net investment income 2.86
Portfolio turnover rate (%) 223.51

1. For the period May 28, 1999 (effective date) to April 30, 2000.
2. Based on average shares outstanding.
3. Total return does not include sales charges, and is not annualized.
4. Annualized.

YOUR ACCOUNT

[Insert graphic of percentage sign] SALES CHARGES

THE SALES CHARGE
MAKES UP THIS % OF WHICH EQUALS THIS % OF
WHEN YOU INVEST THIS AMOUNT THE OFFERING PRICE 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 page [#]), you can buy 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 CDSC 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]

DISTRIBUTION AND SERVICE (12B-1) FEES The Fund has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay distribution
fees of up to 0.35% per year to those who sell and distribute the Fund's shares
and provide other services to shareholders. Because these fees are paid out of
the Fund'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 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
Franklin Templeton funds to take advantage of the lower sales charges for large
purchases of Fund shares.

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

o CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your shares in
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.

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

Certain Franklin Templeton funds offer multiple share classes not offered by
this Fund. For purposes of this privilege, the Fund's shares are considered
Class A shares.

If you paid a CDSC when you sold your Class A 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.

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 Fund 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 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 Services at 1-800/527-2020. A
list of available sales charge waivers also may be found in the Statement of
Additional Information (SAI).

[Insert graphic of a paper with lines
and someone writing] BUYING SHARES

MINIMUM INVESTMENTS
----------------------------------------------------------------------------
INITIAL ADDITIONAL
----------------------------------------------------------------------------
Regular accounts $1,000 $50
----------------------------------------------------------------------------
Automatic investment plans $50 ($25 for $50 ($25
an Education for an
IRA) Education
IRA)
----------------------------------------------------------------------------
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
----------------------------------------------------------------------------

PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE
FOR SALE IN YOUR STATE OR JURISDICTION.

Certain Franklin Templeton funds offer multiple share classes not offered by
this Fund. Please note that for selling or exchanging your shares, or for other
purposes, the Fund's shares are considered Class A shares.

BUYING SHARES
-------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment Contact your investment
THROUGH YOUR representative representative
INVESTMENT
REPRESENTATIVE
-------------------------------------------------------------------------------
If you have another Franklin Before requesting a
[Insert graphic of Templeton fund account with telephone purchase, please
phone] your bank account make sure we have your bank
information on file, you may account information on file.
BY PHONE open a new account by phone. If we do not have this
The accounts must be information, you will need
(Up to $100,000 per identically registered. to send written instructions
day) with your bank's name and
To make a same day address, a voided check or
1-800/632-2301 investment, please call us savings account deposit
by 1:00 p.m. Pacific time or slip, and a signature
the close of the New York guarantee if the ownership
Stock Exchange, whichever is of the bank and Fund
earlier. accounts is different.

To make a same day
investment, please call us
by 1:00 p.m. Pacific time or
the close of the New York
Stock Exchange, whichever is
earlier.

-------------------------------------------------------------------------------
Make your check payable to Make your check payable to
[Insert graphic of Franklin U.S. Long-Short Franklin U.S. Long-Short
envelope] Fund. Fund. Include your account
number on the check.
BY MAIL Mail the check and your
signed application to Fill out the deposit slip
Investor Services. 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 wire Call to receive a wire
three lightning control number and wire control number and wire
bolts] instructions. instructions.

Wire the funds and mail your To make a same day wire
signed application to investment, please call us
BY WIRE Investor Services. Please by 1:00 p.m. Pacific time
include the wire control and make sure your wire
1-800/632-2301 number or your new account arrives by 3:00 p.m.
(or 1-650/312-2000 number on the application.
collect)
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 Services at Call Shareholder Services at
two arrows pointing the number below, or send the number below or our
in opposite signed written automated TeleFACTS system,
directions] instructions. The TeleFACTS or send signed written
system cannot be used to instructions.
BY EXCHANGE open a new account.

(Please see page [#] for (Please see page [#] for
TeleFACTS(R) information on exchanges.) information on exchanges.)
1-800/247-1753
(around-the-clock
access)
-------------------------------------------------------------------------------

[Insert graphic of person with a headset] INVESTOR SERVICES

DISTRIBUTION OPTIONS You may reinvest distributions you receive from the 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 Bank & Trust 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 Fund.

Because excessive trading can hurt Fund performance, operations and
shareholders, the Fund, effective November 1, 2000, reserves the right to revise
or terminate the exchange privilege, limit the amount or number of exchanges,
reject any exchange, or restrict or refuse purchases if (i) the Fund or its
manager believes the Fund would be harmed or unable to invest effectively, or
(ii) the Fund receives or anticipates simultaneous orders that may significantly
affect the Fund (please see "Market Timers" on page [#]).

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

[Insert graphic of a certificate] SELLING SHARES

You can sell your shares at any time.

[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

SELLING SHARES
-------------------------------------------------------------------------
TO SELL SOME OR ALL OF YOUR SHARES
-------------------------------------------------------------------------
[Insert graphic of
hands shaking]
Contact your investment representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
-------------------------------------------------------------------------
[Insert graphic of Send written instructions and endorsed share
envelope] certificates (if you hold share certificates)
to Investor Services. Corporate, partnership
BY MAIL 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. 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 As long as your transaction is for $100,000 or
phone] less, you do not hold share certificates and
you have not changed your address by phone
BY PHONE within the last 15 days, you can sell your shares
by phone.
1-800/632-2301
A check will be mailed to the name(s) and address on
the account. Written instructions, with a signature
guarantee, are required to send the check to another
address or to make it payable to another person.
-------------------------------------------------------------------------
[Insert graphic of You can call or write to have redemption
three lightning bolts] proceeds sent to a bank account. See the
policies above for selling shares by mail or
phone.

Before requesting to have redemption proceeds
BY ELECTRONIC FUNDS sent to a bank account, please make sure we
TRANSFER (ACH) 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,
a voided check or savings account deposit slip, and a
signature guarantee if the ownership of the bank and
Fund accounts is different.

If we receive your request in proper form by
1:00 p.m. Pacific time, proceeds sent by ACH
generally will be available within two to
three business days.
-------------------------------------------------------------------------
[Insert graphic of two Obtain a current prospectus for the fund you
arrows pointing in are considering.
opposite directions]
Call Shareholder Services at the number below
BY EXCHANGE or our automated TeleFACTS system, or send
signed written instructions. See the policies
TeleFACTS(R) above for selling shares by mail or phone.
1-800/247-1753
(around-the-clock If you hold share certificates, you will need
access) to return them to the Fund before your
exchange can be processed.
-------------------------------------------------------------------------

[Insert graphic of paper and pen] ACCOUNT POLICIES

CALCULATING SHARE PRICE The Fund calculates the 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). The Fund'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]

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

MARKET TIMERS The Fund may restrict or refuse exchanges by market timers. You
may be considered a Market Timer if you have (i) requested an exchange out of
any of the Franklin Templeton funds within two weeks of an earlier exchange
request out of any fund, or (ii) exchanged shares out of any of the Franklin
Templeton funds more than twice within a rolling 90 day period, or (iii)
otherwise seem to follow a market timing pattern that may adversely affect the
Fund. Accounts under common ownership or control with an account that is covered
by (i), (ii), or (iii) are also subject to these limits.

ADDITIONAL POLICIES Please note that the Fund maintains additional policies and
reserves certain rights, including:

o The Fund may restrict or refuse any order to buy shares, including any
purchase under the exchange privilege.
o At any time, the Fund may change its investment minimums or waive or lower
its minimums for certain purchases.
o The Fund may modify or discontinue the exchange privilege on 60 days' notice.
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, the Fund reserves the right, in the
case of an emergency, to make payments in securities or other assets of the
Fund, if the payment of cash proceeds by check, wire or electronic funds
transfer would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible for
transmitting all orders to the Fund promptly.

------------------------------------------------
COMMISSION (%) ---
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 0.252

A dealer commission of up to 1% may be paid on NAV purchases by certain
retirement plans\1 and up to 0.25% on 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.

MARKET TIMERS. Please note that for NAV purchases by market timers, including
purchases of $1 million or more, dealers are not eligible to receive the dealer
commission. Dealers, however, may be eligible to receive the 12b-1 fee from the
date of purchase. If a dealer commission is paid on a NAV purchase that we later
determine was made by a market timer, all commissions paid in connection with
that purchase during the last twelve months must be returned.

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

[Insert graphic of question mark] QUESTIONS

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 Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Advisor 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 the Fund in the following document:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

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

For a free copy of 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
franklintempleton.com

You also can obtain information about the Fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-202/942-8090) or the EDGAR Database
on the SEC's Internet site at http://www.sec.gov. You can obtain copies of this
information, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request at the
following E-mail address: [email protected].

Investment Company Act file #811-6243 404p 05/00

FRANKLIN
STRATEGIC SERIES

FRANKLIN BIOTECHNOLOGY DISCOVERY FUND - CLASS A
FRANKLIN TECHNOLOGY FUND - CLASS A, B & C
FRANKLIN GLOBAL HEALTH CARE FUND - CLASS A, B & C
FRANKLIN GLOBAL COMMUNICATIONS FUND - CLASS A, B & C
FRANKLIN NATURAL RESOURCES FUND - CLASS A

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 1, 2000

[Insert Franklin Templeton Ben Head]

P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)

This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the Funds' prospectus. The Funds'
prospectus, dated September 1, 2000, which we may amend from time to time,
contains the basic information you should know before investing in a Fund. You
should read this SAI together with the Funds' prospectus.

The audited financial statements and auditor's report in the Trust's Annual
Report to Shareholders, for the fiscal year ended April 30, 2000, are
incorporated by reference (are legally a part of this SAI).

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goals and Strategies
Risks
Officers and Trustees

Management and Other Services
Portfolio Transactions
Distributions and Taxes

Organization, Voting Rights and Principal Holders
Buying and Selling Shares
Pricing Shares
The Underwriter
Performance
Miscellaneous Information
Description of Ratings

------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;

o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
BANK;

o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
------------------------------------------------------------------------------

GOALS AND STRATEGIES

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

FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
(BIOTECHNOLOGY FUND)

The Fund's investment goal is to seek capital appreciation. This goal is
fundamental, which means it may not be changed without shareholder approval.

Under normal market conditions, the Fund invests primarily in securities of
biotechnology companies and discovery research firms located in the U.S. and
other countries. The Fund normally invests at least 65% of its assets in equity
securities of biotechnology companies. The Fund may also invest up to 35% of its
assets in debt securities of any type of foreign or U.S. issuer. The Fund
intends to invest less than 5% in debt securities rated below investment grade.

The fund is closed to new investors, except retirement plan accounts. If you
were a shareholder of record as of February 18, 2000, you may continue to add to
your account, subject to your applicable minimum additional investment amount,
or buy additional shares through the reinvestment of dividend or capital gain
distributions. The fund reserves the right to modify this policy at any time.

FRANKLIN GLOBAL HEALTH CARE FUND (HEALTH CARE FUND)

The investment goal of the Fund is to seek capital appreciation. This goal is
fundamental, which means it may not be changed without shareholder approval.

Under normal market conditions, the Fund invests at least 70% of its total
assets in the equity securities of health care companies located throughout the
world. The Fund may also invest up to 30% of its assets in domestic and foreign
debt securities. At present, the Fund intends to invest less than 5% in debt
securities rated below investment grade.

FRANKLIN GLOBAL COMMUNICATIONS FUND (COMMUNICATIONS FUND)

The investment goal of the Fund is to seek to provide total return, without
incurring undue risk. This goal is fundamental, which means it may not be
changed without shareholder approval. Total return consists of both capital
appreciation and current dividend and interest income.

Under normal market conditions, the Fund invests at least 65% of its total
assets in the equity securities of U.S. and non-U.S. companies that are involved
in the development, manufacture or sale of communications services and
communications equipment. The Fund normally invests at least 65% of its total
assets in issuers in at least three different countries. The Fund expects to
invest more of its assets in U.S. securities than in securities of any other
single country, but the Fund may invest more than 65% of its total assets in
foreign securities. The Fund will limit its investments in Russian securities to
5% of its total assets.

The Fund may buy debt securities that are rated at least Caa by Moody's
Investors Service, Inc. (Moody's) or CCC by Standard & Poor's Corporation (S&P),
or unrated securities that it determines to be of comparable quality. The Fund
will not invest more than 5% of its total assets in debt securities rated below
investment grade. Investment grade debt securities are rated in the top four
ratings categories by independent rating organizations such as S&P or Moody's.
The Fund will only buy commercial paper rated A-1 or A-2 by S&P or Prime-1 or
Prime-2 by Moody's, or unrated commercial paper that it determines to be of
comparable quality.

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

FRANKLIN NATURAL RESOURCES FUND
(NATURAL RESOURCES FUND)

The investment goal of the Fund is to seek to provide high total return. This
goal is fundamental, which means it may not be changed without shareholder
approval. Total return consists of both capital appreciation and current
dividend and interest income.

Under normal market conditions, the Fund invests at least 65% of its assets in
the equity and debt securities of U.S. and foreign companies in the natural
resources sector. The Fund may also invest up to 35% of its assets outside the
natural resources sector, including in U.S. and foreign equity and debt
securities and up to 10% of its assets in real estate investment trusts (REITs).
The Fund will only buy commercial paper rated A-1 or A-2 by S&P or Prime-1 or
Prime-2 by Moody's, or unrated commercial paper that it determines to be of
comparable quality.

FRANKLIN TECHNOLOGY FUND (TECHNOLOGY FUND)

The Fund's principal investment goal is capital appreciation. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
equity securities of companies expected to benefit from the development,
advancement, and use of technology. This goal is fundamental, which means it may
not be changed without shareholder approval.

The Fund concentrates its investments in equity securities of companies in the
technology sector, including companies expected to benefit from the development,
advancement, and use of technology. The Fund may invest up to 25% of its total
assets in any one or more industries within the technology sector. The Fund will
invest less than 5% of its net assets in debt securities.

Below is a description of the various types of securities the Funds may buy and
information about the Funds' investment policies.

EQUITY SECURITIES The purchaser of an equity security typically receives an
ownership interest in the company as well as certain voting rights. The owner of
an equity security may participate in a company's success through the receipt of
dividends, which are distributions of earnings by the company to its owners.
Equity security owners may also participate in a company's success or lack of
success through increases or decreases in the value of the company's shares as
traded in the public trading market for such shares. Equity securities generally
take the form of common stock or preferred stock. Preferred stockholders
typically receive greater dividends but may receive less appreciation than
common stockholders and may have greater or lesser voting rights. Equity
securities may also include warrants or rights. Warrants or rights give the
holder the right to purchase a common stock at a given time for a specified
price.

DEBT SECURITIES A debt security typically has a fixed payment schedule that
obligates the issuer to pay interest to the lender and to return the lender's
money over a certain time period. A company typically meets its payment
obligations associated with its outstanding debt securities before it declares
and pays any dividend to holders of its equity securities. Bonds, notes, and
commercial paper differ in the length of the issuer's payment schedule, with
bonds carrying the longest repayment schedule and commercial paper the shortest.

The market value of debt securities generally varies in response to changes in
interest rates and the financial condition of each issuer. During periods of
declining interest rates, the value of debt securities generally increases.
Conversely, during periods of rising interest rates, the value of debt
securities generally declines. These changes in market value will be reflected
in a Fund's net asset value.

RATINGS. Various investment services publish ratings of some of the debt
securities in which a Fund may invest. These ratings represent the opinions of
the rating services with respect to the issuer's ability to pay interest and
repay principal. They do not purport to reflect the risk of fluctuations in
market value and are not absolute standards of quality. Please see "Description
of Ratings" for a discussion of the ratings.

If the rating on an issue held in a Fund's portfolio is changed by the rating
service or the security goes into default, the manager will consider the event
in its evaluation of the overall investment merits of the security but will not
automatically sell the security.

REPURCHASE AGREEMENTS Each Fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the Fund may enter into repurchase agreements. Under
a repurchase agreement, the Fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the Fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the Fund in each repurchase agreement. The manager will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price.

Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
Fund's ability to sell the underlying securities. The Fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.

The Funds may also enter into reverse repurchase agreements. Under a reverse
repurchase agreement, a Fund agrees to sell a security in its portfolio and then
to repurchase the security at an agreed-upon price, date, and interest payment.
The Fund will maintain cash or high-grade liquid debt securities with a value
equal to the value of the Fund's obligation under the agreement, including
accrued interest, in a segregated account with the Fund's custodian bank. The
securities subject to the reverse repurchase agreement will be marked-to-market
daily. Although reverse repurchase agreements are borrowings under the
Investment Company Act of 1940, the Funds do not treat these arrangements as
borrowings under their investment restrictions so long as the segregated account
is properly maintained.

LOANS OF PORTFOLIO SECURITIES To generate additional income, each Fund may lend
certain of its portfolio securities to qualified banks and broker-dealers. These
loans may not exceed 33% of the value of the Natural Resources Fund's total
assets, one third of the value of the Communications Fund's total assets, 20% of
the value of the Health Care Fund's total assets, one third of the value of the
Biotechnology Fund's total assets, or one third of the value of the Technology
Fund's total assets, measured at the time of the most recent loan. For each
loan, the borrower must maintain with the Fund's custodian collateral
(consisting of any combination of cash, securities issued by the U.S. government
and its agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to the current market value of the loaned securities. The
Fund retains all or a portion of the interest received on investment of the cash
collateral or receives a fee from the borrower. The Fund also continues to
receive any distributions paid on the loaned securities. The Fund may terminate
a loan at any time and obtain the return of the securities loaned within the
normal settlement period for the security involved.

Where voting rights with respect to the loaned securities pass with the lending
of the securities, the manager intends to call the loaned securities to vote
proxies, or to use other practicable and legally enforceable means to obtain
voting rights, when the manager has knowledge that, in its opinion, a material
event affecting the loaned securities will occur or the manager otherwise
believes it necessary to vote. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral in the event of
default or insolvency of the borrower. A Fund will loan its securities only to
parties who meet creditworthiness standards approved by the Fund's Board of
Trustees, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the loan.

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

GOVERNMENT SECURITIES - NATURAL RESOURCES FUND AND COMMUNICATIONS FUND
Securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, including U.S. Treasury bills, notes and bonds, as well as
certain agency securities and mortgage-backed securities issued by the
Government National Mortgage Association (GNMA), may carry guarantees which are
backed by the "full faith and credit" of the U.S. government. The guarantee
extends only to the payment of interest and principal due on the securities and
does not provide any protection from fluctuations in either the securities'
yield or value or to the yield or value of the Fund's shares. Other investments
in agency securities are not necessarily backed by the "full faith and credit"
of the U.S. government. These include securities issued by the Federal National
Mortgage Association (FNMA), the Federal Home Loan Mortgage Corporation, the
Student Loan Marketing Association and the Farm Credit Bank.

The Natural Resources Fund and the Communications Fund may invest in debt
securities issued or guaranteed by foreign governments. These securities are
typically denominated in foreign currencies and are subject to the currency
fluctuation and other risks of foreign securities investments. The foreign
government securities in which the Funds intend to invest generally will include
obligations issued by national, state, or local governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, including international organizations designed or
supported by governmental entities to promote economic reconstruction or
development and international banking institutions and related government
agencies. Examples include the International Bank of Reconstruction and
Development (the World Bank), the European Investment Bank, the Asian
Development Bank and the Inter-American Development Bank.

Foreign government securities also include debt securities of
"quasi-governmental agencies" and debt securities denominated in multinational
currency units. An example of a multinational currency unit is the European
Currency Unit. A European Currency Unit represents specified amounts of the
currencies of certain of the 12-member states of the European Economic
Community. Debt securities of quasi-governmental agencies are issued by entities
owned by either a national or local government or are obligations of a political
unit that is not backed by the national government's full faith and credit and
general taxing powers. Foreign government securities also include
mortgage-related securities issued or guaranteed by national or local
governmental instrumentalities, including quasi-governmental agencies.

HEALTH CARE COMPANIES - HEALTH CARE FUND ONLY Many major developments in health
care come from companies based abroad. Thus, in the opinion of the manager, a
portfolio of only U.S. based health care companies is not sufficiently
diversified to participate in global developments and discoveries in the field
of health care. The manager believes that health care is becoming an
increasingly globalized industry and that many important investment
opportunities exist abroad. Therefore, the manager believes that a portfolio of
global securities may provide a greater potential for investment participation
in present and future opportunities that may present themselves in the health
care related industries. The manager also believes that the U.S. health care
industry may be subject to increasing regulation and government control, thus a
global portfolio may reduce the risk of a single government's actions on the
portfolio. The Health Care Fund concentrates its investments in a limited group
of related industries and is not intended to be a complete investment program.

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

The Health Care Fund invests 70% of its assets in securities of issuers in at
least three different countries. The Health Care Fund will not invest more than
40% of its net assets in any one country other than the U.S. The Health Care
Fund expects that a significant portion of its investments will be in securities
of domestic issuers. The Health Care Fund will not invest in securities of
foreign issuers without stock certificates or comparable evidence of ownership.

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

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

Although the Technology Fund may invest up to 25% of total assets in foreign
securities, it intends to limit its investments to 15% of total assets.

DEPOSITARY RECEIPTS. The Natural Resources Fund may invest in American
Depositary Receipts (ADRs), and the Communications Fund, the Health Care Fund,
the Biotechnology Fund, and the Technology Fund may invest in ADRs, European
Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs) of non-U.S.
issuers. Such depositary receipts are interests in a pool of a non-U.S.
company's securities that have been deposited with a bank or trust company. The
bank or trust company then sells interests in the pool to investors in the form
of depositary receipts. Depositary receipts can be unsponsored or sponsored by
the issuer of the underlying securities or by the issuing bank or trust company.

