<PAGE> PAGE 1
000 B000000 09/30/97
000 C000000 0000893226
000 D000000 N
000 E000000 NF
000 F000000 Y
000 G000000 N
000 H000000 N
000 I000000 3.0
000 J000000 A
001 A000000 FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
001 B000000 811-7288
001 C000000 6503122000
002 A000000 777 MARINERS ISLAND BOULEVARD
002 B000000 SAN MATEO
002 C000000 CA
002 D010000 94404
002 D020000 7777
003 000000 N
004 000000 N
005 000000 N
006 000000 N
007 A000000 Y
007 B000000 1
007 C010100 1
007 C020100 FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
007 C030100 N
007 C010200 2
007 C010300 3
007 C010400 4
007 C010500 5
007 C010600 6
007 C010700 7
007 C010800 8
007 C010900 9
007 C011000 10
008 A00AA01 FRANKLIN INSTITUTIONAL SERVICES CORPORATION
008 B00AA01 A
008 C00AA01 801-40142
008 D01AA01 SAN MATEO
008 D02AA01 CA
008 D03AA01 94404
008 D04AA01 7777
010 A00AA01 FRANKLIN TEMPLETON SERVICES, INC.
010 B00AA01 801-26292
010 C01AA01 SAN MATEO
010 C02AA01 CA
010 C03AA01 94404
010 C04AA01 7777
011 A00AA01 FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
011 B00AA01 8-5889
011 C01AA01 SAN MATEO
<PAGE> PAGE 2
011 C02AA01 CA
011 C03AA01 94404
011 C04AA01 7777
012 A00AA01 FRANKLIN/TEMPLETON INVESTOR SERVICES, INC.
012 B00AA01 84-1036
012 C01AA01 SAN MATEO
012 C02AA01 CA
012 C03AA01 94404
012 C04AA01 7777
013 A00AA01 COOPERS & LYBRAND L.L.P.
013 B01AA01 SAN FRANCISCO
013 B02AA01 CA
013 B03AA01 94105
013 B04AA01 2119
014 A00AA01 FRANKLIN/TEMPLETON DISTRIBUTORS, INC.
014 B00AA01 8-5889
015 A00AA01 THE BANK OF NEW YORK
015 B00AA01 C
015 C01AA01 NEW YORK
015 C02AA01 NY
015 C03AA01 10286
015 E01AA01 X
015 A00AA02 THE BANK OF BOSTON
015 B00AA02 S
015 C01AA02 BUENOS AIRES
015 D01AA02 ARGENTINA
015 E04AA02 X
015 A00AA03 AUSTRALIA & NEW ZEALAND BANKING GROUP LTD.
015 B00AA03 S
015 C01AA03 MELBOURNE
015 D01AA03 AUSTRALIA
015 E04AA03 X
015 A00AA04 CREDITANSTALT BANKVEREIN
015 B00AA04 S
015 C01AA04 VIENNA
015 D01AA04 AUSTRIA
015 E04AA04 X
015 A00AA05 STANDARD CHARTERED BANK PLC (SCB)
015 B00AA05 S
015 C01AA05 DHAKA
015 D01AA05 BANGLADESH
015 E04AA05 X
015 A00AA06 BANQUE BRUXELLES LAMBERT (BBL)
015 B00AA06 S
015 C01AA06 BRUSSELS
015 D01AA06 BELGIUM
015 E04AA06 X
015 A00AA07 SCMB JOHANNESBURG VIA STANBIC BANK
015 B00AA07 S
015 C01AA07 GABARONE
015 D01AA07 BOTSWANA
<PAGE> PAGE 3
015 E04AA07 X
015 A00AA08 THE FIRST NATIONAL BANK OF BOSTON
015 B00AA08 S
015 C01AA08 SAO PAULO
015 D01AA08 BRAZIL
015 E04AA08 X
015 A00AA09 ROYAL BANK OF CANADA
015 B00AA09 S
015 C01AA09 MONTREAL
