FRANKLIN STRATEGIC SERIES, 485BPOS, 2000-08-31

FRANKLIN STRATEGIC SERIES
485BPOS, 2000-08-31

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As filed with the Securities and Exchange Commission on August 31, 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. 41 (X)

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 44 (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)
[X] on September 1, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) 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 Aggressive Growth Fund - Class A, B & C
Franklin California Growth Fund - Class A, B & C
Franklin Large Cap Growth Fund - Class A, B & C
Franklin Small Cap Growth Fund I - Class A & C
Franklin Small Cap Growth Fund II - Class A, B & C

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]

2 Franklin Aggressive Growth Fund

13 Franklin California Growth Fund

25 Franklin Large Cap Growth Fund

36 Franklin Small Cap Growth Fund I

46 Franklin Small Cap Growth Fund II

54 Distributions and Taxes

YOUR ACCOUNT

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

55 Choosing a Share Class

60 Buying Shares

63 Investor Services

66 Selling Shares

68 Account Policies

71 Questions

FOR MORE INFORMATION

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

Back Cover

FRANKLIN AGGRESSIVE GROWTH FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The Fund's investment goal is capital appreciation.

MAIN INVESTMENT STRATEGIES The Fund invests primarily in equity securities
of companies demonstrating accelerating growth, increasing profitability, or
above-average growth or growth potential as compared with the overall economy.

[Begin call out]
The Fund invests primarily in companies demonstrating accelerating growth,
increasing profitability, or above-average growth or growth potential.
[End callout]

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 invests in companies that the manager believes have the potential
for capital appreciation. When suitable opportunities are available, the
Fund may also invest in initial public offerings of securities, and may
invest a small portion of its assets in private or illiquid securities, such
as late stage venture capital financings.

The Fund's manager is a research driven, fundamental investor, pursuing an
aggressive 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, which are likely to lead to growth in
earnings and/or share price. Such advantages as a particular marketing
niche, proven technology, sound financial records, strong management, and
industry leadership are all factors the manager believes point to strong
growth potential.

In choosing individual equity investments, the Fund's manager also considers
sectors that have exceptional growth potential and fast growing, innovative
companies within these sectors. Consequently, the Fund, from time to time,
may have significant positions in particular sectors such as technology
(including electronic technology, technology services, biotechnology and
health care technology).

The Fund may invest up to 10% of its assets in foreign equity securities.

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 U.S. government securities, commercial paper, bank
obligations, repurchase agreements and other money market 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

[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 historically have 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.

AGGRESSIVE GROWTH STYLING INVESTING The Fund's manager uses an aggressive
growth strategy in choosing the Fund's investments. As a result, an
investment in the Fund involves a greater degree of risk and its share price
may be more volatile than an investment in a conservative equity fund or a
growth fund investing entirely in proven growth stocks. The prices of
aggressive growth stocks are based largely on projections of the issuer's
future earnings and revenues and product development. If a company's
earnings or revenues fall short of expectations, or if its products do not
come on line on a timely basis, its stock price may fall dramatically.
Aggressive growth stocks have performed exceptionally well in the last
several years. However, investors should not expect such historically unusual
performance to continue indefinitely. Currently aggressive growth stocks are
more expensive relative to their earnings or assets compared to value or
other stocks, and if those valuations return to more historical norms, the
prices of such aggressive growth stocks may moderate or fall. Prices of
these companies' securities historically have been more volatile than other
securities, especially over the short term.

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

In addition, smaller and midsize 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 and midsize
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 have a floating interest
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 of the Fund's
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.

SECTOR FOCUS - TECHNOLOGY COMPANIES To the extent that the Fund has
significant investments in one or a few sectors, it bears more risk than a
fund which always maintains broad sector diversification.

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 tight profit margins.

ELECTRONIC TECHNOLOGY AND TECHNOLOGY SERVICES COMPANIES 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 that their business plans will not develop as
anticipated and of rapidly changing technologies.

BIOTECHNOLOGY AND HEALTH TECHNOLOGY COMPANIES The biotechnology and health
technology industries are subject to extensive government regulation. These
industries 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,
which would, if enacted, affect the biotechnology and health technology
industries. In addition, these industries are 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 these
industries, the value of your shares may fluctuate significantly over
relatively short periods of time.

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

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 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)

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 None/1/ 4.00%/2/ 0.99%/3/
(load)

Please see "Choosing a Share Class" on page 55 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 0.50% 0.50% 0.50%
Distribution and service (12b-1) 0.34% 0.96% 0.98%
fees
Other expenses 0.47% 0.47% 0.47%
----------------------------
Total annual Fund operating 1.31% 1.93% 1.95%
expenses5
----------------------------
Management fee waiver5 -0.03% -0.03% -0.03%
----------------------------
Net annual Fund operating expenses5 1.28% 1.90% 1.92%
============================

1. Except for investments of $1 million or more (see page [#55) 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 Fund began offering shares on June 23, 1999. Total annual Fund operating
expenses are annualized.

5. For the year ended April 30, 2000, the administrator had agreed in advance to
limit its respective fees and to assume as their own expense certain expenses
otherwise payable by the Fund. The manager 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 0.47% and
total annual Fund operating expenses were 1.24% for Class A, 1.86% for Class B
and 1.88% for Class C. 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 fee 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; 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 $698/1 $958
CLASS B $593 $897
CLASS C $392 $697
If you do not sell your
shares:
CLASS B $193 $597
CLASS C $293 $697

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 $229 billion in assets.

The team responsible for the Fund's management is:

CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Herrmann has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1989.

MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS
Mr. McCarthy has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1992.

JOHN P. SCANDALIOS, PORTFOLIO MANAGER OF ADVISERS
Mr. Scandalios has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1996. Previously, he was with Chase
Manhattan Bank.

For the fiscal year ended April 30, 2000, management fees, before any advance
waiver, were 0.50% of the Fund's average 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 0.47% 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.

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

o 0.50% of the value of net assets up to and including $500 million;
o 0.40% of the value of net assets over $500 million up to and including $1
billion;
o 0.35% of the value of net assets over $1 billion up to and including $1.5
billion;
o 0.30% of the value of net assets over $1.5 billion up to and including $6.5
billion;
o 0.275% of the value of net assets over $6.5 billion up to and including
$11.5 billion;
o 0.25% of the value of net assets over $11.5 billion up to and including
$16.5 billion;
o 0.24% of the value of net assets over $16.5 billion up to and including $19
billion;
o 0.23% of the value of net assets over $19 billion up to and including $21.5
billion; and
o 0.22% of the value of net assets in excess of $21.5 billion.

[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 ENDED
CLASS A APRIL 30, 2000/1/
----------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
--------------------
Net investment loss2 (.15)
Net realized and unrealized gains 15.86
--------------------
Total from investment operations 15.71
--------------------
Less distributions from net investment income (.02)
Less distributions from net realized gains (.47)
--------------------
Total distributions (.49)
====================
Net asset value, end of period 25.22
====================
Total return (%)/3/ 158.14

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 171, 976
Ratios to average net assets: (%)
Expenses 1.244
Expenses excluding waiver and payments by 1.284
affiliate
Net investment loss (.68)/4/
Portfolio turnover rate (%) 148.67

CLASS B
----------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
--------------------
Net investment loss/2/ (.30)
Net realized and unrealized gains 15.95
--------------------
Total from investment operations 15.65
--------------------
Less distributions from net realized gains (.47)/5/
--------------------
Net asset value, end of period 25.18
====================
Total return (%)/3/ 157.55

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 33,613
Ratios to average net assets: (%)
Expenses 1.864
Expenses excluding waiver and payments by 1.904
affiliate
Net investment loss (1.31)/4/
Portfolio turnover rate (%) 148.67

PERIOD ENDED
CLASS C APRIL 30, 2000/1/
----------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
--------------------
Net investment loss2 (.30)
Net realized and unrealized gains 15.89
--------------------
Total from investment operations 15.59
--------------------
Less distributions from net realized gains (.47)
--------------------
Net asset value, end of period 25.12
====================
Total return (%)/3/ 156.90

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 80,473
Ratios to average net assets: (%)
Expenses 1.88/4/
Expenses excluding waiver and payments by 1.92/4/
affiliate
Net investment loss (1.34)/4/
Portfolio turnover rate (%) 148.67

1. For the period June 23, 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.
5. Includes distribution of net investment income in the amount of $.003.

FRANKLIN CALIFORNIA GROWTH FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The Fund's investment goal is capital appreciation.

MAIN INVESTMENT STRATEGIES The Fund invests primarily in equity securities of
California companies. For purposes of the Fund's investments, California
companies are companies headquartered or conducting a majority of their
operations in the state of California. The Fund invests in companies that the
manager believes have the potential for capital appreciation.

[Begin callout]
The Fund invests primarily in California companies' equity securities.
[End callout]

The Fund's 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
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, which are likely to lead to growth in earnings and/or
share price. Such advantages as a particular marketing niche, proven
technology, sound financial records, strong management, and industry
leadership are all factors the manager believes point to strong growth
potential.

In choosing individual equity investments, the Fund's manager considers
sectors that have growth potential and fast growing, innovative companies
within these sectors. The manager attempts to maintain the relative
weightings of sectors in the Fund's investment portfolio so that they are
similar to the relative weightings of sectors in the Franklin California 250
Growth Index(R) when selecting individual securities. Consequently, the Fund,
from time to time, may have significant positions in particular sectors such
as electronic technology, technology services, biotechnology and health care
technology.

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

CALIFORNIA Since the Fund invests primarily in California companies' equity
securities, events and conditions in California are likely to affect the
Fund's investments and its performance. These events may include changes in
economic and political conditions within that state, which are unpredictable
and can change at any time. For example, adverse economic conditions in Asia
could lead to a drop in Californian exports, which would hurt the
manufacturing, technology and other California industries dependent upon
exports.

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

GROWTH STYLE 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. The
prices of growth stocks are based largely on projections of the issuer's
future earnings and revenues. If a company's earnings or revenues fall short
of expectations, its stock price may fall dramatically. Growth stocks have
performed exceptionally well in the last several years. However, investors
should not expect such historically unusual performance to continue
indefinitely. Currently, growth stocks are more expensive relative to their
earnings or assets compared to value or other stocks, and if those valuations
return to more historical norms, the prices of such aggressive growth stocks
may moderate or fall. Prices of these companies' securities historically
have been more volatile than other securities, especially over the short
term.