ADRs are usually issued by an American bank or trust company and may be
registered for use in U.S. securities markets. Foreign banks or trust companies
typically issue EDRs and GDRs, although U.S. banks or trust companies also may
issue them. The Funds consider investments in depositary receipts to be
investments in the equity securities of the issuers into which the depositary
receipts may be converted.

Prices of ADRs are quoted in U.S. dollars, and ADRs are traded in the U.S. on
exchanges or over-the-counter. While ADRs do not eliminate all the risks
associated with foreign investments, by investing in ADRs rather than directly
in the stock of foreign issuers, a Fund will avoid currency risks during the
settlement period for either purchases or sales and certain foreign securities
markets trading risks. In general, there is a large, liquid market in the U.S.
for ADRs quoted on a national securities exchange or on the NASDAQ. The
information available for ADRs is subject to the accounting, auditing, and
financial reporting standards of the U.S. market or exchange on which they are
traded, which standards are more uniform and more exacting than those to which
many foreign issuers may be subject.

Depositary receipts may be issued under sponsored or unsponsored programs. In
sponsored programs, an issuer has made arrangements to have its securities
traded in the form of depositary receipts. In unsponsored programs, the issuer
may not be directly involved in the creation of the program. Although regulatory
requirements with respect to sponsored and unsponsored programs are generally
similar, in some cases it may be easier to obtain financial information from an
issuer that has participated in the creation of a sponsored program.
Accordingly, there may be less information available regarding issuers of
securities underlying unsponsored programs, and there may not be a correlation
between such information and the market value of the depositary receipts.

CONVERTIBLE SECURITIES Each Fund may invest in convertible securities. A
convertible security is generally a debt obligation or preferred stock that may
be converted within a specified period of time into a certain amount of common
stock of the same or a different issuer. A convertible security provides a
fixed-income stream and the opportunity, through its conversion feature, to
participate in the capital appreciation resulting from a market price advance in
its underlying common stock. As with a straight fixed-income security, a
convertible security tends to increase in market value when interest rates
decline and decrease in value when interest rates rise. Like a common stock, the
value of a convertible security also tends to increase as the market value of
the underlying stock rises, and it tends to decrease as the market value of the
underlying stock declines. Because both interest rate and market movements can
influence its value, a convertible security is not as sensitive to interest
rates as a similar fixed-income security, nor is it as sensitive to changes in
share price as its underlying stock.

A convertible security is usually issued either by an operating company or by an
investment bank. When issued by an operating company, a convertible security
tends to be senior to common stock, but subordinate to other types of
fixed-income securities issued by that company. When a convertible security
issued by an operating company is "converted," the operating company often
issues new stock to the holder of the convertible security but, if the parity
price of the convertible security is less than the call price, the operating
company may pay out cash instead of common stock. If the convertible security is
issued by an investment bank, the security is an obligation of and is
convertible through the issuing investment bank.

The issuer of a convertible security may be important in determining the
security's true value. This is because the holder of a convertible security will
have recourse only to the issuer. In addition, a convertible security may be
subject to redemption by the issuer, but only after a specified date and under
circumstances established at the time the security is issued.

While the Funds use the same criteria to rate a convertible debt security that
they use to rate a more conventional debt security, a convertible preferred
stock is treated like a preferred stock for the Funds' financial reporting,
credit rating, and investment limitation purposes. A preferred stock is
subordinated to all debt obligations in the event of insolvency, and an issuer's
failure to make a dividend payment is generally not an event of default
entitling the preferred shareholder to take action. A preferred stock generally
has no maturity date, so that its market value is dependent on the issuer's
business prospects for an indefinite period of time. In addition, distributions
from preferred stock are dividends, rather than interest payments, and are
usually treated as such for corporate tax purposes.

ENHANCED CONVERTIBLE SECURITIES - COMMUNICATIONS FUND AND TECHNOLOGY FUND. In
addition to "plain vanilla" convertibles, a number of different structures have
been created to fit the characteristics of specific investors and issuers.
Examples of these enhanced characteristics for investors include yield
enhancement, increased equity exposure or enhanced downside protection. From an
issuer's perspective, enhanced structures are designed to meet balance sheet
criteria, interest/dividend payment deductibility and reduced equity dilution.
The following are descriptions of common structures of enhanced convertible
securities.

Mandatorily convertible securities (e.g., ACES, DECS, PRIDES, SAILS-each issuer
has a different acronym for their version of these securities) are considered
the most equity like of convertible securities. At maturity these securities are
mandatorily convertible into common stock offering investors some form of yield
enhancement in return for some of the upside potential in the form of a
conversion premium. Typical characteristics of mandatories include: issued as
preferred stock, convertible at premium, pay fixed quarterly dividend (typically
500 to 600 basis points higher than common stock dividend), and are non-callable
for the life of the security (usually three to five years). An important feature
of mandatories is that the number of shares received at maturity is determined
by the difference between the price of the common stock at maturity and the
price of the common stock at issuance.

Enhanced convertible preferred securities (e.g., QUIPS, TOPRS, and TECONS) are,
from an investor's viewpoint, essentially convertible preferred securities, i.e.
they are issued as preferred stock convertible into common stock at a premium
and pay quarterly dividends. Through this structure the company establishes a
wholly owned special purpose vehicle whose sole purpose is to issue convertible
preferred stock. The offering proceeds pass-through to the company who issues
the special purpose vehicle a convertible subordinated debenture with identical
terms to the convertible preferred issued to investors. Benefits to the issuer
include increased equity credit from rating agencies and the deduction of coupon
payments for tax purposes.

A company divesting a holding in another company often uses exchangeable
securities. The primary difference between exchangeables and standard
convertible structures is that the issuing company is a different company to
that of the underlying shares.

Yield enhanced stock (YES, also known as PERCS) mandatorily converts into common
stock at maturity and offers investors a higher current dividend than the
underlying common stock. The difference between these structures and other
mandatories is that the participation in stock price appreciation is capped.

Zero-coupon and deep-discount convertible bonds (OID and LYONs) include the
following characteristics: no or low coupon payments, imbedded put options
allowing the investor to put them on select dates prior to maturity, call
protection (usually three to five years), and lower than normal conversion
premiums at issuance. A benefit to the issuer is that while no cash interest is
actually paid, the accrued interest may be deducted for tax purposes. Because of
their put options, these bonds tend to be less sensitive to changes in interest
rates than either long maturity bonds or preferred stocks. The put options also
provide enhanced downside protection while retaining the equity participation
characteristics of traditional convertible bonds.

An investment in an enhanced convertible security or any other security may
involve additional risks. The Fund may have difficulty disposing of such
securities because there may be a thin trading market for a particular security
at any given time. Reduced liquidity may have an adverse impact on market price
and the Fund's ability to dispose of particular securities, when necessary, to
meet the Fund's liquidity needs or in response to a specific economic event,
such as the deterioration in the creditworthiness of an issuer. Reduced
liquidity in the secondary market for certain securities also may make it more
difficult for the Fund to obtain market quotations based on actual trades for
purposes of valuing the Fund's portfolio.

FUTURE DEVELOPMENTS. The Fund may invest in other convertible securities or
enhanced convertible securities that are not presently contemplated for use by
the Fund or that are not currently available but that may be developed, so long
as the opportunities are consistent with the Fund's investment objective and
policies.

Certain issuers of convertible securities may be deemed to be "investment
companies" as defined in the Investment Company Act of 1940, as amended (1940
Act). As a result, the Fund's investment in these securities may be limited by
the restrictions contained in the 1940 Act.

ILLIQUID INVESTMENTS Each Fund's policy is not to invest more than 15% of its
net assets (10% in the case of the Health Care Fund) in illiquid securities.
Illiquid securities are generally securities that cannot be sold within seven
days in the normal course of business at approximately the amount at which the
Fund has valued them. The Natural Resources Fund may invest up to 5% of its net
assets in illiquid securities the disposition of which may be subject to legal
or contractual restrictions. The Natural Resources Fund and the Communications
Fund currently intend to limit their investments in illiquid securities,
including illiquid securities with legal or contractual restrictions on resale,
except for Rule 144A restricted securities, and including securities which are
not readily marketable, to 10% of net assets.

A Fund does not consider securities that it acquires outside the U.S. and that
are publicly traded in the U.S. or on a foreign securities exchange or in a
foreign securities market to be illiquid assets so long as the Fund acquires and
holds the security with the intention of reselling the security in the foreign
trading market, the Fund reasonably believes it can readily dispose of the
security for cash at approximately the amount at which the Fund has valued the
security in the U.S. or foreign market, and current market quotations are
readily available.

Subject to these limitations, the board of trustees has authorized each Fund to
invest in restricted securities where such investments are consistent with the
Fund's investment objective and has authorized such securities to be considered
liquid to the extent the manager determines that there is a liquid institutional
or other market for the securities. An example of these securities are
restricted securities that may be freely transferred among qualified
institutional buyers under Rule 144A of the Securities Act of 1933, as amended,
and for which a liquid institutional market has developed. The Fund's board of
trustees will review any determination by the manager to treat a restricted
security as a liquid security on an ongoing basis, including the manager's
assessment of current trading activity and the availability of reliable price
information. In determining whether a restricted security is properly considered
a liquid security, the manager and the Fund's board of trustees will take into
account the following factors: (i) the frequency of trades and quotes for the
security; (ii) the number of dealers willing to buy or sell the security and the
number of other potential buyers; (iii) dealer undertakings to make a market in
the security; and (iv) the nature of the security and marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers, and
the mechanics of transfer). To the extent a Fund invests in restricted
securities that are deemed liquid, the general level of illiquidity in the Fund
may be increased if qualified institutional buyers become uninterested in buying
these securities or the market for these securities contracts.

WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS - NATURAL RESOURCES FUND,
COMMUNICATIONS FUND, AND TECHNOLOGY FUND The Natural Resources Fund, the
Communications Fund, and the Technology Fund may buy securities on a when-issued
or delayed delivery basis. These transactions are arrangements under which a
Fund buys securities with payment and delivery scheduled for a future time. The
securities are subject to market fluctuation prior to delivery to the Fund and
generally do not earn interest until their scheduled delivery date. Therefore,
the value or yields at delivery may be more or less than the purchase price or
the yields available when the transaction was entered into. Although the Funds
will generally buy these securities on a when-issued basis with the intention of
acquiring the securities, they may sell the securities before the settlement
date if it is deemed advisable. When a Fund is the buyer, it will maintain, in a
segregated account with its custodian bank, cash or high-grade marketable
securities having an aggregate value equal to the amount of its purchase
commitments until payment is made. In such an arrangement, the Fund relies on
the seller to complete the transaction. The seller's failure to do so may cause
the Fund to miss a price or yield considered advantageous. The Funds are not
subject to any percentage limit on the amount of their assets that may be
invested in when-issued purchase obligations. To the extent a Fund engages in
when-issued and delayed delivery transactions, it will do so only for the
purpose of acquiring portfolio securities consistent with its investment
objective and policies, and not for the purpose of investment leverage.

STANDBY COMMITMENT AGREEMENTS - NATURAL RESOURCES FUND, COMMUNICATIONS FUND, AND
TECHNOLOGY FUND The Natural Resources Fund, the Communications Fund, and the
Technology Fund may, from time to time, enter into standby commitment
agreements. These agreements commit a Fund, for a stated period of time, to buy
a stated amount of a security that may be issued and sold to the Fund at the
option of the issuer. The price and coupon of the security is fixed at the time
of the commitment. When a Fund enters into the agreement, the Fund is paid a
commitment fee, regardless of whether the security is ultimately issued,
typically equal to approximately 0.5% of the aggregate purchase price of the
security that the Fund has committed to buy. The Funds will enter into such
agreements only for the purpose of investing in the security underlying the
commitment at a yield and/or price that is considered advantageous.

The Funds will not enter into a standby commitment with a remaining term in
excess of 45 days and will limit their investment in standby commitments so that
the aggregate purchase price of the securities subject to the commitments with
remaining terms exceeding seven days, together with the value of other portfolio
securities deemed illiquid, will not exceed the respective Fund's limit on
holding illiquid investments, taken at the time of acquisition of such
commitment or security. Each Fund will at all times maintain a segregated
account with its custodian bank of cash, cash equivalents, U.S. government
securities, or other high grade liquid debt securities denominated in U.S.
dollars or non-U.S. currencies in an aggregate amount equal to the purchase
price of the securities underlying the commitment.

There can be no assurance that the securities subject to a standby commitment
will be issued, and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, a Fund may bear the
risk of a decline in the value of the security and may not benefit from an
appreciation in the value of the security during the commitment period.

The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued, and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment fee.
In the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.

DERIVATIVE SECURITIES - ALL FUNDS

Although the Funds have authority to invest in various types of derivative
securities and engage in hedging transactions, the Funds currently do not intend
to invest in derivative securities or engage in hedging transactions. Hedging is
a technique designed to reduce a potential loss to the Fund as a result of
certain economic or market risks, including risks related to fluctuations in
interest rates, currency exchange rates between U.S. and foreign currencies or
between different foreign currencies, and broad or specific market movements.

The BIOTECHNOLOGY FUND may engage in the following types of transactions:
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments;
purchase and sell financial futures contracts and options thereon; and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures.
The Fund may also use these various techniques for non-hedging purposes. For
example, these techniques may be used to produce income to the Fund where the
Fund's participation in the transaction involves the payment of a premium to the
Fund. The Fund may also use a hedging technique to bet on the fluctuation of
certain indices, currencies, or economic or market changes such as a reduction
in interest rates. No more than 5% of the Fund's assets will be exposed to risks
of such types of instruments when entered into for non-hedging purposes.

The HEALTH CARE FUND may write (sell) covered put and call options and buy put
and call options on securities that trade on securities exchanges and in the
over-the-counter market. The Fund may buy and sell futures and options on
futures with respect to securities and currencies. Additionally, the Fund may
buy and sell futures and options to "close out" futures and options it may have
sold or bought. The Fund may seek to protect capital through the use of forward
currency exchange contracts. The Fund will not engage in transactions in futures
contracts or related options for speculation but only as a hedge against changes
resulting from market conditions in the values of its securities or securities
that it intends to buy. The Fund will not enter into any stock index or
financial futures contract or related option if, immediately thereafter, more
than one-third of the Fund's net assets would be represented by futures
contracts or related options. In addition, the Fund may not buy or sell futures
contracts or buy or sell related options (except for closing transactions) if,
immediately thereafter, the sum of the amount of margin deposits on its existing
futures and related options positions and premiums paid for related options
would exceed 5% of the market value of the Fund's total assets. The Fund will
not engage in any stock options or stock index options if the option premiums
paid regarding its open option positions exceed 5% of the value of the Fund's
total assets. The Fund may buy foreign currency futures contracts and options if
not more than 5% of its assets are then invested as initial or variation margin
deposits on contracts or options. In instances involving the purchase of futures
contracts or related call options, money market instruments equal to the market
value of the futures contract or related option will be deposited in a
segregated account with the Fund's custodian bank to collateralize such long
positions.

In order to hedge against currency exchange rate risks, the NATURAL RESOURCES
FUND may enter into forward currency exchange contracts and currency futures
contracts and options on such futures contracts, as well as buy put or call
options and write covered put and call options on currencies traded in U.S. or
foreign markets. The Fund may also buy and sell forward contracts (to the extent
they are not deemed commodities) for non-hedging purposes when the manager
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated in that currency do not present attractive investment
opportunities and are not held in the Fund's portfolio. The Fund generally will
not enter into a forward contract with a term of greater than one year.

The COMMUNICATIONS FUND may engage in various portfolio strategies to seek to
hedge its portfolio against adverse movements in the equity, debt and currency
markets. The Fund may deal in forward foreign currency exchange transactions and
foreign currency options and futures and options on such futures. The Fund will
not buy foreign currency futures contracts if more than 5% of its assets are
then invested as initial or variation margin deposits on such contracts or
related options. The Fund may also write (i.e., sell) covered put and call
options on its portfolio securities, buy put and call options on securities and
engage in transactions in stock index options and financial futures, including
stock and bond index futures and related options on such futures. The Fund does
not currently intend to write put options. The Fund will not enter into any
stock index or financial futures contract or related option if, immediately
thereafter, more than one-third of the Fund's net assets would be represented by
futures contracts or related options. The Fund will not enter into any futures
contract or related options (except for closing transactions) if, immediately
thereafter, the sum of the amount of its initial deposits and premiums on open
contracts and options would exceed 5% of its total assets (taken at current
value). The Fund will not engage in any securities options or securities index
options if the option premiums paid regarding its open option positions exceed
5% of the value of its total assets. Although certain risks are involved in
options and futures transactions, the manager believes that, because the Fund
will write only covered options on portfolio securities, and engage in other
options and futures transactions only for hedging purposes, the options and
futures portfolio strategies of the Fund will not subject the Fund to the risks
frequently associated with the speculative use of options and futures
transactions. While the Fund's use of hedging strategies is intended to reduce
the volatility of the net asset value of Fund shares, the Fund's net asset value
will fluctuate. There can be no assurance that the Fund's hedging transactions
will be effective. Furthermore, the Fund will only engage in hedging activities
from time to time and may not necessarily be engaging in hedging activities when
movement in the equity, debt and currency markets occurs.

The TECHNOLOGY FUND may write (sell) covered put and call options and buy put
and call options on securities listed on a national securities exchange and in
the over-the-counter (OTC) market. Additionally, the Fund may "close out"
options it has entered into. The Fund may also buy and sell both call and put
options on stock indices in order to hedge against the risk of market or
industry-wide stock price fluctuations or to increase income to the Fund. The
Fund may invest in futures contracts only to hedge against changes in the value
of its securities or those it intends to buy. The Fund will not enter into a
futures contract if the amounts paid for open contracts, including required
initial deposits, would exceed 5% of net assets. The Fund may purchase and write
options on futures contracts for hedging purposes only. Unless otherwise noted
in the fund's policies, the value of the underlying securities on which options
may be written at any one time will not exceed 15% of the fund's assets. Nor
will the fund purchase put or call options if the aggregate premium paid for
such options would exceed 5% of its assets at the time of purchase. The fund
will not enter into any stock index or financial futures contract or related
option if, immediately thereafter, more than one third of total assets would be
represented by futures contracts and related options. The fund may purchase or
sell futures contracts or options on futures contracts if, immediately
thereafter, the aggregate amount of initial margin deposits on all the futures
positions of the fund and the premiums paid on options on futures contracts
would exceed 5% of the market value of the fund's total assets.

The Funds' transactions in options, futures contracts, and forward contracts may
be limited by the requirements of the Internal Revenue Code for qualification as
a regulated investment company. These transactions are also subject to special
tax rules that may affect the amount, timing, and character of certain
distributions to shareholders. For more information, please see "Distributions
and Taxes."

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - ALL FUNDS. The Funds may enter
into forward foreign currency exchange contracts (Forward Contract(s)) to
attempt to minimize the risk to the Fund from adverse changes in the
relationship between currencies or to enhance income. A Forward Contract is an
obligation to buy or sell a specific currency for an agreed price at a future
date and is individually negotiated and privately traded by currency traders and
their customers.

A Fund may enter into a Forward Contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock-in" the U.S. dollar price of that security.
Additionally, when a Fund believes that a foreign currency may suffer a
substantial decline against the U.S. dollar, it may enter into a Forward
Contract to sell an amount of that foreign currency approximating the value of
some or all of the Fund's portfolio securities denominated in that foreign
currency. Similarly, when a Fund believes that the U.S. dollar may suffer a
substantial decline against a foreign currency, it may enter into a Forward
Contract to buy that foreign currency for a fixed dollar amount.

To limit potential risks in connection with the purchase of currency under
Forward Contracts, cash, cash equivalents or readily marketable high grade debt
securities equal to the amount of the purchase will be held aside or in a
segregated account with the Fund's custodian bank to be used to pay for the
commitment, or the Fund will cover any commitments under these contracts to sell
currency by owning the underlying currency (or an absolute right to acquire the
currency). The segregated account will be marked-to-market on a daily basis.

Forward Contracts may limit the potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies or between foreign
currencies. Unanticipated changes in currency exchange rates also may result in
poorer overall performance for a Fund than if it had not entered into Forward
Contracts.

FOREIGN CURRENCY FUTURES - ALL FUNDS. The Funds may buy and sell foreign
currency futures contracts to hedge against changes in the level of future
currency rates. These contracts involve an agreement to buy or sell a specific
currency at a future date at a price set in the contract. Assets will be held
aside or in a segregated account with the Fund's custodian bank as required to
cover the Fund's obligations under its foreign currency futures contracts.

OPTIONS ON FOREIGN CURRENCIES - ALL FUNDS. The Funds may buy and write put and
call options on foreign currencies traded on U.S. and foreign exchanges or
over-the-counter, for hedging purposes to protect against declines in the U.S.
dollar value of foreign portfolio securities or other assets to be acquired. As
with other kinds of options, the writing of an option on foreign currency will
only be a partial hedge, up to the amount of the premium received, and a Fund
could be required to buy or sell foreign currencies at disadvantageous exchange
rates, thereby incurring losses. The purchase of an option on foreign currency
may be an effective hedge against fluctuations in exchange rates although, in
the event of rate movements adverse to the Fund's position, a Fund may forfeit
the entire amount of the premium plus related transaction costs.

A decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of the securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, the Funds may buy
put options on the foreign currency. If the value of the currency does decline,
a Fund will have the right to sell the currency for a fixed amount in dollars
and will thereby offset, in whole or part, the adverse effect on its portfolio
which otherwise would have resulted.

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Funds may buy call options thereon. The purchase of such options
could offset, at least partially, the effects of the adverse movements in
exchange rates. As in the case of other types of options, however, the benefit
to a Fund deriving from purchases of foreign currency options will be reduced by
the amount of the premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the extent
anticipated, a Fund could sustain losses on transactions in foreign currency
options that would require it to forego a portion or all of the benefits of
advantageous changes in such rates.

