SEMI
ANNUAL
REPORT
March 31, 1998
Franklin Strategic Mortgage Portfolio
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to remember that all securities
markets move both up and down, as do mutual fund share prices. We appreciate
your past support and look forward to serving your investment needs in the years
ahead.
Charles B. Johnson
Chairman
Franklin Strategic
Mortgage Portfolio
CONTENTS
Shareholder Letter ............................................... 1
Manager's Discussion ............................................. 3
Performance Summary .............................................. 5
Financial Highlights &
Statement of Investments ......................................... 7
Financial Statements ............................................. 11
Notes to
Financial Statements............................................. 14
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you the Franklin Strategic Mortgage Portfolio
semi-annual report for the period ended March 31, 1998.
The U.S. economy remained strong over the fund's reporting period, and showed no
discernible indications of ending one of the longest, sustained economic
expansions in its history. This expansion continued to feature moderate growth
with few signs of inflation. Overall, interest rates declined during the year,
and the 30-year Treasury yield ended the period at 5.94%, down from 6.41% on
September 30, 1997. A generally benign inflationary environment, and a balanced
budget agreement between the President and Congress, as well as expectations for
a 1998 budget surplus, contributed to declining rates.
During the six months under review, the Asian currency crises created economic
havoc in many countries throughout that region. In the U.S., however, this
situation had a positive aspect. The problems in Asian economies are generally
perceived to have had a dampening effect on the U.S. economy, acting as a light
foot on the brake that might otherwise have been applied by the Federal Reserve
Board in the form of an interest rate increase.
Franklin Strategic Mortgage Portfolio performed favorably in this environment,
and the Manager's Discussion beginning on page 3 provides specific details about
your fund's performance and investment strategies.
Regardless of the market's direction, Franklin Templeton's disciplined
investment strategy remains the same: to provide shareholders with careful
selection, broad diversification and constant professional supervision. We
encourage you to speak with your investment representative about your financial
goals, diversify your investments, and remember that it is time -- not timing --
that makes the difference.
As always, we appreciate your continued support, welcome your comments and look
forward to serving your future investment needs.
Sincerely,
Charles B. Johnson
Chairman
Franklin Strategic Mortgage Portfolio
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 8 of
this report.
MANAGER'S DISCUSSION
Your Fund's Objective: Franklin Strategic Mortgage Portfolio seeks to obtain a
high level of total return relative to the performance of the general mortgage
securities market by investing primarily in a portfolio of mortgage securities
created from pools of mortgages which are issued or guaranteed by the U.S.
government, its agencies or instrumentalities.*
*U.S. government securities owned by the fund or held under repurchase
agreement, but not shares of the fund, are guaranteed by the U.S. government as
to the timely payment of principal and interest. Yields and share price are not
guaranteed and will fluctuate with market conditions.
The U.S. economy expanded at a modest pace during the six months under review.
Fueled by consumer spending, robust corporate profits, and strong housing
markets, U.S. Gross Domestic Product (GDP) gained 3.7% during the fourth quarter
of 1997. Gains in productivity allowed businesses to absorb rising labor costs
without raising prices significantly, despite tightening labor markets. Lower
commodity prices also helped to keep inflation in check. Consequently, 30-year
Treasury interest rates declined almost half a percent, and the yield spread
narrowed between short- and long-term bonds. The Federal Reserve Board, a
driving force behind interest rate advances and declines, maintained its
monetary policy during the period.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Although inflation's failure to ignite was a key factor in allowing U.S.
interest rates to move lower, it was not the only factor. Asian currency crises
caused economic disruptions there, and as the crises spread from country to
country, the U.S. dollar gained strongly versus currencies throughout the
region. Investors opted for a flight to quality, resulting in lower interest
rates and higher demand for safe-haven U.S. Treasury securities.
Favorable news surrounding the federal budget deficit also contributed to lower
interest rates during the period. The booming U.S. economy produced strong tax
receipts, reducing the need for the government to issue U.S. Treasury bonds.
This resulted in a lower supply of such bonds in the marketplace and falling
long-term interest rates.
