o 157 *P1
SUPPLEMENT DATED OCTOBER 1, 1998
TO THE PROSPECTUS OF
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
DATED FEBRUARY 1, 1998
The prospectus is amended as follows:
I. The section "Investment Manager," found under "Who Manages the Fund?", is
replaced in its entirety with the following:
INVESTMENT MANAGER. As of February 26, 1998, Franklin Advisers, Inc.
("Advisers"), with offices located at 777 Mariners Island Blvd., P.O. Box
7777, San Mateo, California 94403-7777, manages the Fund's assets and makes
its investment decisions. Advisers also performs similar services for other
funds. It is wholly owned by Resources, a publicly owned company engaged in
the financial services industry through its subsidiaries. Charles B.
Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together, Advisers and its affiliates manage over $236 billion
in assets. Advisers employs the same individuals to manage the Fund's
portfolio as the previous manager. The terms and conditions of the
management services provided to the Fund are also the same. Please see
"Investment Management and Other Services" and "Miscellaneous Information"
in the SAI for information on securities transactions and a summary of the
Fund's Code of Ethics.
References throughout the prospectus to "FISCO" are replaced with
"Advisers" where applicable.
II. The second step in the section "How Do I Buy Shares? - Opening Your
Account" is replaced with the following:
2. Determine how much you would like to invest. The Fund's minimum
investments are:
o To open a regular, non-retirement account .................... $1,000
o To open an IRA, IRA Rollover, Roth IRA, or Education IRA ..... $ 250*
o To open a custodial account for a minor (an UGMA/UTMA account) $ 100
o To open an account with an automatic investment plan ......... $ 50**
o To add to an account ......................................... $ 50***
*For all other retirement accounts, there is no minimum investment
requirement.
**$25 for an Education IRA.
***For all retirement accounts except IRAs, IRA Rollovers, Roth IRAs, or
Education IRAs, there is no minimum to add to an account.
For purchases by broker-dealers, registered investment advisors or
certified financial planners who have entered into an agreement with
Distributors for clients participating in comprehensive fee programs, the
minimum initial investment is $250. The minimum initial investment is $100
for officers, trustees, directors and full-time employees of the Franklin
Templeton Funds or the Franklin Templeton Group, and their family members,
consistent with our then-current policies.
We reserve the right to change the amount of these minimums from time to
time or to waive or lower these minimums for certain purchases. We also
reserve the right to refuse any order to buy shares.
III. The following new categories 6 and 7 are added to the end of the first
list of sales charge waiver categories in the section "Sales Charge Waivers,"
found under "How Do I Buy Shares? - Sales Charge Reductions and Waivers":
6. Redemption proceeds from a repurchase of shares of Franklin Floating
Rate Trust, if the shares were continuously held for at least 12 months.
If you immediately placed your redemption proceeds in a Franklin Bank CD
or a Franklin Templeton money fund, you may reinvest them as described
above. The proceeds must be reinvested within 365 days from the date the CD
matures, including any rollover, or the date you redeem your money fund
shares.
7. Redemption proceeds from the sale of Class A shares of any of the
Templeton Global Strategy Funds if you are a qualified investor.
If you immediately placed your redemption proceeds in a Franklin
Templeton money fund, you may reinvest them as described above. The
proceeds must be reinvested within 365 days from the date they are redeemed
from the money fund.
IV. The following new category 12 is added to the end of the second list of
sales charge waiver categories in the section "Sales Charge Waivers," found
under "How Do I Buy Shares? - Sales Charge Reductions and Waivers":
12. Qualified registered investment advisors who buy through a
broker-dealer or service agent who has entered into an agreement with
Distributors
V. The following paragraph is added at the end of the section "How Do I Buy
Shares?":
FOR INVESTORS OUTSIDE THE U.S.
