REPORT OF INDEPENDENT AUDITORS
To the Shareholders and 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, 2000, 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 the 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 becomeinadequate
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, 2000.
This report is intended solely for the information and use of
management and the Securities and Exchange Commission.
PricewaterhouseCoopers LLP
San Francisco, California
November 24, 2000