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

SECTOR FOCUS - TECHNOLOGY COMPANIES To the extent that the Fund has
significant investments in one or a few sectors, it bears more risk than a
fund which maintains broad sector diversification.

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

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

CLASS A ANNUAL TOTAL RETURNS/1/

5.50% 17.57% 16.53% 47.63% 30.43% 15.71% 10.72% 95.17%*
92 93 94 95 96 97 98 99

YEAR

[Begin callout]
BEST
QUARTER:
Q4 '99
56.36%

WORST
QUARTER:
Q3 '98
-15.27%
[End callout]

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

SINCE
INCEPTION
1 YEAR 5 YEARS (10/30/91)
----------------------------------------------------------------------
Franklin California Growth Fund - 83.97%* 35.33% 26.35%
Class A/2/
S&P 500 Index/3/ 21.04% 28.56% 20.24%
Franklin California 250 Index/4/ 75.20% 36.83% 25.66%

SINCE
INCEPTION
1 YEAR (01/01/99)
----------------------------------------------------------------------
Franklin California Growth Fund - 89.59%* 89.59%
Class B/2/
S&P 500 Index/3/ 21.04% 21.04%
Franklin California 250 Index/4/ 75.20% 75.20%

SINCE
INCEPTION
1 YEAR (9/3/96)
----------------------------------------------------------------------
Franklin California Growth Fund - 90.91%* 36.30%
Class C/2/
S&P 500 Index/3/ 21.04% 29.63%
Franklin California 250 Index/4/ 75.20% 39.99%

*Recently many individual stocks and sectors such as technology have
significantly exceeded historical norms; investors should generally not
expect such outsized returns to continue.
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 13.87% 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(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the Fund's portfolio.
4. The unmanaged Franklin California 250 Growth Index consists of the 250
largest California based companies on an equal weighted basis chosen to
approximate the business segment weightings of the California economy. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the Fund's portfolio.

[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 percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge None/1/ 4.00%/2/ 0.99%/3/
(load)

Please see "Choosing a Share Class" on page 55 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/4/ 0.46% 0.46% 0.46%
Distribution and service (12b-1) 0.25% 1.00% 1.00%
fees
Other expenses 0.19% 0.19% 0.19%
-------------------------------
Total annual Fund operating 0.90% 1.65% 1.65%
expenses/4/
-------------------------------
Sweep money fund management fee -0.02% -0.02% -0.02%
waiver/4/
-------------------------------
Total annual Fund operating 0.88% 1.63% 1.63%
expenses/4/
===============================

1. Except for investments of $1 million or more (see page 55) 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 agreed in advance to
limit its management fees. 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. With this reduction, management fees were
0.44% and total annual Fund operating expenses were 0.88% for Class A and
1.63% for Class B and C. 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. 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 5 YEARS 10 YEARS
----------------------------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $660/1/ $840 $1,035 $1,597
CLASS B $566 $814 $1,087 $1,732/2/
CLASS C $363 $609 $ 978 $2,013
If you do not sell your
shares:
CLASS B $166 $514 $ 887 $1,732/2/
CLASS C $264 $609 $ 978 $2,013

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., San Mateo, CA
94404, is the Fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.

The team responsible for the Fund's management is:

CANYON A. CHAN CFA, VICE PRESIDENT OF ADVISERS
Mr. Chan has been a manager of the Fund since 1999. He joined Franklin
Templeton Investments in 1991.

CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Herrmann has been a manager of the Fund since 1993. He joined Franklin
Templeton Investments in 1989.

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
0.46% 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 0.44% 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.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS

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,
-------------------------------------------------------------------
2000 1999/2/ 1998 1997 1996
-------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 25.82 24.97 19.35 18.26 14.03
---------------------------------------------
Net investment .05 .10 .14 .13 .20
income/1/
Net realized and
unrealized gains 24.36 1.42 6.48 1.51 6.03
---------------------------------------------
Total from investment
operations 24.41 1.52 6.62 1.64 6.23
---------------------------------------------
Distributions from
net investment income (.08) (.14) (.14) (.12) (.23)
Distributions from
net realized gains - (.53) (.86) (.43) (1.77)
---------------------------------------------
Total distributions (.08) (.67) (1.00) (.55) (2.00)
---------------------------------------------
Net asset value, end
of year 50.15 25.82 24.97 19.35 18.26
=============================================
Total return (%)/4/ 94.90 6.39 34.98 8.94 47.42

RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year ($ x 1,000) 2,025,864 780,598 721,254 282,898 81,175
Ratios to average net
assets: (%)
Expenses .88 1.00 .99 1.08 .71
Expenses excluding
waiver and payments
by affiliate .88 1.00 .99 1.08 1.09
Net investment income .11 .41 .67 .84 1.42
Portfolio turnover
rate (%) 61.04 52.76 48.52 44.81 61.82

CLASS B
------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value,
beginning of year 25.75 24.31
-------------------------------------------
Net investment loss/1/ (.28) (.01)
Net realized and
unrealized gains 24.24 1.45
-------------------------------------------
Total from investment
operations 23.96 1.44
-------------------------------------------
Less distribution
from net investment
income (.07) -
-------------------------------------------
Net asset value, end
of year 49.64 25.75
===========================================
Total return (%)4 93.35 5.88

RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
year ($ x 1,000) 63,960 2,657
Ratios to average net
assets: (%)
Expenses 1.63 1.75/5/
Net investment loss (.61) (.33)/5/
Portfolio turnover
rate (%) 61.04 52.76

CLASS C YEAR ENDED APRIL 30,
--------------------------------------------------------------------------
2000 1999 1998 1997/3/
--------------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of year 25.63 24.81 19.27 18.05
--------------------------------------
Net investment income (loss) (.25) (.07) - .05
Net realized and unrealized gains 24.19 1.42 6.43 1.65
--------------------------------------
Total from investment operations 23.94 1.35 6.43 1.70
--------------------------------------
Distributions from net
investment income (.02) - (.03) (.05)
Distributions from net realized - (.53) (.86) (.43)
gains
--------------------------------------
Total distributions (.02) (.53) (.89) (.48)
--------------------------------------
Net asset value, end of year 49.55 25.63 24.81 19.27
======================================
Total return (%)/4/ 93.46 5.67 34.02 9.32

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 428,192 159,310 122,701 24,556
Ratios to average net assets: (%)
Expenses 1.63 1.75 1.74 1.86/5/
Net investment income (loss) (.64) (.33) (.10) .05/5/
Portfolio turnover rate (%) 61.04 52.76 48.52 44.81

1. Based on average shares outstanding effective year ended April 30, 2000.
2. For the period January 1, 1999 (effective date) to April 30, 1999 for
Class B.
3. For the period September 3, 1996 (effective date) to April 30, 1997 for
Class C.
4. Total return does not include sales charges, and is not annualized.
5. Annualized.

FRANKLIN LARGE CAP GROWTH FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
at least 80% of its total assets in equity securities of large cap growth
companies.

For purposes of the Fund's investments, large cap growth companies include
well-established companies with a market capitalization of $8.5 billion or
more that are expected to have revenue growth in excess of the economy as a
whole. The manager seeks companies across a wide range of industries that
have above-average growth potential and that are highly competitive within
their industry.

[Begin callout]
The Fund invests primarily in large cap growth companies.
[End callout]

The Fund's manager is a research driven, fundamental investor, pursuing a
growth strategy. As a "bottom-up" investor focusing primarily on individual
securities, the manager will focus on companies that have exhibited above
average growth, strong financial records and large market capitalization. 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, which are likely to lead to
growth in earnings and/or share price. Such advantages as a proven
technology, industry leadership, a particular niche, sound financial records
and strong management are all factors the manager believes point to strong
growth potential.

In choosing individual equity investments, the Fund's manager also considers
sectors that have superior growth potential and the fast growing, innovative
companies within these sectors. Consequently, the Fund, from time to time,
may have significant positions in particular sectors such as technology
(including electronic technology, technology services, biotechnology and
health technology) and telecommunications.

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 U.S. government securities, commercial paper, bank obligations,
repurchase agreements and other money market 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

SECTOR FOCUS - TECHNOLOGY COMPANIES To the extent that the Fund has
significant investments in one or a few sectors, it bears more risk than a
fund which maintains broad sector diversification.

BIOTECHNOLOGY AND HEALTH TECHNOLOGY COMPANIES The biotechnology and health
technology industries are subject to extensive government regulation. These
industries 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,
which would, if enacted affect the biotechnology and health technology
industries. In addition, these industries are 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 these
industries, the value of your shares may fluctuate significantly over
relatively short periods of time.

TELECOMMUNICATION COMPANIES In addition to risks faced by the technology
sector in general, telecommunication companies may be adversely affected by
international, federal, and state regulations to which they are subject. In
addition, this sector has been undergoing deregulations to enable increased
competition, which could affect the companies in these sectors.

FOREIGN SECURITIES Investing in foreign securities 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.

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.

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)

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 None1 4.00%/2/ 0.99%/3/
(load)

Please see "Choosing a Share Class" on page 55 for an explanation of how and
when these sales charges apply.

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

CLASS A CLASS B CLASS C
---------------------------------------------------------------
Management fees/5/ 0.50% 0.50% 0.50%
Distribution and service (12b-1) 0.33% 0.94% 1.00%
fees
Other expenses 0.59% 0.59% 0.59%
---------------------------
Total annual Fund operating 1.42% 2.03% 2.09%
expenses/5/
---------------------------
Management fee waiver/5/ -0.03% -0.03% -0.03%
---------------------------
Net annual Fund operating
expenses/5/ 1.39% 2.00% 2.06%
===========================

1. Except for investments of $1 million or more (see page 55) 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 Fund began offering shares on June 7, 1999. Total annual Fund
operating expenses are annualized.
5. For the fiscal year ended April 30, 2000, the administrator had agreed in
advance to limit its fees and to assume as its own expense certain expenses
otherwise payable by the Fund. 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. With these reductions,
management fees were 0.47% and total annual Fund operating expenses were
1.23% for Class A, 1.84% for Class B and 1.90% for Class C. 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; 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 $7081 $990
CLASS B $603 $927
CLASS C $406 $739
If you do not sell your
shares:
CLASS B $203 $627
CLASS C $307 $739

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 $229 billion in assets.