015 D01AA09 CANADA
015 E04AA09 X
015 A00AA10 THE FIRST NATIONAL BANK OF BOSTON
015 B00AA10 S
015 C01AA10 SANTIAGO
015 D01AA10 CHILE
015 E04AA10 X
015 A00AA11 BANCO DE CHILE
015 B00AA11 S
015 C01AA11 SANTIAGO
015 D01AA11 CHILE
015 E04AA11 X
015 A00AA12 THE STANDARD CHARTERED BANK, HONG KONG
015 B00AA12 S
015 C01AA12 HONG KONG
015 D01AA12 CHINA
015 E04AA12 X
015 A00AA13 CITIBANK, N.A. VIA CITITRUST COLUMBIA S.A.
015 B00AA13 S
015 C01AA13 BOGOTA
015 D01AA13 COLOMBIA
015 E04AA13 X
015 A00AA14 CESKOSLOVENSKA OBCHODNI BANKA A.S. (CSOB)
015 B00AA14 S
015 C01AA14 PRAHA (PRAGUE)
015 D01AA14 CZECH REPUBLIC
015 E04AA14 X
015 A00AA15 DEN DANSKE BANK
015 B00AA15 S
015 C01AA15 COPENHAGEN
015 D01AA15 DENMARK
015 E04AA15 X
015 A00AA16 CITIBANK, N.A.
015 B00AA16 S
015 C01AA16 QUITO
015 D01AA16 ECUADOR
015 E04AA16 X
015 A00AA17 CITIBANK, N.A. - EGYPT BRANCH
015 B00AA17 S
015 C01AA17 CAIRO
015 D01AA17 EGYPT
015 E04AA17 X
<PAGE> PAGE 4
015 A00AA18 MERITA BANK LTD. (MB)
015 B00AA18 S
015 C01AA18 HELSINKI
015 D01AA18 FINLAND
015 E04AA18 X
015 A00AA19 BANQUE PARIBAS
015 B00AA19 S
015 C01AA19 PARIS
015 D01AA19 FRANCE
015 E04AA19 X
015 A00AA20 CREDIT COMMERCIAL DE FRANCE
015 B00AA20 S
015 C01AA20 PARIS
015 D01AA20 FRANCE
015 E04AA20 X
015 A00AA21 DRESDNER BANK AG
015 B00AA21 S
015 C01AA21 FRANKFURT/MAIN
015 D01AA21 GERMANY
015 E04AA21 X
015 A00AA22 SCMB JOHNNESBURG VIA MERCHANT BANK
015 B00AA22 S
015 C01AA22 ACCRA
015 D01AA22 GHANA
015 E04AA22 X
015 A00AA23 NATIONAL BANK OF GREECE SA
015 B00AA23 S
015 C01AA23 ATHENS
015 D01AA23 GREECE
015 E04AA23 X
015 A00AA24 THE HONGKONG & SHANGHAI BANKING CORP LIMITED
015 B00AA24 S
015 C01AA24 HONG KONG
015 D01AA24 HONG KONG
015 E04AA24 X
015 A00AA25 CITIBANK, N.A. NEW YORK VIA CITIBANK BUDAPEST
015 B00AA25 S
015 C01AA25 BUDAPEST
015 D01AA25 HUNGARY
015 E04AA25 X
015 A00AA26 THE HONGKONG & SHANGHAI BANKING CORP LIMITED
015 B00AA26 S
015 C01AA26 MUMBAI
015 D01AA26 INDIA
015 E04AA26 X
015 A00AA27 THE HONGKONG & SHANGHAI BANKING CORP LIMITED
015 B00AA27 S
015 C01AA27 JAKARTA
015 D01AA27 INDONESIA
015 E04AA27 X
015 A00AA28 ALLIED IRISH BANKS, PLC (AIB)
<PAGE> PAGE 5
015 B00AA28 S
015 C01AA28 DUBLIN
015 D01AA28 IRELAND
015 E04AA28 X
015 A00AA29 BANK LEUMI LE-ISRAEL B.M.
015 B00AA29 S
015 C01AA29 TEL AVIV
015 D01AA29 ISRAEL
015 E04AA29 X
015 A00AA30 BANCA COMMERCIALE ITALIANA (BCI)
015 B00AA30 S
015 C01AA30 MILAN
015 D01AA30 ITALY
015 E04AA30 X
015 A00AA31 BANQUE PARIBAS SA
015 B00AA31 S
015 C01AA31 MILAN
015 D01AA31 ITALY
015 E04AA31 X