The Funds may write options on foreign currencies for the same types of hedging
purposes. For example, where a Fund anticipates a decline in the dollar value of
foreign currency denominated securities due to adverse fluctuations in exchange
rates it could, instead of buying a put option, write a call option on the
relevant currency. If the expected decline occurs, the option will most likely
not be exercised, and the decline in value of portfolio securities will be
offset by the amount of the premium received.

Similarly, instead of buying a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, a Fund could write a
put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other types of options,
however, the writing of a foreign currency option will constitute only a partial
hedge up to the amount of the premium, and only if rates move in the expected
direction. If this does not occur, the option may be exercised and the Fund
would be required to buy or sell the underlying currency at a loss, which may
not be offset by the amount of the premium. Through the writing of options on
foreign currencies, a Fund also may be required to forego all or a portion of
the benefits that might otherwise have been obtained from favorable movements in
exchange rates.

The Funds may write covered call options on foreign currencies. A call option
written on a foreign currency is "covered" if the Fund owns the underlying
foreign currency covered by the call or has an absolute and immediate right to
acquire that foreign currency without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian
bank) upon conversion or exchange of other foreign currency held in its
portfolio. A call option is also covered if the Fund has a call on the same
foreign currency and in the same principal amount as the call written where the
exercise price of the call held is (a) equal to or less than the exercise price
of the call written or (b) greater than the exercise price of the call written
if the difference is maintained by the Fund in cash, U.S. government securities,
or other high grade liquid debt securities in a segregated account with its
custodian bank.

The Funds may also write call options on foreign currencies that are not covered
for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the Fund owns or
has the right to acquire and which is denominated in the currency underlying the
option due to an adverse change in the exchange rate. In such circumstances, a
Fund collateralizes the option by maintaining in a segregated account with the
Fund's custodian bank, cash or U.S. government securities or other high grade
liquid debt securities in an amount not less than the value of the underlying
foreign currency in U.S. dollars marked-to-market daily.

OPTIONS AND FINANCIAL FUTURES - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. The
Funds may write covered put and call options and buy put and call options on
stocks, stocks indices, and bonds that trade on securities exchanges and in the
over-the-counter market. The Funds may buy and sell futures and options on
futures with respect to stock and bond indices. Additionally, the Funds may
engage in "close-out" transactions with respect to futures and options.

WRITING CALL OPTIONS - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. Call options
written by a Fund give the holder the right to buy the underlying securities
from the Fund at a stated exercise price. A call option written by a Fund is
"covered" if the Fund owns the underlying security that is subject to the call
or has an absolute and immediate right to acquire that security without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian bank) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal amount as the call
written where the exercise price of the call held is (a) equal to or less than
the exercise price of the call written or (b) greater than the exercise price of
the call written if the difference is maintained by the Fund in cash and high
grade debt securities in a segregated account with its custodian bank. The
premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price and volatility of the
underlying security, the remaining term of the option, supply and demand, and
interest rates.

With regard to certain options, the writer of an option may have no control over
when the underlying securities must be sold, in the case of a call option,
because the writer may be assigned an exercise notice at any time before the
termination of the obligation. Whether or not an option expires unexercised, the
writer retains the amount of the premium. This amount may, in the case of a
covered call option, be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised, the
writer experiences a profit or loss from the sale of the underlying security.

The writer of an option that wishes to terminate its obligation may effect a
"closing purchase transaction" by buying an option of the same series as the
option previously written. The effect of the purchase is that the clearing
corporation will cancel the writer's position. A writer may not effect a closing
purchase transaction, however, after being notified of the exercise of an
option. Likewise, an investor who is the holder of an option may liquidate its
position by effecting a "closing sale transaction" by selling an option of the
same series as the option previously purchased. There is no guarantee that
either a closing purchase or a closing sale transaction can be effected.

Effecting a closing transaction in the case of a written call option will allow
a Fund to write another call option on the underlying security with either a
different exercise price or expiration date or both. Also, effecting a closing
transaction will allow the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other Fund investments. If a
Fund desires to sell a particular security from its portfolio on which it has
written a call option, it will effect a closing transaction before or at the
same time as the sale of the security.

A Fund will realize a profit from a closing transaction if the price of the
transaction is less than the premium received from writing the option or is more
than the premium paid to buy the option. A Fund will realize a loss from a
closing transaction if the price of the transaction is more than the premium
received from writing the option or is less than the premium paid to buy the
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Fund.

BUYING CALL OPTIONS - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. Each Fund may buy
call options on securities that it intends to purchase in order to limit the
risk of a substantial increase in the market price of such security. Each Fund
may also buy call options on securities held in its portfolio and on which it
has written call options. A call option gives the holder the right to buy the
underlying securities from the option writer at a stated exercise price. Before
its expiration, a call option may be sold in a closing sale transaction. Profit
or loss from the sale will depend on whether the amount received is more or less
than the premium paid for the call option plus related transaction costs.

WRITING PUT OPTIONS - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. The Funds may
write covered put options. A put option gives the buyer of the option the right
to sell, and the writer (seller) the obligation to buy, the underlying security
at the exercise price during the option period. The option may be exercised at
any time before its expiration date. The operation of put options in other
respects, including their related risks and rewards, is substantially identical
to that of call options.

If a Fund writes put options, it will do so on a covered basis. This means that
the Fund would maintain, in a segregated account, cash, U.S. government
securities, or other liquid, high-grade debt securities in an amount not less
than the exercise price at all times while the put option is outstanding. The
rules of the clearing corporation currently require that such assets be
deposited in escrow to secure payment of the exercise price. A Fund would
generally write covered put options when the manager wants to buy the underlying
security or currency for the Fund's portfolio at a price lower than the current
market price of the security or currency. In this event, the Fund would write a
put option at an exercise price that, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Fund would also
receive interest on debt securities maintained to cover the exercise price of
the option, this technique could be used to enhance current return during
periods of market uncertainty. The risk in such a transaction would be that the
market price of the underlying security or currency would decline below the
exercise price less the premiums received.

BUYING PUT OPTIONS - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. Each Fund may buy
a put option on an underlying security or currency owned by the Fund as a
hedging technique in order to protect against an anticipated decline in the
value of the security or currency (protective put). Such hedge protection is
provided only during the life of the put option when a Fund, as the holder of
the put option, is able to sell the underlying security or currency at the put
exercise price, regardless of any decline in the underlying security's market
price or currency's exchange value. For example, a put option may be purchased
in order to protect unrealized appreciation of a security or currency when the
manager deems it desirable to continue to hold the security or currency because
of tax considerations. The premium paid for the put option and any transaction
costs would reduce any capital gain otherwise available for distribution when
the security or currency is eventually sold.

A Fund may also buy put options at a time when the Fund does not own the
underlying security or currency. By buying put options on a security or currency
it does not own, a Fund seeks to benefit from a decline in the market price of
the underlying security or currency. If the put option is not sold when it has
remaining value, and if the market price of the underlying security or currency
remains equal to or greater than the exercise price during the life of the put
option, a Fund will lose its entire investment in the put option. In order for
the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.

The premium paid by a Fund when buying a put option will be recorded as an asset
in the Fund's statement of assets and liabilities. This asset will be adjusted
daily to the option's current market value, which will be the latest sale price
at the time at which the net asset value per share of the Fund is computed. The
asset will be extinguished upon expiration of the option, the writing of an
identical option in a closing transaction, or the delivery of the underlying
security or currency upon the exercise of the option.

OVER-THE-COUNTER (OTC) OPTIONS - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. Each
Fund intends to write covered put and call options and buy put and call options
that trade in the over-the-counter market to the same extent that it will engage
in exchange traded options. OTC options, however, differ from exchange traded
options in certain material respects.

OTC options are arranged directly with dealers and not, as is the case with
exchange traded options, with a clearing corporation. Thus, there is a risk of
non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information from market makers. OTC options are
available, however, for a greater variety of securities, and in a wider range of
expiration dates and exercise prices, than exchange traded options, and the
writer of an OTC option is paid the premium in advance by the dealer.

The Funds understand the current position of the staff of the U.S. Securities
and Exchange Commission (SEC) to be that purchased OTC options are illiquid
securities and that the assets used to cover the sale of an OTC option are
considered illiquid. The Funds and the manager disagree with this position.
Nevertheless, pending a change in the staff's position, each Fund will treat OTC
options and "cover" assets as subject to the Fund's limitation on illiquid
securities.

OPTIONS ON STOCK INDICES - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. The Funds
may buy call and put options on stock indices in order to hedge against the risk
of market or industry-wide stock price fluctuations. Call and put options on
stock indices are similar to options on securities except that, rather than the
right to buy or sell stock at a specified price, options on a stock index give
the holder the right to receive, upon exercise of the option, an amount of cash
if the closing level of the underlying stock index is greater than (or less
than, in the case of puts) the exercise price of the option. This amount of cash
is equal to the difference between the closing price of the index and the
exercise price of the option, expressed in dollars multiplied by a specified
number. Thus, unlike stock options, all settlements are in cash, and gain or
loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.

When a Fund writes an option on a stock index, the Fund will establish a
segregated account containing cash or high quality fixed-income securities with
its custodian bank in an amount at least equal to the market value of the
underlying stock index and will maintain the account while the option is open or
it will otherwise cover the transaction.

FUTURES CONTRACTS - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. The Funds may enter
into contracts for the purchase or sale for future delivery of securities and in
such contracts based upon financial indices (financial futures). Financial
futures contracts are commodity contracts that obligate the long or short holder
to take or make delivery of a specified quantity of a financial instrument, such
as a security, or the cash value of a securities index during a specified future
period at a specified price. A "sale" of a futures contract means the
acquisition of a contractual obligation to deliver the securities called for by
the contract at a specified price on a specified date. A "purchase" of a futures
contract means the acquisition of a contractual obligation to acquire the
securities called for by the contract at a specified price on a specified date.
Futures contracts have been designed by exchanges that have been designated
"contracts markets" by the Commodity Futures Trading Commission (CFTC) and must
be executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market.

At the same time a futures contract is purchased or sold, a Fund must allocate
cash or securities as a deposit payment (initial deposit). Daily thereafter, the
futures contract is valued and the payment of "variation margin" may be required
since each day the Fund would provide or receive cash that reflects any decline
or increase in the contract's value.

Although futures contracts by their terms call for the actual delivery or
acquisition of securities, in most cases the contractual obligation is fulfilled
before the date of the contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is accomplished by buying
(or selling, as the case may be) on a commodities exchange an identical futures
contract calling for delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the securities. Since all transactions in the futures market are
made, offset or fulfilled through a clearinghouse associated with the exchange
on which the contracts are traded, a Fund will incur brokerage fees when it buys
or sells futures contracts.

A Fund will generally not engage in transactions in futures contracts or related
options for speculation but only as a hedge against changes resulting from
market conditions in the values of its securities or securities that it intends
to buy. The purpose of the acquisition or sale of a futures contract is to
attempt to protect the Fund from fluctuations in price of portfolio securities
without actually buying or selling the underlying security. To the extent a Fund
enters into a futures contract, it will maintain with its custodian bank, to the
extent required by the rules of the SEC, assets in a segregated account to cover
its obligations with respect to such contract which will consist of cash, cash
equivalents, or high quality debt securities from its portfolio in an amount
equal to the difference between the fluctuating market value of such futures
contract and the aggregate value of the initial and variation margin payments
made by the Fund with respect to such futures contracts.

STOCK INDEX FUTURES - all Funds except Natural Resources Fund. A stock index
futures contract obligates the seller to deliver (and the buyer to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
the underlying stocks in the index is made.

Each Fund may sell stock index futures contracts in anticipation of or during a
market decline to attempt to offset the decrease in market value of its equity
securities that might otherwise result. When a Fund is not fully invested in
stocks and anticipates a significant market advance, it may purchase stock index
futures in order to gain rapid market exposure that may in part or entirely
offset increases in the cost of common stocks that it intends to buy.

OPTIONS ON STOCK INDEX FUTURES - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. The
Funds may buy and sell call and put options on stock index futures to hedge
against risks of market-side price movements. The need to hedge against such
risks will depend on the extent of diversification of the Fund's common stock
portfolio and the sensitivity of such investments to factors influencing the
stock market as a whole.

Call and put options on stock index futures are similar to options on securities
except that, rather than the right to buy or sell stock at a specified price,
options on stock index futures give the holder the right to receive cash. Upon
exercise of the option, the delivery of the futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the futures contract, at exercise, exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. If an option is exercised on the last
trading day before the expiration date of the option, the settlement will be
made entirely in cash equal to the difference between the exercise price of the
option and the closing price of the futures contract on the expiration date.

BOND INDEX FUTURES AND RELATED OPTIONS - ALL FUNDS EXCEPT NATURAL RESOURCES
FUND. The Funds may purchase and sell futures contracts based on an index of
debt securities and options on such futures contracts to the extent they
currently exist and, in the future, may be developed. The Funds reserve the
right to conduct futures and options transactions based on an index which may be
developed in the future to correlate with price movements in certain categories
of debt securities. Each Fund's investment strategy in employing futures
contracts based on an index of debt securities will be similar to that used by
it in other financial futures transactions.

The Funds also may buy and write put and call options on bond index futures and
enter into closing transactions with respect to such options.

FUTURE DEVELOPMENTS - ALL FUNDS EXCEPT NATURAL RESOURCES FUND. Each Fund may
take advantage of opportunities in the area of options and futures contracts and
options on futures contracts and any other derivative investments that are not
presently contemplated for use by the Fund or which are not currently available
but which may be developed, to the extent such opportunities are both consistent
with the Fund's investment goal and legally permissible for the Fund.

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

The Biotechnology Fund may also sell securities "short against the box" without
limit. In a short sale against the box, the Fund actually holds in its portfolio
the securities which it has sold short. In replacing the borrowed securities in
the transaction, the Fund may either buy securities in the open market or use
those in its portfolio.

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

The Technology Fund may invest up to 5% of its assets in private placements,
particularly late stage private placements. Late stage private placements are
sales of securities made in non-public, unregistered transactions shortly before
a company expects to go public. The Fund may make such investments in order to
participate in companies whose initial public offerings are expected to be "hot"
issues. There is no public market for shares sold in these private placements
and it is possible that initial public offerings will never be completed.
Moreover, even after an initial public offering, there may be a limited trading
market for the securities or the Fund may be subject to contractual limitations
on its ability to sell the shares.

SECURITIES INDUSTRY RELATED INVESTMENTS Securities issued by companies engaged
in securities related businesses, including companies that are securities
brokers, dealers, underwriters or investment advisers, are considered to be part
of the financial services industry. Generally, under the Investment Company Act
of 1940, as amended (the "1940 Act"), a Fund may not acquire a security or any
interest in a securities related business to the extent such acquisition would
result in the Fund acquiring in excess of 5% of a class of an issuer's
outstanding equity securities or 10% of the outstanding principal amount of an
issuer's debt securities, or investing more than 5% of the value of the Fund's
total assets in securities of the issuer. In addition, any equity security of a
securities related business must be a marginable security under Federal Reserve
Board regulations and any debt security of a securities related business must be
investment grade as determined by the Fund's board of trustees. The Funds do not
believe that these limitations will impede the attainment of their investment
goals.

TEMPORARY INVESTMENTS When a Fund's manager believes market or economic
conditions are unfavorable for investors, the manager may invest up to 100% of
the Fund's assets in a temporary defensive manner or hold a substantial portion
of its assets in cash, cash equivalents or other high quality short-term
investments. Unfavorable market or economic conditions may include excessive
volatility or a prolonged general decline in the securities markets, the
securities in which the Fund normally invests, or the economies of the countries
where the Fund invests.

Temporary defensive investments generally may include U.S. government
securities, certificates of deposit, high-grade commercial paper, repurchase
agreements, and other money market equivalents. The Technology Fund may also
invest in short-term (less than twelve months to maturity) fixed-income
securities, non-U.S. current, short-term instruments denominated in non-U.S.
currencies, or medium-term (not more than five years to maturity) obligations
issued or guaranteed by the U.S. government or the governments of foreign
countries, their agencies or instrumentalities. To the extent allowed by
exemptions granted under the 1940 Act and the Fund's other investment policies
and restrictions, the manager also may invest each Fund's assets in shares of
one or more money market funds managed by the manager or its affiliates. The
manager also may invest in these types of securities or hold cash while looking
for suitable investment opportunities or to maintain liquidity.

INVESTMENT RESTRICTIONS Each Fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the Fund's outstanding shares or (ii) 67% or
more of the Fund's shares present at a shareholder meeting if more than 50% of
the Fund's outstanding shares are represented at the meeting in person or by
proxy, whichever is less.

Biotechnology Fund may not:

1. Make loans to other persons, except by the purchase of bonds, debentures or
similar obligations which are publicly distributed or of a character usually
acquired by institutional investors or through loans of the Fund's portfolio
securities, or to the extent the entry into a repurchase agreement may be deemed
a loan.

2. Borrow money, except in the form of reverse repurchase agreements or from
banks in order to meet redemption requests that might otherwise require the
untimely disposition of portfolio securities or for other temporary or emergency
(but not investment) purposes, in an amount up to 10% of the value of the Fund's
total assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made, and except to facilitate portfolio transactions in which the
Fund is permitted to engage to the extent such transactions may be deemed to
constitute borrowing under this restriction. While borrowings exceed 5% of the
Fund's total assets, the Fund will not make any additional investments.

3. Underwrite securities of other issuers or invest more than 15% of its
assets in illiquid securities.

4. Invest in securities for the purpose of exercising management or control
of the issuer.

5. Invest in the securities of other investment companies, except in accordance
with the federal securities laws. To the extent permitted by exemptions granted
under the Investment Company Act of 1940, as amended (1940 Act), the Fund may
invest in shares of one or more money market funds managed by Franklin Advisers,
Inc. (Advisers) or its affiliates.

6. Concentrate its investments in any industry except that the Fund will invest
at least 25% of its total assets in equity securities of biotechnology
companies.

Biotechnology Fund presently has the following additional restrictions, which
are not fundamental and may be changed without shareholder approval.

Biotechnology Fund may not:

1. Pledge, mortgage or hypothecate the Fund's assets as security for loans, nor
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.

Health Care Fund may not:

2. Borrow money (does not preclude the Fund from obtaining such short-term
credit as may be necessary for the clearance of purchases and sales of its
portfolio securities), except in the form of reverse repurchase agreements or
from banks in order to meet redemption requests that might otherwise require the
untimely disposition of portfolio securities or for other temporary or emergency
(but not investment) purposes, in an amount up to 10% of the value of the Fund's
total assets (including the amount borrowed) based on the lesser of cost or
market, less liabilities (not including the amount borrowed) at the time the
borrowing is made. While borrowings exceed 5% of the Fund's total assets, the
Fund will not make any additional investments.

3. Underwrite securities of other issuers or invest more than 10% of its assets
in securities with legal or contractual restrictions on resale (although the
Fund may invest in such securities to the extent permitted under the federal
securities laws, for example, transactions between the Fund and Qualified
Institutional Buyers subject to Rule 144A under the Securities Act of 1933) or
which are not readily marketable, or which have a record of less than three
years continuous operation, including the operations of any predecessor
companies, if more than 10% of the Fund's total assets would be invested in such
companies.

4. Invest in securities for the purpose of exercising management or control
of the issuer.

5. Maintain a margin account with a securities dealer or invest in commodities
and commodity contracts (except that the Fund may engage in financial futures,
including stock index futures, and options on stock index futures) or lease or
acquire any interests, including interests issued by limited partnerships (other
than publicly traded equity securities) in oil, gas, or other mineral
exploration or development programs, or invest in excess of 5% of its total
assets in options unrelated to the Fund's transactions in futures, including
puts, calls, straddles, spreads, or any combination thereof.

6. Effect short sales, unless at the time the Fund owns securities equivalent in
kind and amount to those sold (which will normally be for deferring recognition
of gains or losses for tax purposes). The Fund does not currently intend to
employ this investment technique.

7. Invest directly in real estate, real estate limited partnerships or illiquid
securities issued by real estate investment trusts (the Fund may, however,
invest in marketable securities issued by real estate investment trusts).

8. Invest in the securities of other investment companies, except where there is
no commission other than the customary brokerage commission or sales charge, or
except that securities of another investment company may be acquired pursuant to
a plan of reorganization, merger, consolidation or acquisition, and except where
the Fund would not own, immediately after the acquisition, securities of the
investment companies which exceed in the aggregate i) more than 3% of the
issuer's outstanding voting stock, ii) more than 5% of the Fund's total assets
and iii) together with the securities of all other investment companies held by
the Fund, exceed, in the aggregate, more than 10% of the Fund's total assets.
The Fund may invest in shares of one or more money market funds managed by
Advisers or its affiliates consistent with the terms of the exemptive order
issued by the SEC.

9. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but may deal with
such persons or firms as brokers and pay a customary brokerage commission; or
purchase or retain securities of any issuer, if to the knowledge of the trust,
one or more of the officers or trustees of the trust, or its investment adviser,
own beneficially more than one-half of 1% of the securities of such issuer and
all such officers and trustees together own beneficially more than 5% of such
securities.

10. Concentrate in any industry except that the Fund will invest at least 25% of
total assets in the group of health care industries consisting of
pharmaceuticals, biotechnology, health care services, medical supplies and
medical technology.

Health Care Fund presently has the following additional restrictions, which are
not fundamental and may be changed without shareholder approval.

Health Care Fund may not:

2. Invest in excess of 5% of its net assets, valued at the lower of cost or
market, in warrants, nor more than 2% of its net assets in warrants not listed
on either the New York Stock Exchange or the American Stock Exchange.