In response to the declining interest rate environment during the last reporting
period, we increased our allocation of non-callable Treasury securities. This
was, in part, a defensive move, since experience shows us that the lower
interest-rate environment increases prepayment risk in the mortgage sector. In
addition, we increased the portfolio's interest rate exposure in anticipation
that the U.S. Treasury market should continue to benefit from low inflation
factors. We expect to reallocate into mortgages when better relative value
opportunities arise.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of March 31, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historic
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
PERFORMANCE SUMMARY
The share price of Franklin Strategic Mortgage Portfolio, as measured by net
asset value, increased 3 cents, from $9.96 on September 30, 1997, to $9.99 on
March 31, 1998. During the six-month reporting period, the fund made income
distributions totaling 33.7474 cents ($0.337474) per share. Distributions will
vary based on the earnings of the fund's portfolio, and past distributions are
not predictive of future trends.
Based on an annualization of the current monthly per-share dividend of 5.5958
cents ($0.055958) and the maximum offering price of $10.43 on March 31, 1998,
your fund's distribution rate was 6.11%.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Franklin Strategic Mortgage Portfolio
Periods ended 3/31/98
Since
Inception
1-Year 5-Year (2/1/93)
Cumulative Total Return1 10.09% 39.49% 42.43%
Average Annual Total Return2 5.43% 5.96% 6.21%
Distribution Rate3 6.11%
30-Day Standardized Yield4 6.32%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, maximum 4.25%
initial sales charge. See Note below.
3. Distribution rate is based on an annualization of the current 5.5958 cent per
share monthly dividend and the maximum offering price of $10.43 on March 31,
1998.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended March 31, 1998.
Note: Prior to July 1, 1994, fund shares were offered at a higher initial sales
charge; thus, actual total returns would be lower. Your investment return and
principal value will fluctuate with market conditions, and you may have a gain
or loss when you sell your shares.
The fund's manager agreed in advance to waive a portion of its management fees,
which reduces operating expenses and increases distribution rate, yield and
total return to shareholders. Without this waiver, the fund's distribution rate
and total return would have been lower, and yield for the period would have been
5.65%. The fee waiver may be discontinued at any time upon notice to the fund's
Board of Trustees.
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
Financial Highlights
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998 Year Ended September 30,
(unaudited) 1997 1996 1995 1994 1993***
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period .... $9.96 $9.74 $9.91 $9.42 $10.24 $10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income .................. .337 .708 .717 .714 .553 .365
Net realized and unrealized gains (losses) .030 .220 (.170) .490 (.711) .240
-------------------------------------------------------------
Total from investment operations ........ .367 .928 .547 1.204 (.158) .605
-------------------------------------------------------------
Less distributions from:
Net investment income .................. (.337) (.708) (.717) (.714) (.553) (.365)
Net realized gains ..................... -- -- -- -- (.109) --
-------------------------------------------------------------
Total distributions ..................... (.337) (.708) (.717) (.714) (.662) (.365)
-------------------------------------------------------------
Net asset value, end of period .......... $9.99 $9.96 $9.74 $9.91 $9.42 $10.24
=============================================================
Total return ........................... 3.73% 9.84% 5.69% 13.27% (1.61)% 6.13%
Ratios/supplemental data
Net assets, end of period (000's) ....... $12,720 $8,934 $6,847 $5,980 $5,223 $5,306
Ratios to average net assets:
Expenses ............................... --% --% --% --% --% --%
Expenses excluding waiver and
payments by affiliate .................. .68%* .82% 1.11% 1.24% 1.28% 1.22%*
Net investment income .................. 6.70%* 7.18% 7.26% 7.42% 5.65% 3.59%*
Portfolio turnover rate** ............... 11.04% 13.59% 17.64% 34.20% 86.38% 104.33%
</TABLE>
Total return does not reflect sales commissions and is not annualized.
*Annualized
**The portfolio turnover rate excludes mortgage dollar roll transactions.
***For the period February 1, 1993 (effective date) to September 30, 1993.
See notes to financial statements.