015 A00AA32 BANK OF TOKYO MITSUBISHI (BTM)
015 B00AA32 S
015 C01AA32 TOKYO
015 D01AA32 JAPAN
015 E04AA32 X
015 A00AA33 JASDEC
015 B00AA33 S
015 C01AA33 TOKYO
015 D01AA33 JAPAN
015 E04AA33 X
015 A00AA34 THE BRITISH BANK OF THE MIDDLE EAST
015 B00AA34 S
015 C01AA34 AMMAN
015 D01AA34 JORDAN
015 E04AA34 X
015 A00AA35 SCMB JOHANNESBURG VIA STANBIC BANK
015 B00AA35 S
015 C01AA35 NAIROBI
015 D01AA35 KENYA
015 E04AA35 X
015 A00AA36 BANQUE INTERNATIONALE A LUXEMBOURG
015 B00AA36 S
015 C01AA36 LUXEMBOURG CITY
015 D01AA36 LUXEMBOURG
015 E04AA36 X
015 A00AA37 CEDEL
015 B00AA37 S
015 C01AA37 LUXEMBOURG CITY
015 D01AA37 LUXEMBOURG
015 E04AA37 X
015 A00AA38 THE HONGKONG BANK MALAYSIA BERHAD (HBMB)
015 B00AA38 S
<PAGE> PAGE 6
015 C01AA38 KUALA LUMPUR
015 D01AA38 MALAYSIA
015 E04AA38 X
015 A00AA39 BANCO NACIONAL DE MEXICO
015 B00AA39 S
015 C01AA39 MEXICO CITY
015 D01AA39 MEXICO
015 E04AA39 X
015 A00AA40 BANQUE COMMERCIALE DU MAROC (BCM)
015 B00AA40 S
015 C01AA40 CASABLANCA
015 D01AA40 MOROCCO
015 E04AA40 X
015 A00AA41 SCMB JOHANNESBURG VIA STANBIC BANK
015 B00AA41 S
015 C01AA41 WINDHOEK
015 D01AA41 NAMIBIA
015 E04AA41 X
015 A00AA42 MEESPIERSON
015 B00AA42 S
015 C01AA42 AMSTERDAM
015 D01AA42 NETHERLANDS
015 E04AA42 X
015 A00AA43 KAS - ASSOCIATIE NV
015 B00AA43 S
015 C01AA43 AMSTERDAM
015 D01AA43 NETHERLANDS
015 E04AA43 X
015 A00AA44 AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED
015 B00AA44 S
015 C01AA44 WELLINGTON
015 D01AA44 NEW ZEALAND
015 E04AA44 X
015 A00AA45 SCMB JOHANNESBURG VIA MERCHANT BANK
015 B00AA45 S
015 C01AA45 LAGOS
015 D01AA45 NIGERIA
015 E04AA45 X
015 A00AA46 DEN NORSKE BANK ASA
015 B00AA46 S
015 C01AA46 OSLO
015 D01AA46 NORWAY
015 E04AA46 X
015 A00AA47 STANDARD CHARTERED BANK (SCB)
015 B00AA47 S
015 C01AA47 KARACHI
015 D01AA47 PAKISTAN
015 E04AA47 X
015 A00AA48 CITIBANK, N.A.
015 B00AA48 S
015 C01AA48 LIMA
<PAGE> PAGE 7
015 D01AA48 PERU
015 E04AA48 X
015 A00AA49 THE HONGKONG & SHANGHAI BANKING CORP LIMITED
015 B00AA49 S
015 C01AA49 PASIG CITY MANILA
015 D01AA49 PHILIPPINES
015 E04AA49 X
015 A00AA50 THE PHILIPPINE CENTRAL DEPOSITORY, INC.
015 B00AA50 S
015 C01AA50 MAKATI CITY
015 D01AA50 PHILIPPINES
015 E04AA50 X
015 A00AA51 BANK HANDLOWY W WARSZAWIE S.A.
015 B00AA51 S
015 C01AA51 WARSAW
015 D01AA51 POLAND
015 E04AA51 X
015 A00AA52 BANCO COMERCIAL PORTUGUES, S.A. (BCP)
015 B00AA52 S
015 C01AA52 LISBON
015 D01AA52 PORTUGAL
015 E04AA52 X
015 A00AA53 UNITED OVERSEAS BANK LIMITED (UOB)
015 B00AA53 S
015 C01AA53 SINGAPORE
