SHARE CLASS REDESIGNATION
EFFECTIVE JANUARY 1, 1999
Class A - Formerly Considered Class I
SUPPLEMENT DATED JANUARY 1, 1999
TO THE PROSPECTUS OF
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
DATED FEBRUARY 1, 1998
The prospectus is amended as follows:
I. As of January 1, 1999, the Fund's shares are considered Class A shares for
redemption, exchange and other purposes. Before January 1, 1999, the Fund's
shares were considered Class I shares.
All references in the prospectus to Class I shares are replaced with Class A,
and all references to Class II shares are replaced with Class C.
II. The following is added under "What are the Fund's Potential Risks?":
YEAR 2000. When evaluating current and potential portfolio positions, Year
2000 is one of the factors Advisers considers.
Advisers will rely upon public filings and other statements made by issuers
about their Year 2000 readiness. Advisers, of course, cannot audit each
issuer and its major suppliers to verify their Year 2000 readiness.
If an issuer in which the Fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its security will also be adversely
affected. A decrease in the value of one or more of the Fund's portfolio
holdings will have a similar impact on the price of the Fund's shares. Please
see "Year 2000 Problem" under "Who Manages the Fund?" for more information.
III. Under "Who Manages the Fund?",
(a) the section "Investment Manager" is replaced 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.
(b) and the following is added after the "Administrative Services" section:
YEAR 2000 PROBLEM. The Fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a
non-standard leap year may create difficulties for some systems.
When the Year 2000 arrives, the Fund's operations could be adversely affected
if the computer systems used by Advisers, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
Fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others.
Advisers and its affiliated service providers are making a concerted effort
to take steps they believe are reasonably designed to address their Year 2000
problems. Of course, the Fund's ability to reduce the effects of the Year
2000 problem is also very much dependent upon the efforts of third parties
over which the Fund and Advisers may have no control.
IV. 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.
V. The section "Quantity Discounts," found under "How Do I Buy Shares? -
Sales Charge Reductions and Waivers," is replaced with the following:
QUANTITY DISCOUNTS. The sales charge you pay depends on the dollar amount you
invest, as shown in the table below.
TOTAL SALES CHARGE AMOUNT PAID TO
AS A PERCENTAGE OF DEALER AS A
AMOUNT OF PURCHASE OFFERING NET AMOUNT PERCENTAGE OF
AT OFFERING PRICE PRICE INVESTED OFFERING PRICE
- --------------------------------------------------------------------------------
Under $100,000 4.25% 4.44% 4.00%
$100,000 but less than 3.50% 3.63% 3.25%
$250,000
$250,000 but less than 2.50% 2.56% 2.25%
$500,000
$500,000 but less than 2.00% 2.04% 1.85%
$1,000,000
$1,000,000 or more* None None None
*Please see "Other Payments to Securities Dealers" below for a discussion of
payments Distributors may make out of its own resources to Securities
Dealers for certain purchases.
VI. In the section "Sales Charge Waivers," found under "How Do I Buy Shares?
- - Sales Charge Reductions and Waivers,"
(a) the second waiver category is replaced with the following:
2. Redemption proceeds from the sale of shares of any Franklin Templeton
Fund. The proceeds must be reinvested in the same class of shares,
except proceeds from the sale of Class B shares will be reinvested in
Class A shares.
Proceeds immediately placed in a Franklin Bank CD also may be reinvested
without a front-end sales charge if you reinvest them within 365 days
from the date the CD matures, including any rollover.
This waiver 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.
(b) the following new categories 6 and 7 are added to the end of the first
list of sales charge waiver categories :
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.
(c) and the following new category 12 is added to the end of the second list
of sales charge waiver categories:
12. Qualified registered investment advisors who buy through a broker-dealer
or service agent who has entered into an agreement with Distributors
VII. The section "How Do I Buy Shares in Connection with Retirement Plans?",
found under "How Do I Buy Shares?", is replaced with the following:
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can
provide the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. 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 Plan Services.
Please consult your legal, tax or retirement plan specialist before choosing
a retirement plan. Your investment representative or advisor can help you
make investment decisions within your plan.