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
Statement of Investments, March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
Mortgage-Backed Securities 62.5%
Federal Home Loan Mortgage Corp. (FHLMC) 14.9%
9.00%, 6/01/01 ................................................................. $ 48,015 $ 49,013
6.50%, 11/01/01 ................................................................ 160,403 161,935
6.50%, 3/01/09 ................................................................. 97,849 98,533
7.00%, 6/01/09 ................................................................. 64,047 65,266
8.00%, 1/01/10 ................................................................. 37,447 38,681
7.50%, 4/01/10 ................................................................. 58,410 60,177
6.00%, 7/01/10 ................................................................. 107,255 106,298
6.50%, 4/01/11 ................................................................. 61,648 61,973
7.00%, 7/01/11 ................................................................. 84,601 86,210
9.50%, 12/01/22 ................................................................ 73,218 79,313
7.00%, 6/01/24 ................................................................. 125,737 127,692
7.50%, 7/01/24 ................................................................. 104,193 106,885
8.00%, 7/01/24 ................................................................. 98,010 101,571
8.50%, 12/01/24 ................................................................ 135,739 142,058
8.00%, 6/01/25 ................................................................. 37,998 39,378
7.00%, 9/01/25 ................................................................. 70,173 71,090
7.00%, 10/01/25 ................................................................ 44,812 45,398
7.50%, 10/01/25 ................................................................ 40,269 41,305
7.50%, 1/01/26 ................................................................. 59,134 60,656
8.00%, 1/01/26 ................................................................. 68,116 70,589
7.00%, 3/01/26 ................................................................. 164,453 166,550
7.50%, 5/01/26 ................................................................. 34,723 35,613
7.50%, 1/01/27 ................................................................. 72,438 74,294
----------
Total Federal Home Loan Mortgage Corp. (Cost $1,825,342) ....................... 1,890,478
----------
Federal National Mortgage Association (FNMA) 31.8%
6.00%, 3/01/01 ................................................................. 188,667 188,249
6.50%, 9/01/08 ................................................................. 99,281 99,903
7.00%, 7/01/09 ................................................................. 83,132 84,701
7.50%, 7/01/09 ................................................................. 57,520 59,204
6.00%, 4/01/11 ................................................................. 41,859 41,290
6.50%, 4/01/11 ................................................................. 43,588 43,771
6.00%, 5/01/11 ................................................................. 46,595 45,961
7.00%, 11/01/11 ................................................................ 30,498 31,068
7.027%, 11/01/23 ............................................................... 215,253 223,460
6.00%, 12/01/23 ................................................................ 23,954 23,203
6.50%, 6/01/24 ................................................................. 409,784 407,568
7.00%, 6/01/24 ................................................................. 272,963 276,864
8.50%, 7/01/24 ................................................................. 63,878 66,917
8.00%, 1/01/25 ................................................................. 132,770 137,725
9.00%, 1/01/25 ................................................................. 112,302 119,303
7.50%, 8/01/25 ................................................................. 180,737 185,494
7.50%, 11/01/25 ................................................................ 42,003 43,109
8.00%, 12/01/25 ................................................................ 267,243 277,201
7.00%, 1/01/26 ................................................................. 55,953 56,612
7.50%, 3/01/26 ................................................................. 47,082 48,324
7.00%, 6/01/26 ................................................................. 68,317 69,099
Federal National Mortgage Association (FNMA) (cont.)
8.00%, 6/01/26 ................................................................. $ 21,468 $ 22,258
8.00%, 7/01/26 ................................................................. 39,474 40,927
8.00%, 8/01/26 ................................................................. 68,766 71,298
7.50%, 10/01/26 ................................................................ 82,521 84,697
7.00%, 4/01/27 ................................................................ 297,665 301,026
6.50%, 3/01/28 ................................................................. 1,010,000 998,795
----------
Total Federal National Mortgage Association (Cost $3,920,027) .................. 4,048,027
----------
Government National Mortgage Association (GNMA), SF, 15.8%
9.00%, 12/15/16 ................................................................ 90,518 98,374
10.00%, 10/15/18 ............................................................... 52,285 57,742
9.50%, 10/15/20 ................................................................ 83,197 90,983
8.00%, 2/15/23 ................................................................. 164,384 171,047
7.00%, 6/15/23 ................................................................. 221,025 224,074
7.50%, 6/15/23 ................................................................. 120,207 123,598
6.50%, 1/15/24 ................................................................. 238,308 236,938
8.50%, 7/15/24 ................................................................. 95,507 100,986
8.00%, 1/15/25 ................................................................. 33,517 34,758
7.50%, 9/15/25 ................................................................. 60,770 62,407
7.00%, 1/15/26 ................................................................. 44,857 45,384
7.50%, 1/15/26 ................................................................. 68,909 70,773
7.00%, 3/15/26 ................................................................. 24,090 24,373
7.50%, 5/15/26 ................................................................. 21,544 22,126
8.00%, 6/15/26 ................................................................. 74,234 76,964
8.50%, 8/15/26 ................................................................. 17,727 18,734
8.00%, 8/20/26 ................................................................. 27,704 28,506