015 D01AA53 SINGAPORE
015 E04AA53 X
015 A00AA54 DEVELOPMENT BANK OF SINGAPORE
015 B00AA54 S
015 C01AA54 SINGAPORE
015 D01AA54 SINGAPORE
015 E04AA54 X
015 A00AA55 CESKOSLOVENKSA OBCHODNA BANK AS (CSOB)
015 B00AA55 S
015 C01AA55 BRATISLAVA
015 D01AA55 SLOVAK REPUBLIC
015 E04AA55 X
015 A00AA56 SCMB JOHANNESBURG
015 B00AA56 S
015 C01AA56 JOHANNESBURG
015 D01AA56 SOUTH AFRICA
015 E04AA56 X
015 A00AA57 SEOULBANK (SB)
015 B00AA57 S
015 C01AA57 SEOUL
015 D01AA57 SOUTH KOREA
015 E04AA57 X
015 A00AA58 BANCO BILBAO VIZCAYA (BBV)
015 B00AA58 S
015 C01AA58 MADRID
015 D01AA58 SPAIN
<PAGE> PAGE 8
015 E04AA58 X
015 A00AA59 STANDARD CHARTERED BANK (SCB)
015 B00AA59 S
015 C01AA59 COLOMBO
015 D01AA59 SRI LANKA
015 E04AA59 X
015 A00AA60 SCMB JOHANNESBURG VIA STANBIC BANK
015 B00AA60 S
015 C01AA60 MBABANE
015 D01AA60 SWAZILAND
015 E04AA60 X
015 A00AA61 SKANDINAVISKA ENSKILDA BANKEN (SEB)
015 B00AA61 S
015 C01AA61 STOCKHOLM
015 D01AA61 SWEDEN
015 E04AA61 X
015 A00AA62 BANK LEU LTD.
015 B00AA62 S
015 C01AA62 ZURICH
015 D01AA62 SWITZERLAND
015 E04AA62 X
015 A00AA63 UNION BANK OF SWITZERLAND
015 B00AA63 S
015 C01AA63 ZURICH
015 D01AA63 SWITZERLAND
015 E04AA63 X
015 A00AA64 THE HONGKONG & SHANGHAI BANKING CORP LIMITED
015 B00AA64 S
015 C01AA64 TAIPEI
015 D01AA64 TAIWAN
015 E04AA64 X
015 A00AA65 THE SIAM COMMERCIAL BANK PUBLIC CO LIMITED
015 B00AA65 S
015 C01AA65 BANGKOK
015 D01AA65 THAILAND
015 E04AA65 X
015 A00AA66 BANGKOK BANK PUBLIC COMPANY LTD.
015 B00AA66 S
015 C01AA66 BANGKOK
015 D01AA66 THAILAND
015 E04AA66 X
015 A00AA67 OSMANLI BANKASI A.S. (OTTOMAN BANK)
015 B00AA67 S
015 C01AA67 ISTANBUL
015 D01AA67 TURKEY
015 E04AA67 X
015 A00AA68 THE BANK OF NEW YORK
015 B00AA68 S
015 C01AA68 LONDON
015 D01AA68 UNITED KINGDOM
015 E04AA68 X
<PAGE> PAGE 9
015 A00AA69 FIRST CHICAGO CLEARING CENTRE (FCCC)
015 B00AA69 S
015 C01AA69 LONDON
015 D01AA69 UNITED KINGDOM
015 E04AA69 X
015 A00AA70 THE FIRST NATIONAL BANK OF BOSTON
015 B00AA70 S
015 C01AA70 MONTEVIDEO
015 D01AA70 URUGUAY
015 E04AA70 X
015 A00AA71 CITIBANK, N.A.
015 B00AA71 S
015 C01AA71 CARACAS
015 D01AA71 VENEZUELA
015 E04AA71 X
015 A00AA72 SCMB JOHANNESBURG VIA STANBIC BANK
015 B00AA72 S
015 C01AA72 LUSAKA
015 D01AA72 ZAMBIA
015 E04AA72 X
015 A00AA73 SCMB JOHANNESBURG VIA STANBIC BANK
015 B00AA73 S
015 C01AA73 HARARE
015 D01AA73 ZIMBABWE
015 E04AA73 X
015 A00AA74 DELETE
018 00AA00 Y
019 A00AA00 Y
019 B00AA00 213
019 C00AA00 FRNKTEMGRP
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022 A000001 UBS SECURITIES, L.L.C.