The team responsible for the Fund's management is:

THERESA F. SPATH CFA, PORTFOLIO MANAGER OF ADVISERS
Ms. Spath has been a manager of the Fund since its inception. She joined
Franklin Templeton Investments in 1994.

EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Jamieson has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1987.

JASON R. NUNN, PORTFOLIO MANAGER OF ADVISERS
Mr. Nunn has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1998. Previously, he worked in corporate
finance with Alex. Brown & Sons.

For the fiscal year ended April 30, 2000, management fees, before any advance
waiver were 0.50% of the Fund's average 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 0.47% 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 to reduce its fee if the Fund invests in a Franklin
Templeton money fund.

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

o 0.50% of the value of net assets up to and including $500 million;
o 0.40% of the value of net assets over $500 million and not over $1 billion;
o 0.35% of the value of net assets over $1 billion and not over $1.5 billion;
o 0.30% of the value of net assets over $1.5 billion and not over $6.5
billion;
o 0.275% of the value of net assets over $6.5 billion and not over $11.5
billion;
o 0.25% of the value of net assets over $11.5 billion and not over $16.5
billion;
o 0.24% of the value of net assets over $16.5 billion and not over $19
billion;
o 0.23% of the value of net assets over $19 billion and not over $21.5
billion; and
o 0.22% of the value of net assets in excess of $21.5 billion.

FINANCIAL HIGHLIGHTS [Insert graphic of a dollar bill]

This table presents the Fund's financial performance since its inception.

PERIOD ENDED
CLASS A APRIL 30, 2000/1/
-----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
----------------
Net investment loss2 (.06)
Net realized and unrealized gains 4.91
----------------
Total from investment operations 4.85
================
Less distributions from net investment income -/5/
-----------------
Net asset value, end of period 14.85
================
Total return (%)/3/ 48.59

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 39,402
Ratios to average net assets: (%)
Expenses 1.23/4/
Expenses excluding waiver and payments by 1.39/4/
affiliate
Net investment loss (.46)/4/
Portfolio turnover rate (%) 93.95

CLASS B
-----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
----------------
Net investment loss2 (.13)
Net realized and unrealized gains 4.90
----------------
Total from investment operations 4.77
================
Net asset value, end of period 14.77
================
Total return (%)3 47.70

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 4,502
Ratios to average net assets: (%)
Expenses 1.84/4/
Expenses excluding waiver and payments by 2.00/4/
affiliate
Net investment loss (1.06)/4/
Portfolio turnover rate (%) 93.95

PERIOD ENDED
CLASS C APRIL 30, 2000/1/
-----------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
----------------
Net investment loss2 (.14)
Net realized and unrealized gains 4.91
----------------
Total from investment operations 4.77
----------------
Net asset value, end of period 14.77
================
Total return (%)/3/ 47.70

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 35,345
Ratios to average net assets: (%)
Expenses 1.90/4/
Expenses excluding waiver and payments by 2.06/4/
affiliate
Net investment loss (1.13)/4/
Portfolio turnover rate (%) 93.95

1. For the period June 7, 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.
5. Includes distributions of net investment income in the amount of $.008.

FRANKLIN SMALL CAP GROWTH FUND I

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
at least 65% of its total assets in the equity securities of U.S. small
capitalization (small cap) companies. For this Fund, small cap companies are
those companies with market cap values not exceeding: (i) $1.5 billion; or
(ii) the highest market cap value in the Russell 2000 Index; whichever is
greater, at the time of purchase. That index consists of 2,000 small
companies that have publicly traded securities. Market capitalization is
defined as share price multiplied by the number of common stock shares
outstanding. The Fund generally expects that its portfolio median market cap
will significantly exceed the index's median market cap. The manager may
continue to hold an investment for further capital growth opportunities even
if the company is no longer small cap.

In addition to the Fund's main investments, the Fund may invest in equity
securities of larger companies. When suitable opportunities are available,
the Fund may also invest in initial public offerings of securities, and may
invest a very small portion of its assets in private or illiquid securities,
such as late stage venture capital financings. 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.

[Begin callout]
The Fund invests primarily in common stocks of small cap U.S. companies.
[End callout]

The Fund's 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
above-average 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, which are likely to lead to growth in
earnings and/or share price. Such advantages as a particular marketing
niche, proven technology, sound financial records, strong management, and
industry leadership are all factors the manager believes point to strong
growth potential.

In choosing individual equity investments, the Fund's manager also considers
sectors that have growth potential and fast growing, innovative companies
within these sectors. Consequently, the Fund, from time to time, may have
significant positions in particular sectors such as electronic technology and
technology services.

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 U.S. government securities, commercial paper, bank obligations,
repurchase agreements and other money market 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

SMALLER COMPANIES Smaller companies involve greater risks than larger, more
established companies. 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 and midsize 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 have a floating interest 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.

SECTOR FOCUS - TECHNOLOGY COMPANIES To the extent that the Fund has
significant investments in one or a few sectors, it bears more risk than a
fund which maintains broad sector diversification.

ELECTRONIC TECHNOLOGY AND TECHNOLOGY SERVICE COMPANIES. 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 that their business plans will not develop as
anticipated and of rapidly changing technologies.

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

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

CLASS A ANNUAL TOTAL RETURNS/1/

[insert bar chart]

21.77% 9.22% 42.20% 27.07% 15.78% -0.02% 97.08%*
93 94 95 96 97 98 99

YEAR

[Begin callout]
BEST
QUARTER:
Q4 '99
59.78%

WORST
QUARTER:
Q3 '98
-23.56%
[End callout]

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

SINCE
INCEPTION
1 YEAR 5 YEARS (2/14/92)
----------------------------------------------------------------------
Franklin Small Cap Growth Fund 85.73%* 31.19% 24.83%
I - Class A/2/
S&P 500 Index/3/ 21.04% 28.56% 20.23%
Russell 2500 Growth Index/4,5/ 55.48% 23.10% 15.73%
Russell 2500 Index/4,6/ 24.14% 19.43% 15.26%

SINCE
INCEPTION
1 YEAR (10/2/95)
----------------------------------------------------------------------
Franklin Small Cap Growth Fund I - Class C/2/ 92.63%* 27.70%
S&P 500 Index/3/ 21.04% 26.39%
Russell 2500 Growth Index/4,5/ 55.48% 19.78%
Russell 2500 Index/4,6/ 24.14% 16.23%

*Recently many individual stocks and sectors such as technology have
significantly exceeded historical norms; investors should generally not
expect such outsized returns to continue.
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 11.19% 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(R) Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the Fund's portfolio.
4. The Russell 2500 Growth Index is replacing the Russell 2500 Index as the
Fund's benchmark. The manager believes the composition of the Russell 2500
Growth Index provides a more appropriate comparison to the Fund's current
portfolio because its growth investment style emphasis is closer to that of
the Fund's. The Russell 2500 Index may be excluded from this comparison in
the future.
5. Source: Stand & Poor's Micropal. The Russell 2500 Growth Index is an
unmanaged group of those Russell 2500 companies with higher price-to-book
ratios and higher forecasted growth values. It includes reinvested dividends.
One cannot invest directly in an index, nor is an index representative of the
Fund's portfolio.
6. Source: Standard & Poor's Micropal. The Russell 2500 Index is an unmanaged
group of 2,500 stocks of smaller capitalization companies. It includes
reinvested dividends. One cannot invest directly in an index, nor is an index
representative of the Fund's portfolio.

[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 C
----------------------------------------------------------
Maximum sales charge (load) as a
percentage of offering price 5.75% 1.99%
Load imposed on purchases 5.75% 1.00%
Maximum deferred sales charge None/1/ 0.99%/2/
(load)

Please see "Choosing a Share Class" on page 55 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS C
----------------------------------------------------------
Management fees 0.45% 0.45%
Distribution and service (12b-1) 0.25% 1.00%
fees
Other expenses 0.15% 0.15%
======================
Total annual Fund operating 0.85% 1.60%
expenses
======================

1. Except for investments of $1 million or more (see page 55) and purchases
by certain retirement plans without an initial sales charge.
2. This is equivalent to a charge of 1% based on net asset value.

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 5 YEARS 10 YEARS
----------------------------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $657/1/ $831 $1,019 $1,564
CLASS C $360 $600 $ 962 $1,981
If you do not sell your
shares:
CLASS C $261 $600 $ 962 $1,981

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 $229 billion in assets.

The team responsible for the Fund's management is:

EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Jamieson has been a manager of the Fund since 1992. He joined Franklin
Templeton Investments in 1987.

MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS
Mr. McCarthy has been a manager of the Fund since 1993. He joined Franklin
Templeton Investments in 1992.

AIDAN O'CONNELL, PORTFOLIO MANAGER OF ADVISERS
Mr. O'Connell has been a manager of the Fund since 1998. He joined Franklin
Templeton Investments in 1998. Previously, he was a research associate and a
corporate finance associate at Hambrecht & Quist.

The Fund pays Advisers a fee for managing the Fund's assets. For the fiscal
year ended April 30, 2000, the Fund paid 0.45% of its average daily net
assets to the manager for its services.

