<PAGE> PAGE 1
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<PAGE> PAGE 2
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 5
015 A000029 YASUDA TRUST AND BANKING COMPANY LIMITED
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<PAGE> PAGE 6
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<PAGE> PAGE 7
015 C010049 ISTANBUL
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<PAGE> PAGE 8
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022 B000008 94-1687665
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<PAGE> PAGE 9
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<PAGE> PAGE 10
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<PAGE> PAGE 11
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<PAGE> PAGE 12
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<PAGE> PAGE 13
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<PAGE> PAGE 14
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SIGNATURE D. LOO-TAM
TITLE TREASURER
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO SEPTEMBER 30, 1996
ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000893226
<NAME> FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 6,546,822
<INVESTMENTS-AT-VALUE> 6,594,788
<RECEIVABLES> 552,117
<ASSETS-OTHER> 1,200
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,148,105
<PAYABLE-FOR-SECURITIES> 298,883
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,997
<TOTAL-LIABILITIES> 300,880
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,992,048
<SHARES-COMMON-STOCK> 702,885
<SHARES-COMMON-PRIOR> 603,712
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (192,789)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47,966
<NET-ASSETS> 6,847,225
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 461,328
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 461,328
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (107,488)
<NET-CHANGE-FROM-OPS> 353,840
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (461,328)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 55,521
<NUMBER-OF-SHARES-REDEEMED> (2,685)
<SHARES-REINVESTED> 46,337
<NET-CHANGE-IN-ASSETS> 867,319
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (192,789)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,479
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 70,329
<AVERAGE-NET-ASSETS> 6,352,357
<PER-SHARE-NAV-BEGIN> 9.910
<PER-SHARE-NII> .717
<PER-SHARE-GAIN-APPREC> (.170)
<PER-SHARE-DIVIDEND> (.717)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.740
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees
of Franklin Strategic Mortgage Portfolio:
In planning and performing our audit of the financial statements and
financial highlights of the fund comprising the Franklin Strategic
Mortgage Portfolio for the year ended September 30, 1996, we
considered its internal control structure, including procedures for
safeguarding securities, in order to determine our auditing procedures
for the purpose of expressing our opinion on the financial statements
and financial highlights and to comply with the requirements of Form
N-SAR, not to provide assurance on the internal control structure.
The management of the Franklin Strategic Mortgage Portfolio is
responsible for establishing and maintaining an internal control
structure. In fulfilling this responsibility, estimates and judgments
by management are required to assess the expected benefits and
related costs of internal control structure policies and procedures.
Two of the objectives of an internal control structure are to provide
management with reasonable, but not absolute, assurance that assets
are safeguarded against loss from unauthorized use or disposition
and that transactions are executed in accordance with management's
authorization and recorded properly to permit preparation of financial
statements in conformity with generally accepted accounting principles.
Because of inherent limitations in any internal control structure,
errors or irregularities may occur and not be detected. Also,
projection of any evaluation of the structure to future periods is
subject to the risk that it may become inadequate because of changes
in conditions or that the effectiveness of the design and operation may
deteriorate.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control structure that
might be material weaknesses under standards established by the
American Institute of Certified Public Accountants. A material
weakness is a condition in which the design or operation of the
specific internal control structure elements does not reduce to a
relatively low level the risk that errors or irregularities in amounts
that would be material in relation to the financial statementsand
financial highlights being audited may occur and not be detected
within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for
safeguarding securities, that we consider to be material weaknesses,
as defined above, as of September 30, 1996.
This report is intended solely for the information and use of
management of the Franklin Strategic Mortgage Portfolio and the
Securities and Exchange Commission.
S\Coopers & Lybrand L.L.P.
San Francisco, California
November 28, 1996