022 B000001 13-2932996
022 C000001 22009
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022 A000002 FUJI SECURITIES, INC.
022 B000002 13-3038090
022 C000002 20803
022 D000002 0
022 A000003 DAIWA SECURITIES AMERICA, INC.
022 B000003 13-5680329
<PAGE> PAGE 10
022 C000003 20745
022 D000003 0
022 A000004 DONALDSON LUFKIN & JENRETTE
022 B000004 13-2741729
022 C000004 20564
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022 A000005 CIBC WOOD GUNDY SECURITY
022 B000005 13-3639028
022 C000005 20361
022 D000005 0
022 A000006 BEAR, STEARNS & CO., INC.
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022 C000006 18633
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022 A000007 SBCI SWISS BANK CORP INV BANK
022 B000007 13-2639550
022 C000007 18134
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022 A000008 LEHMAN BROTHERS, INC.
022 B000008 13-2518466
022 C000008 17528
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022 A000009 AUBREY LANSTON & COMPANY
022 B000009 13-5552129
022 C000009 16910
022 D000009 0
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022 B000010 94-1302123
022 C000010 14343
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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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<PAGE> PAGE 15
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<PAGE> PAGE 16
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<PAGE> PAGE 17
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, 1997 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> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 8,602,315
<INVESTMENTS-AT-VALUE> 8,816,827
<RECEIVABLES> 111,091
<ASSETS-OTHER> 6,027
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,933,945
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,910,540
<SHARES-COMMON-STOCK> 896,996
<SHARES-COMMON-PRIOR> 702,885
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (191,107)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 214,512
<NET-ASSETS> 8,933,945
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 540,924
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 540,924
<REALIZED-GAINS-CURRENT> 1,854
<APPREC-INCREASE-CURRENT> 166,546
<NET-CHANGE-FROM-OPS> 709,324
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (539,448)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 163,167
<NUMBER-OF-SHARES-REDEEMED> (21,862)
<SHARES-REINVESTED> 52,806
<NET-CHANGE-IN-ASSETS> 2,086,720
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (192,961)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,144
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 62,099
<AVERAGE-NET-ASSETS> 7,537,318
<PER-SHARE-NAV-BEGIN> 9.740
<PER-SHARE-NII> .708
<PER-SHARE-GAIN-APPREC> .220
<PER-SHARE-DIVIDEND> (.708)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.960
<EXPENSE-RATIO> .000
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees of Franklin Strategic
Mortgage Portfolio:
In planning and performing our audit of the financial
statements of Franklin Strategic Mortgage Portfolio
for the year ended September 30, 1997, we considered
its internal control, including controls over safeguarding
securities, in order to determine our auditing procedures
for the purpose of expressing our opinion on the financial
statements and to comply with the requirements of Form
N-SAR, not to provide assurance on internal control.
The management of Franklin Strategic Mortgage Portfolio
is responsible for establishing and maintaining internal
control. In fulfilling this responsibility, estimates and
judgments by management are required to assess the
expected benefits and related costs of controls. Generally,
controls that are relevant to an audit pertain to the entity's
objective of preparing financial statements for external
purposes that are fairly presented in conformity with
generally accepted accounting principles. Those controls
include the safeguarding of assets against unauthorized
acquisition, use, or disposition.
Because of inherent limitations in internal control, errors
or irregularities may occur and may not be detected. Also,
projection of any evaluation of internal control 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 internal control would not necessarily
disclose all matters in internal control 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
any specific internal control component 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
statements 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 internal control, including
controls over safeguarding securities, that we consider
to be material weaknesses as defined above as of
September 30, 1997.
This report is intended solely for the information and
use of management and the Securities and Exchange
Commission.
COOPERS & LYBRAND L.L.P.
San Francisco, California
November 4, 1997