The distribution of this prospectus and the offering of Fund shares may be
limited in many jurisdictions. An investor who wishes to buy shares of the
Fund should determine, or have a broker-dealer determine, the applicable
laws and regulations of the relevant jurisdiction. Investors are
responsible for compliance with tax, currency exchange or other regulations
applicable to redemption and purchase transactions in any jurisdiction to
which they may be subject. Investors should consult appropriate tax and
legal advisors to obtain information on the rules applicable to these
transactions.
VI. The section "Will Sales Charges Apply to My Exchange?", found under "May
I Exchange Shares for Shares of Another Fund?", is replaced with the
following:
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You generally will not pay a front-end sales charge on exchanges. If you
have held your shares less than six months, however, you will pay the
percentage difference between the sales charge you previously paid and the
applicable sales charge of the new fund, if the difference is more than
0.25%. If you have never paid a sales charge on your shares because, for
example, they have always been held in a money fund, you will pay the
Fund's applicable sales charge no matter how long you have held your
shares. These charges may not apply if you qualify to buy shares without a
sales charge.
VII. The following new item is added under "May I Exchange Shares for Shares
of Another Fund? - Exchange Restrictions":
o You must meet the applicable minimum investment amount of the fund you
are exchanging into, or exchange 100% of your Fund shares.
VIII. Distribution option 3 in the section "What Distributions Might I
Receive from the Fund? - Distribution Options" is replaced with the following:
3. RECEIVE DISTRIBUTIONS IN CASH - You may receive dividends, or both
dividend and capital gain distributions in cash. If you have the money sent
to another person or to a checking or savings account, you may need a
signature guarantee. If you send the money to a checking or savings
account, please see "Electronic Fund Transfers" under "Services to Help You
Manage Your Account."
IX. The section "Keeping Your Account Open," found under "Transaction
Procedures and Special Requirements," is replaced in its entirety with the
following:
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may
close your account if the value of your shares is less than $250, or less
than $50 for employee accounts and custodial accounts for minors. We will
only do this if the value of your account fell below this amount because
you voluntarily sold your shares and your account has been inactive (except
for the reinvestment of distributions) for at least six months. Before we
close your account, we will notify you and give you 30 days to increase the
value of your account to $1,000, or $100 for employee accounts and
custodial accounts for minors. These minimums do not apply to IRAs and
other retirement plan accounts or to accounts managed by the Franklin
Templeton Group.
X. The second sentence in the section "Services to Help You Manage Your
Account - Automatic Investment Plan" is replaced with the following:
Under the plan, you can have money transferred automatically from your
checking or savings account to the Fund each month to buy additional shares.
XI. The second paragraph under "Services to Help You Manage Your Account -
Systematic Withdrawal Plan" is replaced with the following:
If you would like to establish a systematic withdrawal plan, please
complete the systematic withdrawal plan section of the shareholder
application included with this prospectus and indicate how you would like
to receive your payments. You may choose to direct your payments to buy the
same class of shares of another Franklin Templeton Fund or have the money
sent directly to you, to another person, or to a checking or savings
account. If you choose to have the money sent to a checking or savings
account, please see "Electronic Fund Transfers" below. Once your plan is
established, any distributions paid by the fund will be automatically
reinvested in your account.
XII. The section "Services to Help You Manage Your Account - Electronic Fund
Transfers" is replaced with the following:
ELECTRONIC FUND TRANSFERS
You may choose to have dividend and capital gain distributions or payments
under a systematic withdrawal plan sent directly to a checking or savings
account. If the account is with a bank that is a member of the Automated
Clearing House, the payments may be made automatically by electronic funds
transfer. If you choose this option, please allow at least fifteen days for
initial processing. We will send any payments made during that time to the
address of record on your account.
XIII. The following definition is revised in the "Useful Terms and
Definitions" section:
CONTINGENCY PERIOD - The 12 month period during which a Contingent Deferred
Sales Charge may apply. The holding period begins on the day you buy your
shares. 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.
Please keep this supplement for future reference.