[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS

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,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996/2/
------------------------------------------------------------------------------

PER SHARE DATA ($)

Net asset value,
beginning of year 24.65 25.93 18.96 19.75 14.90
--------------------------------------------
Net investment income1 .09 .06 .07 .03 .01
Net realized and
unrealized
gains (losses) 21.04 (1.02) 7.92 .04 6.23
--------------------------------------------
Total from investment
operations 21.13 (.96) 7.99 .07 6.24
--------------------------------------------
Distributions from net
investment income (.04) (.14) (.09) (.06) (.01)
Distributions from net
realized gains (.26) (.18) (.93) (.80) (1.38)
--------------------------------------------
Total distributions (.30) (.32) (1.02) (.86) (1.39)
--------------------------------------------
Net asset value, end of
year 45.48 24.65 25.93 18.96 19.75
============================================
Total return (%)/3/ 85.97 (3.44) 43.09 .14 44.06

RATIOS/SUPPLEMENTAL DATA
Net assets, end
of year ($ x 1,000) 11,199,559 4,251,284 3,957,972 1,071,352 444,912
Ratios to
average net assets: (%)
Expenses .85 .94 .89 .92 .97
Expenses excluding
waiver and
payments by affiliate .85 .94 .89 .92 1.00
Net investment income .24 .30 .32 .10 .09
Portfolio turnover rate (%) 24.67 46.73 42.97 55.27 87.92

CLASS C
-----------------------------------------------------------------------
Per share data ($)
Net asset value,
beginning of year 24.32 25.59 18.78 19.66 17.94
--------------------------------------------
Net investment loss/1/ (.19) (.09) (.02) (.05) (.03)
Net realized and
unrealized
gains (losses) 20.71 (1.00) 7.76 (.03) 2.71
--------------------------------------------
Total from investment
operations 20.52 (1.09) 7.74 (.08) 2.68
--------------------------------------------
Distributions from net
realized gains (.26) (.18) (.93) (.80) (.96)
--------------------------------------------
Net asset value, end of 24.32 25.59 18.78 19.66
year 44.58
============================================
Total return (%)/3/ 84.58 (4.08) 42.06 (.65) 15.98

Ratios/supplemental data
Net assets, end
of year ($ x 1,000) 1,667,870 764,715 731,707 146,164 24,102
Ratios to
average net assets: (%)
Expenses 1.60 1.69 1.64 1.69 1.76/4/
Net investment loss (.52) (.44) (.42) (.70) (.69)/4/
Portfolio turnover rate
(%) 24.67 46.73 42.97 55.27 87.92

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

FRANKLIN SMALL CAP GROWTH FUND II

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
at least 65% of its total assets in the equity securities of U.S. small
capitalization (small cap) companies. For this Fund, small cap companies are
those companies with market cap values not exceeding: (i) $1.5 billion; or
(ii) the highest market cap value in the Russell 2000 Index; whichever is
greater, at the time of purchase. That index consists of 2,000 small
companies that have publicly traded securities. Market capitalization is
defined as share price multiplied by the number of common stock shares
outstanding. The manager may continue to hold an investment for further
capital growth opportunities even if the company is no longer small cap.

[Begin callout]
The Fund invests primarily in common stocks of small cap U.S. companies.
[End callout]

The Fund's 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
above-average 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, which are likely to lead to growth in
earnings and/or share price. Such advantages as a particular marketing
niche, proven technology, sound financial records, 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 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 U.S. government securities, commercial paper, bank obligations,
repurchase agreements and other money market 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

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.

SECTOR FOCUS - TECHNOLOGY COMPANIES To the extent that the Fund has
significant investments in one or a few sectors, it bears more risk than a
fund which maintains broad sector diversification.

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 has no performance history.

[Insert graphic of a 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
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge None/1/ 4.00%/2/ 0.99%/3/
(load)

Please see "Choosing a Share Class" on page 55 for an explanation of how and
when these sales charges apply.

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

CLASS A CLASS B CLASS C
--------------------------------------------------------------------
Management fees/5/ 0.55% 0.55% 0.55%
Distribution and service
(12b-1) fees 0.35% 1.00% 1.00%
Other expenses/5/ 0.60% 0.60% 0.60%
-------------------------------
Total annual Fund operating 1.50% 2.15% 2.15%
expenses/5/
-------------------------------

1. Except for investments of $1 million or more (see page 55) 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 and distribution and service (12b-1) 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 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 1.40% for Class A and 2.05% for Class B and C 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.

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 $719/1/ $1,022
CLASS B $618 $ 973
CLASS C $415 $ 766
If you do not sell your
shares:
CLASS B $218 $ 673
CLASS C $316 $ 766

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 $229 billion in assets.

The team responsible for the Fund's management is:

EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Jamieson has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1987.

MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS
Mr. McCarthy has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1992.

AIDAN O'CONNELL, PORTFOLIO MANAGER OF ADVISERS
Mr. O'Connell has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1998. Previously, he was a research
associate and a corporate finance associate at Hambrecht & Quist.

The Fund pays Advisers a fee for managing the Fund's assets. 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
o 0.270% of the value of net assets in excess of $21.5 billion.

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

INCOME AND CAPITAL GAINS DISTRIBUTIONS Each 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 any Fund will pay dividends.

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

TAX CONSIDERATIONS In general, Fund distributions are taxable to you as
either ordinary income or capital gain. This is true whether you reinvest
your distributions in additional Fund shares or receive them in cash. Capital
gain dividends paid by a Fund are taxable to you as long-term capital gain 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 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 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 charge o No initial sales o Initial sales
of 5.75% or less charge charge of 1%

o Deferred sales o Deferred sales o Deferred sales
charge of 1% on charge of 4% 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
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING OF YOUR NET INVESTMENT
PRICE
----------------------------------------------------------------------
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 2.00 2.04
million

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 58), 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 57).

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

SALES CHARGES - CLASS B - AGGRESSIVE GROWTH FUND,
CALIFORNIA FUND, LARGE CAP FUND AND
SMALL CAP FUND II

IF YOU SELL YOUR SHARES
WITHIN THIS MANY YEARS THIS % IS DEDUCTED FROM
AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
-----------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0

With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 57). 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 Aggressive Growth Fund,
California Fund, Large Cap Fund and Small Cap Fund II 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 - AGGRESSIVE GROWTH FUND,
CALIFORNIA FUND, LARGE CAP FUND, SMALL CAP FUND I AND
SMALL CAP FUND II
THE SALES
WHEN YOU INVEST THIS CHARGE MAKES UP WHICH EQUALS THIS % OF
AMOUNT THIS % OF THE YOUR NET INVESTMENT
OFFERING PRICE
-------------------------------------------------------------------
Under $1 million 1.00 1.01

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

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

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows Aggressive Growth Fund,
California Fund, Large Cap Fund, Small Cap Fund I and Small Cap Fund II 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 64 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
Franklin Templeton funds to take advantage of the lower sales charges for
large purchases of Class A 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 the
Franklin Templeton funds for purposes of calculating the sales charge. You
also may combine the shares of your spouse, and your children or
grandchildren, if they are under the age of 21. Certain company and
retirement plan accounts also may be included.

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

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

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

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

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

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

SALES CHARGE WAIVERS Class A shares may be purchased without an initial sales
charge or CDSC by various individuals, institutions and retirement plans or
by investors who reinvest certain distributions and proceeds within 365
days. 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 $50 ($25
for an for an
Education 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, $100 $50
trustees and directors of Franklin
Templeton entities, and their
immediate family members
----------------------------------------------------------------

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

ACCOUNT APPLICATION The Small Cap Fund I - Class A is closed to new
investors, except retirement plan accounts and broker-dealer sponsored wrap
programs. If you were a shareholder of record as of April 30, 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 63). 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 Contact your Contact your
hands shaking] investment investment
representative representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE

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

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.

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

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

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

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

----------------------------------------------------------------------
[Insert graphic of Call Shareholder Call Shareholder
two arrows pointing Services at the Services at the number
in opposite number below, or send below or our automated
directions] signed written TeleFACTS system, or
instructions. The send signed written
BY EXCHANGE TeleFACTS system instructions.
cannot be used to
TeleFACTS(R) open a new account. (Please see page 64
1-800/247-1753 for information on
(around-the-clock (Please see page 64 exchanges.)
access) for information on
exchanges.)

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

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

[Insert graphic of person with a headset] INVESTOR SERVICES

AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest
in a Fund by automatically transferring money from your checking or savings
account each month to buy shares. 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 a Fund automatically by
transferring money from your paycheck to a Fund by electronic funds transfer.
If you are interested, indicate on your application that you would like to
receive an Automatic Payroll Deduction Program kit.

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

[Begin callout]
For Franklin Templeton 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 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.

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.

EXCHANGES INTO CLASS A SHARES OF SMALL CAP FUND I FROM OTHER FRANKLIN
TEMPLETON FUNDS WILL BE ACCEPTED ONLY TO ADD TO AN EXISTING ACCOUNT AND NOT
TO ESTABLISH A NEW ACCOUNT, OTHER THAN A RETIREMENT PLAN ACCOUNT OR INVESTORS
IN WRAP PROGRAMS.

[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
69).

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

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. Please keep in
mind that if a systematic withdrawal plan exhausts the Small Cap Fund I -
Class A shares in your account, your account will be closed and you will not
be able to buy additional Small Cap Fund I Class A shares or to reopen your
account.

[Insert graphic of a certificate] SELLING SHARES

You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply. Please also keep in mind that if you
sell all the Class A Shares in your Small Cap Fund I account, your Small Cap
Fund I account will be closed and you will not be able to buy additional
Small Cap Fund I Class A Shares or to reopen your Small Cap Fund I 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
Fund against potential claims based on the instructions received.

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

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

RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Bank & Trust retirement plan. For participants under age
59 1/2, 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 Contact your investment
shaking] representative
THROUGH YOUR
INVESTMENT
REPRESENTATIVE

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

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

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

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

----------------------------------------------------------------------
[Insert graphic of three You can call or write to have
lightning bolts] redemption proceeds sent to a bank
account. See the policies above for
BY ELECTRONIC FUNDS TRANSFER selling shares by mail or phone.
(ACH)
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 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 bank and
Fund accounts do not have at least
one common owner.

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

[Insert graphic of paper and pen] ACCOUNT POLICIES

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

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

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

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

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

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

STATEMENTS AND REPORTS You will receive 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 Aggressive Growth Fund, Large Cap Fund and Small Cap Fund
II may restrict or refuse purchases or exchanges by Market Timers. The
California Fund and Small Cap Fund I 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 the Funds maintain additional policies
and reserve 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 their investment minimums or waive or
lower their minimums for certain purchases.
o The Funds may modify or discontinue the exchange privilege on 60 days'
notice.
o 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, 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 Funds promptly.

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

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

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

1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. The Aggressive Growth Fund and Large Cap Fund may each pay up to 0.35% to
Distributors or others, out of which 0.10% generally will be retained by
Distributors for its distribution expenses.
3. Dealers may be eligible to receive up to 0.25% from the date of purchase.
After 8 years, Class B shares convert to Class A shares and dealers may then
receive the 12b-1 fee applicable to Class A.
4. Dealers may be eligible to receive up to 0.25% during the first year after
purchase and may be eligible to receive the full 12b-1 fee starting in the
13th month.

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.