7.50%, 10/15/26 ................................................................ 37,647 38,665
7.50%, 9/15/27 ................................................................. 476,217 489,028
----------
Total Government National Mortgage Association (Cost $1,969,810) ............... 2,015,460
----------
Total Mortgage-Backed Securities (Cost $7,715,179) ............................. 7,953,965
----------
aU.S. Government Securities 18.1%
U.S. Treasury Notes, 5.75%, 10/31/02 ........................................... 1,800,000 1,805,063
U.S. Treasury Notes, 5.625%, 12/31/02 .......................................... 500,000 499,063
----------
Total U.S. Government Securities (Cost $2,310,070) ............................. 2,304,126
----------
Total Long-Term Investments (Cost $10,025,249) ................................. 10,258,091
----------
bRepurchase Agreement 15.7%
Joint Repurchase Agreement, 5.819%, 4/01/98
(Maturity Value $1,999,877) (Cost $1,999,553)................................... $1,999,553$ 1,999,553
Bancamerica Robertson Stephens (Maturity Value $165,089)
Barclays Capital Group, Inc. (Maturity Value $165,089)
Bear, Stearns & Co., Inc. (Maturity Value $90,050)
BT Alex Brown, Inc. (Maturity Value $30,017)
Chase Securities, Inc. (Maturity Value $161,205)
CIBC Wood Gundy Securities Corp. (Maturity Value $232,804)
Donaldson, Lufkin & Jenrette Securities Corp. (Maturity Value $165,089)
Dresdner Kleinwort Benson North America, L.L.C. (Maturity Value $165,089)
Greenwich Capital Markets, Inc. (Maturity Value $165,089)
Morgan Stanley & Co. (Maturity Value $165,089)
Paribas Corp. (Maturity Value $165,089)
SBC Warburg Dillon Read, Inc. (Maturity Value $165,089)
UBS Securities, L.L.C. (Maturity Value $165,089)
Collateralized by U.S. Treasury Bills & Notes
Total Investments (Cost $12,024,802) 96.3% ..................................... 12,257,644
Other Assets, less Liabilities 3.7% ............................................ 462,482
----------
Net Assets 100.0% .............................................................. $12,720,126
==========
aSecurities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the Fund.
bSee Note 1(b) regarding joint repurchase agreement.
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
Financial Statements
Statement of Assets and Liabilities
March 31, 1998 (unaudited)
Assets:
Investments in securities, at value (cost $10,025,249) .............................. $10,258,091
Repurchase agreement, at value and cost ............................................. 1,999,553
Cash ................................................................................ 33,141
Receivables:
Investment securities sold ......................................................... 4,695
Capital shares sold ................................................................ 329,388
Interest ........................................................................... 98,336
----------
Total assets ................................................................... 12,723,204
----------
Liabilities:
Payables:
Shareholders ....................................................................... 3,078
----------
Net assets, at value ........................................................... $12,720,126
==========
Net assets consist of:
Net unrealized appreciation ......................................................... $ 232,842
Accumulated net realized loss ....................................................... (187,782)
Capital shares ...................................................................... 12,675,066
----------
Net assets, at value ........................................................... 12,720,126
==========
Net asset value per share ($12,720,126/1,273,362 shares outstanding)* ............. $ 9.99
==========
Maximum offering price per share ($9.99/95.75%) ................................... $10.43
==========
</TABLE>
*Redemption price is equal to net asset value less any applicable sales charge.
See notes to financial statements.
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
Financial Statements (continued)
Statement of Operations
for the six months ended March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Interest ............................................................................ $352,507
Expenses:
Management fees (Note 3) ............................................................ 20,974
Transfer agent fees (Note 3) ........................................................ 630
Custodian fees ...................................................................... 62
Reports to shareholders ............................................................. 762
Registration and filing fees ........................................................ 7,145
Professional fees ................................................................... 5,611
Other ............................................................................... 366
---------
Total expenses ................................................................. 35,550
----------
Expenses waived/paid by affiliate (Note 3) ..................................... (35,550)
----------
Net expenses .................................................................. --
----------
Net investment income ........................................................ 352,507
----------
Realized and unrealized gains:
Net realized gain from investments .................................................. 3,325
Net unrealized appreciation on investments .......................................... 18,330
----------
Net realized and unrealized gain ..................................................... 21,655
----------
Net increase in net assets resulting from operations ................................. $374,162
==========
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended March 31, 1998 (unaudited)
and the year ended September 30, 1997
<TABLE>
Six Months Ended Year Ended
March 31, 1998 September 30, 1997
<S> <C> <C>
Increase in net assets:
Operations:
Net investment income .................................................. $ 352,507 $ 540,924
Net realized gain from investments ..................................... 3,325 1,854
Net unrealized appreciation on investments ............................. 18,330 166,546
------------------------------
Net increase in net assets resulting from operations ............... 374,162 709,324
Distributions to shareholders from net investment income ................ (352,507) (539,448)
Capital share transactions (Note 2) ..................................... 3,764,526 1,916,844
------------------------------
Net increase in net assets ......................................... 3,786,181 2,086,720
Net assets (there was no undistributed net
investment income at end of period):
Beginning of period ..................................................... 8,933,945 6,847,225
------------------------------
End of period ........................................................... $12,720,126 $8,933,945
==============================
</TABLE>
See notes to financial statements.