3. Buy the securities of any issuer if, as to 75% of the assets of the Fund at
the time of the purchase, more than 10% of the voting securities of any issuer
would be held by the Fund, except that this restriction does not apply to cash,
cash items (including receivables), government securities, and the securities of
other investment companies.

It is also the policy of Health Care Fund that it may, consistent with its
objective, invest a portion of its assets, as permitted by the 1940 Act and the
rules adopted thereunder, in securities or other obligations issued by companies
engaged in securities related businesses, including companies that are
securities brokers, dealers, underwriters or investment advisers.

Natural Resources Fund may not:

1. Make loans to other persons, except by the purchase of bonds, debentures or
similar obligations which are publicly distributed or of a character usually
acquired by institutional investors, or through loans of the Fund's portfolio
securities, or to the extent the entry into a repurchase agreement or similar
transaction may be deemed a loan;

2. Borrow money or mortgage or pledge any of its assets, except in the form of
reverse repurchase agreements or from banks for temporary or emergency purposes
in an amount up to 33% of the value of the Fund's total assets (including the
amount borrowed) based on the lesser of cost or market, less liabilities (not
including the amount borrowed) at the time the borrowing is made. While
borrowings exceed 5% of the Fund's total assets, the Fund will not make any
additional investments;

3. Underwrite securities of other issuers (does not preclude the Fund from
obtaining such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities) or invest more than 5% of its
assets in illiquid securities with legal or contractual restrictions on resale
(although the Fund may invest in Rule 144A restricted securities to the full
extent permitted under the federal securities laws); except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund;

4. Invest in securities for the purpose of exercising management or control of
the issuer; except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the same investment
objective and policies as the Fund;

5. Effect short sales, unless at the time the Fund owns securities equivalent in
kind and amount to those sold (which will normally be for deferring recognition
of gains or losses for tax purposes);

6. Invest directly in real estate, real estate limited partnerships or illiquid
securities issued by real estate investment trusts (the Fund may, however,
invest up to 10% of its assets in marketable securities issued by real estate
investment trusts);

7. Invest directly in interests in oil, gas or other mineral leases, exploration
or development programs;

8. Invest in the securities of other investment companies, except where there is
no commission other than the customary brokerage commission or sales charge, or
except that securities of another investment company may be acquired pursuant to
a plan of reorganization, merger, consolidation or acquisition, and except where
the Fund would not own, immediately after the acquisition, securities of the
investment companies which exceed in the aggregate i) more than 3% of the
issuer's outstanding voting stock, ii) more than 5% of the Fund's total assets
and iii) together with the securities of all other investment companies held by
the Fund, exceed, in the aggregate, more than 10% of the Fund's total assets;
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and policies as the Fund. Pursuant to available exemptions from the 1940 Act,
the Fund may invest in shares of one or more money market funds managed by
Advisers, or its affiliates;

9. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but may deal with
such persons or firms as brokers and pay a customary brokerage commission; or
purchase or retain securities of any issuer if one or more of the officers or
trustees of the trust, or its investment adviser, own beneficially more than
one-half of 1% of the securities of such issuer and all such officers and
trustees together own beneficially more than 5% of such securities;

10. Concentrate in any industry, except that under normal circumstances the Fund
will invest at least 25% of total assets in the securities issued by domestic
and foreign companies operating within the natural resources sector; except that
all or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund; and

11. Invest more than 10% of its assets in securities of companies which have a
record of less than three years continuous operation, including the operations
of any predecessor companies; except that all or substantially all of the assets
of the Fund may be invested in another registered investment company having the
same investment objective and policies as the Fund.

Natural Resources Fund presently has the following additional restrictions,
which are not fundamental and may be changed without shareholder approval.

Natural Resources Fund may not:

1. 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.

Communications Fund may not:

1. Make loans to other persons, except by the purchase of bonds, debentures or
similar obligations which are publicly distributed or of a character usually
acquired by institutional investors, or through loans of the Fund's portfolio
securities, or to the extent the entry into a repurchase agreement may be deemed
a loan;

3. Underwrite securities of other issuers (does not preclude the Fund from
obtaining such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities) or invest more than 5% of its
assets in securities with legal or contractual restrictions on resale (although
the Fund may invest in such securities to the extent permitted under the federal
securities laws) or which are not readily marketable, if more than 15% of the
Fund's total assets would be invested in such companies;

4. Invest in securities for the purpose of exercising management or control
of the issuer;

5. Maintain a margin account with a securities dealer or invest in commodities
and commodity contracts (except that the Fund may engage in financial futures,
including stock index futures, and options on stock index futures) or lease or
acquire any interests, including interests issued by limited partnerships (other
than publicly traded equity securities), in oil, gas, or other mineral
exploration or development programs, or invest in excess of 5% of its total
assets in options unrelated to the Fund's transactions in futures, including
puts, calls, straddles, spreads, or any combination thereof;

8. Invest in the securities of other investment companies, except where there is
no commission other than the customary brokerage commission or sales charge, or
except that securities of another investment company may be acquired pursuant to
a plan of reorganization, merger, consolidation or acquisition, and except where
the Fund would not own, immediately after the acquisition, securities of the
investment companies which exceed in the aggregate i) more than 3% of the
issuer's outstanding voting stock, ii) more than 5% of the Fund's total assets
and iii) together with the securities of all other investment companies held by
the Fund, exceed, in the aggregate, more than 10% of the Fund's total assets.
Pursuant to available exemptions from the 1940 Act, the Fund may invest in
shares of one or more money market funds managed by Advisers or its affiliates;

9. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but may deal with
such persons or firms as brokers and pay a customary brokerage commission; or
purchase or retain securities of any issuer if, to the knowledge of the trust,
one or more of the officers or trustees of the trust, or its investment adviser,
own beneficially more than one-half of 1% of the securities of such issuer and
all such officers and trustees together own beneficially more than 5% of such
securities;

10. Concentrate in any industry, except that the Fund will invest at least
25% of total assets in the equity and debt securities issued by domestic and
foreign companies in the utilities industries; and

11. Invest more than 10% of its assets in securities of companies which have a
record of less than three years continuous operation, including the operations
of any predecessor companies.

Communications Fund presently has the following additional restrictions, which
are not fundamental and may be changed without shareholder approval.

Communications Fund may not:

It is also the policy of the Fund that it may, consistent with its objective,
invest a portion of its assets, as permitted by the 1940 Act and the rules
adopted thereunder, in securities or other obligations issued by companies
engaged in securities related businesses, including such companies that are
securities brokers, dealers, underwriters or investment advisers.

Technology Fund may not:

1. Borrow money, except that the Fund may borrow money from banks or affiliated
investment companies to the extent permitted (a) by the 1940 Act, or (b) any
exemptions therefrom which may be granted by the SEC, or (c) for temporary or
emergency purposes and then in an amount not exceeding 33 1/3% of the value of
the Fund's total assets (including the amount borrowed).

2. Act as an underwriter except to the extent the Fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own shares.

3. Make loans to other persons except (a) through the lending of its portfolio
securities, (b) through the purchase of debt securities, loan participations
and/or engaging in direct corporate loans in accordance with its investment goal
and policies, and (c) to the extent the entry into a repurchase agreement is
deemed to be a loan. The Fund may also make loans to affiliated investment
companies to the extent permitted by the 1940 Act or any exemptions therefrom
which may be granted by the SEC.

4. Purchase or sell real estate and commodities, except that the Fund may
purchase or sell securities of real estate investment trusts, may purchase or
sell currencies, may enter into forward contracts and futures contracts on
securities, currencies, and other indices or any other financial instruments,
and may purchase and sell options on such futures contracts.

5. Issue securities senior to the Fund's presently authorized shares of
beneficial interest, except that this restriction shall not be deemed to
prohibit the Fund from (a) making any permitted borrowings, loans, mortgages or
pledges, (b) entering into options, futures contracts, forward contracts,
repurchase transactions or reverse repurchase transactions, or (c) making short
sales of securities to the extent permitted by the 1940 Act and any rule or
order thereunder, or SEC staff interpretations thereof.

If a bankruptcy or other extraordinary event occurs concerning a particular
security a Fund owns, the Fund may receive stock, real estate, or other
investments that the Fund would not, or could not, buy. If this happens, the
Fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.

Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when a Fund makes an investment. In most cases, the Fund is not
required to sell a security because circumstances change and the security no
longer meets one or more of the Fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.

RISKS
-------------------------------------------

FOREIGN SECURITIES You should consider carefully the substantial risks involved
in securities of companies of foreign nations, which are in addition to the
usual risks inherent in domestic investments.

There may be less publicly available information about foreign companies
comparable to the reports and ratings published about companies in the U.S.
Foreign companies are not generally subject to uniform accounting or financial
reporting standards, and auditing practices and requirements may not be
comparable to those applicable to U.S. companies. The Funds, therefore, may
encounter difficulty in obtaining market quotations for purposes of valuing
their portfolios and calculating their net asset values. Foreign markets have
substantially less volume than the New York Stock Exchange, and securities of
some foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Commission rates in foreign countries, which are
generally fixed rather than subject to negotiation as in the U.S., are likely to
be higher. In many foreign countries there is less government supervision and
regulation of stock exchanges, brokers, and listed companies than in the U.S.

Investments in companies domiciled in developing countries may be subject to
potentially higher risks than investments in developed countries. These risks
include (i) less social, political, and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; (v)
the absence of developed legal structures governing private or foreign
investment or allowing for judicial redress for injury to private property; (vi)
the absence, until recently in certain Eastern European countries, of a capital
market structure or market-oriented economy; and (vii) the possibility that
recent favorable economic developments in Eastern Europe may be slowed or
reversed by unanticipated political or social events in such countries.

In addition, many countries in which the Funds may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some developing countries may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency, and balance of payments position.

Investing in Russian companies involves a high degree of risk and special
considerations not typically associated with investing in the U.S. securities
markets, and should be considered highly speculative. Such risks include,
together with Russia's continuing political and economic instability and the
slow-paced development of its market economy, the following: (a) delays in
settling portfolio transactions and risk of loss arising out of Russia's system
of share registration and custody; (b) the risk that it may be impossible or
more difficult than in other countries to obtain and/or enforce a judgment; (c)
pervasiveness of corruption, insider trading, and crime in the Russian economic
system; (d) currency exchange rate volatility and the lack of available currency
hedging instruments; (e) higher rates of inflation (including the risk of social
unrest associated with periods of hyper-inflation); (f) controls on foreign
investment and local practices disfavoring foreign investors and limitations on
repatriation of invested capital, profits, and dividends, and on the Fund's
ability to exchange local currencies for U.S. dollars; (g) the risk that the
government of Russia or other executive or legislative bodies may decide not to
continue to support the economic reform programs implemented since the
dissolution of the Soviet Union and could follow radically different political
and/or economic policies to the detriment of investors, including
non-market-oriented policies such as the support of certain industries at the
expense of other sectors or investors, a return to the centrally planned economy
that existed prior to the dissolution of the Soviet Union, or the
nationalization of privatized enterprises; (h) the risks of investing in
securities with substantially less liquidity and in issuers having significantly
smaller market capitalization, when compared to securities and issuers in more
developed markets; (i) the difficulties associated in obtaining accurate market
valuations of many Russian securities, based partly on the limited amount of
publicly available information; (j) the financial condition of Russian
companies, including large amounts of inter-company debt which may create a
payments crisis on a national scale; (k) dependency on exports and the
corresponding importance of international trade; (l) the risk that the Russian
tax system will not be reformed to prevent inconsistent, retroactive and/or
exorbitant taxation or, in the alternative, the risk that a reformed tax system
may result in the inconsistent and unpredictable enforcement of the new tax
laws; (m) possible difficulty in identifying a purchaser of securities held by
the Fund due to the underdeveloped nature of the securities markets; (n) the
possibility that pending legislation could restrict the levels of foreign
investment in certain industries, thereby limiting the number of investment
opportunities in Russia; (o) the risk that pending legislation would confer to
Russian courts the exclusive jurisdiction to resolve disputes between foreign
investors and the Russian government, instead of bringing such disputes before
an internationally-accepted third-country arbitrator; and (p) the difficulty in
obtaining information about the financial condition of Russian issuers, in light
of the different disclosure and accounting standards applicable to Russian
companies.

There is little long-term historical data on Russian securities markets because
they are relatively new, and a substantial proportion of securities transactions
in Russia is privately negotiated outside of stock exchanges. Because of the
recent formation of the securities markets as well as the underdeveloped state
of the banking and telecommunications systems, settlement, clearing, and
registration of securities transactions are subject to significant risks.
Ownership of shares (except where shares are held through depositories that meet
the requirements of the Investment Company Act of 1940) is defined according to
entries in the company's share register and normally evidenced by extracts from
the register or by formal share certificates. However, there is no central
registration system for shareholders, and these services are carried out by the
companies themselves or by registrars located throughout Russia. These
registrars are not necessarily subject to effective state supervision, nor are
they licensed with any governmental entity, and it is possible for a Fund to
lose its registration through fraud, negligence, or even mere oversight. While
each Fund will endeavor to ensure that its interest continues to be
appropriately recorded either itself or through a custodian or other agent
inspecting the share register and by obtaining extracts of share registers
through regular confirmations, these extracts have no legal enforceability, and
it is possible that subsequent illegal amendment or other fraudulent act may
deprive the Fund of its ownership rights or improperly dilute its interests. In
addition, while applicable Russian regulations impose liability on registrars
for losses resulting from their errors, it may be difficult for the Fund to
enforce any rights it may have against the registrar or issuer of the securities
in the event of loss of share registration. Furthermore, although a Russian
public enterprise with more than 500 shareholders is required by law to contract
out the maintenance of its shareholder register to an independent entity that
meets certain criteria, in practice this regulation has not always been strictly
enforced. Because of this lack of independence, management of a company may be
able to exert considerable influence over who can purchase and sell the
company's shares by illegally instructing the registrar to refuse to record
transactions in the share register. In addition, so-called "financial-industrial
groups" have emerged in recent years that seek to deter outside investors from
interfering in the management of companies they control. These practices may
prevent a Fund from investing in the securities of certain Russian companies
deemed suitable by the manager. Further, this also could cause a delay in the
sale of Russian company securities by a Fund if a potential purchaser is deemed
unsuitable, which may expose the Fund to potential loss on the investment.

The manager endeavors to buy and sell foreign currencies on as favorable a basis
as practicable. Some price spread on currency exchange (to cover service
charges) may be incurred, particularly when a Fund changes investments from one
country to another or when proceeds of the sale of shares in U.S. dollars are
used for the purchase of securities in foreign countries. Also, some countries
may adopt policies that would prevent the Funds from transferring cash out of
the country or withhold portions of interest and dividends at the source. There
is the possibility of cessation of trading on national exchanges, expropriation,
nationalization, or confiscatory taxation, withholding, and other foreign taxes
on income or other amounts, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), default in
foreign government securities, political or social instability, or diplomatic
developments that could affect investments in securities of issuers in foreign
nations.

The Funds may be affected either favorably or unfavorably by fluctuations in the
relative rates of exchange between the currencies of different nations, by
exchange control regulations, and by indigenous economic and political
developments. Some countries in which the Funds may invest may also have fixed
or managed currencies that are not free-floating against the U.S. dollar.
Further, certain currencies may not be internationally traded.

Certain of these currencies have experienced a steady devaluation relative to
the U.S. dollar. Any devaluations in the currencies in which a Fund's portfolio
securities are denominated may have a detrimental impact on the Fund. Through
each Fund's flexible policy, management endeavors to avoid unfavorable
consequences and to take advantage of favorable developments in particular
nations where, from time to time, it places the Fund's investments.

The exercise of this flexible policy may include decisions to purchase
securities with substantial risk characteristics and other decisions such as
changing the emphasis on investments from one nation to another and from one
type of security to another. Some of these decisions may later prove profitable
and others may not. No assurance can be given that profits, if any, will exceed
losses.

The board of trustees considers at least annually the likelihood of the
imposition by any foreign government of exchange control restrictions which
would affect the liquidity of the Funds' assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of foreign
governments to which such assets may be exposed. The board of trustees also
considers the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in the
absence of willful misfeasance, bad faith, or gross negligence on the part of
the manager, any losses resulting from the holding of a Fund's portfolio
securities in foreign countries and/or with securities depositories will be at
the risk of the shareholders. No assurance can be given that the appraisal of
the risks by the Fund's board of trustees will always be correct or that such
exchange control restrictions or political acts of foreign governments might not
occur.

While the Health Care Fund may invest in foreign securities, it is generally not
its intention to invest in foreign equity securities of an issuer that meets the
definition in the Internal Revenue Code of a passive foreign investment company
(PFIC). However, to the extent that the a Fund invests in these securities, the
Fund may be subject to both an income tax and an additional tax in the form of
an interest charge with respect to its investment. To the extent possible, the
Health Care fund will avoid the taxes by not investing in PFIC securities or by
adopting other tax strategies for any PFIC securities it does buy.

DEPOSITARY RECEIPTS Depositary receipts reduce but do not eliminate all the risk
inherent in investing in the securities of non-U.S. issuers. To the extent that
a Fund acquires depositary receipts through banks which do not have a
contractual relationship with the foreign issuer of the security underlying the
depositary receipt to issue and service such depositary receipts, there may be
an increased possibility that the Fund would not become aware of and be able to
respond to corporate actions such as stock splits or rights offerings involving
the foreign issuer in a timely manner.

EMERGING MARKETS Investments by a Fund in companies domiciled or operating in
emerging countries may be subject to potentially higher risks, making these
investments more volatile, than investments in developed countries. These risks
include (i) less social, political and economic stability; (ii) the risk that
the small size of the markets for such securities and the low or nonexistent
volume of trading may result in a lack of liquidity and in greater price
volatility; (iii) the existence of certain national policies which may restrict
the Fund's investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; (v) the absence of developed legal structures governing private or
foreign investment or allowing for judicial redress for injury to private
property; (vi) the absence, until recently in many developing countries, of a
capital market structure or market-oriented economy; and (vii) the possibility
that recent favorable economic developments in some emerging countries may be
slowed or reversed by unanticipated political or social events in such
countries.

In addition, many countries in which the Fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain countries. Moreover, the economies of some emerging countries may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rate of inflation, currency depreciation, capital
reinvestment, resource self-sufficiency and balance of payments position.

Investments in emerging countries may involve increased risks of
nationalization, expropriation and confiscatory taxation. For example, the
Communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. In the event of expropriation, the Fund could lose a
substantial portion of any investments it has made in the affected countries.
Further, no accounting standards exist in certain emerging countries. Finally,
even though the currencies of some emerging countries, such as certain Eastern
European countries may be convertible into U.S. dollars, the conversion rates
may be artificial to the actual market values and may be adverse to the Fund's
shareholders.

Repatriation, that is, the return to an investor's homeland, of investment
income, capital and proceeds of sales by foreign investors may require
governmental registration or approval in some developing countries. Delays in or
a refusal to grant any required governmental registration or approval for such
repatriation could adversely affect the Fund. Further, the economies of emerging
countries generally are heavily dependent upon international trade and,
accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade. These economies also have been and may continue to be adversely
affected by economic conditions in the countries with which they trade.

CURRENCY Some of the Funds' investments may be 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.

EURO On January 1, 1999, the European Economic and Monetary Union (EMU)
introduced a new single currency called the euro. By July 1, 2002, the euro,
which will be implemented in stages, will have replaced the national currencies
of the following member countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.

Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the above countries.

The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of the participating countries, however, have retained the
authority to set tax and spending policies and public debt levels.

The change to the euro as a single currency is new and untested. It is not
possible to predict the impact of the euro on currency values or on the business
or financial condition of European countries and issuers, and issuers in other
regions, whose securities the Fund may hold, or the impact, if any, on Fund
performance. In the first six months of the euro's existence, the exchange rates
of the euro versus many of the world's major currencies steadily declined. In
this environment, U.S. and other foreign investors experienced erosion of their
investment returns on their euro-denominated securities. The transition and the
elimination of currency risk among EMU countries may change the economic
environment and behavior of investors, particularly in European markets, but the
impact of those changes cannot be assessed at this time.

HEDGING TRANSACTIONS A Fund's ability to hedge effectively all or a portion of
its securities through transactions in options on securities and stock indexes,
stock index futures, financial futures and related options depends on the degree
to which price movements in the underlying index or underlying debt securities
correlate with price movements in the relevant portion of the Fund's portfolio.
Inasmuch as such securities will not duplicate the components of any index or
underlying securities, the correlation will not be perfect. Consequently, the
Fund bears the risk that the prices of the securities being hedged will not move
in the same amount as the hedging instrument. It is also possible that there may
be a negative correlation between the index or other securities underlying the
hedging instrument and the hedged securities which would result in a loss on
both the securities and the hedging instrument. Accordingly, successful use by
the Funds of options on securities and stock indexes, stock index futures,
financial futures and related options will be subject to the manager's ability
to predict correctly movements in the direction of the securities markets
generally or of a particular segment. This requires different skills and
techniques than predicting changes in the price of individual stocks.

In addition, adverse market movements could cause a Fund to lose up to its full
investment in a call option contract and/or to experience substantial losses on
an investment in a futures contract. There is also the risk of loss by a Fund of
margin deposits in the event of bankruptcy of a broker with whom the Fund has an
open position in a futures contract or option.

Positions in stock index and securities options, stock index futures, and
financial futures and related options may be closed out only on an exchange that
provides a secondary market. There can be no assurance that a liquid secondary
market will exist for any particular option or futures contract or related
option at any specific time. Thus, it may not be possible to close an option or
futures position. If a Fund were unable to close out a futures or option
position, and if prices moved adversely, the Fund would have to continue to make
daily cash payments to maintain its required margin, and, if the Fund had
insufficient cash, it might have to sell portfolio securities at a
disadvantageous time. In addition, a Fund might be required to deliver the
stocks underlying futures or options contracts it holds. The inability to close
options or futures positions could also have an adverse impact on a Fund's
ability to effectively hedge its securities. Each Fund will enter into an option
or futures position only if there appears to be a liquid secondary market for
such options or futures.