[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 5:00 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 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)

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 #811-6243 FSS1 P 09/00

Prospectus

Franklin
Strategic
Income Fund

Franklin Strategic Series

CLASS A , B & C

INVESTMENT STRATEGY
INCOME

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]

2 Goals and Strategies

4 Main Risks

9 Performance

11 Fees and Expenses

13 Management

14 Distributions and Taxes

15 Financial Highlights

YOUR ACCOUNT

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

17 Choosing a Share Class

21 Buying Shares

24 Investor Services

27 Selling Shares

29 Account Policies

32 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] GOALS AND STRATEGIES

GOALS The Fund's principal investment goal is to earn a high level of
current income. Its secondary goal is capital appreciation over the long term.

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
at least 65% of its assets in U.S. and foreign debt securities. The Fund
shifts its investments among the following general asset classes:

o High yield and investment grade corporate bonds and preferred stocks of
issuers located in the U.S. and foreign countries, including emerging
market countries.

o Foreign government and agency bonds, including emerging markets.

o U.S. government bonds

o Mortgage securities and other asset-backed securities

o Convertible securities, including bonds and preferred stocks

A bond represents an obligation of an issuer to repay a loan of money to it,
and generally provides for the payment of interest. The Fund may invest up to
100% of its total assets in bonds that are rated below investment grade,
sometimes called "junk bonds" or "high yield" securities. Investment grade
bonds are rated in the top four ratings categories by independent rating
organizations such as Standard & Poor's Corporation (S&P) and Moody's
Investors Services, Inc. (Moody's). The Fund generally invests in bonds rated
at least Caa by Moody's or CCC by S&P, or unrated bonds the Fund's manager
determines are comparable. Generally, lower rated bonds pay higher yields
than more highly rated bonds to compensate investors for the higher risk.

A mortgage security is an interest in a pool of mortgage loans. Most
mortgage securities are pass-through securities, which means that they
provide investors with monthly payments consisting of pro rata share of both
regular interest and principal payments, as well as unscheduled early
prepayments, on the underlying mortgage pool. The Fund may have significant
investments in mortgage securities issued by agencies such as the Federal
Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association
(FNMA) and Government National Mortgage Association (GNMA).

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 different issuer.

[Begin callout]
The Fund invests primarily in U.S. and foreign debt securities.
[End callout]

The Fund uses an active asset allocation strategy to try to achieve its goals
of income and capital appreciation. This means the Fund allocates its assets
among securities in various market sectors based on the manager's assessment
of changing economic, global market, industry, and issuer conditions. The
Fund's manager uses a "top-down" analysis of macroeconomic trends combined
with a "bottom-up" fundamental analysis of market sectors, industries, and
issuers to try to take advantage of varying sector reactions to economic
events. The manager will evaluate country risk, business cycles, yield
curves, and values between and within markets. Consequently, the Fund, from
time to time, may have significant positions in particular sectors such as
telecommunications.

The Fund's ability to achieve its investment goals depends in part upon the
manager's skill in determining the Fund's asset allocation mix and sector
weightings. There can be no assurance that the manager's analysis of the
outlook for the economy and the business cycle will be correct.

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 commercial paper, repurchase agreements and other money market
securities. The manager also may invest in these types of securities or hold
cash while looking for suitable investment opportunities or maintain
liquidity. In these circumstances, the Fund may be unable to achieve its
investment goals.

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

[Begin callout]
Changes in global interest rates affect the prices of the Fund's debt
securities. If rates rise, the value of the debt securities in the Fund's
portfolio will fall, which may cause the Fund's share price to fall. This
means you could lose money.
[End callout]

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.

CREDIT An issuer of debt securities, including a governmental issuer, may 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.

LOWER-RATED SECURITIES. Securities rated below investment grade, sometimes
called "junk bonds," generally have more credit risk than higher-rated
securities.

Companies issuing high yield, fixed-income securities are not as strong
financially as those issuing securities with higher credit ratings. These
companies are more likely to encounter financial difficulties and are more
vulnerable to changes in the economy, such as a recession or a sustained
period of rising interest rates, that could affect their ability to make
interest and principal payments. In addition, banks may tighten their credit
standards, which may make it difficult for companies with weaker balance
sheets to have access to capital to continue operations or refinance their
outstanding debt. If an issuer stops making interest and/or principal
payments, payments on the securities may never resume. These securities may
be worthless and the Fund could lose its entire investment.

The prices of high yield, fixed-income securities fluctuate more than
higher-quality securities. Prices are especially sensitive to developments
affecting the company's business and to changes in the ratings assigned by
rating agencies. Prices often are closely linked with the company's stock
prices and typically rise and fall in response to factors that affect stock
prices. In addition, the entire high yield securities market can experience
sudden and sharp price swings due to changes in economic conditions, stock
market activity, large sustained sales by major investors, a high-profile
default, or other factors.

High yield securities generally are less liquid than higher-quality
securities. Many of these securities do not trade frequently, and when they
do their prices may be significantly higher or lower than expected. At times,
it may be difficult to sell these securities promptly at an acceptable price,
which may limit the Fund's ability to sell securities in response to specific
economic events or to meet redemption requests.

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

CALL A debt security may be prepaid (called) before maturity. Bonds are
more likely to be called when interest rates are falling, because the issuer
can issue new securities with lower interest payments. If a bond is called,
the Fund may have to replace it with a lower-yielding security. At any time,
the Fund may have a large amount of its assets invested in bonds subject to
call risk. A call of some or all of these bonds may lower the Fund's income
and yield and its distributions to shareholders.

FOREIGN SECURITIES Investing in foreign securities including securities of
foreign governments 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.

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 PRACTICE. Government supervision and regulation of foreign debt
markets, currency markets, trading systems and dealers 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.

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.

MORTGAGE SECURITIES AND ASSET-BACKED SECURITIES Mortgage securities differ
from conventional debt securities because principal is paid back over the
life of the security rather than at maturity. The Fund may receive
unscheduled prepayments of principal before the security's maturity date due
to voluntary prepayments, refinancing or foreclosure on the underlying
mortgage loans. To the Fund this means a loss of anticipated interest, and a
portion of its principal investment represented by any premium the Fund may
have paid. Mortgage prepayments generally increase when interest rates fall.
Mortgage securities may not be as effective in "locking-in" favorable
interest rates as are fixed-income securities.

Mortgage securities also are subject to extension risk. An unexpected rise in
interest rates could reduce the expected rate of prepayments on mortgage
securities and extend their anticipated life. This could cause the price of
the mortgage securities and the Fund's share price to fall and would make the
mortgage securities more sensitive to interest rate changes.

Issuers of asset-backed securities may have limited ability to enforce the
security interest in the underlying assets, and credit enhancements provided
to support the securities, if any, may be inadequate to protect investors in
the event of default. Like mortgage securities, asset-backed securities are
subject to prepayment and extension risks.

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.

SECTOR FOCUS - TELECOMMUNICATIONS COMPANIES Because the Fund may from time
to time have significant investments in one or a few sectors, it will have
more risk than a fund which always maintains broad diversification among
sectors. The telecommunications sector has historically been volatile due to
the rapid pace of product change and development. The wireless
telecommunications industry is in its early developmental stages, and is
predominantly characterized by emerging, rapidly growing companies. The
securities prices of companies operating within the telecommunications sector
are potentially subject to abrupt or erratic movements. In addition, the
activities of telecommunications companies fall under international, federal
and state regulations. These companies may be adversely affected by changes
in government regulations. Increasing competition due to past regulatory
changes in the telephone communications industry continues and, whereas
certain companies have benefited, many companies may be adversely affected in
the future.

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 and risks can be found
in the Fund's Statement of Additional Information (SAI).

[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 5 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 RETURNS/1/

[Insert bar graph]

18.68% 17.05% 10.03% 4.05% 2.33%
95 96 97 98 99

YEAR

[Begin callout]
BEST QUARTER:
Q4 '98 6.20%

WORST QUARTER:
Q3 '98 -4.18%
[End callout]

AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1999
SINCE
INCEPTION
1 YEAR 5 YEARS (5/24/94)
----------------------------------------------------------------
Strategic Income Fund - -2.04% 9.28% 8.58%
Class A/2/
Lehman Brothers U.S. -0.82% 7.73% 7.01%
Aggregate Index/3/

SINCE
INCEPTION
1 YEAR (1/1/99)
----------------------------------------------------------------
Strategic Income Fund - -1.67% -1.67%
Class B/2/
Lehman Brothers U.S. -0.82% -0.82%
Aggregate Index/3/

SINCE
INCEPTION
1 YEAR (5/1/98)
----------------------------------------------------------------
Strategic Income Fund - -0.06% 0.77%
Class C/2/
Lehman Brothers U.S. -0.82% 3.32%
Aggregate Index/3/

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 0.79% 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 Lehman Brothers U.S. Aggregate
Index includes fixed rate debt issues rated investment grade or higher. All
issues have at least one year to maturity and an outstanding par value of at
least $100 million for U.S. Government issues and $50 million for all others.
The Lehman Brothers U.S. Aggregate Index is a composite of the
Government/Corporate Index and the Mortgage-Backed Securities Index. Total
return includes reinvestment of interest. One cannot invest directly in an
index, nor is an index representative of the Fund's portfolio.

[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
percentage of offering price 4.25% 4.00% 1.99%
Load imposed on purchases 4.25% None 1.00%
Maximum deferred sales charge None/1/ 4.00%/2/ 0.99%/3/
(load)

Please see "Choosing a Share Class" on page 17 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/4/ 0.53% 0.53% 0.53%
Distribution and service
(12b-1) fees 0.25% 0.65% 0.65%
Other expenses 0.22% 0.22% 0.22%
-------------------------------
Total annual Fund operating 1.00% 1.40% 1.40%
expenses/4/
-------------------------------
Management fee waiver/2/ -0.01% -0.01% 0.01%
-------------------------------
Net annual Fund operating
expenses/2/ 0.99% 1.39% 1.39%
===============================

1. Except for investments of $1 million or more (see page 17)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 limit its management fees and to assume as its own expense certain
expenses otherwise payable by the Fund. The manager also had agreed in
advance to reduce its fee to reflect reduced services resulting from the
Fund's investment in a Franklin Templeton money fund. With these reductions,
management fees were 0.52% and total annual Fund operating expenses were
0.75% for Class A, 1.15% for Class B and 1.15% for Class C. 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 fee 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; 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 5 YEARS 10 YEARS
----------------------------------------------------------------------
If you sell your shares at
the end of the period:
CLASS A $522/1/ $727 $949 $1,586
CLASS B $542 $740 $961 $1,560/2/
CLASS C $339 $536 $853 $1,752
If you do not sell your
shares:
CLASS B $142 $440 $761 $1,560/2/
CLASS C $240 $536 $853 $1,752

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., San Mateo, CA
94404, is the Fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.