VIII. 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.
IX. 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.
X. Under "May I Exchange Shares for Shares of Another Fund? - Exchange
Restrictions:"
(a) the second item is replaced with the following:
o Generally exchanges may only be made between identically registered
accounts, unless you send written instructions with a signature guarantee.
You may, however, exchange shares from a Fund account requiring two or
more signatures into an identically registered money fund account
requiring only one signature for all transactions. PLEASE NOTIFY US IN
WRITING IF YOU DO NOT WANT THIS OPTION TO BE AVAILABLE ON YOUR ACCOUNT.
Additional procedures may apply. Please see "Transaction Procedures and
Special Requirements."
(b) and the following new item is added:
o You must meet the applicable minimum investment amount of the fund you
are exchanging into, or exchange 100% of your Fund shares.
XI. In the "By Phone" section of the chart under "How Do I Sell Shares?",
(a) the first bulleted item is replaced with the following:
o If the request is $100,000 or less. Institutional accounts may exceed
$100,000 by completing a separate agreement. Call Institutional Services
to receive a copy.
(b) and the third bulleted item is deleted.
XII. 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."
XIII. Under "Transaction Procedures and Special Requirements,"
(a) the section "Joint Accounts" is replaced with the following:
JOINT ACCOUNTS. For accounts with more than one registered owner, the Fund
accepts 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.
Please keep in mind that if you have previously told us that you do not want
telephone exchange or redemption privileges on your account, then we can only
accept written instructions to exchange or redeem shares if they are signed
by all registered owners on the account.
(b) the reference to $50,000 in the section "Signature Guarantees" is
replaced with $100,000.
(c) the section "Trust Company Retirement Plan Accounts," found under
"Telephone Transactions," is deleted.
(d) and the section "Keeping Your Account Open" is replaced 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.
XIV. Under "Services to Help You Manage Your Account,"
(a) the second sentence in the section "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.
(b) the second paragraph under "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.
(c) and the section "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.
XV. In the "Useful Terms and Definitions" section,
(a) the definition of "Class I and Class II" is replaced with the following:
CLASS A, CLASS B AND CLASS C - Certain funds in the Franklin Templeton Funds
offer multiple classes of shares. The different classes have proportionate
interests in the same portfolio of investment securities. They differ,
however, primarily in their sales charge structures and Rule 12b-1 plans.
Because the Fund's sales charge structure is similar to that of Class A
shares, shares of the Fund are considered Class A shares for redemption,
exchange and other purposes.
(b) and the following definition is revised:
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.
SHARE CLASS REDESIGNATION
EFFECTIVE JANUARY 1, 1999
Class A - Formerly Considered Class I
SUPPLEMENT DATED JANUARY 1, 1999
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
DATED FEBRUARY 1, 1998
The Statement of Additional Information is amended as follows:
I. As of January 1, 1999, the Fund's shares are considered Class A shares
for redemption, exchange and other purposes. Before January 1, 1999, the
Fund's shares were considered Class I shares.
All references in the Statement of Additional Information to Class I
shares are replaced with Class A.
II. 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 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.
References throughout the Statement of Additional Information to "FISCO"
are replaced with "Advisers" where applicable.
III.The following paragraph is added under "Miscellaneous
Information":
The Information Services & Technology division of Resources established
a Year 2000 Project Team in 1996. This team has already begun making
necessary software changes to help the computer systems that service the
Fund and its shareholders to be Year 2000 compliant. After completing
these modifications, comprehensive tests are conducted in one of
Resources' U.S. test labs to verify their effectiveness. Resources
continues to seek reasonable assurances from all major hardware,
software or data-services suppliers that they will be Year 2000
compliant on a timely basis. Resources is also beginning to develop a
contingency plan, including identification of those mission critical
systems for which it is practical to develop a contingency plan.
However, in an operation as complex and geographically distributed as
Resources' business, the alternatives to use of normal systems,
especially mission critical systems, or supplies of electricity or long
distance voice and data lines are limited.
Please keep this supplement for future reference.