There can be no assurance that a continuous liquid secondary market will exist
for any particular OTC option at any specific time. Consequently, a Fund may be
able to realize the value of an OTC option it has purchased only by exercising
it or entering into a closing sale transaction with the dealer that issued it.
Similarly, when a Fund writes an OTC option, it generally can close out that
option before its expiration only by entering into a closing purchase
transaction with the dealer to which the Fund originally wrote it. If a covered
call option writer cannot effect a closing transaction, it cannot sell the
underlying security until the option expires or the option is exercised.
Therefore, a covered call option writer of an OTC option may not be able to sell
an underlying security even though it might otherwise be advantageous to do so.
Likewise, a secured put writer of an OTC option may be unable to sell the
securities pledged to secure the put for other investment purposes while it is
obligated as a put writer. Similarly, a buyer of a put or call option might also
find it difficult to terminate its position on a timely basis in the absence of
a liquid secondary market.

The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position that
any person may hold or control in a particular futures contract. Trading limits
are also imposed on the maximum number of contracts that any person may trade on
a particular trading day. An exchange may order the liquidation of positions
found to be in violation of these limits and it may impose other sanctions or
restrictions. The Funds do not believe that these trading and positions limits
will have an adverse impact on the Funds' strategies for hedging their
securities.

The ordinary spreads between prices in the cash and futures markets, due to
differences in the natures of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions that could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on
participants entering into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced, thus producing distortion. Third, from
the point of view of speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the securities market.
Therefore, increased participation by speculators in the futures market may
cause temporary price distortions. Due to the possibility of distortion, a
correct forecast of general interest rate trends by the manager may still not
result in a successful transaction.

Although each Fund believes that the use of futures contracts will benefit the
Fund, if the manager's investment judgment about the general direction of
interest rates is incorrect, the Fund's overall performance would be poorer than
if it had not entered into any such contract. For example, if a Fund has hedged
against the possibility of an increase in interest rates that would adversely
affect the price of bonds held in its portfolio and interest rates decrease
instead, the Fund will lose part or all of the benefit of the increased value of
its bonds which it has hedged because it will have offsetting losses in its
futures positions. In addition, in these situations, if a Fund has insufficient
cash, it may have to sell securities from its portfolio to meet daily variation
margin requirements. These sales may be, but will not necessarily be, at
increased prices, which reflect the rising market. A Fund may have to sell
securities at a time when it may be disadvantageous to do so.

Each Fund's sale of futures contracts and purchase of put options on futures
contracts will be solely to protect its investments against declines in value.
Each Fund expects that normally it will buy securities upon termination of long
futures contracts and long call options on future contracts, but under unusual
market conditions it may terminate any of these positions without a
corresponding purchase of securities.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. While these contracts are not
presently regulated by the CFTC, the CFTC may in the future assert authority to
regulate forward contracts. In this event, the Funds' ability to use forward
contracts may be restricted. The use of foreign currency forward contracts will
not eliminate fluctuations in the underlying U.S. dollar equivalent value of, or
rates of return on, a Fund's foreign currency denominated portfolio securities
and the use of such techniques will subject the Fund to certain risks.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, a Fund
may not always be able to enter into foreign currency forward contracts at
attractive prices and this will limit the Fund's ability to use such contracts
to hedge or cross-hedge its assets. Also, with regard to the Funds' use of
cross-hedges, there can be no assurance that historical correlations between the
movement of certain foreign currencies relative to the U.S. dollar will
continue. Thus, at any time, poor correlation may exist between movements in the
exchange rates of the foreign currencies in which a Fund's assets that are the
subject of such cross-hedges are denominated.

FOREIGN CURRENCY FUTURES. By entering into these contracts, a Fund is able to
protect against a loss resulting from an adverse change in the relationship
between the U.S. dollar and a foreign currency occurring between the trade and
settlement dates of the Fund's securities transaction. These contracts also tend
to limit the potential gains that might result from a positive change in such
currency relationships.

OPTIONS ON FOREIGN CURRENCIES. Options on foreign currencies and forward
contracts are not traded on contract markets regulated by the CFTC or (with the
exception of certain foreign currency options) by the SEC. To the contrary, such
instruments are traded through financial institutions acting as market makers,
although foreign currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. Similarly, options on currencies may be
traded over-the-counter. In an OTC trading environment, many of the protections
afforded to exchange participants will not be available. For example, there are
no daily price fluctuation limits, and adverse market movements could therefore
continue to an unlimited extent over a period of time. Although the purchaser of
an option cannot lose more than the amount of the premium plus related
transaction costs, this entire amount could be lost. Moreover, the option writer
and a trader of forward contracts could lose amounts substantially in excess of
their initial investments, due to the margin and collateral requirements
associated with such positions.

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on these exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (OCC), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the OTC market, potentially permitting a Fund to liquidate open
positions at a profit before exercise or expiration, or to limit losses in the
event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, are
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the OTC market. For example, exercise and
settlement of such options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries for this
purpose. As a result, the OCC may, if it determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or its clearing
member, impose special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.

In addition, forward contracts and options on foreign currencies may be traded
on foreign exchanges. Such transactions are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign currencies. The value of
these positions also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in the U.S. of
data on which to make trading decisions, (iii) delays in a Fund's ability to act
upon economic events occurring in foreign markets during non-business hours in
the U.S., (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the U.S., and (v) less trading
volume.

BIOTECHNOLOGY COMPANIES The Technology Fund, the Health Care Fund and the
Biotechnology Fund may invest in biotechnology companies. These companies are
primarily small, start-up ventures whose fortunes to date have risen mainly on
the strength of expectations about future products, not actual products.
Although numerous biotechnology products are in the research stage by many
companies, only a handful have reached the point of approval by the U.S. Food
and Drug Administration and subsequent commercial production and distribution.
Shares of biotechnology companies may advance on the strength of new product
filings with governmental authorities and research progress, but may also drop
sharply in response to regulatory or research setbacks.

ILLIQUID SECURITIES The sale of restricted or illiquid securities often requires
more time and results in higher brokerage charges or dealer discounts and other
selling expenses than the sale of securities eligible for trading on national
securities exchanges or in the OTC markets. Restricted securities often sell at
a price lower than similar securities that are not subject to restrictions on
resale.

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

REPURCHASE AGREEMENTS The use of repurchase agreements involves certain risks.
For example, if the other party to a repurchase agreement defaults on its
obligation to repurchase the underlying security at a time when the value of the
security has declined, the Fund may incur a loss upon disposition of the
security. If the other party to the agreement becomes insolvent and subject to
liquidation or reorganization under the bankruptcy code or other laws, a court
may determine that the underlying security is collateral for the loan by the
Fund not within the control of the Fund, and therefore the realization by the
Fund on the collateral may be automatically stayed. Finally, it is possible that
the Fund may not be able to substantiate its interest in the underlying security
and may be deemed an unsecured creditor of the other party to the agreement.
While the manager acknowledges these risks, it is expected that if repurchase
agreements are otherwise deemed useful to the Fund, these risks can be
controlled through careful monitoring procedures.

REITS REITs are subject to risks related to the skill of their management,
changes in value of the properties the REITs own, the quality of any credit
extended by the REITs, and general economic and other factors. An investment in
REITs includes the possibility of a decline in the value of real estate, risks
related to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, variations in rental income,
changes in neighborhood values, the appeal of properties to tenants, and
increases in interest rates. The value of securities of companies that service
the real estate industry will also be affected by these risks.

In addition, equity REITs are affected by changes in the value of the underlying
property owned by the trusts, while mortgage REITs are affected by the quality
of the properties to which they have extended credit. Equity and mortgage REITs
are dependent upon the REITs management skill. REITs may not be diversified and
are subject to the risks of financing projects.

OFFICERS AND TRUSTEES
------------------------------------------------------

The Trust has a board of trustees. The board is responsible for the overall
management of the Trust, including general supervision and review of each Fund's
investment activities. The board, in turn, elects the officers of the Trust who
are responsible for administering the Trust's day-to-day operations. The board
also monitors each Fund to ensure no material conflicts exist among share
classes. While none is expected, the board will act appropriately to resolve any
material conflict that may arise.

The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, and principal occupations during
the past five years are shown below.

Frank H. Abbott, III (79)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE

President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 28 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).

Harris J. Ashton (68)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE

Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 48 of the
investment companies in Franklin Templeton Investments; and FORMERLY, President,
Chief Executive Officer and Chairman of the Board, General Host Corporation
(nursery and craft centers) (until 1998).

*Harmon E. Burns (55)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND TRUSTEE

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Executive Vice President and Director, Franklin Templeton Distributors,
Inc. and Franklin Templeton Services, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin Investment Advisory Services, Inc. and
Franklin/Templeton Investor Services, Inc.; and officer and/or director or
trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 52 of the investment companies in Franklin Templeton
Investments.

S. Joseph Fortunato (68)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE

Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 50 of the investment companies in Franklin Templeton
Investments.

Edith E. Holiday (48)
3239 38th Street, N.W., Washington, DC 20016
TRUSTEE

Director, Amerada Hess Corporation (exploration and refining of oil and gas)
(1993-present), Hercules Incorporated (chemicals, fibers and resins)
(1993-present), Beverly Enterprises, Inc. (health care) (1995-present), H.J.
Heinz Company (processed foods and allied products) (1994-present) and RTI
International Metals, Inc. (manufacture and distribution of titanium) (July
1999-present); director or trustee, as the case may be, of 25 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Assistant to the
President of the United States and Secretary of the Cabinet (1990-1993), General
Counsel to the United States Treasury Department (1989-1990), and Counselor to
the Secretary and Assistant Secretary for Public Affairs and Public
Liaison-United States Treasury Department (1988-1989).

*Charles B. Johnson (67)
777 Mariners Island Blvd., San Mateo, CA 94404
Chairman of the Board and Trustee

Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Chairman of the Board and Director,
Franklin Investment Advisory Services, Inc.; Chairman of the Board, Franklin
Advisers, Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin Templeton Services,
Inc.; officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 49 of the investment
companies in Franklin Templeton Investments.

*Rupert H. Johnson, Jr. (60)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Executive Vice President and Director, Franklin Templeton Distributors,
Inc.; Director, Franklin Advisers, Inc., Franklin Investment Advisory Services,
Inc. and Franklin/Templeton Investor Services, Inc.; Senior Vice President,
Franklin Advisory Services, LLC; and officer and/or director or trustee, as the
case may be, of most of the other subsidiaries of Franklin Resources, Inc. and
of 52 of the investment companies in Franklin Templeton Investments.

Frank W.T. LaHaye (71)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
TRUSTEE

Chairman, Peregrine Venture Management Company (venture capital); Director, The
California Center for Land Recycling (redevelopment); director or trustee, as
the case may be, of 28 of the investment companies in Franklin Templeton
Investments; and FORMERLY, General Partner, Miller & LaHaye and Peregrine
Associates, the general partners of Peregrine Venture funds.

Gordon S. Macklin (72)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE

Director, Martek Biosciences Corporation, MCI WorldCom, Inc. (information
services), MedImmune, Inc. (biotechnology), Overstock.com (internet services),
White Mountains Insurance Group, Ltd. (holding company) and Spacehab, Inc.
(aerospace services); director or trustee, as the case may be, of 48 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Chairman,
White River Corporation (financial services) (until 1998) and Hambrecht & Quist
Group (investment banking) (until 1992), and President, National Association of
Securities Dealers, Inc. (until 1987).

Martin L. Flanagan (40)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer, Franklin Resources, Inc.; Senior Vice President, Chief
Financial Officer and Director, Franklin/Templeton Investor Services, Inc.;
Senior Vice President and Chief Financial Officer, Franklin Mutual Advisers,
LLC; Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President, Chief Operating Officer and Director,
Templeton Investment Counsel, Inc.; Executive Vice President and Chief Financial
Officer, Franklin Advisers, Inc.; Chief Financial Officer, Franklin Advisory
Services, LLC and Franklin Investment Advisory Services, Inc.; Director,
Franklin Templeton Services, Inc.; officer and/or director of some of the other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 52 of the investment companies in Franklin
Templeton Investments.

Deborah R. Gatzek (51)
1810 Gateway Drive, San Mateo, CA 94404
SECRETARY

Partner, Stradley, Ronon, Stevens & Young, LLP; officer of 34 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Senior Vice President
and General Counsel, Franklin Resources, Inc., Senior Vice President, Franklin
Templeton Services, Inc. and Franklin Templeton Distributors, Inc., Executive
Vice President, Franklin Advisers, Inc., Vice President, Franklin Advisory
Services, LLC and Franklin Mutual Advisers, LLC, and Vice President, Chief Legal
Officer and Chief Operating Officer, Franklin Investment Advisory Services, Inc.
(until January 2000).

David P. Goss (53)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Counsel, Franklin Resources, Inc; President, Chief Executive Officer and
Director, Franklin Select Realty Trust, Property Resources, Inc., Property
Resources Equity Trust, Franklin Real Estate Management, Inc. and Franklin
Properties, Inc.; officer and director of some of the other subsidiaries of
Franklin Resources, Inc.; officer of 53 of the investment companies in Franklin
Templeton Investments; and FORMERLY, President, Chief Executive Officer and
Director, Franklin Real Estate Income Fund and Franklin Advantage Real Estate
Income Fund (until 1996).

Barbara J. Green (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice
President, Templeton Worldwide, Inc. and Templeton Global Investors, Inc.;
officer of some of the other subsidiaries of Franklin Resources, Inc. and of 53
of the investment companies in Franklin Templeton Investments; and FORMERLY,
Deputy Director, Division of Investment Management, Executive Assistant and
Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and
Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995), Attorney,
Rogers & Wells (until 1986), and Judicial Clerk, U.S. District Court (District
of Massachusetts) (until 1979).

Edward B. Jamieson (52)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.; officer
of other subsidiaries of Franklin Resources, Inc.; and officer and trustee of
five of the investment companies in Franklin Templeton Investments.

Charles E. Johnson (44)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

President, Member - Office of the President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President
and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.; Director,
Templeton Investment Counsel, Inc.; President, Franklin Investment Advisory
Services, Inc.; officer and/or director of some of the other subsidiaries of
Franklin Resources, Inc.; and officer and/or director or trustee, as the case
may be, of 33 of the investment companies in Franklin Templeton Investments.

Edward V. McVey (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Senior Vice President, Franklin Templeton Distributors, Inc.; officer of one of
the other subsidiaries of Franklin Resources, Inc. and of 29 of the investment
companies in Franklin Templeton Investments.

Christopher J. Molumphy (38)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Executive Vice President, Franklin Advisers, Inc.

Kimberley Monasterio (36)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER

Vice President, Franklin Templeton Services, Inc.; and officer of 33 of the
investment companies in Franklin Templeton Investments.

Murray L. Simpson (63)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT

Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer
of 53 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until January 2000) and Director, Templeton
Asset Management Ltd. (until 1999).

*This board member is considered an "interested person" under federal securities
laws.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the
father and uncle, respectively, of Charles E. Johnson.

The trust pays noninterested board members $1,575 for each of the trust's eight
regularly scheduled meetings plus $1,050 per meeting attended. Board members who
serve on the audit committee of the trust and other funds in Franklin Templeton
Investments receive a flat fee of $2,000 per committee meeting attended, a
portion of which is allocated to the trust. Members of a committee are not
compensated for any committee meeting held on the day of a board meeting.
Noninterested board members also may serve as directors or trustees of other
funds in Franklin Templeton Investments and may receive fees from these funds
for their services. The fees payable to noninterested board members by the trust
are subject to reductions resulting from fee caps limiting the amount of fees
payable to board members who serve on other boards within Franklin Templeton
Investments. The following table provides the total fees paid to noninterested
board members by the trust and by Franklin Templeton Investments.

TOTAL FEES TOTAL FEES RECEIVED NUMBER OF BOARDS IN
RECEIVED FROM FRANKLIN FRANKLIN TEMPLETON
FROM THE TRUST1 TEMPLETON INVESTMENTS ON
NAME ($) INVESTMENTS2 ($) WHICH EACH SERVES3
--------------------------------------------------------------------------------
Frank H. Abbott, III 17,603 156,060 28
Harris J. Ashton 17,770 363,165 48
S. Joseph Fortunato 16,625 363,238 50
Edith E. Holiday 22,050 237,265 25
Frank W.T. LaHaye 16,553 156,060 28
Gordon S. Macklin 17,770 363,165 48

1. For the fiscal year ended April 30, 2000.
2. For the calendar year ended December 31, 1999.
3. We base the number of boards on the number of registered investment companies
in Franklin Templeton Investments. This number does not include the total number
of series or funds within each investment company for which the board members
are responsible. Franklin Templeton Investments currently includes 52 registered
investment companies, with approximately 157 U.S. based funds or series.

Noninterested board members are reimbursed for expenses incurred in connection
with attending board meetings, paid pro rata by each fund in Franklin Templeton
Investments for which they serve as director or trustee. No officer or board
member received any other compensation, including pension or retirement
benefits, directly or indirectly from the Fund or other funds in Franklin
Templeton Investments. Certain officers or board members who are shareholders of
Franklin Resources, Inc. may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.

Board members historically have followed a policy of having substantial
investments in one or more of the funds in Franklin Templeton Investments, as is
consistent with their individual financial goals. In February 1998, this policy
was formalized through adoption of a requirement that each board member invest
one-third of fees received for serving as a director or trustee of a Templeton
fund in shares of one or more Templeton funds and one-third of fees received for
serving as a director or trustee of a Franklin fund in shares of one or more
Franklin funds until the value of such investments equals or exceeds five times
the annual fees paid such board member. Investments in the name of family
members or entities controlled by a board member constitute fund holdings of
such board member for purposes of this policy, and a three year phase-in period
applies to such investment requirements for newly elected board members. In
implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.

During the fiscal year ended April 30, 2000, legal fees of $45,864.64 were paid
by the Trust to the law firm of which Ms. Gatzek, an officer of the Trust, is a
partner, and that acts as counsel to the Trust.

MANAGEMENT AND OTHER SERVICES
----------------------------------------------------------

MANAGER AND SERVICES PROVIDED Each Fund's manager is Franklin Advisers, Inc.
(Advisers). The manager is a wholly owned subsidiary of Franklin Resources,
Inc. (Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson,
Jr. are the principal shareholders of Resources.

The manager provides investment research and portfolio management services, and
selects the securities for a Fund to buy, hold or sell. The manager also selects
the brokers who execute each Fund's portfolio transactions. The manager provides
periodic reports to the board, which reviews and supervises the manager's
investment activities. To protect the Funds, the manager and its officers,
directors and employees are covered by fidelity insurance.

The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager on behalf of a Fund. Similarly, with respect to the Funds,
the manager is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by a Fund or other
funds it manages.

Each Fund, its manager and principal underwriter have each adopted a code of
ethics, as required by federal securities laws. Under the code of ethics,
employees who are designated as access persons may engage in personal securities
transactions, including transactions involving securities that are being
considered for the Funds or that are currently held by a Fund, subject to
certain general restrictions and procedures. The personal securities
transactions of access persons of the Funds, its manager and principal
underwriter will be governed by the code of ethics. The code of ethics is on
file with, and available from, the U.S. Securities and Exchange Commission
(SEC).

MANAGEMENT FEES Each Fund(except the Technology Fund)pays the manager a fee
equal to an annual rate of:

o 0.625 of 1% of the value of average daily net assets up to and including
$100 million;

o 0.50 of 1% of the value of average daily net assets over $100 million up to
and including $250 million;

o 0.45 of 1% of the value of average daily net assets over $250 million up to
and including $10 billion;

o 0.44 of 1% of the value of average daily net assets over $10 billion up to
and including $12.5 billion;

o 0.42 of 1% of the value of average daily net assets over $12.5 billion up
to and including $15 billion;

o 0.40 of 1% of the value of average daily net assets over $15 billion.

The Franklin Technology Fund pays the manager a fee equal to an annual rate of:

o 0.550% of the value of net assets, up to and including $500 million;

o 0.450% of the value of net assets over $500 million, up to and including $1
billion;

o 0.400% of the value of net assets over $1 billion, up to and including $1.5
billion;

o 0.350% of the value of net assets over $1.5 billion, up to and including
$6.5 billion;

o 0.325% of the value of net assets over $6.5 billion, up to and including
$11.5 billion;

o 0.300% of the value of net assets over $11.5 billion, up to and including
$16.5 billion;

o 0.290% of the value of net assets over $16.5 billion, up to and including
$19 billion;

o 0.280% of the value of net assets over $19 billion, up to and including
$21.5 billion; and

o 0.270% of the value of net assets over $21.5 billion.

The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement. Each class of the
Funds' shares pays its proportionate share of the fee.

For the last three fiscal years ended April 30, the Funds paid the following
management fees:

MANAGEMENT FEES PAID ($)
------------------------
2000 1999 1998
-----------------------------------------------------------------------------
Biotechnology Discovery Fund 1,623,755 445,914 161,2681
Technology Fund -- -- --
Health Care Fund2 559,398 824,463 1,141,626
Natural Resources Fund3 69,739 52,805 159,204
Communications Fund4 1,373,485 1,225,638 1,179,477

1. For the period September 15, 1997 (inception date), to April 30, 1998,
management fees, before any advance waiver, totaled $196,583. Under an agreement
by the manager to waive or limit its fees, the Fund paid the management fees
shown.

2. For the fiscal year ended April 30, 2000, management fees, before any advance
waiver, totaled $570,122. Under an agreement by the manager to reduce its fees
to reflect reduced services resulting from the Fund's investment in a Franklin
Templeton money fund, the Fund paid the management fees shown.