The team responsible for the Fund's management is:

CHRISTOPHER MOLUMPHY CFA, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Molumphy has been a manager of the Fund since 1994. He joined Franklin
Templeton Investments in 1988.

ERIC G. TAKAHA CFA, VICE PRESIDENT OF ADVISERS
Mr. Takaha has been a manager of the Fund since 1997. He joined Franklin
Templeton Investments in 1989.

Under an agreement with Advisers, Templeton Investment Counsel, Inc.
(Investment Counsel), 500 East Broward Blvd., Ft. Lauderdale, FL 33394,
through its Templeton Global Bond Managers division (Global Bond Managers),
is the Fund's sub-advisor. A team from Global Bond Managers provides Advisers
with investment management advice and assistance.

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
0.53% 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 0.28% 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. The manager, however, is required by the Fund's
Board of Trustees and an order by the Securities and Exchange Commission to
reduce its fee if the Fund invests in a Franklin Templeton money fund.

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

INCOME AND CAPITAL GAIN DISTRIBUTIONS The Fund intends to pay a dividend at
least monthly, on or about the 15th day of the month, 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 Fund
will pay dividends.

To receive a distribution, you must be a shareholder on the record date. The
record dates 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.

[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.

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS

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,
---------------------------------------------------------------------
2000 1999/3/ 1998 1997 1996
---------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, 10.84 11.24 10.86 10.77 10.18
beginning of year
-----------------------------------------
Net investment income1 .82 .86 .87 .93 .85
Net realized and (1.02) (.43) .50 .39 .67
unrealized
gains (losses)
-----------------------------------------
Total from investment (.20) .43 1.37 1.32 1.52
operations
-----------------------------------------
Distributions from net (.80) (.83) (.90) (.96) (.82)
investment income
Distributions from net - - (.09) (.27) (.11)
realized gains
-----------------------------------------
Total distributions (.80) (.83) (.99) (1.23) (.93)
-----------------------------------------
Net asset value, end of 9.84 10.84 11.24 10.86 10.77
year
=========================================

Total return (%)/2/ (1.81) 4.23 13.10 12.64 15.59

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 254,419 247,574 166,633 34,864 13,022
($ x 1,000)
Ratios to average net
assets: (%)
Expenses .75 .58 .25 .23 .25
Expenses excluding .99 .99 1.05 1.05 1.08
waiver and payments by
affiliate
Net investment income 8.10 7.99 7.65 8.60 8.53
Portfolio turnover rate (%) 43.71 48.68 47.47 114.26 73.95

CLASS B
---------------------------------------------------------------------

PER SHARE DATA ($)
Net asset value, 10.86 10.76
beginning of year
-----------------------------------------
Net investment income1 .79 .29
Net realized and (1.03) .07
unrealized
gains (losses)
-----------------------------------------
Total from investment (.24) .36
operations
-----------------------------------------
Distributions from net (.76) (.26)
investment income
-----------------------------------------
Net asset value, end of 9.86 10.86
year
-----------------------------------------

Total return (%)/2/ (2.18) 3.40

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 13,641 4,281
($ x 1,000)
Ratios to average net
assets: (%)
Expenses 1.15 .98/4/
Expenses excluding 1.39 1.39/4/
waiver and payments by
affiliate
Net investment income 7.78 7.59/4/
Portfolio turnover rate (%) 43.71 48.68

CLASS C YEAR ENDED APRIL 30
2000 1999
---------------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, 10.84 11.19
beginning of year
-----------------------------------------
Net investment income1 .78 .76
Net realized and (1.02) (.40)
unrealized
losses
-----------------------------------------
Total from investment (.24) .36
operations
Distributions from net (.76) (.71)
investment income
-----------------------------------------
Net asset value, end of 9.84 10.84
year
=========================================

Total return (%)/2/ (2.20) 3.59

RATIOS/SUPPLEMENTAL DATA
Net assets, end of year 39,713 36,245
($ x 1,000)
Ratios to average net
assets: (%)
Expenses 1.15 .98
Expenses excluding 1.39 1.39
waiver and payments by
affiliate
Net investment income 7.72 7.59
Portfolio turnover rate (%) 43.71 48.68

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

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 o Initial
charge of 4.25% sales charge sales charge of
or less 1%

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

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

SALES CHARGES - CLASS A

THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING % OF YOUR NET
PRICE INVESTMENT
--------------------------------------------------------------------
Under $100,000 4.25 4.44
$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 2.00 2.04
million

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 20), 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 19).
DISTRIBUTION AND SERVICE (12B-1) FEES Class A has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the 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

IF YOU SELL YOUR SHARES
WITHIN THIS MANY YEARS AFTER THIS % IS DEDUCTED
BUYING THEM 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 19). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.

DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution and other fees of up to 0.65% 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

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

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

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution and other fees of up to 0.65% 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

[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]

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 Class A shares.

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.

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

SALES CHARGE WAIVERS Class A shares may be purchased without an initial
sales charge or CDSC by various individuals, institutions and retirement
plans or by investors who reinvest certain distributions and proceeds within
365 days. 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 $50 ($25
for an for an
Education 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 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 24). 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 If you have another Before requesting a
of phone] Franklin Templeton fund telephone purchase,
account with your bank please make sure we
BY PHONE account information on have your bank account
file, you may open a new information on file. If
(Up to $100,000 account by phone. we do not have this
per day) information, you will
To make a same day need to send written
1-800/632-2301 investment, please call instructions with your
us by 1:00 p.m. Pacific bank's name and
time or the close of the address, a voided check
New York Stock Exchange, or savings account
whichever is earlier. deposit slip, and a
signature guarantee if
the bank and Fund
accounts do not have at
least one common owner.

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 Make your check payable
[Insert graphic to Franklin Strategic to Franklin Strategic
of envelope] Income Fund. Income Fund. Include
your account number on
BY MAIL Mail the check and your the check.
signed 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 Call to receive a wire Call to receive a wire
of three control number and wire control number and wire
lightning bolts] instructions. instructions.

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

(Please see page 25 for (Please see page 25 for
TeleFACTS(R) information on information on
1-800/247-1753 exchanges.) exchanges.)
(around-the-clock
access)
----------------------------------------------------------------------

[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.

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.

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
30).

*Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange into
Class A without any sales charge.

[Insert graphic of a certificate] SELLING SHARES

You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.

[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]

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
envelope] share certificates (if you hold share
certificates) to Investor Services.
BY MAIL Corporate, partnership or trust
accounts may need to send additional
documents.

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

A check will be mailed to the name(s)
and address on the account, or
otherwise according to your written
instructions.
---------------------------------------------------------------
[Insert graphic of As long as your transaction is for
phone] $100,000 or less, you do not hold share
certificates and you have not changed
BY PHONE your address by phone within the last
15 days, you can sell your shares by
1-800/632-2301 phone.

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
three lightning redemption proceeds sent to a bank
bolts] account. See the policies above for
selling shares by mail or phone.

Before requesting to have redemption
proceeds sent to a bank account, please
BY ELECTRONIC FUNDS make sure we have your bank account
TRANSFER (ACH) 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 bank and
Fund accounts do not have at least one
common owner.

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

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 Fund may restrict or refuse purchases or 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.

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

CLASS A CLASS B CLASS C
--------------------------------------------------------------------
COMMISSION (%) --- 3.00 2.00
Investment under $100,000 4.00 --- ---
$100,000 but under $250,000 3.25 --- ---
$250,000 but under $500,000 2.25 --- ---
$500,000 but under $1 1.85 --- ---
million
$1 million or more up to 0.75/1/ --- ---
12B-1 FEE TO DEALER 0.25 0.15/2/ 0.65/3/

1. During the first year after purchase, dealers may not be eligible to
receive the 12b-1 fee.
2. Dealers may be eligible to receive up to 0.15% 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.
3. Dealers may be eligible to receive up to 0.15% 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 5:00 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 1-800/321-8563 6:00 a.m. to 5:00 p.m.
Services
TDD (hearing 1-800/851-0637 5:30 a.m. to 5:00 p.m.
impaired)

FOR MORE INFORMATION

You can learn more about the 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 the 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 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 194 P 09/00

FRANKLIN
BLUE CHIP FUND

FRANKLIN STRATEGIC SERIES

CLASS A, B & C

INVESTMENT STRATEGY
GROWTH

SEPTEMBER 1, 2000

[Insert Franklin Templeton Ben Head]
FRANKLIN TEMPLETON INVESTMENTS

The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.

CONTENTS

THE FUND

Information about
the Fund you should know before investing

2 Goal and Strategies
4 Main Risks
6 Performance
7 Fees and Expenses
9 Management
10 Distributions and Taxes
11 Financial Highlights

YOUR ACCOUNT

Information about sales charges, account transactions and services

13 Choosing a Share Class
17 Buying Shares
20 Investor Services
23 Selling Shares
25 Account Policies
28 Questions

FOR MORE INFORMATION

Where to learn more about the Fund

Back Cover

THE FUND

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

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

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
mainly in equity securities of blue chip companies located in the U.S.

For purposes of the Fund's investments, blue chip companies are
well-established companies with strong financial records relative to other
companies in their respective industries. These companies generally dominate
or are expected to dominate their respective industries and have a reputation
for quality management as well as superior products and services.

[Begin callout]
The Fund invests mainly in blue chip companies' common stocks.
[End callout]

PORTFOLIO SELECTION The manager is a research driven, fundamental investor.
As a "bottom-up" investor focusing primarily on individual securities, the
manager chooses companies that it believes have a sustainable competitive
advantage, a strong financial record, and a market capitalization of more
than $1 billion. The manager relies on a team of analysts to provide in-depth
industry expertise and uses both qualitative and quantitative analysis to
evaluate. Although the manager searches for investments across a large number
of industries, it is possible that from time to time, the Fund may have a
substantial portion of its investments in one or more sectors, such as
technology. The Fund intends to limit its investment in foreign securities
not publicly traded in the U.S. to 10% of total assets.

