157 SA-1
SUPPLEMENT DATED DECEMBER 3, 1999
TO THE STATEMENT OF ADDITIONAL INFORMATION OF
FRANKLIN STRATEGIC MORTGAGE PORTFOLIO
dated February 1, 1999
The Statement of Additional Information is amended to add the following
paragraphs to the section "Goal and Strategies":
Repurchase agreements The fund generally will have a portion of its assets
in cash or cash equivalents for a variety of reasons, including waiting for
a special investment opportunity or taking a defensive position. To earn
income on this portion of its assets, the fund may enter into repurchase
agreements. Under a repurchase agreement, the fund agrees to buy securities
guaranteed as to payment of principal and interest by the U.S. government or
its agencies from a qualified bank or broker-dealer and then to sell the
securities back to the bank or broker-dealer after a short period of time
(generally, less than seven days) at a higher price. The bank or
broker-dealer must transfer to the fund's custodian securities with an
initial market value of at least 102% of the dollar amount invested by the
fund in each repurchase agreement. The manager will monitor the value of
such securities daily to determine that the value equals or exceeds the
repurchase price.
Repurchase agreements may involve risks in the event of default or
insolvency of the bank or broker-dealer, including possible delays or
restrictions upon the fund's ability to sell the underlying securities. The
fund will enter into repurchase agreements only with parties who meet
certain creditworthiness standards, i.e., banks or broker-dealers that the
manager has determined present no serious risk of becoming involved in
bankruptcy proceedings within the time frame contemplated by the repurchase
transaction.
Please keep this supplement for future reference.