3. For the fiscal years ended April 30, 2000, 1999 and 1998, management fees,
before any advance waiver totaled $264,844, $256,117 and $357,984, respectively.
Under an agreement by the manager to limit its fees and to reduce its fees to
reflect reduced services resulting from the Fund's investment in a Franklin
Templeton, money fund, the Fund paid the management fees shown.

4. For the fiscal year ended April 30, 2000, management fees, before any advance
waiver, totaled $1,436,190. Under an agreement by the manager to reduce its fees
to reflect reduced services resulting from the Fund's investment in a Franklin
Templeton money fund, the Fund paid the management fees shown.

ADMINISTRATOR AND SERVICES PROVIDED Franklin Templeton Services, Inc. (FT
Services) has an agreement with Biotechnology Discovery Fund and the manager, on
behalf of Technology Fund, Health Care Fund, Natural Resources Fund and
Communications Fund, to provide certain administrative services and facilities
for the funds. FT Services is wholly owned by Resources and is an affiliate of
the funds' manager and principal underwriter.

The administrative services FT Services provides include preparing and
maintaining books, records, and tax and financial reports, and monitoring
compliance with regulatory requirements.

ADMINISTRATION FEES Biotechnology Discovery Fund and the manager (on behalf of
the remaining funds) pay FT Services a monthly fee equal to an annual rate of:

o 0.15% of a fund's average daily net assets up to $200 million; o 0.135% of
average daily net assets over $200 million up to $700 million; o 0.10% of
average daily net assets over $700 million up to $1.2 billion; and

o 0.075% of average daily net assets over $1.2 billion.

Technology Fund pays FT Services a monthly fee equal to an annual rate of 020%
of its average net assets.

During the last three fiscal years ended April 30, Biotechnology Discovery Fund,
Technology Fund and the manager (on behalf of the remaining funds) paid FT
Services the following administration fees:

ADMINISTRATION FEES PAID ($)
----------------------------
2000 1999 1998
-----------------------------------------------------------------------------
Biotechnology Discovery Fund 459,752 108,947 47,5081
Technology Fund -- -- --
Health Care Fund 137,694 209,933 303,965
Natural Resources Fund 63,382 61,469 85,915
Communications Fund 387,287 327,173 314,531

1. For the period September 15, 1997, to April 30, 1998.

SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the Funds' shareholder servicing agent and acts as
the Funds' transfer agent and dividend-paying agent. Investor Services is
located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please send all
correspondence to Investor Services to P.O. Box 997151, Sacramento, CA
95899-9983.

For its services, Investor Services receives a fixed fee per account. Each Fund
also will reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the Fund. The amount of reimbursements
for these services per benefit plan participant Fund account per year will not
exceed the per account fee payable by the Fund to Investor Services in
connection with maintaining shareholder accounts.

CUSTODIAN Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, NY 10286, acts as custodian of the Funds' securities and other assets.

AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA 94105,
is the Funds' independent auditor. The auditor gives an opinion on the financial
statements included in the Trust's Annual Report to Shareholders and reviews the
Trust's registration statement filed with the SEC.

PORTFOLIO TRANSACTIONS
----------------------------------------------------

The manager selects brokers and dealers to execute the Funds' portfolio
transactions in accordance with criteria set forth in the management agreement
and any directions that the board may give.

When placing a portfolio transaction, the manager seeks to obtain prompt
execution of orders at the most favorable net price. For portfolio transactions
on a securities exchange, the amount of commission paid is negotiated between
the manager and the broker executing the transaction. The determination and
evaluation of the reasonableness of the brokerage commissions paid are based to
a large degree on the professional opinions of the persons responsible for
placement and review of the transactions. These opinions are based on the
experience of these individuals in the securities industry and information
available to them about the level of commissions being paid by other
institutional investors of comparable size. The manager will ordinarily place
orders to buy and sell over-the-counter securities on a principal rather than
agency basis with a principal market maker unless, in the opinion of the
manager, a better price and execution can otherwise be obtained. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask price.

The manager may pay certain brokers commissions that are higher than those
another broker may charge, if the manager determines in good faith that the
amount paid is reasonable in relation to the value of the brokerage and research
services it receives. This may be viewed in terms of either the particular
transaction or the manager's overall responsibilities to client accounts over
which it exercises investment discretion. The services that brokers may provide
to the manager include, among others, supplying information about particular
companies, markets, countries, or local, regional, national or transnational
economies, statistical data, quotations and other securities pricing
information, and other information that provides lawful and appropriate
assistance to the manager in carrying out its investment advisory
responsibilities. These services may not always directly benefit the Fund. They
must, however, be of value to the manager in carrying out its overall
responsibilities to its clients.

It is not possible to place a dollar value on the special executions or on the
research services the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions to obtain additional
research services allows the manager to supplement its own research and analysis
activities and to receive the views and information of individuals and research
staffs of other securities firms. As long as it is lawful and appropriate to do
so, the manager and its affiliates may use this research and data in their
investment advisory capacities with other clients. If the Funds'officers are
satisfied that the best execution is obtained, the sale of Fund shares, as well
as shares of other funds in Franklin Templeton Investments, also may be
considered a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.

Because Franklin Templeton Distributors, Inc. (Distributors) is a member of the
National Association of Securities Dealers, Inc., it may sometimes receive
certain fees when the Fund tenders portfolio securities pursuant to a
tender-offer solicitation. To recapture brokerage for the benefit of the Fund,
any portfolio securities tendered by the Fund will be tendered through
Distributors if it is legally permissible to do so. In turn, the next management
fee payable to the manager will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection with
the tender.

If purchases or sales of securities of the Funds and one or more other
investment companies or clients supervised by the manager are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by the manager, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
Funds are concerned. In other cases it is possible that the ability to
participate in volume transactions may improve execution and reduce transaction
costs to the Funds.

During the last three fiscal years ended April 30, the Funds paid the following
brokerage commissions:

BROKERAGE COMMISSIONS PAID ($)
------------------------------
2000 1999 1998
-----------------------------------------------------------------------------
Biotechnology Discovery Fund 140,445 28,350 61,0031
Technology Fund -- -- --
Health Care Fund 192,282 246,149 178,330
Natural Resources Fund 143,263 143,235 154,303
Communications Fund 606,563 468,206 229,415

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

For the fiscal year ended April 30, 2000, the funds paid brokerage commissions
from aggregate portfolio transactions to brokers who provided research services
as follows:

AGGREGATE
BROKERAGE PORTFOLIO
COMMISSIONS TRANSACTIONS
($) ($)
------------------------------------------------------------------------
Biotechnology Discovery Fund 183,679 66,442,055
Technology Fund -- --
Health Care Fund 0 0
Natural Resources Fund 91,734 38,085,772
Communications Fund 33,924 13,857,383

As of April 30, 2000, the Funds owned securities issued by Merrill Lynch Pierce
Fenner & Smith, Inc. valued in the aggregate at $1,139,000.00. Except as noted,
the Funds did not own any securities issued by it regular broker-dealers as of
the end of the fiscal year.

Because the Funds may, from time to time, invest in broker-dealers, it is
possible that a Fund will own more than 5% of the voting securities of one or
more broker-dealers through whom the Fund places portfolio brokerage
transactions. In such circumstances, the broker-dealer would be considered an
affiliated person of the Fund. To the extent the Fund places brokerage
transactions through such a broker-dealer at a time when the broker-dealer is
considered to be an affiliate of the Fund, the Fund will be required to adhere
to certain rules relating to the payment of commissions to an affiliated
broker-dealer. These rules require the Fund to adhere to procedures adopted by
the board relating to ensuring that the commissions paid to such broker-dealers
do not exceed what would otherwise be the usual and customary brokerage
commissions for similar transactions.

DISTRIBUTIONS AND TAXES
--------------------------------------------------

The Funds calculate dividends and capital gains the same way for each class. The
amount of any income dividends per share will differ, however, generally due to
the difference in the distribution and service (Rule 12b-1) fees of each class.
Distributions are subject to approval by the board. The Funds do not pay
"interest" or guarantee any fixed rate of return on an investment in its shares.

DISTRIBUTIONS OF NET INVESTMENT INCOME The Funds receive income generally in the
form of dividends and interest on their investments. This income, less expenses
incurred in the operation of a Fund, constitutes a Fund's net investment income
from which dividends may be paid to you. Any distributions by a Fund from such
income will be taxable to you as ordinary income, whether you receive them in
cash or in additional shares.

DISTRIBUTIONS OF CAPITAL GAINS The Funds may derive capital gains and losses in
connection with sales or other dispositions of their portfolio securities.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Distributions from net long-term capital gains will be taxable
to you as long-term capital gain, regardless of how long you have held your
shares in a Fund. Any net capital gains realized by a Fund generally will be
distributed once each year, and may be distributed more frequently, if
necessary, to reduce or eliminate excise or income taxes on a Fund.

Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
capital gain distributions from a Fund's sale of securities held for more than
five years may be subject to a reduced rate of tax.

EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by a
Fund. Similarly, foreign exchange losses realized on the sale of debt securities
generally are treated as ordinary losses. These gains when distributed will be
taxable to you as ordinary income, and any losses will reduce a Fund's ordinary
income otherwise available for distribution to you. This treatment could
increase or decrease a Fund's ordinary income distributions to you, and may
cause some or all of a Fund's previously distributed income to be classified as
a return of capital.

A Fund may be subject to foreign withholding taxes on income from certain
foreign securities. This, in turn, could reduce ordinary income distributions to
you. If more than 50% of a Fund's total assets at the end of the fiscal year are
invested in securities of foreign corporations, a Fund may elect to pass through
to you your pro rata share of foreign taxes paid by the Fund. If this election
is made, the year-end statement you receive from a Fund will show more taxable
income than was actually distributed to you. However, you will be entitled to
either deduct your share of such taxes in computing your taxable income or
(subject to limitations) claim a foreign tax credit for such taxes against your
U.S. federal income tax. A Fund will provide you with the information necessary
to complete your individual income tax return if it makes this election.

INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The Funds will inform you of
the amount of your ordinary income dividends and capital gain distributions at
the time they are paid, and will advise you of their tax status for federal
income tax purposes shortly after the close of each calendar year. If you have
not held Fund shares for a full year, a Fund may designate and distribute to
you, as ordinary income or capital gain, a percentage of income that is not
equal to the actual amount of such income earned during the period of your
investment in the Fund.

ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The Technology Fund
intends to elect and qualify during the current fiscal year to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code
("Code"). The Biotechnology Discovery Fund, Health Care Fund, Communications
Fund and Natural Resources Fund have elected to be treated as regulated
investment companies under Subchapter M of the Code, have qualified as such for
their most recent fiscal years, and intend to so qualify during the current
fiscal year. As regulated investment companies, the Funds generally pay no
federal income tax on the income and gains they distribute to you. The board
reserves the right not to maintain the qualification of a Fund as a regulated
investment company if it determines such course of action to be beneficial to
shareholders. In such case, a Fund will be subject to federal, and possibly
state, corporate taxes on its taxable income and gains, and distributions to you
will be taxed as ordinary dividend income to the extent of such Fund's earnings
and profits.

EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Code
requires a Fund to distribute to you by December 31 of each year, at a minimum,
the following amounts: 98% of its taxable ordinary income earned during the
calendar year; 98% of its capital gain net income earned during the twelve month
period ending October 31; and 100% of any undistributed amounts from the prior
year. Each Fund intends to declare and pay these distributions in December (or
to pay them in January, in which case you must treat them as received in
December) but can give no assurances that its distributions will be sufficient
to eliminate all taxes.

REDEMPTION OF FUND SHARES Redemptions (including redemptions in kind) and
exchanges of Fund shares are taxable transactions for federal and state income
tax purposes. If you redeem your Fund shares, or exchange your Fund shares for
shares of a different Franklin Templeton fund, the IRS will require that you
report any gain or loss on your redemption or exchange. If you hold your shares
as a capital asset, the gain or loss that you realize will be capital gain or
loss and will be long-term or short-term, generally depending on how long you
hold your shares.

Beginning in the year 2001 for shareholders in the 15% federal income tax
bracket (or in the year 2006 for shareholders in the 28% or higher bracket),
gain from the sale of Fund shares held for more than five years may be subject
to a reduced rate of tax.

Any loss incurred on the redemption or exchange of shares held for six months or
less will be treated as a long-term capital loss to the extent of any long-term
capital gains distributed to you by a Fund on those shares. All or a portion of
any loss that you realize upon the redemption of your Fund shares will be
disallowed to the extent that you buy other shares in such Fund (through
reinvestment of dividends or otherwise) within 30 days before or after your
share redemption. Any loss disallowed under these rules will be added to your
tax basis in the new shares you buy.

DEFERRAL OF BASIS If you redeem some or all of your shares in a Fund, and then
reinvest the sales proceeds in such Fund or in another Franklin Templeton fund
within 90 days of buying the original shares, the sales charge that would
otherwise apply to your reinvestment may be reduced or eliminated. The IRS will
require you to report any gain or loss on the redemption of your original shares
in a Fund. In doing so, all or a portion of the sales charge that you paid for
your original shares in a Fund will be excluded from your tax basis in the
shares sold (for the purpose of determining gain or loss upon the sale of such
shares). The portion of the sales charge excluded will equal the amount that the
sales charge is reduced on your reinvestment. Any portion of the sales charge
excluded from your tax basis in the shares sold will be added to the tax basis
of the shares you acquire from your reinvestment.

U.S. GOVERNMENT SECURITIES States grant tax-free status to dividends paid to you
from interest earned on certain U.S. government securities, subject in some
states to minimum investment or reporting requirements that must be met by a
Fund. Investments in Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities generally
do not qualify for tax-free treatment. The rules on exclusion of this income are
different for corporations.

DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS If you are a corporate
shareholder, you should note that 10.29% of the dividends paid by the Franklin
Global Communications Fund, and 100% of the dividends the Franklin Natural
Resources Fund for the most recent fiscal year qualified for the
dividends-received deduction. The Franklin Technology Fund anticipates that a
portion of the dividends it pays will qualify for the dividends-received
deduction. You may be allowed to deduct these qualified dividends, thereby
reducing the tax that you would otherwise be required to pay on these dividends.
The dividends-received deduction will be available only with respect to
dividends designated by a Fund as eligible for such treatment. All dividends
(including the deducted portion) must be included in your alternative minimum
taxable income calculation.

INVESTMENT IN COMPLEX SECURITIES The Funds may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by a Fund are
treated as ordinary income or capital gain, accelerate the recognition of income
to a Fund (possibly causing a Fund to sell securities to raise the cash for
necessary distributions) and/or defer a Fund's ability to recognize losses, and,
in limited cases, subject a Fund to U.S. federal income tax on income from
certain foreign securities. These rules may affect the amount, timing or
character of the income distributed to you by a Fund.

ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
--------------------------------------------------------

Each Fund is a nondiversified series of Franklin Strategic Series (the Trust),
an open-end management investment company, commonly called a mutual fund. The
trust was organized as a Delaware business trust on January 25, 1991, and is
registered with the SEC.

Biotechnology Discovery Fund currently offers one class of shares, Class A.
Technology Fund currently offers four classes of shares, Class A, Class B, Class
C and Advisor Class. Health Care Fund and Communications Fund currently offer
three classes of shares, Class A, Class B, and Class C and Natural Resources
Fund offers two classes of shares, Class A and Advisor Class. The funds may
offer additional classes of shares in the future. The full title of each class
is:

o Franklin Biotechnology Discovery Fund - Class A
o Franklin Technology Fund - Class A
o Franklin Technology Fund - Class B
o Franklin Technology Fund - Class C
o Franklin Technology Fund - Advisor Class
o Franklin Global Health Care Fund - Class A
o Franklin Global Health Care Fund - Class B
o Franklin Global Health Care Fund - Class C
o Franklin Global Communications Fund - Class A
o Franklin Global Communications Fund - Class B
o Franklin Global Communications Fund - Class C
o Franklin Natural Resources Fund - Class A
o Franklin Natural Resources Fund - Advisor Class

Shares of each class represent proportionate interests in each Fund's assets. On
matters that affect the Fund as a whole, each class has the same voting and
other rights and preferences as any other class. On matters that affect only one
class, only shareholders of that class may vote. Each class votes separately on
matters affecting only that class, or expressly required to be voted on
separately by state or federal law. Shares of each class of a series have the
same voting and other rights and preferences as the other classes and series of
the Trust for matters that affect the Trust as a whole. Additional series may be
offered in the future.

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

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

As of June 8, 2000, the principal shareholders of the Fund, beneficial or of
record, were:

NAME AND ADDRESS SHARE CLASS PERCENTAGE (%)

----------------------------------------------------------------
TECHNOLOGY FUND

Franklin Resources, Inc. Class B 7.46
555 Airport Blvd., 4th Flr.
Burlingame, CA 94010

Franklin Resources, Inc. Class C 5.47
555 Airport Blvd., 4th Flr.
Burlingame, CA 94010

Franklin Resources, Inc. Advisor 31.92
555 Airport Blvd., 4th Flr. Class
Burlingame, CA 94010
GLOBAL HEALTH CARE FUND

PaineWebber for the Benefit of Class B 6.164
Keith Gordon
Roberta Gordon JTWROS
1960 Partridge Lane
Highland Park, IL 60035-2133

Note: Charles B. Johnson and Rupert H. Johnson, Jr., who are officers and/or
trustees of the Trust, may be considered beneficial holders of the Fund
shares held by Franklin Resources, Inc. (Resources). As principal
shareholders of Resources, they may be able to control the voting of
Resources' shares of the Fund.

From time to time, the number of Fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding.

As of June 8, 2000, the officers and board members, as a group, owned of record
and beneficially less than 1% of the outstanding shares of each class. The board
members may own shares in other funds in Franklin Templeton Investments.

BUYING AND SELLING SHARES
---------------------------------------------------

The Funds continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer orders
and accounts with the Funds. This reference is for convenience only and does not
indicate a legal conclusion of capacity. Banks and financial institutions that
sell shares of the Funds may be required by state law to register as securities
dealers.

For investors outside the U.S., the offering of Fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the Funds should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.

All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Funds must be denominated in U.S. dollars. We may, in our sole
discretion, either (a) reject any order to buy or sell shares denominated in any
other currency or (b) honor the transaction or make adjustments to your account
for the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank. We may deduct any applicable banking charges
imposed by the bank from your account.

When you buy shares, if you submit a check or a draft that is returned unpaid to
a Fund we may impose a $10 charge against your account for each returned item.

If you buy shares through the reinvestment of dividends, the shares will be
purchased at the net asset value determined on the business day following the
dividend record date (sometimes known as the "ex-dividend date"). The processing
date for the reinvestment of dividends may vary and does not affect the amount
or value of the shares acquired.

INITIAL SALES CHARGES The maximum initial sales charge is 5.75% for Class A and
1% for Class C. There is no initial sales charge for Class B.

The initial sales charge for Class A shares may be reduced for certain large
purchases, as described in the prospectus. We offer several ways for you to
combine your purchases in Franklin Templeton funds to take advantage of the
lower sales charges for large purchases. The Franklin Templeton funds include
all Franklin Templeton Investments U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Templeton
Variable Insurance Products Trust and Templeton Capital Accumulator Fund, Inc.

CUMULATIVE QUANTITY DISCOUNT. For purposes of calculating the sales charge on
Class A shares, you may combine the amount of your current purchase with the
cost or current value, whichever is higher, of your existing shares in Franklin
Templeton funds. You also may combine the shares of your spouse, children under
the age of 21 or grandchildren under the age of 21. If you are the sole owner of
a company, you also may add any company accounts, including retirement plan
accounts. Companies with one or more retirement plans may add together the total
plan assets invested in Franklin Templeton funds to determine the sales charge
that applies.

LETTER OF INTENT (LOI). You may buy Class A shares at a reduced sales charge by
completing the letter of intent section of your account application. A letter of
intent is a commitment by you to invest a specified dollar amount during a 13
month period. The amount you agree to invest determines the sales charge you
pay. By completing the letter of intent section of the application, you
acknowledge and agree to the following:

o You authorize Distributors to reserve 5% of your total intended purchase in
Class A shares registered in your name until you fulfill your LOI. Your
periodic statements will include the reserved shares in the total shares you
own, and we will pay or reinvest dividend and capital gain distributions on
the reserved shares according to the distribution option you have chosen.

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

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

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

After you file your LOI with the Fund, you may buy Class A shares at the sales
charge applicable to the amount specified in your LOI. Sales charge reductions
based on purchases in more than one Franklin Templeton Fund will be effective
only after notification to Distributors that the investment qualifies for a
discount. Any Class A purchases you made within 90 days before you filed your
LOI also may qualify for a retroactive reduction in the sales charge. If you
file your LOI with the Fund before a change in the Fund's sales charge, you may
complete the LOI at the lower of the new sales charge or the sales charge in
effect when the LOI was filed.

Your holdings in Franklin Templeton funds acquired more than 90 days before you
filed your LOI will be counted towards the completion of the LOI, but they will
not be entitled to a retroactive reduction in the sales charge. Any redemptions
you make during the 13 month period, except in the case of certain retirement
plans, will be subtracted from the amount of the purchases for purposes of
determining whether the terms of the LOI have been completed.

If the terms of your LOI are met, the reserved shares will be deposited to an
account in your name or delivered to you or as you direct. If the amount of your
total purchases, less redemptions, is more than the amount specified in your LOI
and is an amount that would qualify for a further sales charge reduction, a
retroactive price adjustment will be made by Distributors and the securities
dealer through whom purchases were made. The price adjustment will be made on
purchases made within 90 days before and on those made after you filed your LOI
and will be applied towards the purchase of additional shares at the offering
price applicable to a single purchase or the dollar amount of the total
purchases.