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
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.

[Insert graphic of envelope] MAIN RISKS
----------

FOCUS ON LIMITED SECTORS - TECHNOLOGY COMPANIES The Fund's current
substantial position in companies within the technology sector carries much
greater risks of adverse developments among such industries than a fund that
invests in a wider variety of industries across many sectors. 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. Even those
Technology companies which are considered blue chip 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. Prices
of these companies' securities historically have been more volatile than
other securities, especially over the short term and often change
collectively without regard to the merits of individual companies. To the
extent that the Fund focuses on other sectors, it will be subject to greater
risks than a fund which always maintains broad sector diversification.

FOREIGN SECURITIES Investing in foreign securities typically involves more
risks than investing in U.S. securities. These risks can increase the
potential for losses in the Fund and may include, among others, currency
risks (fluctuations in currency exchange rates and the new euro currency),
country risks (political, social and economic instability, currency
devaluations and policies that have the effect of limiting or restricting
foreign investment or the movement of assets), different trading practices,
less government supervision, less publicly available information, limited
trading markets and greater volatility.

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 bull and 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 three 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 RETURNS/1

BEST
QUARTER:

Q4 '99 20.63%

WORST
QUARTER:

Q3 '98
-10.85%

[Insert bar graph]

97 98 99
7.45% 18.24% 34.62%

AVERAGE ANNUAL TOTAL RETURNS

For the periods ended December 31, 1999

SINCE
INCEPTION
1 YEAR (6/3/96)
--------------------------------------------------------------
Franklin Blue Chip Fund - Class A/2 26.87% 16.00%
S&P 500 Index/3 21.04% 26.58%

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 4.26% 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(R)Index is an unmanaged
group of widely held common stocks covering a variety of industries. It
includes reinvested dividends. One cannot invest directly in an index, nor is
an index representative of the Fund's portfolio.

[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/1 CLASS C/1

Maximum sales charge (load) as a
percentage of offering price 5.75% 4.00% 1.99%
Load imposed on purchases 5.75% None 1.00%
Maximum deferred sales charge (load) None/2 4.00%/3 0.99%/4

Please see "Choosing a Share Class" on page 13 for an explanation of how and
when these sales charges apply.

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)

CLASS A CLASS B/1 CLASS C/1

Management fees/5 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.33% 1.00% 1.00%
Other expenses/5 0.33% 0.33% 0.33%
-------------------------
Total annual Fund operating expenses 5 1.41% 2.08% 2.08%
-------------------------
Management fee waiver/5 -0.02% -0.02% -0.02%
-------------------------
Net annual Fund operating expenses/5 1.39% 2.06% 2.06%
=========================

1. The Fund began offering Class B and C shares on February 1, 2000. Annual
Fund operating expenses for Class B and C are annualized. The distribution
and service (12b-1) fees are based on the maximum fees allowed under the
respective Rule 12b-1 plans for Class B and C.
2. Except for investments of $1 million or more (see page 13) and purchases
by certain retirement plans without an initial sales charge.
3. Declines to zero after six years.
4. This is equivalent to a charge of 1% based on net asset value.
5. For the fiscal year ended April 30, 2000, the manager had agreed in
advance to limit its management fees and to assume as its own expense certain
expenses otherwise payable by the Fund. The manager also had agreed in
advance to reduce its fee to reflect reduced services resulting from the
Fund's investment in a Franklin Templeton money fund. With these reductions,
management fees were 0.58% and total annual Fund operating expenses were
1.23% for Class A, 1.82% for Class B and C. After April 30, 2001, the manager
may end this arrangement at any time. The manager, however, is required by
the Fund's Board of Trustees and an order by the Securities and Exchange
Commission to reduce its fee 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; 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 5 YEARS 10 YEARS
----------------------------------------------------------------------
If you sell your shares at the end of the period:
CLASS A $708 1 $990 $1,292 $2,148
CLASS B $609 $946 $1,308 $2,218/2
CLASS C $406 $739 $1,197 $2,466
If you do not sell your shares:
CLASS B $209 $646 $1,108 $2,218/2
CLASS C $307 $739 $1,197 $2,466

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., San Mateo, CA
94404, is the Fund's investment manager. Together, Advisers and its
affiliates manage over $229 billion in assets.

The team responsible for the Fund's management is:

SALLY EDWARDS HAFF, SENIOR VICE PRESIDENT OF ADVISERS
Ms. Haff has been a manager of the Fund since 1999. She joined Franklin
Templeton Investments in 1986.

ALYSSA RIEDER, PORTFOLIO MANAGER OF ADVISERS
Ms. Rieder has been a manager of the Fund since 1999. She joined Franklin
Templeton Investments in 1998. Previously, she was in financial management
roles at T. Rowe Price Associates, Inc. and YFA.

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
0.75% 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 0.58% of its average daily net assets to the manager for its
services. After April 30, 2001, 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 fee if the Fund invests in a Franklin
Templeton money 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.

[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.

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

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,
2000/4 1999 1998 1997/5
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA ($)
Net asset value, beginning of year 14.41 12.46 10.85 10.00
------------------------------------------
Net investment income/1 - .04 .09 .09
Net realized and unrealized gains 3.97 1.97 1.67 .82
------------------------------------------
Total from investment operations 3.97 2.01 1.76 .91
------------------------------------------
Distributions from net investment income (.01) (.06) (.06) (.06)
Distributions from net realized gains (.47) - (.09) -
------------------------------------------
Total distributions (.48) (.06) (.15) (.06)
------------------------------------------
Net asset value, end of year 17.90 14.41 12.46 10.85
==========================================
Total return (%)/2 27.96 16.18 16.41 9.14
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 140,685 54,880 16,836 5,600
Ratios to average net assets: (%)
Expenses 1.23 1.25 1.25 1.25/3
Expenses excluding waiver and
payments by affiliate 1.39 1.51 1.95 2.22/3
Net investment income - .55 1.04 1.07/3
Portfolio turnover rate (%) 63.04 35.74 57.67 11.14

</TABLE>

CLASS B
Per share data ($)
Net asset value, beginning of period 16.45
----------
Net investment loss/1 (.03)
Net realized and unrealized gains 1.45
----------
Total from investment operations 1.42
----------
Net asset value, end of period 17.87
==========
Total return (%)/2 8.63
Ratios/supplemental data
Net assets, end of period ($ x 1,000) 2,026
Ratios to average net assets: (%)
Expenses 1.82/3
Expenses excluding waiver and
payments by affiliate 2.06/3
Net investment loss (7.15)/3
Portfolio turnover rate (%) 63.04

YEAR ENDED
CLASS C APRIL 30, 2000/4
--------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 16.45
----------
Net investment loss/1 (.03)
Net realized and unrealized gains 1.49
----------
Total from investment operations 1.46
----------
Net asset value, end of period 17.91
==========
Total return (%)/2 8.88
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 3,608
Ratios to average net assets: (%)
Expenses 1.82/3
Expenses excluding waiver and
payments by affiliate 2.06/3
Net investment loss (6.88)/3
Portfolio turnover rate (%) 63.04

1. Based on average shares outstanding effective year ended April 30, 2000.
2. Total return does not include sales charges, and is not annualized.
3. Annualized.
4. For the period February 1, 2000 (effective date for Class B and Class C)
to April 30, 2000.
5. For the period June 3, 1996 (effective date for Class A) to April 30, 1997.

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

o Lower annual o Higher annual o Higher annual
expenses than Class B expenses than Class A expenses than Class A
or C due to lower (same as Class C) due (same as Class B) due
distribution fees to higher to higher
distribution fees. distribution fees. No
Automatic conversion conversion to Class A
to Class A shares shares, so annual
after eight years, expenses do not
reducing future decrease.The Fund
annual expenses. began offering Class
B and C shares on
February 1, 2000.

SALES CHARGES - CLASS A

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

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

INVESTMENTS OF $1 MILLION OR MORE If you invest $1 million or more, either
as a lump sum or through our cumulative quantity discount or letter of intent
programs (see page 16), 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 15).

DISTRIBUTION AND SERVICE (12B-1) FEES Class A 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
Class A shares and provide other services to shareholders. Because these fees
are paid out of Class A's assets on an on-going basis, over time these fees
will increase the cost of your investment and may cost you more than paying
other types of sales charges.

SALES CHARGES - CLASS B

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

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

With Class B shares, there is no initial sales charge. However, there is a
CDSC if you sell your shares within six years, as described in the table
above. The way we calculate the CDSC is the same for each class (please see
page 15). After 8 years, your Class B shares automatically convert to Class A
shares, lowering your annual expenses from that time on.

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

SALES CHARGES - CLASS C

THE SALES CHARGE
MAKES UP THIS % WHICH EQUALS THIS %
WHEN YOU INVEST THIS AMOUNT OF THE OFFERING PRICE OF YOUR NET INVESTMENT
---------------------------------------------------------------------------
Under $1 million 1.00 1.01

We place any investment of $1 million or more in Class A shares, since there
is no initial sales charge and Class A's annual expenses are lower.

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

DISTRIBUTION AND SERVICE (12B-1) FEES Class C has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the Fund to pay
distribution and other fees of up to 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

[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]

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 Class A shares.

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

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

SALES CHARGE WAIVERS Class A shares may be purchased without an initial
sales charge or CDSC by various individuals, institutions and retirement
plans or by investors who reinvest certain distributions and proceeds within
365 days. 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 paper with lines and someone writing] BUYING SHARES
--------------

MINIMUM INVESTMENTS

----------------------------------------------------------------------
INITIAL ADDITIONAL
----------------------------------------------------------------------
Regular accounts $1,000 $50
----------------------------------------------------------------------
Automatic investment plans $50 ($25 for an $50 ($25 for an
Education IRA) Education IRA)
----------------------------------------------------------------------
UGMA/UTMA accounts $100 $50
----------------------------------------------------------------------
Retirement accounts (other than no minimum no minimum
IRAs, IRA rollovers,
Education IRAs or Roth IRAs)
----------------------------------------------------------------------
IRAs, IRA rollovers, Education $250 $50
IRAs or Roth IRAs
----------------------------------------------------------------------
Broker-dealer sponsored wrap $250 $50
account programs
----------------------------------------------------------------------
Full-time employees, officers,
trustees and directors of
Franklin Templeton entities, $100 $50
and their immediate family
members
----------------------------------------------------------------------

Please note that you may only buy shares of a fund eligible
for sale in your state or jurisdiction.