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
Notes to Financial Statements (unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Strategic Mortgage Portfolio (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end investment company.
The Fund seeks total return. The following summarizes the Fund's significant
accounting policies.
a. Security Valuation:
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. Joint Repurchase Agreement:
The Fund may enter into a joint repurchase agreement whereby its uninvested cash
balance is deposited into a joint cash account to be used to invest in one or
more repurchase agreements. The value and face amount of the joint repurchase
agreement are allocated to the Fund based on its pro-rata interest. A repurchase
agreement is accounted for as a loan by the Fund to the seller, collateralized
by securities which are delivered to the Fund's custodian. The market value,
including accrued interest, of the initial collateralization is required to be
at least 102% of the dollar amount invested by the Funds, with the value of the
underlying securities marked to market daily to maintain coverage of at least
100%. At March 31, 1998, all outstanding repurchase agreements had been entered
into on that date.
c. Income Taxes:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
d. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Dividends from net
investment income are normally declared daily and distributed monthly to
shareholders.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
At March 31, 1998, there were an unlimited number of shares authorized ($0.01
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED MARCH 31, 1998 SEPTEMBER 30, 1997
----------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------
<S> <C> <C> <C> <C>
Shares sold ................................................ 392,828 $3,929,427 163,167 $1,611,537
Shares issued in reinvestment of distributions ............. 31,058 310,634 52,806 521,075
Shares redeemed ............................................ (47,520) (475,535) (21,862) (215,768)
----------------------------------------------
Net increase ............................................... 376,366 $3,764,526 194,111 $1,916,844
=============================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers and/or trustees of
Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin Templeton Services, Inc. (FT Services) and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment advisor, principal underwriter, administrative manager, and transfer
agent, respectively.
The Fund pays an investment management fee to Advisers based on the average net
assets of the Fund as follows:
Annualized
Fee Rate Average Daily Net Assets
- ---------------------------------------------------------------------
.400% First $250 million
.380% Over $250 million, up to and including $500 million
.360% In excess of $500 million
Under an agreement with Advisers, FT Services provides administrative services
to the fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
Advisers agreed in advance to waive management fees and assume payment of other
expenses as noted in the Statement of Operations.
Distributors received net commissions from sales of Fund shares for the period
of $3,670.
At March 31, 1998, Franklin Resources owned 55.98% of the Fund.
4. INCOME TAXES
At September 30, 1997, the Fund had tax basis capital losses which may be
carried over to offset future capital gains. Such losses expire as follows:
Expiring in: 2002 ........................ $106,746
2004 ........................ 54,436
----------------
$161,182
At March 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes of $12,038,676 was as follows:
Unrealized appreciation ....................... $238,353
Unrealized depreciation ....................... (19,385)
----------------
Net unrealized appreciation ................... $218,968
================
Net realized capital gains and losses differ for financial statement and tax
purposes primarily due to differing treatments of mortgage dollar roll
transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended March 31, 1998 aggregated $3,851,827 and $1,013,249, respectively.
Franklin Strategic Mortgage Portfolio
Semi-annual Report
March 31, 1998.
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM 304
(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in pie format the investment holdings of the Franklin Strategic
Mortgage Portfolio based on total net assets as of 3/31/98.
30-Year Mortgage Pass-Throughs 50.38%
U.S. Treasury Note 18.11%
15-Year Mortgage Pass-Throughs 7.64%
Balloon Mortgage Pass-Throughs 2.75%
Adjustable Rate Mortgage 1.76%
Cash & Equivalents 19.36%
GRAPHIC MATERIAL (2)
This chart shows the dividend distributions for Franklin Strategic Mortgage
Portfolio from 10/1/97 - 3/31/98.
October 5.7027 cents
November 5.4468 cents
December 6.2921 cents
January 5.3962 cents
February 5.3138 cents
March 5.5958 cents
Total 33.7474 cents