If the amount of your total purchases, less redemptions, is less than the amount
specified in your LOI, the sales charge will be adjusted upward, depending on
the actual amount purchased (less redemptions) during the period. You will need
to send Distributors an amount equal to the difference in the actual dollar
amount of sales charge paid and the amount of sales charge that would have
applied to the total purchases if the total of the purchases had been made at
one time. Upon payment of this amount, the reserved shares held for your account
will be deposited to an account in your name or delivered to you or as you
direct. If within 20 days after written request the difference in sales charge
is not paid, we will redeem an appropriate number of reserved shares to realize
the difference. If you redeem the total amount in your account before you
fulfill your LOI, we will deduct the additional sales charge due from the sale
proceeds and forward the balance to you.

For LOIs filed on behalf of certain retirement plans, the level and any
reduction in sales charge for these plans will be based on actual plan
participation and the projected investments in Franklin Templeton funds under
the LOI. These plans are not subject to the requirement to reserve 5% of the
total intended purchase or to the policy on upward adjustments in sales charges
described above, or to any penalty as a result of the early termination of a
plan, nor are these plans entitled to receive retroactive adjustments in price
for investments made before executing the LOI.

GROUP PURCHASES. If you are a member of a qualified group, you may buy Class A
shares at a reduced sales charge that applies to the group as a whole. The sales
charge is based on the combined dollar value of the group members' existing
investments, plus the amount of the current purchase.

A qualified group is one that:

o Was formed at least six months ago,

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

o Has more than 10 members,

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

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

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

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

A qualified group generally does not include a 403(b) plan that only allows
salary deferral contributions, although any such plan that purchased a Fund's
Class A shares at a reduced sales charge under the group purchase privilege
before February 1, 1998, may continue to do so.

WAIVERS FOR INVESTMENTS FROM CERTAIN PAYMENTS. Class A shares may be purchased
without an initial sales charge or contingent deferred sales charge (CDSC) by
investors who reinvest within 365 days:

o Dividend and capital gain distributions from any Franklin Templeton Fund. The
distributions generally must be reinvested in the same share class. Certain
exceptions apply, however, to Class C shareholders who chose to reinvest
their distributions in Class A shares of a Fund before November 17, 1997, and
to Advisor Class or Class Z shareholders of a Franklin Templeton Fund who may
reinvest their distributions in a Fund's Class A shares. This waiver category
also applies to Class B and C shares.

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

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

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

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

If you paid a CDSC when you redeemed your Class A shares from a Templeton
Global Strategy Fund, a new CDSC will apply to your purchase of Fund shares
and the CDSC holding period will begin again. We will, however, credit your
Fund account with additional shares based on the CDSC you previously paid and
the amount of the redemption proceeds that you reinvest.

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

Distributions from an existing retirement plan invested in Franklin Templeton
funds

WAIVERS FOR CERTAIN INVESTORS. Class A shares also may be purchased without an
initial sales charge or CDSC by various individuals and institutions due to
anticipated economies in sales efforts and expenses, including:

o Trust companies and bank trust departments investing assets held in a
fiduciary, agency, advisory, custodial or similar capacity and over which the
trust companies and bank trust departments or other plan fiduciaries or
participants, in the case of certain retirement plans, have full or shared
investment discretion. We may accept orders for these accounts by telephone
or other means of electronic data transfer directly from the bank or trust
company, with payment by federal funds received by the close of business on
the next business day following the order.

o Any state or local government or any instrumentality, department, authority
or agency thereof that has determined a Fund is a legally permissible
investment and that can only buy Fund shares without paying sales charges.
Please consult your legal and investment advisors to determine if an
investment in a Fund is permissible and suitable for you and the effect, if
any, of payments by the Fund on arbitrage rebate calculations.

o Broker-dealers, registered investment advisors or certified financial
planners who have entered into an agreement with Distributors for clients
participating in comprehensive fee programs

o Qualified registered investment advisors who buy through a broker-dealer or
service agent who has entered into an agreement with Distributors

o Registered securities dealers and their affiliates, for their investment
accounts only

o Current employees of securities dealers and their affiliates and their family
members, as allowed by the internal policies of their employer

o Officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or Franklin Templeton Investments, and their family members,
consistent with our then-current policies

o Any investor who is currently a Class Z shareholder of Franklin Mutual Series
Fund Inc. (Mutual Series), or who is a former Mutual Series Class Z
shareholder who had an account in any Mutual Series fund on October 31, 1996,
or who sold his or her shares of Mutual Series Class Z within the past 365
days

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

o Accounts managed by Franklin Templeton Investments

o Certain unit investment trusts and their holders reinvesting distributions
from the trusts

Group annuity separate accounts offered to retirement plans

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

In addition, Class C shares may be purchased without an initial sales charge by
any investor who buys Class C shares through an omnibus account with Merrill
Lynch Pierce Fenner & Smith, Inc. A CDSC may apply, however, if the shares are
sold within 18 months of purchase.

RETIREMENT PLANS. Retirement plans sponsored by an employer (i) with at least
100 employees, or (ii) with retirement plan assets of $1 million or more, or
(iii) that agrees to invest at least $500,000 in Franklin Templeton funds over a
13 month period may buy Class A shares without an initial sales charge.
Retirement plans that are not qualified retirement plans (employer sponsored
pension or profit-sharing plans that qualify under section 401 of the Internal
Revenue Code, including 401(k), money purchase pension, profit sharing and
defined benefit plans), SIMPLEs (savings incentive match plans for employees) or
SEPs (employer sponsored simplified employee pension plans established under
section 408(k) of the Internal Revenue Code) must also meet the group purchase
requirements described above to be able to buy Class A shares without an initial
sales charge. We may enter into a special arrangement with a securities dealer,
based on criteria established by the Fund, to add together certain small
qualified retirement plan accounts for the purpose of meeting these
requirements.

For retirement plan accounts opened on or after May 1, 1997, a CDSC may apply if
the retirement plan is transferred out of Franklin Templeton funds or terminated
within 365 days of the retirement plan account's initial purchase in Franklin
Templeton funds.

SALES IN TAIWAN. Under agreements with certain banks in Taiwan, Republic of
China, the Funds' shares are available to these banks' trust accounts without a
sales charge. The banks may charge service fees to their customers who
participate in the trusts. A portion of these service fees may be paid to
Distributors or one of its affiliates to help defray expenses of maintaining a
service office in Taiwan, including expenses related to local literature
fulfillment and communication facilities.

The Funds' Class A shares may be offered to investors in Taiwan through
securities advisory firms known locally as Securities Investment Consulting
Enterprises. In conformity with local business practices in Taiwan, Class A
shares may be offered with the following schedule of sales charges:

SIZE OF PURCHASE - U.S. DOLLARS SALES CHARGE (%)
----------------------------------------------------------------------
Under $30,000 3.0
$30,000 but less than $50,000 2.5
$50,000 but less than $100,000 2.0
$100,000 but less than $200,000 1.5
$200,000 but less than $400,000 1.0
$400,000 or more 0

DEALER COMPENSATION Securities dealers may at times receive the entire sales
charge. A securities dealer who receives 90% or more of the sales charge may be
deemed an underwriter under the Securities Act of 1933, as amended. Financial
institutions or their affiliated brokers may receive an agency transaction fee
in the percentages indicated in the dealer compensation table in the Funds'
prospectus.

Distributors may pay the following commissions, out of its own resources, to
securities dealers who initiate and are responsible for purchases of Class A
shares of $1 million or more: 1% on sales of $1 million to $2 million, plus 0.80
on sales over $2 million to $3 million, plus 0.50% on sales over $3 million to
$50 million, plus 0.25% on sales over $50 million to $100 million, plus 0.15% on
sales over $100 million.

These breakpoints are reset every 12 months for purposes of additional
purchases.

Distributors or one of its affiliates may pay up to 1%, out of its own
resources, to securities dealers who initiate and are responsible for purchases
of Class A shares by certain retirement plans without an initial sales charge.
These payments may be made in the form of contingent advance payments, which may
be recovered from the securities dealer or set off against other payments due to
the dealer if shares are sold within 12 months of the calendar month of
purchase. Other conditions may apply. All terms and conditions may be imposed by
an agreement between Distributors, or one of its affiliates, and the securities
dealer.

In addition to the payments above, Distributors and/or its affiliates may
provide financial support to securities dealers that sell shares of Franklin
Templeton Investments. This support is based primarily on the amount of sales of
fund shares and/or total assets with Franklin Templeton Investments. The amount
of support may be affected by: total sales; net sales; levels of redemptions;
the proportion of a securities dealer's sales and marketing efforts in Franklin
Templeton Investments; a securities dealer's support of, and participation in,
Distributors' marketing programs; a securities dealer's compensation programs
for its registered representatives; and the extent of a securities dealer's
marketing programs relating to Franklin Templeton Investments. Financial support
to securities dealers may be made by payments from Distributors' resources, from
Distributors' retention of underwriting concessions and, in the case of funds
that have Rule 12b-1 plans, from payments to Distributors under such plans. In
addition, certain securities dealers may receive brokerage commissions generated
by fund portfolio transactions in accordance with the rules of the National
Association of Securities Dealers, Inc.

Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in Franklin Templeton funds, however,
are more likely to be considered. To the extent permitted by their firm's
policies and procedures, registered representatives' expenses in attending these
meetings may be covered by Distributors.

CONTINGENT DEFERRED SALES CHARGE (CDSC) If you invest $1 million or more in
Class A shares, either as a lump sum or through our cumulative quantity discount
or letter of intent programs, a CDSC may apply on any shares you sell within 12
months of purchase. For Class C shares, a CDSC may apply if you sell your shares
within 18 months of purchase. The CDSC is 1% of the value of the shares sold or
the net asset value at the time of purchase, whichever is less.

Certain retirement plan accounts opened on or after May 1, 1997, and that
qualify to buy Class A shares without an initial sales charge also may be
subject to a CDSC if the retirement plan is transferred out of Franklin
Templeton funds or terminated within 365 days of the account's initial purchase
in Franklin Templeton funds.

For Class B shares, there is a CDSC if you sell your shares within six years, as
described in the table below. The charge is based on the value of the shares
sold or the net asset value at the time of purchase, whichever is less.

IF YOU SELL YOUR CLASS B SHARES
WITHIN THIS MANY YEARS AFTER BUYING THIS % IS DEDUCTED FROM
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

CDSC WAIVERS. The CDSC for any share class generally will be waived for:

o Account fees

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

o Redemptions of Class A shares by investors who purchased $1 million or more
without an initial sales charge if the securities dealer of record waived
its commission in connection with the purchase

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

o Redemptions following the death of the shareholder or beneficial owner

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

o Redemptions through a systematic withdrawal plan set up on or after
February 1, 1995, up to 1% monthly, 3% quarterly, 6% semiannually or 12%
annually of your account's net asset value depending on the frequency of
your plan

o Redemptions by an employee benefit plan: (i) that is a customer of Franklin
Templeton Defined Contribution Services; and/or (ii) whose assets are held
by Franklin Templeton Bank & Trust as trustee or custodian (not applicable
to Class B)

o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy (for
Class B, this applies to all retirement plan accounts, not only IRAs)

o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts

o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)

EXCHANGE PRIVILEGE 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. Backup withholding and information reporting may apply.

If a substantial number of shareholders should, within a short period, sell
their Fund shares under the exchange privilege, a Fund might have to sell
portfolio securities it might otherwise hold and incur the additional costs
related to such transactions. On the other hand, increased use of the exchange
privilege may result in periodic large inflows of money. If this occurs, it is
each Fund's general policy to initially invest this money in short-term,
interest-bearing money market instruments, unless it is believed that attractive
investment opportunities consistent with the Fund's investment goals exist
immediately. This money will then be withdrawn from the short-term,
interest-bearing money market instruments and invested in portfolio securities
in as orderly a manner as is possible when attractive investment opportunities
arise.

The proceeds from the sale of shares of an investment company generally are not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of Fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.

SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply. There are no service charges for establishing or
maintaining a systematic withdrawal plan.

Each month in which a payment is scheduled, we will redeem an equivalent amount
of shares in your account on the day of the month you have indicated on your
account application or, if no day is indicated, on the 20th day of the month. If
that day falls on a weekend or holiday, we will process the redemption on the
next business day. For plans set up before June 1, 2000, we will continue to
process redemptions on the 25th day of the month (or the next business day)
unless you instruct us to change the processing date. Available processing dates
currently are the 1st, 5th, 10th, 15th, 20th and 25th days of the month. When
you sell your shares under a systematic withdrawal plan, it is a taxable
transaction.

To avoid paying sales charges on money you plan to withdraw within a short
period of time, you may not want to set up a systematic withdrawal plan if you
plan to buy shares on a regular basis. Shares sold under the plan also may be
subject to a CDSC.

Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
This is especially likely to occur if there is a market decline. If a withdrawal
amount exceeds the value of your account, your account will be closed and the
remaining balance in your account will be sent to you. Because the amount
withdrawn under the plan may be more than your actual yield or income, part of
the payment may be a return of your investment.

To discontinue a systematic withdrawal plan, change the amount and schedule of
withdrawal payments, or suspend one payment, we must receive instructions from
you at least three business days before a scheduled payment. The Funds may
discontinue a systematic withdrawal plan by notifying you in writing and will
discontinue a systematic withdrawal plan automatically if all shares in your
account are withdrawn or if the Fund receives notification of the shareholder's
death or incapacity.

REDEMPTIONS IN KIND The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the U.S. Securities and Exchange
Commission (SEC). In the case of redemption requests [in excess of these
amounts], the board reserves the right to make payments in whole or in part in
securities or other assets of the Fund, in case of an emergency, or if the
payment of such a redemption in cash would be detrimental to the existing
shareholders of the Fund. In these circumstances, the securities distributed
would be valued at the price used to compute the Fund's net assets and you may
incur brokerage fees in converting the securities to cash. The Fund does not
intend to redeem illiquid securities in kind. If this happens, however, you may
not be able to recover your investment in a timely manner.

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

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

GENERAL INFORMATION If dividend checks are returned to a Fund marked "unable to
forward" by the postal service, we will consider this a request by you to change
your dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at net asset value until we receive new
instructions.

Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Funds nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The Funds is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.

In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.

Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the Fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the Funds nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.

Franklin Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the Funds on behalf
of numerous beneficial owners for recordkeeping operations performed with
respect to such owners. For each beneficial owner in the omnibus account, a Fund
may reimburse Investor Services an amount not to exceed the per account fee that
the Fund normally pays Investor Services. These financial institutions also may
charge a fee for their services directly to their clients.

There are special procedures for banks and other institutions that wish to open
multiple accounts. An institution may open a single master account by filing one
application form with the Funds, signed by personnel authorized to act for the
institution. Individual sub-accounts may be opened when the master account is
opened by listing them on the application, or by providing instructions to the
Funds at a later date. These sub-accounts may be registered either by name or
number. The Funds' investment minimums apply to each sub-account. The Funds will
send confirmation and account statements for the sub-accounts to the
institution.

If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the Fund. If you sell shares through your securities
dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Your redemption proceeds will not earn interest between the
time we receive the order from your dealer and the time we receive any required
documents. Any loss to you resulting from your dealer's failure to transmit your
redemption order to the Fund in a timely fashion must be settled between you and
your securities dealer.

Certain shareholder servicing agents may be authorized to accept your
transaction request.

For institutional accounts, there may be additional methods of buying or selling
Fund shares than those described in this SAI or in the prospectus.

In the event of disputes involving multiple claims of ownership or authority to
control your account, each Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a notice of levy.

PRICING SHARES
------------------------------------------------------------

When you buy shares, you pay the offering price. The offering price is the net
asset value (NAV) per share plus any applicable sales charge, calculated to two
decimal places using standard rounding criteria. When you sell shares, you
receive the NAV minus any applicable CDSC.

The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of shares
outstanding.

The Funds calculate the NAV per share of each class each business day at the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time). The Funds do not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.

When determining its NAV, each Fund values cash and receivables at their
realizable amounts, and records interest as accrued and dividends on the
ex-dividend date. If market quotations are readily available for portfolio
securities listed on a securities exchange or on the Nasdaq National Market
System, the Fund values those securities at the last quoted sale price of the
day or, if there is no reported sale, within the range of the most recent quoted
bid and ask prices. Each Fund values over-the-counter portfolio securities
within the range of the most recent quoted bid and ask prices. If portfolio
securities trade both in the over-the-counter market and on a stock exchange,
each Fund values them according to the broadest and most representative market
as determined by the manager.

Each Fund values portfolio securities underlying actively traded call options at
their market price as determined above. The current market value of any option
the Fund holds is its last sale price on the relevant exchange before the Fund
values its assets. If there are no sales that day or if the last sale price is
outside the bid and ask prices, the Fund values options within the range of the
current closing bid and ask prices if the Fund believes the valuation fairly
reflects the contract's market value.

Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
of the NYSE on each day that the NYSE is open. Trading in European or Far
Eastern securities generally, or in a particular country or countries, may not
take place on every NYSE business day. Furthermore, trading takes place in
various foreign markets on days that are not business days for the NYSE and on
which the Funds' NAV is not calculated. Thus, the calculation of the Funds' NAV
does not take place contemporaneously with the determination of the prices of
many of the portfolio securities used in the calculation and, if events
materially affecting the values of these foreign securities occur, the
securities will be valued at fair value as determined by management and approved
in good faith by the board.

Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the close of the NYSE. The value of these securities used in computing the NAV
is determined as of such times. Occasionally, events affecting the values of
these securities may occur between the times at which they are determined and
the close of the NYSE that will not be reflected in the computation of the NAV.
If events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the board.

Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the board. With the approval of the board, the
Funds may use a pricing service, bank or securities dealer to perform any of the
above described functions.

THE UNDERWRITER
------------------------------------------------

Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the Fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.

DISTRIBUTORS pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.

The table below shows the aggregate underwriting commissions Distributors
received in connection with the offering of the Funds' shares, the net
underwriting discounts and commissions Distributors retained after allowances to
dealers, and the amounts Distributors received in connection with redemptions or
repurchases of shares for the last three fiscal years ended April 30:

AMOUNT
RECEIVED IN
CONNECTION
WITH
TOTAL AMOUNT REDEMPTIONS
COMMISSIONS RETAINED BY AND
RECEIVED DISTRIBUTORS REPURCHASES
($) ($) ($)
------------------------------------------------------------------------------
2000
Biotechnology Discovery 33,860,398 4,844,937 106,821
Fund
Health Care Fund 389,636 46,851 14,969
Natural Resources Fund 162,429 23,678 642
Communications Fund 646,008 85,219 6,796

1999
Biotechnology Discovery 952,419 121,172 2,150
Fund
Health Care Fund 419,582 43,356 37,292
Natural Resources Fund 275,313 36,544 4,269
Communications Fund 406,701 48,417 10,473

1998
Biotechnology Discovery 2,427,478 272,305 0
Fund1

Health Care Fund 1,264,914 123,956 0
Natural Resources Fund 584,114 66,612 0
Communications Fund 544,344 55,047 2,786

1. For the period September 15, 1997 to April 30, 1998.

2. Distributors may be entitled to reimbursement under the Rule 12b-1 plans, as
discussed below. Except as noted, Distributors received no other compensation
from the Fund for acting as underwriter.

DISTRIBUTION AND SERVICE (12B-1) FEES The board has adopted a separate plan
pursuant to Rule 12b-1 for each class. Although the plans differ in some ways
for each class, each plan is designed to benefit the Funds and its shareholders.
The plans are expected to, among other things, increase advertising of the
Funds, encourage sales of the Funds and service to its shareholders, and
increase or maintain assets of the Funds so that certain fixed expenses may be
spread over a broader asset base, resulting in lower per share expense ratios.
In addition, a positive cash flow into the Funds is useful in managing the Funds
because the manager has more flexibility in taking advantage of new investment
opportunities and handling shareholder redemptions.

Under each plan, each Fund pays Distributors or others for the expenses of
activities that are primarily intended to sell shares of the class. These
expenses also may include service fees paid to securities dealers or others who
have executed a servicing agreement with the Funds, Distributors or its
affiliates who provide service or account maintenance to shareholders (service
fees); the expenses of printing prospectuses and reports used for sales
purposes, and of preparing and distributing sales literature and advertisements;
and a prorated portion of Distributors' overhead expenses related to these
activities. Together, these expenses, including the service fees, are "eligible
expenses." The distribution and service (12b-1) fees charged to each class are
based only on the fees attributable to that particular class.

THE CLASS A PLAN. Payments by Biotechnology Discovery Fund, Technology Fund and
Natural Resources Fund under the Class A plan may not exceed 0.35% per year of
Class A's average daily net assets, payable quarterly. Of this amount, each fund
may reimburse up to 0.35% to Distributors or others, out of which 0.10%
generally will be retained by Distributors for distribution expenses. Payments
by Health Care Fund and Communications Fund under the Class A plan may not
exceed 0.25% per year of Class A's average daily net assets, payable quarterly.
All distribution expenses over this amount will be borne by those who have
incurred them.

Health Care Fund's and Communications Fund's Class A plan does not permit
unreimbursed expenses incurred in a particular year to be carried over to or
reimbursed in later years.

For the fiscal year ended April 30, 2000, the amounts paid by the Funds pursuant
to the plan were:

BIOTECHNOLOGY TECHNOLOGY GLOBAL
DISCOVERY FUND FUND HEALTH CARE
--------------------------------------------------------------------------------
Advertising 628,557 -- 3,378
Printing and mailing prospectuses 49,094 -- 7,885
other than to current shareholders
Payments to underwriters 621,130 -- 2,931
Payments to broker-dealers 782,205 -- 168,771
Other 755,588 -- 6,947
----------------
-------------
Total 2,836,574 -- 189,912
-------------

GLOBAL NATURAL
COMMUNICATIONS RESOURCES
-----------------------------------------------------------------------
Advertising 9,005 4,959
Printing and mailing prospectuses 10,635 14,661
other than to current shareholders
Payments to underwriters 3,596 4,395
Payments to broker-dealers 564,398 94,867
Other 15,618 14,656
-------------------------------
Total 603,252 133,538
-----------------------------------------------------------------------

THE CLASS B AND C PLANS. The Fund pays Distributors up to 1% per year of the
class's average daily net assets, out of which 0.25% may be used for service
fees. The Class B and C plans also may be used to pay Distributors for advancing
commissions to securities dealers with respect to the initial sale of Class B
and C shares. Class B plan fees payable to Distributors are used by Distributors
to pay third party financing entities that have provided financing to
Distributors in connection with advancing commissions to securities dealers.