ACCOUNT APPLICATION If you are opening a new account, please complete and
sign the enclosed account application. Make sure you indicate the share class
you have chosen. If you do not indicate a class, we will place your purchase
in Class A shares. To save time, you can sign up now for services you may
want on your account by completing the appropriate sections of the
application (see "Investor Services" on page 20). 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 Contact your Contact your
hands shaking] THROUGH investment investment
YOUR representative representative
INVESTMENT
REPRESENTATIVE

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

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

Mail the check and
deposit slip or note
to Investor Services.
----------------------------------------------------------------------
[Insert graphic of Call to receive a Call to receive a
three lightning bolts] wire control number wire control number
BY WIRE and wire instructions. and wire instructions.

1-800/632-2301 Wire the funds and To make a same day
mail your signed wire investment,
(or 1-650/312-2000 application to please call us by
collect) Investor Services. 1:00 p.m. Pacific
Please include the time and make sure
wire control number your wire arrives by
or your new account 3:00 p.m.
number on the
application.

To make a same day
wire investment,
please call us by
1:00 p.m. Pacific
time and make sure
your wire arrives by
3:00 p.m.
----------------------------------------------------------------------
[Insert graphic of two Call Shareholder Call Shareholder
arrows pointing in Services at the Services at the
opposite directions] number below, or send number below or our
signed written automated TeleFACTS
BY EXCHANGE instructions. The system, or send
TeleFACTS(R) TeleFACTS system signed written
1-800/247-1753 cannot be used to instructions.
(around-the-clock open a new account.
access) (Please see page 21
(Please see page 21 for information on
for information on exchanges.)
exchanges.)
----------------------------------------------------------------------

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

[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.

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.

[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]

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
26).

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

You can sell your shares at any time. Please keep in mind that a contingent
deferred sales charge (CDSC) may apply.

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

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

A check will be mailed to the
name(s) and address on the account,
or otherwise according to your
written instructions.
----------------------------------------------------------------------
[Insert graphic of phone] As long as your transaction is for
BY PHONE $100,000 or less, you do not hold
1-800/632-2301 share certificates and you have not
changed your address by phone within
the last 15 days, you can sell your
shares by phone.

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
lightning bolts] redemption proceeds sent to a bank
BY ELECTRONIC FUNDS TRANSFER account. See the policies above for
(ACH) 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 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 bank and
Fund accounts do not have at least
one common owner.

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

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

[Insert graphic of paper and pen] ACCOUNT POLICIES
----------------

[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.

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.

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 Fund may restrict or refuse purchases or 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:

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

CLASS A CLASS B CLASS C
---------------------------------------------------------------
Commission (%) - 4.00 2.00
Investment under $50,000 5.00 - -
$50,000 but under $100,000 3.75 - -
$100,000 but under $250,000 2.80 - -
$250,000 but under $500,000 2.00 - -
$500,000 but under $1 million 1.60 - -
$1 million or more up to 1.00/1 - -
12b-1 fee to dealer 0.25/2 0.25/3 1.00/4

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.
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

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 5:00 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 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 the 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 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: publicinfo(R)sec.gov.

Investment Company Act file #811-6243 483 P 09/00

Prospectus

FRANKLIN STRATEGIC SERIES

ADVISOR CLASS

INVESTMENT STRATEGY GROWTH

FRANKLIN AGGRESSIVE GROWTH FUND
FRANKLIN LARGE CAP GROWTH FUND
FRANKLIN SMALL CAP GROWTH FUND I
FRANKLIN SMALL CAP GROWTH FUND II

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]

2 Franklin Aggressive Growth Fund

11 Franklin Large Cap Growth Fund

20 Franklin Small Cap Growth Fund I

30 Franklin Small Cap Growth Fund II

38 Distributions and Taxes

YOUR ACCOUNT

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

39 Qualified Investors

41 Buying Shares

43 Investor Services

46 Selling Shares

48 Account Policies

50 Questions

FOR MORE INFORMATION

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

Back Cover

FRANKLIN AGGRESSIVE GROWTH FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

GOAL The Fund's investment goal is capital appreciation.

[Begin call out]
The Fund invests primarily in companies demonstrating accelerating growth,
increasing profitability, or above-average growth or growth potential.
[End callout]

The Fund may invest up to 10% of its assets in foreign equity securities.

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

AGGRESSIVE GROWTH STYLING INVESTING The Fund's manager uses an aggressive
growth strategy in choosing the Fund's investments. As a result, an
investment in the Fund involves a greater degree of risk and its share price
may be more volatile than an investment in a conservative equity fund or a
growth fund investing entirely in proven growth stocks. The prices of
aggressive growth stocks are based largely on projections of the issuer's
future earnings and revenues and product development. If a company's
earnings or revenues fall short of expectations, or if its products do not
come on line on a timely basis, its stock price may fall dramatically.
Aggressive growth stocks have performed exceptionally well in the last
several years. However, investors should not expect such historically
unusual performance to continue indefinitely. Currently aggressive growth
stocks are more expensive relative to their earnings or assets compared to
value or other stocks, and if those valuations return to more historical
norms, the prices of such aggressive growth stocks may moderate or fall.
Prices of these companies' securities historically have been more volatile
than other securities, especially over the short term.

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)

ADVISOR CLASS
-------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)1

ADVISOR CLASS
-------------------------------------------------------------------
Management fee/2/ 0.50%
Distribution and service (12b-1) fees None
Other expenses 0.47%
-----------------
Total annual Fund operating expenses2 0.97%
-----------------
Management fee waiver2 -0.03%
-----------------
Net annual Fund operating expenses2 0.94%
=================

1. The Fund began offering Advisor Class shares on June 23, 1999. Total
annual Fund operating expenses are annualized.
2. For the fiscal year ended April 30, 2000, the administrator had agreed in
advance to limit its fees and to assume as its own expense certain
expenses otherwise payable by the Fund. 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. With these reductions,
management fees were 0.47% and total annual Fund operating expenses were
0.90%. 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 fee 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
------------------------
$96 $300

[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 $229 billion in assets.

The team responsible for the Fund's management is:

CONRAD B. HERRMANN CFA, SENIOR VICE PRESIDENT OF ADVISERS
Mr. Herrmann has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1989.

MICHAEL MCCARTHY, VICE PRESIDENT OF ADVISERS
Mr. McCarthy has been a manager of the Fund since its inception. 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:

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

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

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

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

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

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

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

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

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

[Insert graphic of a dollar bill] FINANCIAL HIGHLIGHTS

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

PERIOD ENDED
ADVISOR CLASS APRIL 30,
------------------------------------------------------------
2000/4/
------------------------------------------------------------
PER SHARE DATA ($)
Net asset value, beginning of period 10.00
-----------
Net investment loss/1/ (.05)
Net realized and unrealized gains 15.86
-----------
Total from investment operations 15.81
-----------
Distributions from net investment income (.03)
Distributions from net realized gains (.47)
-----------
Total Distributions (.50)
===========
Net asset value, end of period 25.31
===========
Total return (%)/2/ 159.18

RATIOS/SUPPLEMENTAL DATA
Net assets, end of period ($ x 1,000) 46,726
Ratios to average net assets: (%)
Expenses .903
Expenses excluding waiver and payments by .943
affiliate
Net investment loss (.25)/3/
Portfolio turnover rate (%) 148.67

1. Based on average shares outstanding.
2. Total return is not annualized.
3. Annualized.
4. For the period June 23, 1999 (effective date) to April 30, 2000.

FRANKLIN LARGE CAP GROWTH FUND

[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES

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

MAIN INVESTMENT STRATEGIES Under normal market conditions, the Fund invests
at least 80% of its total assets in equity securities of large cap growth
companies.

[Begin callout]
The Fund invests primarily in large cap growth companies.
[End callout]

The Fund's manager is a research driven, fundamental investor, pursuing a
growth strategy. As a "bottom-up" investor focusing primarily on individual
securities, the manager will focus on companies that have exhibited above
average growth, strong financial records and large market capitalization. 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, which are likely to lead to
growth in earnings and/or share price. Such advantages as a proven
technology, industry leadership, a particular niche, sound financial records,
and strong management, are all factors the manager believes point to strong
growth potential.

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 U.S. government securities, commercial paper, bank obligations,
repurchase agreements and other money market 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

SECTOR FOCUS - TECHNOLOGY COMPANIES To the extent that the Fund has
significant investments in one or a few sectors, it bears more risk than a
fund which maintains broad sector diversification.

BIOTECHNOLOGY AND HEALTH TECHNOLOGY COMPANIES The biotechnology and health
technology industries are subject to extensive government regulation. These
industries 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,
which would, if enacted affect the biotechnology and health technology
industries. In addition, these industries are 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 these
industries, the value of your shares may fluctuate significantly over
relatively short periods of time.

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. 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)

ADVISOR CLASS
------------------------------------------------------------------
Maximum sales charge (load) imposed on purchases None

ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)1

ADVISOR CLASS
------------------------------------------------------------------
Management fees/2/ 0.50%
Distribution and service (12b-1) fees None
Other expenses 0.59%
-----------------
Total annual Fund operating expenses2 1.09%
-----------------
Management fee waiver/2/ -0.03%
-----------------
Net annual Fund operating expenses/2/ 1.06%
=================

1. The Fund began offering Advisor Class shares on June 7, 1999. Total annual
Fund operating expenses are annualized.
2. For the fiscal year ended April 30, 2000, the administrator had agreed in
advance to limit its fees and to assume as its own expense certain expenses
otherwise payable by the Fund. 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. With these reductions, management fees were
0.47% and total annual Fund operating expenses were 0.90%. 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
----------------------------
$108 $337

[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 $229 billion in assets.

The team responsible for the Fund's management is:

THERESA F. SPATH CFA, PORTFOLIO MANAGER OF ADVISERS
Ms. Spath has been a manager of the Fund since its inception. She joined
Franklin Templeton Investments in 1994.

EDWARD B. JAMIESON, EXECUTIVE VICE PRESIDENT OF ADVISERS
Mr. Jamieson has been a manager of the Fund since its inception. He joined
Franklin Templeton Investments in 1987.

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