The Class B and C plans are compensation plans. They allow the Fund to pay a fee
to Distributors that may be more than the eligible expenses Distributors has
incurred at the time of the payment. Distributors must, however, demonstrate to
the board that it has spent or has immediate plans to spend the amount received
on eligible expenses. The Fund will not pay more than the maximum amount allowed
under the plans.

Under the Class B plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended April 30, 2000, were:

BIOTECHNOLOGY TECHNOLOGY GLOBAL
DISCOVERY FUND FUND HEALTH CARE
------------------------------------------------------------------------------
Advertising -- -- 97
Printing and mailing prospectuses -- -- 33
other than to current shareholders
Payments to underwriters -- -- 69
Payments to broker-dealers -- -- 8,010
Other -- -- 102
----------
Total -- -- 8,311
----------

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

GLOBAL NATURAL
COMMUNICATIONS RESOURCES

-----------------------------------------------------------------------
Advertising 136 --
Printing and mailing prospectuses 11 --
other than to current shareholders
Payments to underwriters 84 --
Payments to broker-dealers 10,387 --
Other 125 --
----------------
Total 10,743 --
-----------------------------------------------------------------------

Under the Class C plan, the amounts paid by the Fund pursuant to the plan for
the fiscal year ended April 30, 2000, were:

BIOTECHNOLOGY TECHNOLOGY GLOBAL
DISCOVERY FUND FUND HEALTH CARE
-------------------------------------------------------------------------------
Advertising -- -- 1,829
Printing and mailing prospectuses -- -- 2,866
other than to current shareholders
Payments to underwriters -- -- 1,228
Payments to broker-dealers -- -- 141,691
Other -- -- 2,699
--------
Total -- -- 150,313
--------

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

GLOBAL NATURAL
COMMUNICATIONS RESOURCES
-----------------------------------------------------------------------
Advertising 2,562 --
Printing and mailing prospectuses 1,389 --
other than to current shareholders
Payments to underwriters 1,156 --
Payments to broker-dealers 215,235 --
Other 3,040 --
----------------
Total 223,382 --
-----------------------------------------------------------------------

THE CLASS A , B AND C PLANS. In addition to the payments that Distributors or
others are entitled to under each plan, each plan also provides that to the
extent the Fund, the manager or Distributors or other parties on behalf of the
Fund, the manager or Distributors make payments that are deemed to be for the
financing of any activity primarily intended to result in the sale of Fund
shares within the context of Rule 12b-1 under the Investment Company Act of
1940, as amended, then such payments shall be deemed to have been made pursuant
to the plan.

To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks may not
participate in the plans because of applicable federal law prohibiting certain
banks from engaging in the distribution of mutual fund shares. These banks,
however, are allowed to receive fees under the plans for administrative
servicing or for agency transactions.

Distributors must provide written reports to the board at least quarterly on the
amounts and purpose of any payment made under the plans and any related
agreements, and furnish the board with such other information as the board may
reasonably request to enable it to make an informed determination of whether the
plans should be continued.

Each plan has been approved according to the provisions of Rule 12b-1. The terms
and provisions of each plan also are consistent with Rule 12b-1.

PERFORMANCE
------------------------------------------------------------------------------

Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by a Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return quotations used by the Funds are based on the
standardized methods of computing performance mandated by the SEC. Performance
figures reflect Rule 12b-1 fees from the date of the plan's implementation. An
explanation of these and other methods used by the Funds to compute or express
performance follows. Regardless of the method used, past performance does not
guarantee future results, and is an indication of the return to shareholders
only for the limited historical period used.

AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes the maximum initial sales charge is deducted from the
initial $1,000 purchase, and income dividends and capital gain distributions are
reinvested at net asset value. The quotation assumes the account was completely
redeemed at the end of each period and the deduction of all applicable charges
and fees. If a change is made to the sales charge structure, historical
performance information will be restated to reflect the maximum initial sales
charge currently in effect.

When considering the average annual total return quotations for Class A and C
shares, you should keep in mind that the maximum initial sales charge reflected
in each quotation is a one time fee charged on all direct purchases, which will
have its greatest impact during the early stages of your investment. This charge
will affect actual performance less the longer you retain your investment in the
Fund. The average annual total returns for the indicated periods ended April 30,
2000, were:

INCEPTION 1 YEAR 5 YEARS SINCE
INCEPTION
CLASS A DATE (%) (%) (%)
-----------------------------------------------------------------------------
Biotechnology Discovery Fund 09/15/97 143.87 -- 38.01
Technology Fund 05/01/00 -- -- --
Health Care Fund 02/14/92 37.75 14.69 11.94
Communications Fund 07/02/92 30.91 21.03 17.42
Natural Resources Fund 06/05/95 12.59 -- 11.22

INCEPTION 1 YEAR 5 YEARS SINCE
INCEPTION
CLASS B DATE (%) (%) (%)
-----------------------------------------------------------------------------
Technology Fund 05/01/00 -- -- --
Health Care Fund 02/14/92 41.16 -- 10.64
Communications Fund 05/01/95 33.98 -- 31.16

INCEPTION 1 YEAR 5 YEARS SINCE
INCEPTION
CLASS C DATE (%) (%) (%)
-----------------------------------------------------------------------------
Technology Fund 05/01/00 -- -- --
Health Care Fund 09/03/96 42.62 9.37 6.04
Communications Fund 05/01/95 35.56 21.50 21.50

The following SEC formula was used to calculate these figures:

n
P(1+T) = ERV

where:

P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of each period at the end
of each period

CUMULATIVE TOTAL RETURN Like average annual total return, cumulative total
return assumes the maximum initial sales charge is deducted from the initial
$1,000 purchase, income dividends and capital gain distributions are reinvested
at net asset value, the account was completely redeemed at the end of each
period and the deduction of all applicable charges and fees. Cumulative total
return, however, is based on the actual return for a specified period rather
than on the average return over the periods indicated above. The cumulative
total returns for the indicated periods ended April 30, 2000, were:

INCEPTION 1 YEAR 5 YEARS SINCE
INCEPTION
CLASS A DATE (%) (%) (%)
-----------------------------------------------------------------------------
Biotechnology Discovery Fund 09/15/97 143.87 -- 132.70
Technology Fund 05/01/00 -- -- --
Health Care Fund 02/14/92 37.75 98.40 152.32
Communications Fund 07/02/92 30.91 159.75 251.59
Natural Resources Fund 06/05/95 12.59 -- 68.49

INCEPTION 1 YEAR 5 YEARS SINCE
INCEPTION
CLASS C DATE (%) (%) (%)
-----------------------------------------------------------------------------
Technology Fund 05/01/00 -- -- --
Health Care Fund 09/03/96 42.62 -- 23.89
Communications Fund 05/01/95 35.56 164.83 164.83

VOLATILITY Occasionally statistics may be used to show a Fund's volatility or
risk. Measures of volatility or risk are generally used to compare a Fund's net
asset value or performance to a market index. One measure of volatility is beta.
Beta is the volatility of a fund relative to the total market, as represented by
an index considered representative of the types of securities in which the fund
invests. A beta of more than 1.00 indicates volatility greater than the market
and a beta of less than 1.00 indicates volatility less than the market. Another
measure of volatility or risk is standard deviation. Standard deviation is used
to measure variability of net asset value or total return around an average over
a specified period of time. The idea is that greater volatility means greater
risk undertaken in achieving performance.

OTHER PERFORMANCE QUOTATIONS The Funds also may quote the performance of shares
without a sales charge. Sales literature and advertising may quote a cumulative
total return, average annual total return and other measures of performance with
the substitution of net asset value for the public offering price.

Sales literature referring to the use of the Funds as a potential investment for
IRAs, business retirement plans, and other tax-advantaged retirement plans may
quote a total return based upon compounding of dividends on which it is presumed
no federal income tax applies.

The Funds may include in its advertising or sales material information relating
to investment goals and performance results of funds belonging to Franklin
Templeton Investments. Franklin Resources, Inc. is the parent company of the
advisors and underwriter of Franklin Templeton Investments.

COMPARISONS To help you better evaluate how an investment in the Funds may
satisfy your investment goal, advertisements and other materials about the Funds
may discuss certain measures of Fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:

o Dow Jones(R) Composite Average and its component averages - a price-weighted
average of 65 stocks that trade on the New York Stock Exchange. The average
is a combination of the Dow Jones Industrial Average (30 blue-chip stocks
that are generally leaders in their industry), the Dow Jones Transportation
Average (20 transportation stocks), and the Dow Jones Utilities Average (15
utility stocks involved in the production of electrical energy).

o Standard & Poor's(R) 500 Stock Index or its component indices - a
capitalization-weighted index designed to measure performance of the broad
domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries.

o The New York Stock Exchange composite or component indices - an unmanaged
index of all industrial, utilities, transportation, and finance stocks listed
on the NYSE.

o Nasdaq Composite Index - a broad-based capitalization-weighted total return
index of all Nasdaq National Market and Small Cap stocks.

o The Hambrecht & Quist Technology Index is comprised of the publicly traded
stocks of approximately 275 technology companies which includes the
electronics, services and other related technology industries. The index is
market-capitalization-weighted and includes reinvested dividends.

o The Standard & Poor's Technology Index is designed to measure the performance
of all the stocks included in the technology sector of the S&P 500 Index. The
index is market-capitalization-weighted and includes reinvested dividends.

o Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.

o Lipper - Mutual Fund Performance Analysis and Lipper - Equity Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance over
specified time periods, assuming reinvestment of all distributions, exclusive
of any applicable sales charges.

o CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.

o Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for mutual funds.

o Financial publications: The WALL STREET JOURNAL, and BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, and MONEY magazines - provide
performance statistics over specified time periods.

o Valueline Index - an unmanaged index which follows the stocks of
approximately 1,700 companies.

o Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the
price of goods and services in major expenditure groups.

o Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.

o Savings and Loan Historical Interest Rates - as published in the U.S.
Savings & Loan League Fact Book.

o Historical data supplied by the research departments of CS First Boston
Corporation, the J.P. Morgan(R)companies, Salomon Smith Barney Inc.,
Merrill Lynch, Lehman Brothers(R)and Bloomberg(R)L.P.

o Morgan Stanley Capital International World Indices, including, among others,
the Morgan Stanley Capital International Europe, Australia, Far East Index
(EAFE Index). The EAFE index is an unmanaged index of more than 1,000
companies of Europe, Australia and the Far East.

o Financial Times Actuaries Indices - including the FTA-World Index (and
components thereof), which are based on stocks in major world equity markets.

o Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect
Morningstar's assessment of the historical risk-adjusted performance of a
fund over specified time periods relative to other funds within its category.

o The American Stock Exchange - an equal-dollar weighted index designed to
measure the performance of across section of companies in the biotechnology
industry that are primarily involved in the use of biological processes to
develop products or provide services.

From time to time, advertisements or information for the Funds may include a
discussion of certain attributes or benefits to be derived from an investment in
the Funds. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.

Advertisements or information also may compare the Funds' performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in a Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a CD issued by
a bank. CDs are frequently insured by an agency of the U.S. government. An
investment in the Fund is not insured by any federal, state or private entity.

In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Funds' portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Funds to calculate its figures. In
addition, there can be no assurance that the Funds will continue its performance
as compared to these other averages.

MISCELLANEOUS INFORMATION
---------------------------------------------------------

The Funds may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis to have a
projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.

Each Fund is a member of Franklin Templeton Investments, one of the largest
mutual fund organizations in the U.S., and may be considered in a program for
diversification of assets. Founded in 1947, Franklin is one of the oldest mutual
fund organizations and now services approximately 3 million shareholder
accounts. In 1992, Franklin, a leader in managing fixed-income mutual funds and
an innovator in creating domestic equity funds, joined forces with Templeton, a
pioneer in international investing. The Mutual Series team, known for its
value-driven approach to domestic equity investing, became part of the
organization four years later. Together, Franklin Templeton Investments has over
$225 billion in assets under management for more than 5 million U.S. based
mutual fund shareholder and other accounts. Franklin Templeton Investments
offers 105 U.S. based open-end investment companies to the public. Each Fund may
identify itself by its Nasdaq symbol or CUSIP number.

Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the Funds are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.

DESCRIPTION OF RATINGS
------------------------------------------------------------------------------

CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC. (MOODY'S)

INVESTMENT GRADE

Aaa: Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa: Bonds rated Aa are judged to be high quality by all standards. Together with
the Aaa group, they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large, fluctuation of protective elements may be of greater amplitude, or there
may be other elements present that make the long-term risks appear somewhat
larger.

A: Bonds rated A possess many favorable investment attributes and are considered
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.

Baa: Bonds rated Baa are considered medium-grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal security
appear adequate for the present but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and, in fact, have speculative
characteristics as well.

BELOW INVESTMENT GRADE

Ba: Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and, thereby, not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

Caa: Bonds rated Caa are of poor standing. These issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca: Bonds rated Ca represent obligations that are speculative to a high
degree. These issues are often in default or have other marked shortcomings.

C: Bonds rated C are the lowest rated class of bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.

STANDARD & POOR'S RATINGS GROUP (S&P(R))

INVESTMENT GRADE

AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.

AA: Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
differ from AAA issues only in a small degree.

A: Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BELOW INVESTMENT GRADE

BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While these bonds will likely have some quality and protective
characteristics, they are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C: Bonds rated C are typically subordinated debt to senior debt that is assigned
an actual or implied CCC- rating. The C rating also may reflect the filing of a
bankruptcy petition under circumstances where debt service payments are
continuing. The C1 rating is reserved for income bonds on which no interest is
being paid.

D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS

MOODY'S

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's commercial paper
ratings are opinions of the ability of issuers to repay punctually their
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designations for both short-term debt and
commercial paper, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers:

P-1 (Prime-1): Superior capacity for repayment.

P-2 (Prime-2): Strong capacity for repayment.

S&P

S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:

A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.

A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.

A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.

FRANKLIN STRATEGIC SERIES

FRANKLIN TECHNOLOGY FUND
FRANKLIN NATURAL RESOURCES FUND

ADVISOR CLASS

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 1, 2000

[Insert Franklin Templeton Ben Head]

P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)

This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the Funds' prospectus. The Funds'
prospectus, dated September 1, 2000, which we may amend from time to time,
contains the basic information you should know before investing in the Funds.
You should read this SAI together with the Funds' prospectus.

The audited financial statements and auditor's report in the Trusts' Annual
Report to Shareholders, for the fiscal year ended April 30, 2000, are
incorporated by reference (are legally a part of this SAI).

For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).

CONTENTS

Goals and Strategies
Risks
Officers and Trustees

Management and Other Services
Portfolio Transactions
Distributions and Taxes

Organization, Voting Rights and Principal Holders
Buying and Selling Shares
Pricing Shares
The Underwriter
Performance
Miscellaneous Information
Description of Ratings

-------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:

o ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;

o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;

o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
-------------------------------------------------------------------------------

GOALS AND STRATEGIES
-------------------------------------------------------------------------------

FRANKLIN BIOTECHNOLOGY DISCOVERY FUND
(BIOTECHNOLOGY FUND)

The Fund's investment goal is to seek capital appreciation. This goal is
fundamental, which means it may not be changed without shareholder approval.

FRANKLIN GLOBAL HEALTH CARE FUND (HEALTH CARE FUND)

The investment goal of the Fund is to seek capital appreciation. This goal is
fundamental, which means it may not be changed without shareholder approval.

FRANKLIN GLOBAL COMMUNICATIONS FUND (COMMUNICATIONS FUND)

FRANKLIN NATURAL RESOURCES FUND
(NATURAL RESOURCES FUND)

FRANKLIN TECHNOLOGY FUND (TECHNOLOGY FUND)

Below is a description of the various types of securities the Funds may buy and
information about the Funds' investment policies.

Although the Technology Fund may invest up to 25% of total assets in foreign
securities, it intends to limit its investments to 15% of total assets.

DERIVATIVE SECURITIES - ALL FUNDS

The Funds also may buy and write put and call options on bond index futures and
enter into closing transactions with respect to such options.

Biotechnology Fund may not:

3. Underwrite securities of other issuers or invest more than 15% of its assets
in illiquid securities.

4. Invest in securities for the purpose of exercising management or control of
the issuer.

6. Concentrate its investments in any industry except
that the Fund will invest at least 25% of its total assets in equity securities
of biotechnology companies.

Biotechnology Fund presently has the following additional restrictions, which
are not fundamental and may be changed without shareholder approval.

Biotechnology Fund may not:

Health Care Fund may not:

4. Invest in securities for the purpose of exercising management or control of
the issuer.

Health Care Fund presently has the following additional restrictions, which are
not fundamental and may be changed without shareholder approval.

Health Care Fund may not:

Natural Resources Fund may not:

1. Make loans to other persons, except by the purchase of bonds, debentures or
similar obligations which are publicly distributed or of a character usually
acquired by institutional investors, or through loans of the Fund's portfolio
securities, or to the extent the entry into a repurchase agreement or similar
transaction may be deemed a loan;

5. Effect short sales, unless at the time the Fund owns securities equivalent in
kind and amount to those sold (which will normally be for deferring recognition
of gains or losses for tax purposes);

7. Invest directly in interests in oil, gas or other mineral leases, exploration
or development programs;

8. Invest in the securities of other investment companies, except where there is
no commission other than the customary brokerage commission or sales charge, or
except that securities of another investment company may be acquired pursuant to
a plan of reorganization, merger, consolidation or acquisition, and except where
the Fund would not own, immediately after the acquisition, securities of the
investment companies which exceed in the aggregate i) more than 3% of the
issuer's outstanding voting stock, ii) more than 5% of the Fund's total assets
and iii) together with the securities of all other investment companies held by
the Fund, exceed, in the aggregate, more than 10% of the Fund's total assets;
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and policies as the Fund. Pursuant to available exemptions from the 1940 Act,
the Fund may invest in shares of one or more money market funds managed by
Advisers, or its affiliates;

9. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but may deal with
such persons or firms as brokers and pay a customary brokerage commission; or
purchase or retain securities of any issuer if one or more of the officers or
trustees of the trust, or its investment adviser, own beneficially more than
one-half of 1% of the securities of such issuer and all such officers and
trustees together own beneficially more than 5% of such securities;

Natural Resources Fund presently has the following additional restrictions,
which are not fundamental and may be changed without shareholder approval.

Natural Resources Fund may not:

Communications Fund may not:

1. Make loans to other persons, except by the purchase of bonds, debentures or
similar obligations which are publicly distributed or of a character usually
acquired by institutional investors, or through loans of the Fund's portfolio
securities, or to the extent the entry into a repurchase agreement may be deemed
a loan;

3. Underwrite securities of other issuers (does not preclude the Fund from
obtaining such short-term credit as may be necessary for the clearance of
purchases and sales of its portfolio securities) or invest more than 5% of its
assets in securities with legal or contractual restrictions on resale (although
the Fund may invest in such securities to the extent permitted under the federal
securities laws) or which are not readily marketable, if more than 15% of the
Fund's total assets would be invested in such companies;

4. Invest in securities for the purpose of exercising management or control of
the issuer;

5. Maintain a margin account with a securities dealer or invest in commodities
and commodity contracts (except that the Fund may engage in financial futures,
including stock index futures, and options on stock index futures) or lease or
acquire any interests, including interests issued by limited partnerships (other
than publicly traded equity securities), in oil, gas, or other mineral
exploration or development programs, or invest in excess of 5% of its total
assets in options unrelated to the Fund's transactions in futures, including
puts, calls, straddles, spreads, or any combination thereof;

8. Invest in the securities of other investment companies, except where there is
no commission other than the customary brokerage commission or sales charge, or
except that securities of another investment company may be acquired pursuant to
a plan of reorganization, merger, consolidation or acquisition, and except where
the Fund would not own, immediately after the acquisition, securities of the
investment companies which exceed in the aggregate i) more than 3% of the
issuer's outstanding voting stock, ii) more than 5% of the Fund's total assets
and iii) together with the securities of all other investment companies held by
the Fund, exceed, in the aggregate, more than 10% of the Fund's total assets.
Pursuant to available exemptions from the 1940 Act, the Fund may invest in
shares of one or more money market funds managed by Advisers or its affiliates;

9. Purchase from or sell to its officers and trustees, or any firm of which any
officer or trustee is a member, as principal, any securities, but may deal with
such persons or firms as brokers and pay a customary brokerage commission; or
purchase or retain securities of any issuer if, to the knowledge of the trust,
one or more of the officers or trustees of the trust, or its investment adviser,
own beneficially more than one-half of 1% of the securities of such issuer and
all such officers and trustees together own beneficially more than 5% of such
securities;

10. Concentrate in any industry, except that the Fund will invest at least 25%
of total assets in the equity and debt securities issued by domestic and foreign
companies in the utilities industries; and

11. Invest more than 10% of its assets in securities of companies which have a
record of less than three years continuous operation, including the operations
of any predecessor companies.

Communications Fund presently has the following additional restrictions, which
are not fundamental and may be changed without shareholder approval.

Communications Fund may not:

Technology Fund may not:

2. Act as an underwriter except to the extent the Fund may be deemed to be an
underwriter when disposing of securities it owns or when selling its own shares.

RISKS
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